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
-------------------------------------------------------------
(Exact name of registrant as specified in charter)
Mellon Financial Center, One Boston Place, Boston, Massachusetts 02108
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(Address of principal executive offices) (Zip code)
Barbara A. McCann
Vice President and Secretary
One Boston Place, Boston, MA 02108
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(Name and address of agent for service)
with a copy to:
Christopher P. Harvey, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Registrant's telephone number, including area code: (617) 248-6000
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Date of fiscal year end: September 30
------------------------------------------
Date of reporting period: September 30, 2006
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Item 1. Reports to Stockholders.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
World ex-U.S. Value Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company World ex-U.S. Value Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
The Boston Company World ex-U.S. Value Fund's total return for the 12-month
period ended September 30, 2006 was 17.2% as compared to 21.2% for the Fund's
benchmark, the MSCI ACWI ex-U.S. Index. This marks the third consecutive year of
strong performance by international equity markets, as global economic expansion
and corporate merger activity fueled gains in stocks across several countries,
with emerging markets and Europe the top performers.
Monetary policy was tightened across several countries to temper expansion and
preempt inflation. Commodities cooled off as the period ended, with oil pulling
back from record levels reached during the Israeli/Hezbollah conflict. Crude oil
closed the year flat and has since dipped below $60 a barrel. Metal prices also
declined, led by gold, which is typically considered an inflation hedge. India
and China exceeded GDP forecasts, forcing interest rates higher in both
countries. Germany benefited from robust export demand despite sluggish local
consumption. Mixed economic indicators weighed heavily on the Japanese market as
Prime Minister Koizumi stepped down and Shinzo Abe stepped in. High profile
mergers dominated the news in Europe: Mittal Steel purchased Arcelor, airport
operator BAA was acquired by Ferrovial, and German utility E.ON moved in on
Spain's Endesa.
As reported above, the performance of the Fund lagged the MSCI ACWI ex-U.S.
Index during the period ended September 30, 2006. Stock selection in Canada
negatively affected performance due to Quebecor, a paper company that has been
battling high energy costs and excess industry capacity. Telecom services
remained out of favor due to regulatory tariff cuts and competition in Europe,
which forced portfolio holdings France Telecom and Deutsche Telekom to lower
earnings guidance. Consumer staples were positive contributors to overall Fund
performance with Carrefour gaining market share in a highly competitive French
grocery market, and Heineken delivering solid growth. In emerging markets, the
various businesses of Reliance Industries were separately listed, which
eliminated the conglomerate discount.
International equity markets have generated solid returns for investors. While
we continue to identify investment opportunity, there are near-term headwinds
that could increase market volatility. A slowing U.S. economy could reverberate
across global markets and cause a pullback in asset prices. The most likely
scenario is a soft landing which should favor a disciplined stock selection
strategy. As always, we remain committed to our time tested investment
philosophy and continue to seek high quality companies that have been discounted
by the market.
/s/ D. Kirk Henry /s/ Carolyn Kedersha /s/ Clifford A. Smith
D. Kirk Henry Carolyn Kedersha Clifford A. Smith
2
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
World ex-U.S. Value Fund and MSCI ACWI ex-U.S. Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Return
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 11/15/2004
- --------------------------------------------------------------------------------
Fund 17.24% 15.52%
* Source: Bloomberg Inc.
Average annual total return reflects the change in the value of an investment,
assuming reinvestment of the fund's dividend income and capital gains. The
$100,000 line graph and the fund's returns do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. During periods of reimbursement by the fund's investment adviser (if
applicable), the fund's total return will be greater than it would be had the
reimbursement not occurred. Past performance is not predictive of future
performance.
3
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- --------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,037.10 $ 4.60
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.56 $ 4.56
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.90%,
multiplied by the average multiplied by 183/365 account value over the
period, (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Investments
- -----------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC United Kingdom Financial 1.8%
GlaxoSmithKline PLC United Kingdom Consumer Discretionary 1.7
Total SA France Energy 1.6
Deutsche Post AG Germany Industrial 1.6
Rohm Co., Ltd. Japan Information Technology 1.5
France Telecom SA France Telecommunications Services 1.5
Unilever PLC United Kingdom Consumer Staple 1.4
BP PLC United Kingdom Energy 1.4
Siemens AG Germany Industrial 1.4
Nippon Express Co., Ltd. Japan Industrial 1.4
----
15.3%
* Excludes short-term securities.
Percentage of
Geographic Region Allocation* Investments
- -----------------------------------------------------------------
Americas ex U.S. 6.3%
Asia ex Japan 16.4
Europe ex U.K. 35.7
Japan 22.1
Middle East/Africa 1.8
U.K. 17.7
-----
100.0%
* Excludes short-term securities.
The Fund is actively managed. Current holdings maybe different than those
presented above.
5
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
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UNAFFILIATED INVESTMENT--96.9%
EQUITIES--96.9%
Australia--2.7%
Amcor Ltd. 68,716 $ 380,571
Coca-Cola Amatil Ltd. 46,040 229,589
Indurance Australia Group Ltd. 28,890 113,703
National Australia Bank Ltd. 13,023 356,260
Qantas Airways Ltd. 27,110 79,012
TABCORP Holdings Ltd. 29,350 341,945
---------------
1,501,080
---------------
Brazil--1.2%
Petroleo Brasileiro SA (a) 4,150 347,895
Tele Norte Leste Participacoes SA 22,240 304,910
---------------
652,805
---------------
Canada--4.0%
Canadian Imperial Bank 4,310 324,966
EnCana Corp. 7,630 356,245
Loblaw Co., Ltd. 11,920 505,432
Petro 10,340 416,506
Quebecor World, Inc. 32,430 338,115
RONA, Inc. (a) 2,640 50,017
Torstar Corp. 10,470 187,868
---------------
2,179,149
---------------
China--1.3%
China Telecom Corp., Ltd. 645,000 233,480
Denway Motors Ltd. 768,000 278,004
Huadian Power International Co. 818,000 232,052
---------------
743,536
---------------
Finland--0.9%
M-real Oyj 30,700 155,321
Nokia Oyj 6,410 127,283
UPM-Kymmene Oyj 10,060 239,049
---------------
521,653
---------------
France--8.3%
BNP Paribas 3,280 352,895
Carrefour SA 2,570 162,384
Credit Agricole SA 10,220 448,898
France Telecom SA 33,838 776,609
Legardere SA 3,440 248,193
PSA Peugeot Citroen 5,780 325,922
Sanofi-Synthelabo SA 7,910 704,098
Thomson (a) 18,390 288,916
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
France (continued)
Total SA 13,320 $ 874,045
Valeo SA 11,407 406,874
---------------
4,588,834
---------------
Germany--7.6%
Allianz AG 1,660 287,274
Deutsche Bank AG 2,759 332,909
Deutsche Post AG 32,380 849,897
Deutsche Telekom AG 24,440 388,614
E On AG 1,590 188,467
Hannover Rueckversicheru (a) 11,130 468,123
Infineon Technologies AG (a) 36,900 437,479
Medion AG 4,450 49,429
Metro AG 7,640 446,498
Siemens AG 8,430 735,420
---------------
4,184,110
---------------
Greece--0.6%
Public Power Corp. 14,100 339,697
---------------
Hong Kong--0.6%
BOC Hong Kong Holdings Ltd. 110,000 247,099
Citic Pacific Ltd. 29,600 91,189
---------------
338,288
---------------
Hungary--0.3%
Magyar Telekom 45,740 184,152
---------------
India--0.9%
Hindalco Industries Ltd. 144A/Reg S--GDR 16,600 61,973
ICICI Bank Ltd. 5,300 162,763
Mahanagar Telephone Nigam Ltd.--ADR 15,850 105,244
Reliance Industries Ltd. 144A--GDR (a)(d) 9,210 174,017
---------------
503,997
---------------
Indonesia--0.4%
PT Gudang Garam Tbk 175,180 197,292
---------------
Ireland--1.1%
Bank of Ireland 32,450 634,892
---------------
Israel--0.6%
Teva Pharmaceutical--ADR 9,100 310,219
---------------
Italy--4.1%
Compagnia Assicuratrice Unipol Spa 74,620 250,028
Enel Spa 25,700 234,468
Eni Spa 18,200 539,324
Mediaset Spa 43,620 468,754
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Italy (continued)
Saras Spa (a) 50,070 $ 256,336
UniCredito Italiano Spa 59,240 491,636
---------------
2,240,546
---------------
Japan--21.5%
Aeon Co., Ltd. 18,200 446,101
Aiful Corp. 7,320 283,231
Ajinomoto Co., Inc. 17,600 189,545
Astellas Pharma, Inc. 9,000 361,951
Canon, Inc. 6,205 323,594
Dentsu, Inc. 167 453,874
Fuji Film Holdings Corp. 17,400 634,950
Funao Electric Co., Ltd. 3,400 320,396
Hinos Motors Ltd. 70,600 381,961
JS Group Corp. 14,700 307,417
Kao Corp. 17,200 458,725
Kuraray Co., Ltd. 16,800 186,904
Lawson Inc. 2,400 84,328
Mabuchi Motor Co., Ltd. 1,600 97,807
Matsumotokiyoshi Co., Ltd. 9,857 237,015
Minebea Co., Ltd. 14,400 78,760
Mitsubishi Tokoyo Financial Group 30 386,081
Mitsui Trust Holdings, Inc. 20,500 233,274
Nippon Express Co., Ltd. 134,800 722,449
Nippon Paper Group, Inc. 70 253,662
Nissan Motor Co. 46,300 518,626
Orix Corp. 490 135,454
Ricoh Co., Ltd. 22,100 439,717
Rinnai Corp. 6,500 186,013
Rohm Co., Ltd. 8,600 798,764
Sankyo Co., Ltd. 400 21,370
Sekisui Chemical Co., Ltd. 44,600 376,104
Sekisui House Ltd. 32,600 493,237
SFCG Co., Ltd. 827 156,914
Shinsei Bank Ltd. 60,100 366,370
Sumitomo Mitsui Financial 64 671,916
Takefuji Corp. 8,020 368,033
TDK Corp. 4,300 344,408
The 77 Bank Ltd. 38,000 263,500
Toyoda Gosei Co., Ltd. 8,700 191,516
---------------
11,773,967
---------------
Malaysia--1.2%
Malayan Banking Berhad 114,000 346,392
Sime Darby Berhad 199,100 324,091
---------------
670,483
---------------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Mexico--0.9%
Coca-Cola Femsa, S.A. de C.V.--ADR 7,150 $ 223,581
Telefonos de Mexico S.A. de C.V.--ADR 11,560 295,705
---------------
519,286
---------------
Netherlands--3.5%
ABN Amro Holding NV 16,278 474,732
Aegon NV 19,942 373,987
Fortis 11,740 476,362
Heineken NV 530 24,240
Philips Electronics NV 16,160 566,983
---------------
1,916,304
---------------
Russia--0.4%
Lukoil--ADR 3,000 226,500
---------------
Singapore--2.1%
DBS Group Holdings Ltd. 55,710 673,911
United Overseas Bank Ltd. 47,550 488,322
---------------
1,162,233
---------------
South Africa--1.2%
Nampak Ltd. (a) 78,550 183,844
Nedbank Group Ltd. 18,732 275,095
Sappi Ltd. 15,540 200,420
---------------
659,359
---------------
South Korea--4.0%
Hyundai Motor Co. 3,490 298,890
Kookmin Bank--ADR 3,710 289,491
Korea Electric Power Corp. 6,040 235,329
KT Corp.--ADR 12,830 275,460
LG Electronics, Inc. 1,841 118,737
Lotte Shopping Co., Ltd. 914 323,737
POSCO 320 82,893
Samsung Electronics Co., Ltd. 402 282,225
SK Telecom Co., Ltd.--ADR 11,840 279,779
---------------
2,186,541
---------------
Spain--1.7%
Banco Santander Central 12,963 204,970
Gas Natural SDG SA 3,550 129,415
Repsol YPF SA 20,370 606,210
---------------
940,595
---------------
Sweden--0.4%
Svenska Cellulosa AB (SCA), Class B 5,150 236,226
---------------
Switzerland--5.5%
CIBA Specialty Chemicals AG 9,898 597,696
Clariant AG (a) 13,550 183,152
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Switzerland (continued)
Nestle AG 1,801 $ 628,038
Novartis AG 10,860 634,072
Swiss Re 7,433 568,934
UBS AG (a) 7,300 436,727
---------------
3,048,619
---------------
Taiwan--2.2%
Chunghwa Telecom Co., Ltd.--ADR 7,200 124,632
Compal Electronics, Inc. 306,062 271,007
First Financial Holding Co., Ltd. 298,275 202,816
SinoPac Financial Holdings Co., Ltd. 622,000 296,996
United Microelectronics Corp. 534,622 299,705
---------------
1,195,156
---------------
Thailand--0.5%
Kasikornbank Public Co., Ltd. 159,900 283,402
---------------
United Kingdom--17.2%
Alliance Boots PLC 1,089 15,797
Anglo American PLC 10,746 449,130
BP PLC 69,086 752,574
Cadbury Schweppes PLC 27,770 295,490
Carnival PLC 3,400 162,595
Centrica PLC 71,180 433,323
Debenhams PLC (a) 55,700 189,481
Friends Provident PLC 48,660 176,234
GlaxoSmithKline PLC 34,325 913,580
HBOS PLC 16,970 335,732
HSBC Holdings PLC 36,933 673,647
Old Mutual PLC 64,980 203,719
Reed Elsevier PLC 43,210 479,191
Rentokil Initial PLC 148,950 408,427
Rio Tinto PLC 3,790 179,259
Royal Bank of Scotland Group PLC 27,703 953,553
Royal Dutch Shell PLC 18,109 596,329
Royal Dutch Shell PLC 3,399 112,097
Smiths Group PLC 26,980 452,719
Trinity Mirror PLC 31,080 276,901
Unilever PLC 30,979 763,641
Vodafone Group PLC (a) 275,234 629,773
---------------
Total Equities (Cost $49,634,675) 9,453,192
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $49,634,675) 53,392,113
---------------
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Rate Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
AFFILIATED INVESTMENTS--1.2%
Dreyfus Institutional Preferred Plus
Money Market Fund (Cost $667,107) (b)(c) 5.32% 667,107 $ 667,107
---------------
TOTAL INVESTMENTS--98.1% (Cost $50,292,782) 54,059,220
---------------
OTHER ASSETS, LESS LIABILITES--1.9% 1,042,748
---------------
NET ASSETS--100.0% $ 55,101,968
===============
Notes to Schedule of Investments:
ADR--American Depositary Receipts
GDR--Global Depositary Receipts
(a) Non-income producing security.
(b) Affiliated institutional money market fund.
(c) Stated rate is the seven day yield for the fund at September 30, 2006.
(d) Security valued at fair value using methods determined in good faith by or
under the direction of the Board of Trustees.
The fund held the following forward foreign currency exchange contracts at
September 30, 2006:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Deliver Amount Value Date September 30, 2006 to Receive Gain/(Loss)
- -------------------------------------------------------------------------------------------------------------------------------
Euro 139,218 10/3/2006 $ 176,668 $ 176,668 $ --
Swiss Franc 87,035 10/2/2006 69,633 69,745 112
Thai Baht 856,882 10/2/2006 22,810 22,820 10
Thai Baht 757,840 10/3/2006 20,171 20,129 (42)
------------ ---------- -----------
$ 289,282 $ 289,362 $ 80
============ ========== ===========
Percentage of
Economic Sector Allocation Net Assets
-----------------------------------------------------
Consumer Discretionary 13.4%
Consumer Staples 9.3
Energy 9.2
Financials 27.7
Health Care 5.3
Industrials 8.7
Information Technology 6.8
Materials 6.8
Telecommunication Services 6.5
Utilities 3.2
Short-term and Other Assets 3.1
-----
100.0%
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A):
Unaffiliated investments (cost $49,634,675) $ 53,392,113
Affiliated investments (Note 1H) (cost $667,107) 667,107
Foreign currency, at value (cost $858,022) 851,333
Receivable for investments sold 403,521
Interest and dividends receivable 158,979
Unrealized appreciation on forward currency exchange
contracts (Note 6) 122
Prepaid expenses 8,476
------------
Total assets 55,481,651
Liabilities
Payable for investments purchased $ 335,623
Unrealized depreciation on forward currency exchange
contracts (Note 6) 42
Accrued professional fees 22,445
Accrued accounting, custody, administration and transfer
agent fees (Note 2) 14,682
Accrued trustees' fees (Note 2) 1,417
Accrued shareholder reporting fee (Note 2) 636
Accrued chief compliance officer fee (Note 2) 339
Other accrued expenses and liabilities 4,499
----------
Total liabilities 379,683
------------
Net Assets $ 55,101,968
============
Net Assets consist of:
Paid-in capital $ 45,792,652
Accumulated net realized gain 5,139,784
Undistributed net investment income 420,416
Net unrealized appreciation 3,749,116
------------
Total Net Assets $ 55,101,968
============
Shares of beneficial interest outstanding 2,182,226
============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 25.25
============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net foreign witholding taxes $145,195): $ 1,372,888
Dividend income from affiliated investments (Note 1H) 30,828
Interest income 10,798
------------
Total investment income 1,414,514
Expenses
Investment advisory fee (Note 2) $ 373,917
Accounting, custody, administration and transfer agent
fees (Note 2) 185,540
Registration fees 19,083
Professional fees 41,424
Trustees' fees and expenses (Note 2) 6,965
Insurance expense 5,102
Miscellaneous expenses 24,721
----------
Total expenses 656,752
Deduct:
Waiver of investment advisory fee (Note 2) (208,051)
----------
Net expenses 448,701
------------
Net investment income 965,813
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 5,398,438
Foreign currency transactions and forward currency
exchange transactions 31,691
----------
Net realized gain (loss) 5,430,129
Change in unrealized appreciation (depreciation) on:
Investments 1,988,892
Foreign currency translations and forward currency
exchange transactions 16,562
----------
Change in net unrealized appreciation (depreciation) 2,005,454
------------
Net realized and unrealized gain (loss) 7,435,583
------------
Net Increase in Net Assets from Operations $ 8,401,396
============
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Period
November 15, 2004
For the (commencement of
Year Ended operations) to
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 965,813 $ 253,574
Net realized gain (loss) 5,430,129 690,169
Change in net unrealized appreciation (depreciation) 2,005,454 1,743,662
Net increase from payments by affiliates -- 5,514
-------------- --------------
Net increase (decrease)in net assets from investment
operations 8,401,396 2,692,919
-------------- --------------
Distributions to Shareholders (Note 1C)
From net investment income (965,092) (58,146)
From net realized gains on investments (756,714) --
-------------- --------------
Total distributions to shareholders (1,721,806) (58,146)
-------------- --------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 20,344,259 28,528,386
Value of shares issued to shareholders in reinvestment
of distributions 1,697,914 57,745
Cost of shares redeemed (4,590,750) (249,949)
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions 17,451,423 28,336,182
-------------- --------------
Total Increase (Decrease) in Net Assets 24,131,013 30,970,955
Net Assets
At beginning of year 30,970,955 --
-------------- --------------
At end of year (including undistributed net investment
income of $420,416 and $250,162, respectively) $ 55,101,968 $ 30,970,955
============== ==============
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the Period
November 15, 2004
For the (commencement of
Year Ended operations) to
September 30, 2006 September 30, 2005
------------------ ------------------
Net Asset Value, Beginning of Year $ 22.29 $ 20.00
-------- --------
From Operations:
Net investment income* (a) 0.46 0.32
Net realized and unrealized gains (loss) on investments 3.30 2.02
Net increase from payments by affiliates -- --(c)
-------- --------
Total from operations 3.76 2.34
-------- --------
Less Distributions to Shareholders:
From net investment income (0.45) (0.05)
From net realized gain on investments (0.35) --
-------- --------
Total distributions to shareholders (0.80) (0.05)
-------- --------
Net Asset Value, End of Year $ 25.25 $ 22.29
======== ========
Total Return (d) 17.24% 11.72%(b)
Ratios/Supplemental data:
Expenses (to average daily net assets)* 0.90% 0.90%(e)
Net Investment Income (to average daily net assets)* 1.93% 1.76%(e)
Portfolio Turnover 61% 34%(f)
Net Assets, End of Year (000's omitted) $ 55,102 $ 30,971
- ----------
* 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) $ 0.36 $ 0.12
Ratios (to average daily net assets):
Expenses 1.32% 2.02%(e)
Net investment (loss) 1.51% 0.64%(e)
(a) Calculated based on average shares outstanding.
(b) For the period from November 15, 2004 (commencement of operations) to
September 30, 2005, 0.05% of the Fund's total return consists of a
voluntary payment by the advisor to compensate the Fund for a trading
error. Excluding this payment, total return would have been 11.67%.
(c) Amount represents less than $0.01.
(d) Total return would have been lower in the absence of expense waivers.
Returns for periods of less than one year have not been annualized.
(e) Computed on an annualized basis.
(f) Not annualized.
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company World ex-U.S. Fund (the "Fund") is a separate
diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of
companies located in foreign countries represented in the Morgan Stanley
Capital International All Country World Index ex-United States Free Index.
The Fund may invest up to 35% of assets in emerging market countries.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
Because foreign markets may be open at different times than the NYSE, the
value of the Fund's shares may change on days when shareholders are not
able to buy or sell them. Many securities markets and exchanges outside
the U.S. close prior to the close of the NYSE and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect the events that occur after such close but before the close of the
NYSE. If market quotations are not readily available or do not accurately
reflect fair value, or the value of a security has been materially
affected by events occurring after the close of the exchange or market on
which the security is principally traded (for example, a foreign exchange
or market), the Fund may value its assets by a method the Trustees believe
accurately reflects the fair value. The Trustees have adopted fair value
pricing procedures, which, among other things, require the Fund to fair
value such securities if there has been a movement in the U.S. market that
exceeds a specified threshold. Although the threshold may be revised by
the Trustees from time to time and the number of days on which fair value
prices will be used will depend on market activity, it is possible that
fair value prices for foreign securities will be used by the Fund to a
significant extent.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from securities sold are recorded on the
identified cost basis. Dividends representing a return of capital are
reflected as a reduction of cost.
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.
16
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 are declared and distributed at least annually. Dividends
from net investment income and distributions from capital gains, if any,
are reinvested in additional shares of the Fund unless the shareholder
elects to receive them in cash. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America.
These differences, which may result in reclassifications, are primarily
due to differing treatments for foreign currency transactions and losses
deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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. 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.
E. Foreign currency transactions
The Fund maintains its books and records in U.S. dollars. Investment
security valuations and 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.
F. Foreign Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed
foreign markets.
G. Commitments and contingencies
In the normal course of business, the 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 The Boston Company
Asset Management, LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
17
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
I. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements. Foreign taxes are provided for based on the Fund's
understanding of the tax rules and rates that exist in the foreign markets
in which it invests.
J. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates
The investment advisory fee paid to TBCAM for overall investment advisory
and administrative services, and general office facilities, is paid
monthly at the annual rate of 0.75% of the Fund's average daily net
assets. TBCAM voluntarily agreed to limit the Fund's total annual
operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.90% of the Fund's average daily net assets
for the year ended September 30, 2006. Pursuant to this arrangement, for
the year ended September 30, 2006, TBCAM voluntarily waived $208,051 of
its investment advisory fee. This arrangement is voluntary and temporary
and may be discontinued or revised by TBCAM at any time.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as, out-of-pocket expenses. Pursuant to this agreement the
Fund was charged $7,368 for the year ended September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of TBCAM, to provide custody, administration and 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 $178,172 for the
year ended September 30, 2006.
The Trust also 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. The Fund did not participate in the security lending program
during the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,135. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Fund for serving as an officer or Trustee of the Trust. The Fund pays each
Trustee who is not a director, officer or employee of TBCAM or its
affiliates an annual fee and a per meeting fee as well as reimbursement
for travel and out-of-pocket expenses. In addition, the Trust pays the
legal fees for the independent counsel of the Trustees.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide printing and fulfillment services for the Fund. Pursuant to this
agreement the Fund was charged $636 for the year ended September 30, 2006.
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. For the year ended September 30, 2006, the Fund was not charged
an administrative service fee.
18
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
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 September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 45,263,916 $ 28,986,485
============ ============
(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 period
November 15, 2004
For the (commencement of
Year Ended operations) to
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 909,550 1,398,390
Shares issued to shareholders in
reinvestment of distributions 74,197 2,813
Shares redeemed (191,000) (11,724)
-------- ---------
Net increase (decrease) 792,747 1,389,479
======== =========
At September 30, 2006, four shareholders of record held approximately 88%
of the total outstanding shares of the Fund. Investment activities 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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund did not assess any redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, were as follows:
Cost for federal income tax purposes $ 50,460,945
==============
Gross unrealized appreciation $ 5,246,843
Gross unrealized depreciation (1,585,194)
--------------
Net unrealized appreciation (depreciation) $ 3,661,649
==============
Undistributed ordinary income $ 4,267,510
Undistributed capital gains 1,405,325
--------------
Total distributable earnings $ 9,334,484
==============
Tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005, was as follows:
2006 2005
----------- --------
Ordinary income $ 1,721,806 $ 58,146
19
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The Fund may trade the following financial instruments with off-balance
sheet risk:
Forward Currency Exchange Contracts
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Fund primarily to protect the value of the Fund's foreign securities
from adverse currency movements. Unrealized appreciation and depreciation
of forward currency exchange contracts is included in the Statement of
Assets and Liabilities.
At September 30, 2006, the Fund held foreign currency exchange contracts.
See schedule of investments for further details.
(7) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. For the year
ended September 30, 2006, the expense allocated to the Fund was $4,763.
During the year ended September 30, 2006, the Fund had average borrowings
outstanding of $513,158 for a total of thirty-eight days and incurred
$2,881 of interest expense.
20
Mellon Institutional Funds Investment Trust
The Boston Company World ex-U.S. Value Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company World ex-U.S. Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company World ex-U.S.
Value Fund (the "Fund") at September 30, 2006, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and the period from November 15, 2004
(commencement of operations) to September 30, 2005, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
21
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None $941
c/o Decision Resources, Inc. 11/3/1986 Emeritus,
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 $1,009
c/o Essex Street Associates 11/3/1986 Street
P.O. Box 5600 Associates
Beverly, MA 01915 (family
11/14/43 investment
trust office)
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $941
c/o Harvard University 9/13/1989 Maier,
Littauer Center 127 Professor of
Cambridge, MA 02138 Political
8/5/44 Economy,
Harvard
University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $941
P.O. Box 2333 11/3/1986 House, Inc.
New London, NH 03257 (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
7/24/65 Management,
LLC; formerly
Senior Vice
President and
Chief Operating
Officer, Mellon
Asset
Management
("MAM") and
Vice President
and Chief
Financial
Officer, MAM
22
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; formerly Assistant Vice President
One Boston Place Treasurer and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon
Boston, MA 02108 Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and Vice President, SSRM
23
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6612AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Mellon Institutional
Market Neutral Fund
- --------------------------------------------------------------------------------
December 21, 2005 (commencement of
operations) to September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
Mellon Institutional Market Neutral Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
The Mellon Institutional Market Neutral Fund launched on December 21, 2005. We
have run our market neutral strategy for institutional clients since 1997, and
were excited to be able to offer it as a mutual fund this year under the Mellon
Institutional Funds umbrella. For the period since inception to September 30,
2006, the Fund had a total return of 2.50% compared to a return of 3.59% for its
benchmark, the 3-month U.S. Treasury Bill.
The markets so far this year have alternately worried about and shrugged off the
macroeconomic concerns of higher energy prices, increasing interest rates, and
falling housing markets. From January through April, the Russell 1000 Index
rose, led by several sectors, including industrials, energy, and basic
materials. In May, it appeared that concerns about the broader economy and
continued rising oil prices were finally catching up with the markets, and they
began to decline. After raising rates again in June, the U.S. Federal Reserve
paused, and in August oil prices peaked and began to decline. Soon thereafter,
the market continued its march forward - driven this time by the health care,
technology, and consumer staples sectors, which had been among the worst
performing sectors in the early part of the year.
Since the Fund's inception, its market neutral strategy has gotten off to a slow
start. Although the Fund was ahead of its benchmark at mid-year, the third
quarter was disappointing and much of the Fund's early gains were given back. We
have added value over the Fund's benchmark from all the right sources -
primarily from stock selection and secondarily from our intentional emphasis on
stocks that are cheaper as measured by earnings yield, but the magnitude has not
been large enough to add value after trading costs and fund expenses. However,
it has been only an abbreviated period for this Fund, and we remain confident
that our process will add value.
We intend to continue to run the strategy as always, by selecting stocks that
meet our criteria for attractiveness, both in long and short positions and in
approximately equal dollar amounts. We seek to hold stocks so that the market,
industry or sector exposures affecting the securities held in long and short
positions will substantially offset each other. While, as investment managers,
we hope the recent positive market returns continue, if we are successful, this
portfolio will be maintained "market neutral", with returns tending to be driven
primarily by our stock selection rather than by the effects of broader market
conditions.
/s/ Michael F. Dunn
Michael F. Dunn
2
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Comparison of Change in Value of $100,000 Investment in
Mellon Institutional Market Neutral Fund and the 3-Month U.S. Treasury Bill
Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Aggregate Total Return
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
12/21/2005
- --------------------------------------------------------------------------------
Fund 2.50%
* Source: Bloomberg Inc.
Aggregate total return reflects 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
Mellon Institutional Market Neutral Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- --------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,014.90 $ 6.31
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,018.80 $ 6.33
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 1.25%,
multiplied by the average multiplied by 183/365 account value over the
period, (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Long Holdings* Sector Investments
- -----------------------------------------------------------------------------------------
Molex, Inc. Information Technology 1.7%
XTO Energy, Inc. Energy 1.7
SAFECO Corp. Financials 1.5
International Business Machines Corp. Information Technology 1.5
Allegheny Energy, Inc. Utilities 1.5
Valspar Corp. Materials 1.5
Ohio Casualty Corp. Financials 1.4
Covanta Holding Corp. Industrials 1.4
The AES Corp. Utilities 1.4
Nabors Industries Ltd. Energy 1.4
----
15.0%
* Excluding short-term investments.
Percentage of
Top Ten Short Positions* Sector Net Assets
- -----------------------------------------------------------------------------------------
Cabot Corp. Materials 1.9%
American Power Conversion Corp. Industrials 1.9
Stericycle, Inc. (a) Industrials 1.8
Everest Re Group Ltd. Financials 1.8
Urban Outfitters, Inc. (a) Consumer Discretionary 1.8
Tyson Foods, Inc., Class A Shares Consumer Staples 1.8
Ameren Corp. Utilities 1.8
Monsanto Co. Materials 1.7
DPL, Inc. Utilities 1.7
Omnicare, Inc. Health Care 1.6
----
17.8%
* Excluding short-term investments.
Net Equity
Economic Sector Allocation* Long% Short% Exposure%
- ----------------------------------------------------------------------------------------
Consumer Discretionary 15.2 (18.8) (3.6)
Consumer Staples 4.8 (6.1) (1.3)
Energy 7.8 (7.7) 0.1
Financials 11.5 (11.9) (0.4)
Health Care 9.7 (10.0) (0.3)
Industrials 17.8 (13.8) 4.0
Information Technology 16.6 (11.4) 5.2
Materials 9.9 (9.6) 0.3
Telecommunication Services 0 (1.0) (1.0)
Utilities 7.4 (10.0) (2.6)
----- ------ ----
100.7% (100.3)% 0.4%
* Excluding short-term investments.
The Fund is actively managed. Current holdings may be different than those
presented above.
5
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--100.7%
EQUITIES--100.7%
Consumer Discretionary--15.2%
American Eagle Outfitters (a) 500 $ 21,915
AnnTaylor Stores Corp. (a)(b) 100 4,186
ArvinMeritor, Inc. (a) 1,800 25,632
Brinker International, Inc. (a) 400 16,036
CBRL Group (a) 100 4,043
Darden Restaurants, Inc. (a) 500 21,235
Family Dollar Stores, Inc. (a) 1,200 35,088
Furniture Brands International, Inc. (a) 600 11,424
Harley-Davidson, Inc. (a) 200 12,550
International Game Technology (a) 300 12,450
KB Home (a) 500 21,900
Lowe's Companies, Inc. (a) 1,100 30,866
Meredith Corp. (a) 600 29,598
Omnicom Group (a) 200 18,720
Pool Corp. (a) 900 34,650
Sherwin-Williams Corp. (a) 500 27,890
Sotheby's Holdings, Inc., Class A (a) 400 12,896
Target Corp. (a) 100 5,525
The DIRECTV Group, Inc. (a)(b) 700 13,776
Williams-Sonoma, Inc. (a) 1,000 32,390
---------------
392,770
---------------
Consumer Staples--4.8%
Del Monte Foods Company (a) 1,200 12,540
Estee Lauder Companies, Class A (a) 500 20,165
Hormel Foods Corp. (a) 400 14,392
McCormick & Co., Inc. (a) 900 34,182
Pepsi Bottling Group, Inc. (a) 900 31,950
The Kroger Co. (a) 400 9,256
---------------
122,485
---------------
Energy--7.8%
BJ Services Co. (a) 300 9,039
Chesapeake Energy Corp. (a) 600 17,388
ConocoPhillips (a) 100 5,953
Exxon Mobil Corp. (a) 100 6,710
Hess Corp. (a) 200 8,284
Holly Corp. (a) 400 17,332
Nabors Industries Ltd. (a)(b) 1,300 38,675
Patterson-UTI Energy, Inc. (a) 1,000 23,760
Tidewater, Inc. (a) 200 8,838
Unit Corp. (a)(b) 400 18,388
XTO Energy, Inc. (a) 1,100 46,343
---------------
200,710
---------------
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financials--11.5%
AmeriCredit Corp. (a)(b) 1,500 $ 37,485
Cincinnati Financial Corp. (a) 800 38,448
CIT Group, Inc. (a) 200 9,726
IndyMac Bancorp, Inc. (a) 200 8,232
Jones Lang Lasalle (a) 300 25,644
Lehman Brothers Holdings, Inc. (a) 300 22,158
MGIC Investment Corp. (a) 100 5,997
Ohio Casualty Corp. (a) 1,500 38,805
Old Republic International Corp. (a) 1,000 22,150
Philadelphia Consolidated Holding Corp. (a)(b) 300 11,934
Reinsurance Group of America (a) 300 15,579
SAFECO Corp. (a) 700 41,251
Sky Financial Group, Inc. (a) 200 4,980
The Bear Stearns Companies, Inc. (a) 100 14,010
---------------
296,399
---------------
Health Care--9.7%
Advanced Medical Optics, Inc. (a)(b) 100 3,955
Amerisourcebergen Corp. (a) 700 31,640
Barr Pharmaceuticals, Inc. (a)(b) 100 5,194
Caremark Rx, Inc. (a) 300 17,001
Community Health Systems, Inc. (a)(b) 300 11,205
Cytyc Corp. (a)(b) 700 17,136
Edwards Lifesciences (a)(b) 200 9,318
Emdeon Corp. (a)(b) 1,900 22,249
Intuitive Surgical, Inc. (a)(b) 200 21,090
Kinetic Concepts, Inc. (a)(b) 700 22,022
Lincare Holdings, Inc. (a)(b) 500 17,320
McKesson Corp. (a) 200 10,544
Mylan Laboratories, Inc. (a) 1,400 28,182
Stryker Corp. (a) 100 4,959
Wellcare Group, Inc. (a)(b) 500 28,315
---------------
250,130
---------------
Industrials--17.8%
Alaska Air Group, Inc. (a)(b) 100 3,804
Allied Waste Industries, Inc. (a)(b) 2,500 28,175
Avery Dennison Corp. (a) 400 24,068
Cintas Corp. (a) 800 32,664
Covanta Holding Corp. (a)(b) 1,800 38,754
Cummins, Inc. (a) 200 23,846
Donaldson Co., Inc. (a) 100 3,690
Equifax, Inc. (a) 200 7,342
Gardner Denver, Inc. (a)(b) 400 13,232
Herman Miller, Inc. (a) 200 6,842
Hunt (JB) Transport Services, Inc. (a) 1,100 22,847
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Industrials (continued)
Illinois Tool Works, Inc. (a) 100 $ 4,490
Ingersoll-Rand Co., Class A (a) 700 26,586
Joy Global, Inc. (a) 300 11,283
Korn/Ferry International (a)(b) 900 18,846
Lockheed Martin Corp. (a) 300 25,818
Manpower, Inc. (a) 300 18,381
MSC Industrial Direct Co., Inc. (a) 500 20,370
Paccar, Inc. (a) 200 11,404
Ryder System, Inc. (a) 200 10,336
Southwest Airlines Co. (a) 1,300 21,658
Terex Corp. (a) 300 13,566
Thomas & Betts Corp. (a)(b) 700 33,397
Toro Co. (a) 300 12,651
Trinity Industries (a) 600 19,302
Waste Management, Inc. (a) 200 7,336
---------------
460,688
---------------
Information Technology--16.6%
AVX Corp. (a) 500 8,845
Alliance Data Systems Corp. (a)(b) 300 16,557
Arrow Electronics, Inc. (a) 500 13,715
Avnet, Inc. (a)(b) 200 3,924
Cisco Systems, Inc. (a)(b) 1,500 34,500
CSG Systems International, Inc. (a)(b) 800 21,144
Fiserv, Inc. (a)(b) 500 23,545
Ingram Micro, Inc. Class A (a)(b) 1,000 19,160
International Business Machines Corp. (a) 500 40,970
Jabil Circuit, Inc. (a) 400 11,428
Lam Research Corp. (a)(b) 500 22,665
Lexmark International, Inc. (a)(b) 200 11,532
Mettler-Toledo International, Inc. ADR (a)(b) 400 26,460
Micrel, Inc. (a)(b) 2,000 19,180
Molex, Inc. (a) 1,200 46,764
MPS Group, Inc. (a)(b) 600 9,066
National Instruments Corp. (a) 900 24,606
National Semiconductor Corp. (a) 400 9,412
Newport Corp. (a)(b) 400 6,520
Novellus Systems, Inc. (a)(b) 300 8,298
Plexus Corp. (a)(b) 700 13,440
Total System Services, Inc. (a) 900 20,547
Wind River Systems, Inc. (a)(b) 1,600 17,136
---------------
429,414
---------------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Materials--9.9%
Bemis Co. (a) 800 $ 26,288
Eagle Materials, Inc. (a) 1000 33,680
Louisiana-Pacific (a) 1,500 28,155
Nucor Corp. (a) 500 24,745
Packaging Corp. of America (a) 1,600 37,120
Pactiv Corp. (a)(b) 200 5,684
Phelps Dodge Corp. (a) 300 25,410
Rohm & Haas Co. (a) 200 9,470
Steel Dynamics, Inc. (a) 200 10,090
Temple Inland, Inc. (a) 400 16,040
Valspar Corp. (a) 1,500 39,900
---------------
256,582
---------------
Utilities--7.4%
AGL Resources, Inc. (a) 400 14,600
Allegheny Energy, Inc. (a)(b) 1,000 40,170
Centerpoint Energy, Inc. (a) 600 8,592
Oneok, Inc. (a) 1,000 37,790
PPL Corp. (a) 200 6,580
Sierra Pacific Resources (a)(b) 1,400 20,076
The AES Corp. (a)(b) 1,900 38,741
TXU Corp. (a) 400 25,008
---------------
191,557
---------------
TOTAL EQUITIES (Cost $2,577,325) 2,600,735
---------------
TOTAL UNAFFILIATED INVESTMENTS 2,600,735
---------------
AFFILIATED INVESTMENTS--3.7% Rate
----
Dreyfus Institutional Preferred Plus Money Market Fund (c)(d) (Cost $94,579) 5.32% 94,579 94,579
TOTAL INVESTMENTS--104.4% (Cost $2,671,904) 2,695,314
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(4.4)% (112,803)
---------------
NET ASSETS--100% $ 2,582,511
===============
Notes to Schedule of Investments:
ADR--American Depositary Receipt
(a) Denotes all or part of security segregated as collateral.
(b) Non-income producing security
(c) Stated rate is the seven day yield for the fund at September 30, 2006.
(d) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments Sold Short--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITIES SOLD SHORT--(100.3)%
Consumer Discretionary--(18.8)%
Bandag, Inc (100) $ (4,104)
Borders Group, Inc (400) (8,160)
Cheesecake Factory, Inc. (b) (200) (5,438)
Chico's FAS, Inc. (b) (400) (8,612)
Coldwater Creek, Inc. (b) (700) (20,132)
Dow Jones & Co., Inc (300) (10,062)
Eastman Kodak Co. (1,800) (40,320)
Harrah's Entertainment, Inc (200) (13,286)
Interpublic Group of Cos, Inc. (b) (800) (7,920)
Jarden Corp. (b) (300) (9,891)
Johnson Controls, Inc (200) (14,348)
Lamar Advertising Co. (b) (600) (32,046)
Mohawk Industries, Inc. (b) (200) (14,890)
OSI Restaurant Partners, Inc (300) (9,513)
Polo Ralph Lauren Corp. (200) (12,938)
RadioShack Corp. (1,800) (34,740)
Regis Corp. (1,200) (43,020)
RH Donnelley Corp. (b) (800) (42,320)
Scientific Games Corp. (b) (1,300) (41,340)
Station Casinos, Inc (400) (23,132)
Toll Brothers, Inc. (b) (800) (22,464)
Tribune Co. (600) (19,632)
Urban Outfitters, Inc. (b) (2,700) (47,763)
---------------
(486,071)
---------------
Consumer Staples--(6.1)%
BJ'S Wholesale Club, Inc. (b) (200) (5,836)
Clorox Co Del (100) (6,300)
CVS Corp. (400) (12,848)
Hershey Co. (800) (42,760)
Ruddick Corp. (700) (18,221)
Supervalu, Inc (200) (5,930)
Tyson Foods, Inc., Class A Shares (3,000) (47,640)
WM Wrigley Jr Co. (400) (18,424)
---------------
(157,959)
---------------
Energy--(7.7)%
El Paso Corp. (2,600) (35,464)
FMC Technologies, Inc. (b) (400) (21,480)
Hanover Compressor Co. (b) (1,300) (23,686)
Massey Energy (800) (16,752)
Plains Exploration & Production Co. (b) (800) (34,328)
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments Sold Short--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Energy (continued)
Schlumberger Ltd (400) $ (24,812)
Southwestern Energy Co. (b) (200) (5,974)
Todco (400) (13,840)
Transocean, Inc. (b) (300) (21,969)
---------------
(198,305)
---------------
Financials--(11.9)%
AON Corp. (800) (27,096)
Arthur J Gallagher & Co. (1,300) (34,671)
Compass Bancshares, Inc (100) (5,698)
Conseco, Inc. (b) (300) (6,297)
CNA Financial Corp. (b) (600) (21,612)
Everest Re Group Ltd (500) (48,765)
Forest City Enterprises, Inc (600) (32,580)
JPMorgan Chase & Co. (100) (4,696)
Mercury General Corp (500) (24,805)
Nuveen Investments--Class A (400) (20,492)
People's Bank/Bridgeport CT (900) (35,649)
T Row Price Group, Inc (200) (9,570)
The St. Paul Travelers Companies, Inc (700) (32,823)
Valley National Bancorp (100) (2,557)
---------------
(307,311)
---------------
Health Care--(10.0)%
Allergan, Inc (300) (33,783)
Boston Scientific Corp. (b) (500) (7,395)
Bristol-Myers Squibb Co. (1,100) (27,412)
Covance, Inc. (b) (600) (39,828)
Gen-Probe, Inc. (b) (200) (9,378)
Kos Pharmaceuticals, Inc. (b) (500) (24,710)
Medco Health Solutions (b) (100) (6,011)
Omnicare, Inc (1,000) (43,090)
Par Pharmaceutical Cos., Inc. (b) (1,200) (21,888)
Pediatrix Medical Group, Inc. (b) (300) (13,680)
Resmed, Inc. (b) (500) (20,125)
St. Jude Medical, Inc (300) (10,587)
---------------
(257,887)
---------------
Industrials--(13.8)%
Airtran Holdings, Inc. (b) (900) (8,928)
Alexander & Baldwin, Inc (600) (26,622)
American Power Conversion Corp. (2,300) (50,508)
Copart, Inc. (b) (500) (14,095)
DRS Technologies, Inc (500) (21,835)
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments Sold Short--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Industrials (continued)
Expeditors International Washington, Inc (200) $ (8,916)
GATX Corp. (600) (24,822)
Harsco Corp. (200) (15,530)
HNI Corp. (500) (20,790)
Manitowoc Company, Inc (300) (13,437)
Pall Corp. (300) (9,243)
R. R. Donnelley & Sons Co. (100) (3,296)
Shaw Group, Inc. (b) (1,600) (37,824)
Stericycle, Inc. (b) (700) (48,853)
The Brink's Co. (400) (21,224)
Walter Industries, Inc (700) (29,876)
---------------
(355,799)
---------------
Information Technology--(11.4)%
ADC Telecommunications, Inc. (b) (1,300) (19,500)
Adobe Systems, Inc. (b) (200) (7,490)
Autodesk, Inc. (b) (100) (3,478)
Avid Technology, Inc. (b) (600) (21,852)
CA, Inc (1,100) (26,059)
Cognizant Technology Solutions Corp. (b) (300) (22,218)
Dell, Inc. (b) (1,000) (22,840)
Diebold, Inc (300) (13,059)
Electronic Arts, Inc. (b) (500) (27,840)
Hewitt Assocs, Inc. (b) (300) (7,278)
Intel Corp. (1,000) (20,570)
International Rectifier Corp. (b) (700) (24,388)
Motorola, Inc (400) (10,000)
Parametric Technology Corp. (b) (300) (5,238)
Sandisk Corp. (b) (500) (26,770)
Silicon Laboratories, Inc. (b) (800) (24,816)
SRA International, Inc. (b) (100) (3,006)
Tech Data Corp. (b) (200) (7,306)
---------------
(293,708)
---------------
Materials--(9.6)%
Bowater, Inc (900) (18,513)
Cabot Corp. (1,400) (52,080)
Cytec Industries, Inc (200) (11,118)
Glatfelter (1,400) (18,970)
Monsanto Co. (1,000) (47,010)
Mosaic Co. (b) (500) (8,450)
Owens-Illinois, Inc. (b) (2,600) (40,092)
Smurfit-Stone Container Corp. (b) (900) (10,080)
Weyerhaeuser Co. (700) (43,071)
---------------
(249,384)
---------------
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Schedule of Investments Sold Short--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunication Services--(1.0)%
Crown Castle International Corp. (b) (200) $ (7,048)
NII Holdings, Inc. (b) (100) (6,216)
SBA Communications Corp. (b) (500) (12,165)
---------------
(25,429)
---------------
Utilities--(10.0)%
Ameren Corp. (900) (47,511)
Aqua America, Inc (700) (15,358)
Black Hills Corp. (500) (16,805)
DPL, Inc (1,700) (46,104)
Equitable Resources, Inc (400) (13,992)
Exelon Corp. (300) (18,162)
MDU Resources Group, Inc (800) (17,872)
Peoples Energy Corp. (300) (12,195)
Southern Co. (900) (31,014)
Southern Union Co. (1,500) (39,615)
---------------
(258,628)
---------------
Total Equities Sold Short (Proceeds $2,591,468) (2,590,481)
===============
Notes to Schedule of Investments Sold Short:
(b) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A):
Unaffiliated investments (cost $2,577,325) $ 2,600,735
Affiliated investments (Note 1G) (cost $94,579) 94,579
Receivable from brokers for proceeds on securities sold short (Note 1F) 2,591,468
Interest and dividends receivable 5,369
Receivable for investments sold 76,352
Prepaid expenses 9,268
-------------
Total assets 5,377,771
Liabilities
Due to prime broker $ 52,480
Securities sold short, at value (proceeds $2,591,468) (Note 1F) 2,590,481
Payable for investments purchased 116,184
Accrued professional fees 28,957
Accrued accounting, custody, administration and transfer
agent fees (Note 2) 6,187
Accrued trustees' fees (Note 2) 550
Accrued chief compliance officer fee (Note 2) 339
Other accrued expenses and liabilities 82
-------------
Total liabilities 2,795,260
-------------
Net Assets $ 2,582,511
=============
Net Assets consist of:
Paid-in capital $ 2,520,514
Accumulated net realized loss (30,619)
Undistributed net investment income 68,219
Net unrealized appreciation 24,397
-------------
Total Net Assets $ 2,582,511
=============
Shares of beneficial interest outstanding 125,986
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 20.50
=============
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Statement of Operations
For the Period December 21, 2005 (commencement of operations) to
September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 86,315
Dividend income 24,593
Dividend income from affiliated investments (Note 1G) 5,489
-------------
Total investment income 116,397
Expenses
Investment advisory fee (Note 2) $ 19,751
Professional fees 55,922
Accounting, custody, administration and transfer agent fees (Note 2) 51,802
Dividend expense on securities sold short (Note 1F) 23,471
Registration fees 16,513
Trustees' fees and expenses (Note 2) 1,905
Insurance expense 920
Miscellaneous expenses 17,043
-------------
Total expenses 187,327
Deduct:
Waiver of investment advisory fee (Note 2) (19,751)
Reimbursement of Fund operating expenses (Note 2) (116,615)
-------------
Total expense deduction (136,366)
-------------
Net expenses 50,961
-------------
Net investment income 65,436
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 48,267
Short sales (76,103)
-------------
Net realized gain (loss) (27,836)
Change in unrealized appreciation (depreciation) on:
Investments 23,410
Short sales 987
-------------
Change in net unrealized appreciation (depreciation) 24,397
-------------
Net realized and unrealized gain (loss) on investments (3,439)
=============
Net Increase in Net Assets from Operations $ 61,997
=============
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 65,436
Net realized gain (loss)
Investments 48,267
Short sales (76,103)
Change in net unrealized appreciation (depreciation)
Investments 23,410
Short sales 987
------------
Net increase (decrease) in net assets from investment operations 61,997
------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 2,520,514
------------
Total Increase in Net Assets 2,582,511
Net Assets
At beginning of period --
------------
At end of period (including net investment income of $68,219) $ 2,582,511
============
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Net Asset Value, Beginning of Period $ 20.00
------------
From Operations:
Net investment income* (a) 0.52
Net realized and unrealized gains (loss) on investments (0.02)
------------
Total from operations 0.50
------------
Net Asset Value, End of Period $ 20.50
============
Total Return (b) 2.50%
Ratios/Supplemental data:
Expenses (to average daily net assets) including dividends on securities
sold short* 2.57%(c)
Expenses (to average daily net assets) excluding dividends on securities
sold short* 1.39%(c)
Net Investment Income (to average daily net assets)* 3.30%(c)
Portfolio Turnover 341%(d)
Net Assets, End of Period (000's omitted) $ 2,583
- ----------
* For the period 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 (loss) per share (a) $ (0.57)
Ratios (to average daily net assets):
Expenses including dividends on securities sold short 9.45%(c)
Expenses excluding dividends on securities sold short 8.27%(c)
Net investment income (loss) (3.58)%(c)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
Returns for periods of less than one year have not been annualized.
(c) Computed on an annualized basis.
(d) Not annualized.
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Mellon Institutional Market Neutral Fund (the "Fund"), which
commenced operations on December 21, 2005, is a separate diversified
investment series of the Trust.
The objective of the Fund is to achieve investment returns exceeding the
3-month U.S. Treasury Bill from a broadly diversified portfolio of U.S.
stocks while neutralizing the general risks associated with stock market
investing. The Fund seeks to achieve its objective by investing, under
normal circumstances, at least 80% of net assets in equity 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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. Securities held long and short 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 calculated mean price (average of last bid and last
offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses are declared and distributed at least annually. Dividends
from net investment income and distributions from capital gains, if any,
are reinvested in additional shares of the Fund unless a shareholder
elects to receive them in cash. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America.
These differences which may result in reclassifications, are primarily due
to differing treatments for losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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 the 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
Mellon Institutional Market Neutral 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. Securities Sold Short
The Fund sells a security short by borrowing it from a third party and
selling it at the then-current market price. The Fund is then obligated to
buy the security on a later date in order to return the security to the
lender. Short sales, therefore, involve the risk that the Fund will incur
a loss by subsequently having to buy a security at a higher price than the
price at which the Fund previously sold the security short. Moreover,
because a Fund's loss on a short sale would arise from increases in the
value of the security sold short, the extent of such loss, like the
potential increase in the price of the security sold short, is
theoretically unlimited. By contrast, a Fund's risk of loss on a long
position arises from the possible decrease in the value of the security
and therefore is limited by the fact that a security's value cannot drop
below zero. The Fund may be required to pay a fee to borrow a security
sold short. These short sales are collateralized by cash equivalents or
securities held with the Fund's prime broker and segregated account at the
Fund's custodian. The collateral required is determined daily by reference
to the market value of the short positions. Dividends paid by the issuer
of the security sold short are paid by the Fund to the lender, recorded on
the ex-date of the dividend and recorded as an expense on the Statement of
Operations. Liabilities for securities sold short are reported at market
value in the Statement of Assets and Liabilities.
G. Affiliated issuers
Affiliated issuers are investment companies advised by Franklin Portfolio
Associates, LLC ("Franklin"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
H. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
I. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to Franklin for overall investment
advisory and administrative services, and general office facilities, is
paid monthly at the annual rate of 1.00% of the Fund's average daily net
assets. Franklin voluntarily agreed to limit the Fund's total annual
operating expenses (excluding brokerage commissions, dividend expense on
short sales, taxes and extraordinary expenses) to 1.25% of the Fund's
average daily net assets for the period December 21, 2005 (commencement of
operations) to September 30, 2006. Pursuant to this arrangement, for the
period December 21, 2005 (commencement of operations) to September 30,
2006, Franklin voluntarily waived its investment advisory fee in the
amount of $19,751 and reimbursed the Fund for $116,615 of its operating
expenses. This arrangement is voluntary and temporary and may be
discontinued or revised by Franklin at any time.
The Trust 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 Franklin,
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 $5,098 for the period December 21, 2005 (commencement of
operations) to September 30, 2006.
19
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of Franklin, to provide custody, 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
$46,704 for the period December 21, 2005 (commencement of operations) to
September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the period December 21, 2005
(commencement of operations) to September 30, 2006, the Fund was charged
$3,115. No other director, officer or employee of Franklin or its
affiliates receives any compensation from the Trust or the Fund for
serving as an officer or Trustee of the Trust. The Fund pays each Trustee
who is not a director, officer or employee of Franklin 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.
For the period December 21, 2005 (commencement of operations) to September
30, 2006, the Fund was not charged an administrative service fee.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the period December 21, 2005 (commencement of operations)
to September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 8,597,159 $ 8,543,492
============ ============
(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 period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Shares sold 125,986
-------
Net increase (decrease) 125,986
=======
At September 30, 2006, one shareholder of record (MBC Investments Corp., a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate
of the Fund) held 99% of the total outstanding shares of the Fund.
Investment activities of this shareholder could have a material impact on
the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period December 21, 2005
(commencement of operations) to September 30, 2006, the Fund did not
assess any redemption fees.
20
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral 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.
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, were as follows:
Cost for federal income tax purposes $ 5,269,321
===========
Gross unrealized appreciation $ 142,780
Gross unrealized depreciation (125,319)
-----------
Net unrealized appreciation (depreciation) $ 17,461
===========
Undistributed ordinary income 68,219
Undistributed capital gains --
-----------
Total distributable earnings $ 85,680
===========
(6) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund also paid an upfront fee equal to 0.015
of 1% of the committed line to become an eligible borrower on the credit
facility. For the period December 21, 2005 (commencement of operations) to
September 30, 2006, the expense allocated to the Fund was $1,779.
During the period December 21, 2005 (commencement of operations) to
September 30, 2006, the Fund did not borrow under the credit facility.
21
Mellon Institutional Funds Investment Trust
Mellon Institutional Market Neutral Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Mellon Institutional Market Neutral Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments and schedule of investments sold short, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Mellon Institutional Market Neutral Fund (the "Fund") at September 30, 2006, and
the results of its operations, the changes in its net assets and the financial
highlights for the period from December 21, 2005 (commencement of operations)
through September 30, 2006, 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 audit. We conducted our audit
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 audit, which included confirmation
of securities at September 30, 2006 by correspondence with the custodian and
brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
22
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $260
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 $261
c/o Essex Street Associates 11/3/1986 Street Associates
P.O. Box 5600 (family investment
Beverly, MA 01915 trust office)
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $260
c/o Harvard University 9/13/1989 Maier, Professor of
Littauer Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $260
P.O. Box 2333 11/3/1986 House, Inc.
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,
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
23
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; formerly Assistant Vice
One Boston Place Treasurer President and Mutual Funds Controller, Standish
Boston, MA 02108 since 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly Vice
One Boston Place President and Manager, Mutual Fund Operations,
Boston, MA 02108 Standish Mellon Asset Management Company, LLC
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, and 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, L.P.
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"), and Vice President, SSRM
24
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6911AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Newton
International Equity Fund
- --------------------------------------------------------------------------------
December 21, 2005 (commencement of
operations) to September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
Newton International Equity Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
In choosing stocks, we begin by the development of key investment themes. These
themes are Newton's interpretation of the key forces of global change, be they
economic, industrial or social, affecting companies over the long-term. Our
analysts then interpret these themes and seek stocks that we believe are
attractively valued, have strong fundamentals and benefit from one or more of
the investment themes. We then construct single, integrated portfolios, in
accordance with the Fund's objectives, which reflect our best ideas. Once
purchased, a stock generally remains in the portfolio until the stock becomes
fully valued, the underlying fundamentals of the company have materially
changed, or the company no longer benefits from the global themes contributing
to the original investment case.
The Newton International Equity Fund launched on December 21, 2005. For the
period since inception to September 30, 2006, the Fund produced a return of 9.2%
as compared to a return of 14.5% for its benchmark, the MSCI EAFE Index. Over
the period, underperformance, relative to the benchmark, was concentrated in the
industrials, healthcare and financials sectors, notably in Japan; while energy,
driven by high oil prices, and the consumer staples sectors, added positively to
performance.
At the start of the period, global equities enjoyed a strong run fuelled by the
acceleration of global economic momentum allied to a surge in merger and
acquisition activity. Increasing commodity prices and the upward trajectory of
oil prices drove the performance of these sectors. The exposure within the Fund
to these trends was one of the main positives for the Fund this year. However,
the economic environment in Japan has been frustrating. Our belief was that the
country would return to a more normal economic footing. This was likely to lead
to a normalization of interest rates, a pick-up in economic activity and a
strengthening Yen. In fact, the economy has been showing continued signs of
weakness which has meant interest rate rises have not occurred, the Yen has
remained weak and domestic Japanese companies, including the banks, have
performed poorly. It is unsurprising, perhaps, that an economy that has been
through such a long period of stagnation should take some time to be
re-invigorated. Given our long-term view, we remain convinced of our positioning
and will have to be patient.
The strong first part of the report period was followed by a dramatic reversal
in world equity markets over a six-week period beginning at the start of May. A
combination of over confidence on the part of investors, worries concerning
inflation and the good returns that markets had enjoyed led to a sharp sell-off.
It seemed to us that inflation fears were misplaced. An economic slowdown, led
by a softening of the U.S. housing market, was likely to mean interest rates
were close to their peak in the U.S. and elsewhere, and ought to provide support
for equity markets.
2
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Markets stabilized in June and started a steady climb, despite tensions in the
Middle East, as inflationary concerns receded. This was helped by a fall in oil
prices as fears over a global slowdown increased and geopolitical tension eased.
As the third quarter progressed, data calmed inflation fears and bond markets
rallied as a result. Importantly, the equity markets seem to be discounting a
mid-cycle slow down at the time of this report, rather than anticipating a
recession, which does not seem to be an unreasonable position.
In the short-term, we expect growth to continue to moderate and those stocks,
sectors and markets less correlated to the global cycle to benefit. We continue
to find equities that are attractively valued and favour those that exhibit "low
return world" characteristics: strong cash flow, yield, pricing power and
significant barriers to entry, as well as, growth prospects that are not wholly
dependent on economic prospects.
/s/ Paul Butler /s/ Paul Markham
Paul Butler Paul Markham
3
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Comparison of Change in Value of $100,000 Investment in
Newton International Equity Fund and the MSCI EAFE Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Aggregate Total Return
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
12/21/2005
- --------------------------------------------------------------------------------
Fund 9.15%
* Source: Bloomberg Inc.
Aggregate total return reflects the change in the value of an investment,
assuming reinvestment of the fund's dividend income and capital gains. The
$100,000 line graph and the fund's returns do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. During periods of reimbursement by the fund's investment adviser (if
applicable), the fund's total return will be greater than it would be had the
reimbursement not occurred. Past performance is not predictive of future
performance.
4
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- -------------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 981.60 $ 5.71
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,019.30 $ 5.82
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 1.15%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Investments
- ---------------------------------------------------------------------------------
Nestle SA Switzerland Consumer Staples 2.8%
Petroleo Brasileiro SA ADR Brazil Energy 2.3
Novartis AG Switzerland Health Care 2.3
Toyota Motor Corp. Japan Consumer Discretionary 2.3
GlaxoSmithKline PLC United Kingdom Health Care 2.3
Roche Holding AG Sweden Health Care 2.3
Societe Generale France Financials 2.0
E On AG Germany Utilities 1.9
ICAP PLC United Kingdom Financials 1.8
Japan Tobacco, Inc. Japan Consumer Staples 1.7
----
21.7%
* Excludes short-term securities.
Percentage of
Geographic Region Allocation* Investments
- ------------------------------------------------------------
Europe ex U.K. 45.7%
U.K. 16.5
Asia ex Japan 15.0
Japan 13.5
Americas ex U.S. 8.7
Middle East/Africa 0.6
-----
100.0%
* Excludes short-term securities.
The Fund is actively managed. Current holdings may be different than those
presented above.
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--100.3%
EQUITIES--99.1%
Australia--1.4%
ABC Learning Centres Ltd. 50,192 $ 234,206
Transurban Group (a) 43,865 238,688
---------------
472,894
---------------
Belgium--0.9%
KBC Groupe 2,808 295,703
---------------
Brazil--7.6%
All America Latina Logistica 54,810 426,292
Companhia de Bebidas das Americas ADR (a) 7,294 331,002
Diagnosticos da America SA (a) 18,019 339,997
Gafisa SA (a) 21,127 272,729
Natura Cosmeticos SA 31,100 382,005
Petroleo Brasileiro SA ADR (a) 10,441 781,404
---------------
2,533,429
---------------
Canada--1.3%
Oncolytics Biotech, Inc. (a) 93,674 255,688
Paramount Resources Ltd. 7,230 173,988
---------------
429,676
---------------
France--10.8%
Alcatel SA 19,438 237,354
AXA SA 5,849 215,673
Carrefour SA 8,486 536,183
L'Oreal SA 4,324 439,175
Sanofi-Synthelabo SA 4,576 407,326
Societe Generale 4,162 662,316
Total SA 8,801 577,513
Vivendi SA 14,625 527,220
---------------
3,602,760
---------------
Germany--9.1%
Comdirect Bank AG 27,210 291,544
Deutsche Boerse AG 3,093 465,140
Deutsche Post AG 7,641 200,558
Deutsche Postbank AG 4,500 341,504
Deutsche Wohnen AG 4,245 257,291
E On AG 5,330 631,779
Praktiker Bau--und Heimwerkermaerkte AG 8,108 268,538
SAP AG 2,909 576,899
---------------
3,033,253
---------------
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Hong Kong--2.0%
Esprit Holdings Ltd. 37,000 $ 337,447
Melco International Development Ltd. 110,000 235,521
Shanghai Real Estates Ltd. 490,000 109,442
---------------
682,410
---------------
Indonesia--1.5%
Astra International Tbk 189,000 256,045
Bank of Central Asia PT 495,000 259,888
---------------
515,933
---------------
Ireland--1.2%
Irish Life & Permanent PLC 16,251 407,180
---------------
Italy--2.3%
Eni Spa 13,205 391,306
UniCredito Italiano Spa 46,814 386,435
---------------
777,741
---------------
Japan--13.6%
Canon, Inc. 8,300 432,885
Hakuhodo Dy Holdings, Inc. 2,900 189,307
Japan Tobacco, Inc. 149 579,045
Kao Corp. 10,000 266,701
Mitsubishi Tokoyo Financial Group 30 386,081
Mizuho Financial Group, Inc. 48 372,263
Mizuno Corp. 31,000 219,423
Murata Manufacturing Co. 3,800 263,822
Nikko Cordial Corp. 28,500 330,582
Nippon System Development Co., Ltd. 8,200 333,943
Toyota Motor Corp. 14,100 766,421
Yamada Denki Co., Ltd. 3,600 360,884
---------------
4,501,357
---------------
Malaysia--0.6%
Bursa Malaysia Bhd 132,000 204,124
---------------
Netherlands--4.2%
Ing Groep NV CVA 4,992 219,583
Philips Electronics NV 7,727 271,106
Reed Elsevier NV 27,579 459,858
Royal Numico NV 10,279 462,699
---------------
1,413,246
---------------
Norway--1.4%
Norsk Hydro ASA 11,100 248,049
Statoil ASA 9,467 223,895
---------------
471,944
---------------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Russia--3.1%
AFK Sistema--GDR (a) 15,466 $ 404,436
Lukoil--ADR 2,953 222,952
Oao Gazprom ADR 9,405 407,237
---------------
1,034,625
---------------
Singapore--2.9%
DBS Group Holdings, Ltd. 28,000 338,710
Singapore Airlines Ltd. 44,000 404,738
Singapore Post Ltd. 343,000 218,265
---------------
961,713
---------------
South Africa--0.6%
MTN Group Ltd. 26,680 216,152
---------------
South Korea--3.4%
KT&G Corp. 144A GDR 10,387 314,726
Samsung Electronics Co., Ltd 144A GDR 1,518 532,818
Samsung Fire & Marine Insurance Co., Ltd. 1,760 270,755
---------------
1,118,299
---------------
Sweden--1.6%
Ericsson LM 149,942 519,921
---------------
Switzerland--9.9%
Nestle SA 2,710 945,021
Novartis AG 13,357 779,862
Roche Holding AG 4,357 753,406
UBS AG (a) 9,064 542,260
Zurich Financial Services AG 1,187 291,695
---------------
3,312,244
---------------
Thailand--3.2%
Advanced Info Service PCL 101,100 241,728
Bank of Ayudhya PCL 557,000 248,096
Banpu PCL 59,600 226,143
Siam Commercial Bank Public Co. Ltd. 197,000 322,071
---------------
1,038,038
---------------
United Kingdom--16.5%
Anglo American PLC 7,970 333,107
Barclays PLC 27,228 343,488
BHP Billition 24,531 423,333
British American Tobacco PLC 15,861 428,681
Cable & Wireless PLC 152,698 395,840
GlaxoSmithKline PLC 28,528 759,289
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom (continued)
ICAP PLC 61,292 $ 591,956
Imperial Tobacco Group PLC 10,230 340,825
Prudential PLC 23,653 293,740
Smith & Nephew PLC 43,235 397,534
Standard Chartered PLC 20,424 522,954
Tesco PLC 41,401 278,965
Vodafone Group PLC (a) 161,380 369,256
---------------
5,478,968
---------------
Total Equities (Cost $30,996,139) 33,021,610
---------------
PREFERRED STOCK--1.2%
Henkel KGaA 2,998 416,869
---------------
Total Preferred Stock (Cost $295,124)
TOTAL UNAFFILIATED INVESTMENTS (Cost $31,291,263) 33,438,479
---------------
AFFILIATED INVESTMENTS--0.6% Rate
----
Dreyfus Institutional Preferred Plus Money Market Fund (b)(c)
(Cost $183,747) 5.32% 183,747 183,747
---------------
TOTAL INVESTMENTS--100.9% (Cost $31,475,010) 33,622,226
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.9)% (268,725)
---------------
NET ASSETS--100% $ 33,353,501
===============
Notes to Schedule of Investments:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
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 $847,544 or 2.5% of
net assets.
(a) Non-income producing security
(b) Stated rate is the seven day yield for the fund at September 30, 2006.
(c) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
At September 30, 2006 the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date September 30, 2006 to Deliver Gain/(Loss)
- -----------------------------------------------------------------------------------------------
Euro 1,186,649 11/15/2006 $ 1,508,706 $1,527,000 $ (18,294)
British Pound 202,481 10/2/2006 379,000 380,584 (1,584)
Norwegian Krone 4,767,786 10/13/2006 731,637 785,000 (53,363)
Singapore Dollar 119,425 10/2/2006 75,255 75,188 67
Swiss Franc 754,358 12/15/2006 608,055 628,000 (19,945)
----------- ---------- -----------
$ 3,302,653 $3,395,772 $ (93,119)
=========== ========== ===========
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Deliver Amount Value Date September 30, 2006 to Receive Gain
- -----------------------------------------------------------------------------------------------
Japanese Yen 11,421,816 10/2/2006 $ 96,750 $ 97,386 $ 636
Swiss Franc 366,938 12/15/2006 295,772 303,000 7,228
Thai Baht 174,330 10/3/2006 4,640 4,640 0
----------- ---------- -----------
$ 397,162 $ 405,026 $ 7,864
=========== ========== ===========
Percentage of
Economic Sector Allocation Net Assets
--------------------------------------------------
Consumer Discretionary 12.5%
Consumer Staples 17.1
Energy 9.1
Financials 26.9
Health Care 11.1
Industrials 5.1
Information Technology 8.7
Materials 3.0
Telecommunication Services 4.9
Utilities 1.9
Short-term and Other Assets (0.3)
-----
100.0%
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A):
Unaffiliated investments (cost $31,291,263) $ 33,438,479
Affiliated investments (Note 1H) (cost $183,747) 183,747
Cash 48,571
Foreign currency, at value (cost $65,617) 65,147
Interest and dividends receivable 59,161
Receivable for investments sold 237,511
Unrealized appreciation on forward currency exchange contracts (Note 6) 7,931
Prepaid expenses 3,901
------------
Total assets 34,044,448
Liabilities
Payable for investments purchased $ 498,963
Unrealized depreciation on forward currency exchange contracts (Note 6) 93,186
Accrued investment advisory fee (Note 2) 65,067
Accrued professional fees 25,393
Accrued accounting, custody, administration and transfer agent fees (Note 2) 6,158
Accrued trustees' fees (Note 2) 812
Accrued chief compliance officer fee (Note 2) 339
Accrued shareholder reporting fee (Note 2) 300
Other accrued expenses and liabilities 729
---------
Total liabilities 690,947
------------
Net Assets $ 33,353,501
============
Net Assets consist of:
Paid-in capital $ 31,100,305
Accumulated net realized gain 224,963
Distribution in excess of net investment income (35,934)
Net unrealized appreciation 2,064,167
------------
Total Net Assets $ 33,353,501
============
Shares of beneficial interest outstanding 1,550,468
============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 21.51
============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Statement of Operations
For the Period December 21, 2005 (commencement of operations) to
September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net of foreign witholding taxes $71,557) $ 652,365
Dividend income from affiliated investments (Note 1H) 34,545
Securities lending income (Note 7) 17,414
------------
Total investment income 704,324
Expenses
Investment advisory fee (Note 2) $ 202,648
Accounting, custody, administration and transfer agent fees (Note 2) 87,763
Professional fees 48,455
Registration fees 22,526
Trustees' fees and expenses (Note 2) 3,400
Miscellaneous expenses 22,552
----------
Total expenses 387,344
Deduct:
Waiver of invesment advisory fee (Note 2) (96,038)
----------
Net Expenses 291,306
------------
Net investment income 413,018
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 224,963
Foreign currency transactions and forward foreign currency exchange transactions 101,355
----------
Net realized gain (loss) 326,318
Change in unrealized appreciation (depreciation) on:
Investments 2,147,216
Foreign currency translations and forward foreign currency exchange contracts (83,049)
----------
Change in net unrealized appreciation (depreciation) 2,064,167
------------
Net realized and unrealized gain (loss) on investments 2,390,485
------------
Net Increase in Net Assets from Operations $ 2,803,503
============
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 413,018
Net realized gain (loss) 326,318
Change in net unrealized appreciation (depreciation) 2,064,167
------------
Net increase (decrease) in net assets from investment operations 2,803,503
------------
Distributions to Shareholders (Note 1C)
From net investment income (464,918)
------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 31,000,100
Dividend reinvestment 14,918
Cost of shares redeemed (102)
------------
Net increase (decrease) in net assets from Fund share transactions 31,014,916
------------
Total Increase in Net Assets 33,353,501
Net Assets
At beginning of period --
------------
At end of period [including accumulated net investment loss of ($35,934)] $ 33,353,501
============
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Net Asset Value, Beginning of Period $ 20.00
---------
From Operations:
Net investment income* (a) 0.27
Net realized and unrealized gains (loss) on investments 1.54
---------
Total from operations 1.81
---------
Less Distributions to Shareholders:
From net investment income (0.30)
---------
Total distributions to shareholders (0.30)
---------
Net Asset Value, End of Period $ 21.51
=========
Total Return (b) 9.15%
Ratios/Supplemental data:
Expenses (to average daily net assets)* 1.15%(c)
Net Investment Income (to average daily net assets)* 1.63%(c)
Portfolio Turnover 84%(d)
Net Assets, End of Period (000's omitted) $ 33,354
- ----------
* For the period 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) $ 0.21
Ratios (to average daily net assets):
Expenses 1.53%(c)
Net investment income 1.25%(c)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
Returns for periods of less than one year have not been annualized.
(c) Computed on an annualized basis.
(d) Not annualized.
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Newton International Equity Fund (the "Fund"), which
commenced operation on December 21, 2005, is a separate diversified
investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in common stocks or securities
convertible into common stocks (such as convertible preferred stocks,
warrants and convertible bonds) of foreign companies and depositary
receipts evidencing ownership in such securities. At least 75% of the
fund's net assets will be invested in countries represented in the Morgan
Stanley Capital International Europe, Australasia and the Far East (MSCI
EAFE) Index. The Fund may invest up to 20% of its assets in emerging
market countries.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
Because foreign markets may be open at different times than the NYSE, the
value of the Fund's shares may change on days when shareholders are not
able to buy or sell them. Many securities markets and exchanges outside
the U.S. close prior to the close of the NYSE and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect the events that occur after such close but before the close of the
NYSE. If market quotations are not readily available or do not accurately
reflect fair value, or the value of a security has been materially
affected by events occurring after the close of the exchange or market on
which the security is principally traded (for example, a foreign exchange
or market), the Fund may value its assets by a method the Trustees believe
accurately reflects the fair value. The Trustees have adopted fair value
pricing procedures, which, among other things, require the Fund to fair
value such securities if there has been a movement in the U.S. market that
exceeds a specified threshold. Although the threshold may be revised by
the Trustees from time to time and the number of days on which fair value
prices will be used will depend on market activity, it is possible that
fair value prices for foreign securities will be used by the Fund to a
significant extent.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield - to - maturity
method on debt securities. Dividend income is recorded on the ex-dividend
date. Realized gains and losses from securities sold are recorded on the
identified cost basis. Dividends representing a return of capital are
reflected as a reduction of cost.
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.
16
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 are declared and distributed at least annually. Dividends
from net investment income and distributions from capital gains, if any,
are reinvested in additional shares of the Fund unless the shareholder
elects to receive them in cash.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales and foreign currency
transactions.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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. 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.
E. Foreign currency transactions
The Fund maintains its books and records in U.S. dollars. Investment
security valuations and other assets and liabilities initially expressed
in foreign currencies are converted into U.S. dollars based upon current
currency exchange rates on the valuation date, normally as of 4 p.m. New
York time. 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.
F. Foreign Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed
foreign markets.
G. Commitments and contingencies
In the normal course of business, the 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 Newton Capital
Management Ltd. ("Newton"), a wholly-owned subsidiary of Mellon Financial
Corporation, or its affiliates.
I. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements. Foreign taxes are provided for based on the Fund's
understanding of the tax rules and rates that exist in the foreign markets
in which it invests.
17
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
J. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to Newton for overall investment advisory
and administrative services, and general office facilities, is paid
monthly at the annual rate of 0.80% of the Fund's average daily net
assets. Newton voluntarily agreed to limit the Fund's total annual
operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 1.15% of the Fund's average daily net assets
for the period December 21, 2005 to September 30, 2006. Pursuant to this
agreement, for the period December 21, 2005 to September 30, 2006, Newton
voluntarily waived $96,038 of its investment advisory fee. This
arrangement is voluntary and temporary and may be discontinued or revised
by Newton at any time.
The Trust 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 Newton, 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 $5,572 for the period December 21, 2005 (commencement of
operations) to September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of Newton, to provide custody, administration and 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 $82,191 for the
period December 21, 2005 (commencement of operations) to September 30,
2006.
The Trust also 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 earned $7,396 for the
period December 21, 2005 (commencement of operations) to September 30,
2006. See Note 7 for further details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the period December 21, 2005
(commencement of operations) to September 30, 2006, the Fund was charged
$3,115. No other director, officer or employee of Newton or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Fund pays each Trustee who is not a
director, officer or employee of Newton 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 Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Newton, to
provide printing and fulfillment services for the Fund. Pursuant to this
agreement the Fund was charged $300 for the period December 21, 2005
(commencement of operations) to September 30, 2006.
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. For the period December 21, 2005 (commencement of operations) to
September 30, 2006, the Fund was not charged an administrative service
fee.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the period December 21, 2005 (commencement of operations)
to September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 58,242,409 $ 27,173,166
============ ============
18
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Shares sold 1,549,732
Shares issued to shareholders
reinvestment of distributions declared 741
Shares redeemed (5)
---------
Net increase (decrease) 1,550,468
=========
At September 30, 2006, two shareholders of record held approximately 97%
of the total outstanding shares of the Fund. Investment activities 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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period December 21, 2005
(commencement of operations) to September 30, 2006, the Fund did not
assess any redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, were as follows:
Cost for federal income tax purposes $ 31,478,425
=============
Gross unrealized appreciation $ 2,917,978
Gross unrealized depreciation (774,177)
-------------
Net unrealized appreciation (depreciation) $ 2,143,801
=============
Undistributed ordinary income 233,050
Undistributed capital gains --
-------------
Total distributable earnings $ 2,376,851
=============
Tax character of distributions paid for the period December 21, 2005
(commencement of operations) to September 30, 2006 was as follows:
2006
---------
Ordinary income $ 464,918
19
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The Fund may trade the following financial instruments with off-balance
sheet risk:
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 Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At September 30, 2006, the Fund held forward currency exchange 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 loaned securities during the period December 21, 2005
(commencement of operations) to September 30, 2006 and earned interest on
the invested collateral of $82,079 of which $64,665 was rebated to
borrowers or paid in fees. At September 30, 2006, the Fund had no
securities on loan.
(8) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. The Fund also
paid an upfront fee equal to 0.015 of 1% of the committed line to become
an eligible borrower on the credit facility. For the period December 21,
2005 (commencement of operations) to September 30, 2006, the expense
allocated to the Fund was $2,147.
During the period December 21, 2005 (commencement of operations) to
September 30, 2006, the Fund had average borrowings outstanding of
$259,273 on a total of eleven days and incurred $418 of interest expense.
20
Mellon Institutional Funds Investment Trust
Newton International Equity Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Newton International Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Newton International Equity Fund
(the "Fund") at September 30, 2006, and the results of its operations, the
changes in its net assets and the financial highlights for the period from
December 21, 2005 (commencement of operations) through September 30, 2006, 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 audit. We conducted our audit 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
audit, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
21
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $361
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 $383
c/o Essex Street Associates 11/3/1986 Street Associates
P.O. Box 5600 (family investment
Beverly, MA 01915 trust office)
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $361
c/o Harvard University 9/13/1989 Maier, Professor of
Littauer Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $361
P.O. Box 2333 11/3/1986 House, Inc.
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,
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
22
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; formerly Assistant Vice President
One Boston Place Treasurer and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon
Boston, MA 02108 Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and Vice President, SSRM
23
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6912AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Mellon Equity
Large Cap Growth Fund
- --------------------------------------------------------------------------------
December 21, 2005 (commencement of
operations) to September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
Mellon Equity Large Cap Growth Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
The U.S. equity markets began the year with a modest rally as Ben Bernanke was
received favorably in his new role as Chairman of the Board of Governors of the
U.S. Federal Reserve, replacing his long-standing predecessor, Alan Greenspan.
The hope that monetary policy would be eased was dampened quickly when the
Federal Open Market Committee continued with its persistent policy of increasing
short-term interest rates at the March meeting. Most U.S. equity market indices
changed direction and flirted with or hit lows early in the third quarter. In
August, Federal Reserve policy makers decided to pause in their more than
two-year long campaign of raising interest rates. The pause in Fed policy
combined with a significant pullback in the price of crude oil provided the
catalyst for a broad based rally.
During the period December 21, 2005 (commencement of operations) to September
30, 2006, the Mellon Equity Large Cap Growth Fund had a total return of 1.81%,
as compared to 2.97% for the Russell 1000 Growth Index, its benchmark, in an up
market. Favorable returns in the consumer staples, financial, oil and gas, and
technology sectors were the drivers of the Fund's performance. Our focus on cash
flow and valuation attributes within the food and beverage and the tobacco
industries added value in the consumer staples sector. Among technology shares,
solid valuation and favorable market sentiment proved to be a winning
combination of attributes. Within the oil and gas group, we succeeded by
avoiding the negative returns associated with many of the oil service stocks in
the benchmark peer group. Within financials, the attributes of attractive
earnings relative to price and strong earnings momentum were rewarded. The
Fund's holdings in the consumer cyclical and information services sectors did
not keep pace with their peer groups in the benchmark and detracted from
results.
The sector returns of the Russell 1000 Growth benchmark were somewhat divergent
during the reporting period. Those groups of stocks that are generally
considered defensive, such as utilities, telecom and the consumer oriented
segments, provided leadership in terms of market performance. The oil and gas
sector proved to be the laggard of the group given the pullback in the price of
crude oil.
Our approach continues to involve the identification of those common stock
attributes that are rewarded in a given market environment. We capture market
themes among equities by emphasizing the optimal combination of fundamentally
based characteristics to identify good stocks. In addition, we use a disciplined
construction process that provides a portfolio that is broadly diversified
across economic sectors.
/s/ Ronald P. Gala /s/ Jocelin A. Reed
Ronald P. Gala Jocelin A. Reed
2
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Comparison of Change in Value of $100,000 Investment in Mellon
Equity Large Cap Growth Fund and the Russell 1000 Growth Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Aggregate Total Return
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
12/21/2005
- --------------------------------------------------------------------------------
Fund 1.81%
* Source: Lipper Inc.
Aggregate total return reflects 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
Mellon Equity Large Cap Growth Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- ----------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,001.10 $ 4.77
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.31 $ 4.81
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.95%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- --------------------------------------------------------------------------
Microsoft Corp. Technology 4.1%
Johnson & Johnson Health Care 3.7
General Electric Corp. Financial 2.9
Cisco Systems Inc. Technology 2.8
Pepsico, Inc. Consumer Staples 2.0
Amgen Inc. Health Care 2.0
International Business Machines Corp. Technology 1.9
United Technologies Corp. Industrials 1.7
UnitedHealth Group Inc. Health Care 1.7
Coca-Cola Co. Consumer Staples 1.6
----
24.4%
* Excludes short-term securities and cash collateral investments.
Percentage of
Economic Sector Allocation* Net Assets
- -------------------------------------------------------------
Consumer Cyclical 11.0%
Consumer Hard Goods 2.1
Consumer Staples 7.7
Financial 9.4
Health Care 18.7
Industrials 9.0
Information 8.7
Materials 3.9
Oil & Gas Producer 3.5
Technology 24.7
Telecommunications 0.7
Utilities 1.0
Short-term and Other Assets (0.4)
-----
100.0%
The Fund is actively managed. Current holdings maybe different than those
presented above.
5
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--100.8%
EQUITIES--100.4%
Consumer Cyclical--11.0%
Aeropostale, Inc. (a) 350 $ 10,231
Best Buy Co., Inc. 550 29,458
Claire's Stores, Inc. 500 14,580
Coach, Inc. (a) 300 10,320
Costco Wholesale Corp. 400 19,872
CVS Corp. 800 25,696
Hilton Hotels Corp. 400 11,140
Lowe's Companies, Inc. 400 11,224
Michaels Stores, Inc. 300 13,062
NIKE, Inc. 100 8,762
Nordstrom, Inc. 400 16,920
Office Depot, Inc. (a) 300 11,910
Sears Holdings Corp. (a) 200 31,618
Starbucks Corp. (a) 750 25,538
Target Corp. 300 16,575
Wal-Mart Stores, Inc. 450 22,194
---------------
279,100
---------------
Consumer Hard Goods--2.1%
Cummins, Inc. 150 17,885
Harley-Davidson, Inc. 400 25,100
Johnson Controls, Inc. 150 10,761
---------------
53,746
---------------
Consumer Staples--7.7%
Anheuser Busch Co. 550 26,131
Coca-Cola Co./The 900 40,212
Kimberly-Clark Corp. 300 19,608
Kraft Foods, Inc. (b) 300 10,698
Loews Corp.--Carolina Group 300 16,617
Pepsico, Inc. 800 52,208
Procter & Gamble Co. 300 18,594
Reynolds American, Inc. 200 12,394
---------------
196,462
---------------
Financial--9.4%
Allstate Corp. 200 12,546
Bank of America Corp. 300 16,071
Capital One Financial Corp. 100 7,866
Franklin Resources, Inc. 200 21,150
General Electric Corp. 2,100 74,130
Goldman Sachs Group, Inc. 200 33,834
Host Hotels and Resorts, Inc. 300 6,879
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financial (continued)
Merrill Lynch & Co., Inc. 200 $ 15,644
Metlife, Inc. 250 14,170
Morgan Stanley 200 14,582
Public Storage, Inc. 100 8,599
Wells Fargo & Co. 400 14,472
---------------
239,943
---------------
Health Care--18.7%
Aetna, Inc. 650 25,708
Amerisourcebergen Corp. 400 18,080
Amgen, Inc. (a) 700 50,071
Becton Dickinson & Co. 500 35,335
Biogen Idec, Inc. (a) 200 8,936
Caremark Rx, Inc. 300 17,001
Cigna Corp. 100 11,632
Genentech, Inc. (a) 100 8,270
Gilead Sciences, Inc. (a) 400 27,480
Johnson & Johnson 1,450 94,163
Laboratory Corp. of America Holdings (a) 350 22,950
Medtronic, Inc. 700 32,508
Pfizer, Inc. 600 17,016
Quest Diagnostics, Inc. 200 12,232
St. Jude Medical, Inc. 300 10,587
UnitedHealth Group, Inc. 900 44,280
Wyeth 600 30,504
Zimmer Holdings, Inc. (a) 100 6,750
---------------
473,503
---------------
Industrials--9.0%
Burlington Northern Santa Fe Corp. 200 14,688
CH Robinson Worldwide, Inc. 300 13,374
Emerson Electric Co. 300 25,158
FedEx Corp. 200 21,736
Fluor Corp. 200 15,378
Graco, Inc. 400 15,624
Manpower, Inc. 200 12,254
Parker Hannifin Corp. 200 15,546
Raytheon Co. 400 19,204
The Boeing Co. 400 31,540
United Technologies Corp. 700 44,345
---------------
228,847
---------------
Information--8.7%
Accenture Ltd. 400 12,684
Cognizant Technology Solutions Corp. (a) 200 14,812
eBay, Inc. (a) 650 18,434
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Information (continued)
Equifax, Inc. 400 $ 14,684
Google, Inc. (a) 100 40,190
McGraw-Hill Co., Inc. 450 26,114
Moody's Corp. 300 19,614
News Corp. 700 13,755
Omnicom Group 200 18,720
Time Warner, Inc. 800 14,584
Verisign, Inc. (a) 500 10,100
Walt Disney Co. 600 18,546
---------------
222,237
---------------
Materials--3.9%
3M Co. 500 37,210
E.I. Du Pont de Nemours & Co. 400 17,136
Monsanto Co. 400 18,804
Nucor Corp. 200 9,898
Phelps Dodge Corp. 200 16,940
---------------
99,988
---------------
Oil & Gas Producer --3.5%
Baker Hughes,Inc. 200 13,640
ConocoPhillips 400 23,812
Exxon Mobil Corp. 300 20,130
Marathon Oil Corp. 200 15,380
Tesoro Corp. 100 5,798
Valero Energy Corp. 200 10,294
---------------
89,054
---------------
Technology--24.7%
Altera Corp. (a) 550 10,109
Amphenol Corp. 350 21,676
Apple Computer, Inc. (a) 500 38,515
Applied Materials, Inc. 1,150 20,390
Autodesk, Inc. (a) 300 10,434
Broadcom Corp. (a) 300 9,102
Cisco Systems, Inc. (a) 3,100 71,300
Danaher Corp. 300 20,601
EMC Corp. 1,650 19,767
Harris Corp. 400 17,796
Hewlett-Packard Co. 1,000 36,690
Intel Corp. 1,400 28,798
International Business Machines Corp. 600 49,164
Linear Technology Corp. 400 12,448
Microsoft Corp. 3,800 103,854
Motorola, Inc. 1,150 28,750
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Technology (continued)
National Semiconductor Corp. 400 $ 9,412
Nokia OYJ ADR 750 14,768
Oracle Corp. (a) 1,750 31,045
QLogic Corp. (a) 650 12,285
Qualcomm, Inc. 800 29,080
Texas Instruments, Inc. 900 29,925
---------------
625,909
---------------
Telecommunications--0.7%
NII Holdings, Inc. (a) 300 18,648
---------------
Utilities--1.0%
American Electric Power Co., Inc. 200 7,274
TXU Corp. 300 18,751
---------------
26,025
---------------
TOTAL EQUITIES (Cost $2,456,869) 2,553,462
---------------
INVESTMENT OF CASH COLLATERAL--0.4% Rate
----
BlackRock Cash Strategies L.L.C. (c) (Cost $11,100) 5.35% 11,100 11,100
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $2,467,969) 2,564,562
---------------
TOTAL INVESTMENTS--100.8% (Cost $2,467,969) 2,564,562
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.8)% (18,992)
---------------
NET ASSETS--100.0% $ 2,545,570
===============
Notes to Schedule of Investments:
ADR--American Depoistory Receipt
(a) Non-income producing security.
(b) Security, or a portion of thereof, was on loan at September 30,2006.
(c) Stated rate is the seven day yield for the fund at September 30, 2006.
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A) (including securities on loan, valued at
$10,698 (Note 6)):
Unaffiliated investments (cost $2,467,969) $ 2,564,562
Receivable from Investment Advisor 22,039
Interest and dividends receivable 2,337
Prepaid expenses 7,689
-------------
Total assets 2,596,627
Liabilities
Due to Custodian $ 9,394
Collateral for securities on loan (Note 6) 11,100
Accrued professional fees 23,803
Accrued accounting, custody, administration and transfer agent fees (Note 2) 4,812
Accrued trustees' fees (Note 2) 530
Accrued chief compliance officer fee (Note 2) 339
Accrued shareholder reporting fee (Note 2) 300
Accrued registration fee 83
Other accrued expenses and liabilities 696
-------------
Total liabilities 51,057
-------------
Net Assets $ 2,545,570
=============
Net Assets consist of:
Paid-in capital $ 2,505,000
Accumulated net realized loss (60,121)
Undistributed net investment income 4,098
Net unrealized appreciation 96,593
-------------
Total Net Assets $ 2,545,570
=============
Shares of beneficial interest outstanding 125,262
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 20.32
=============
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Statement of Operations
For the Period December 21, 2005 (commencement of operations) to
September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net foreign witholding taxes $50) $ 24,368
Dividend income from affiliated investments (Note 1F) 2,674
Interest income 270
Securities lending income (Note 6) 46
-------------
Total investment income 27,358
Expenses
Investment advisory fee (Note 2) $ 12,494
Accounting, custody, administration and transfer agent fees (Note 2) 44,380
Professional fees 41,085
Registration fees 18,008
Trustees' fees and expenses (Note 2) 1,890
Insurance expense 917
Miscellaneous expenses 16,885
-------------
Total expenses 135,659
Deduct:
Waiver of investment advisory fee (Note 2) (12,494)
Reimbursement of Fund operating expenses (Note 2) (104,905)
-------------
Total expense deduction (117,399)
-------------
Net Expenses 18,260
-------------
Net investment income 9,098
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (60,121)
Change in unrealized appreciation (depreciation) on:
Investments 96,593
-------------
Net realized and unrealized gain (loss) on investments 36,472
-------------
Net Increase in Net Assets from Operations $ 45,570
=============
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 9,098
Net realized gain (loss) (60,121)
Change in net unrealized appreciation (depreciation) 96,593
-------------
Net increase (decrease) in net assets from investment operations 45,570
-------------
Distributions to Shareholders (Note 1C)
From net investment income (5,000)
-------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 2,500,000
Dividend reinvestment 5,000
-------------
Net increase (decrease) in net assets from Fund share transactions 2,505,000
-------------
Total Increase in Net Assets 2,545,570
Net Assets
At beginning of period --
-------------
At end of period (including net investment income of $4,098) $ 2,545,570
=============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Net Asset Value, Beginning of Period $ 20.00
----------
From Operations:
Net investment income* (a) 0.07
Net realized and unrealized gains (loss) on investments 0.29
----------
Total from operations 0.36
----------
Less Distributions to Shareholders:
From net investment income (0.04)
----------
Total distributions to shareholders (0.04)
----------
Net Asset Value, End of Period $ 20.32
==========
Total Return (b) 1.81%
Ratios/Supplemental data:
Expenses (to average daily net assets)* 0.95%(c)
Net Investment Income (to average daily net assets)* 0.47%(c)
Portfolio Turnover 23%(d)
Net Assets, End of Period (000's omitted) $ 2,546
- ----------
* For the period 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 (loss) per share (a) $ (0.87)
Ratios (to average daily net assets):
Expenses 7.06%(c)
Net investment income (loss) (5.64)%(c)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
Returns for periods of less than one year have not been annualized.
(c) Computed on an annualized basis.
(d) Not annualized.
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Mellon Equity Large Cap Growth Fund (the "Fund"), which
commenced operation on December 21, 2005, is a separate diversified
investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of large
capitalization companies that have total market capitalizations within the
range of capitalizations of the companies in the top 70% of the Russell
1000 Growth Index at the time of purchase.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses are declared and distributed at least annually. Dividends
from net investment income and distributions from capital gains, if any,
are reinvested in additional shares of the Fund unless a shareholder
elects to receive them in cash. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America.
These differences which may result in reclassifications, are primarily due
to differing treatments for post-October losses and capital loss
carryovers.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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 the funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
14
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth 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 Mellon Equity
Associates, LLP ("Mellon Equity"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
H. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact in the financial
statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to Mellon Equity for overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 0.65% of the Fund's average daily net
assets. Mellon Equity voluntarily agreed to limit the Fund's total annual
operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.95% of the Fund's average daily net assets
for the period December 21, 2005 (commencement of operations) to September
30, 2006. Pursuant to this arrangement, for the period December 21, 2005
(commencement of operations) to September 30, 2006, Mellon Equity
voluntarily waived its investment advisory fee in the amount of $12,494
and reimbursed the Fund for $104,905 of its operating expenses. This
arrangement is voluntary and temporary and may be discontinued or revised
by Mellon Equity at any time.
The Trust 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 Mellon
Equity, 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 $5,054 for the period December 21, 2005 (commencement
of operations) to September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an
affiliate of Mellon Equity, to provide custody, 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
$39,326 for the period December 21, 2005 (commencement of operations) to
September 30, 2006.
The Trust also entered into an agreement with Mellon Bank to perform
certain securities lending activities and to act as the Fund's lending
agent. Pursuant to this agreement Mellon Bank receives an agreed upon
percentage of the net lending revenues. Pursuant to this agreement, Mellon
Bank earned $19 for the period December 21, 2005 (commencement of
operations) to September 30, 2006. See Note 6 for further details.
15
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the period December 21, 2005
(commencement of operations) to September 30, 2006, the Fund was charged
$3,115. No other director, officer or employee of Mellon Equity or its
affiliates receives any compensation from the Trust or the Fund for
serving as an officer or Trustee of the Trust. The Fund pays each Trustee
who is not a director, officer or employee of Mellon Equity 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 Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, to provide printing and fulfillment services for the Fund.
Pursuant to this agreement the Fund was charged $300 for the period
December 21, 2005 (commencement of operations) to September 30, 2006.
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 administration
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. For the period December 21, 2005 (commencement of operations) to
September 30, 2006, the Fund was not charged an administrative service
fee.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the period December 21, 2005 (commencement of operations)
to September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 3,086,890 $ 569,900
============ ============
(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 period
December 21, 2005
(commencement of
operations) to
September 30, 2006
------------------
Shares sold 125,000
Shares issued to shareholders
reinvestment of distributions declared 262
-------
Net increase (decrease) 125,262
=======
At September 30, 2006, one shareholder of record (MBC Investments Corp., a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate
of the Fund) held 100% of the total outstanding shares of the Fund.
Investment activities of this shareholder could have a material impact on
the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period December 21, 2005
(commencement of operations) to September 30, 2006, the Fund did not
assess any redemption fees.
16
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, was as follows:
Cost for federal income tax purposes $ 2,481,355
-------------
Gross unrealized appreciation $ 185,492
Gross unrealized depreciation (88,899)
-------------
Net unrealized appreciation (depreciation) $ 96,593
=============
Undistributed ordinary income 4,098
Undistributed capital gains --
-------------
Total distributable earnings $ 100,691
=============
Tax character of distributions paid for the period December 21, 2005
(commencement of operations) to September 30, 2006 were as follows:
2006
-------------
Ordinary income $ 5,000
The Fund elected to defer to its fiscal year ended September 30, 2007
$60,121 of capital losses recognized during the period December 21, 2005
(commencement of operations) to September 30, 2006.
(6) 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 loaned securities during the period December 21, 2005
(commencement of operations) to September 30, 2006 and earned interest on
the invested collateral of $1,029 of which $983 was rebated to borrowers
or paid in fees. At September 30, 2006, the Fund had securities valued at
$10,698 on loan. See Schedule of Investments for further detail on the
security positions on loan and collateral held.
(7) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. The Fund also
paid an upfront fee equal to 0.015 of 1% of the committed line to become
an eligible borrower on the credit facility. For the period December 21,
2005 (commencement of operations) to September 30, 2006, the expense
allocated to the Fund was $1,777.
During the period December 21, 2005 (commencement of operations) to
September 30, 2006, the Fund had average borrowings outstanding of $6,200
for a total of five days and incurred $4 of interest expense.
17
Mellon Institutional Funds Investment Trust
Mellon Equity Large Cap Growth Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Mellon Equity Large Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mellon Equity Large Cap Growth Fund
(the "Fund") at September 30, 2006, and the results of its operations, the
changes in its net assets and the financial highlights for the period from
December 21, 2005 (commencement of operations) through September 30, 2006, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
18
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $260
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 $261
c/o Essex Street Associates 11/3/1986 Street Associates
P.O. Box 5600 (family investment
Beverly, MA 01915 trust office)
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $260
c/o Harvard University 9/13/1989 Maier, Professor of
Littauer Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $260
P.O. Box 2333 11/3/1986 House, Inc.
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
Asset Management, LLC Executive Officer of The Boston
One Boston Place Company Asset
Boston, MA 02108 Management, LLC;
7/24/65 formerly Senior
Vice President and
Chief Operating
Officer, Mellon
Asset Management
("MAM") and Vice
President and Chief
Financial Officer,
MAM
19
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; formerly Assistant Vice President and
One Boston Place Treasurer Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon Asset
Boston, MA 02108 Management Company, LLC
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, and 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 Chief
Mellon Asset Management Compliance Compliance Officer, Mellon Funds Distributor, L.P. and
One Boston Place Officer Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President, State
4/8/57 Street Research & Management Company ("SSRM"), and Vice
President, SSRM
20
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6913AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
Emerging Markets Core Equity Fund
- --------------------------------------------------------------------------------
July 10, 2006 (commencement of
operations) to September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company Emerging Markets Core Equity Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
The Boston Company Emerging Markets Core Equity Fund began operations on July
10, 2006. The Fund's return since inception to September 30, 2006 was 2.75%,
slightly trailing the 5.01% return of its benchmark, the Morgan Stanley Capital
International Emerging Index.
It was not a bad time to launch the Fund, as investor confidence returned
following a weak period in the markets from mid-May to mid-June. This renewed
optimism was based on positive reactions to the U.S. Federal Reserve Board's
pausing in its interest rate hikes, a softening of the U.S. housing market, a
decline in oil prices and in intermediate-term interest rates. Returns for the
Fund during this period were mostly positive, but the dispersion of returns was
quite wide. Egypt was the best performing market gaining over 30%, while
Argentina was the worst, falling more than 6%. Among sectors, Telecommunication
services was the best performing sector gaining 15.5%, while Energy was the
worst performing sector falling 3.2%.
The Fund's underperformance as compared to the benchmark was attributable
primarily to poor stock selection in South Korea, where we trailed the Index by
over 4%, and in the financials sector, where the negative spread versus the
Index was almost 7%. Helping to offset these weak results were good stock
selections in Taiwan and Thailand with each country contributing 0.5% of
performance in excess of the benchmark. The brightest spot among the sectors was
in Materials, where we posted a 4.3% gain compared to a loss of 1.8% for the
benchmark.
The global economy continues to grow, but at a more moderate pace. This has been
well received by the markets as it has allowed the Fed to stop their rate
increases, and has allowed investors to begin forecasting rate cuts over the
next 12 to 18 months. With intermediate- and long-term rates still at low levels
relative to recent history, and with liquidity plentiful, M&A activity is very
brisk. This generally is a good environment for equity investors, although
geo-political risks are running high. We expect modest positive returns over the
intermediate- to long-term, but with the type of volatile periods we witnessed
from May to June this year. Regardless of the environment, our task is to buy
stocks that we believe combine above average business momentum with below
average valuations. We will not deviate from pursuing that strategy.
/s/ Daniel B. LeVan /s/ Peter J. Collins
Daniel B. LeVan Peter J. Collins
2
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Comparison of Change in Value of $100,000 Investment in
The Boston Company Emerging Markets Core Equity Fund and
the Morgan Stanley Capital International Emerging Markets Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Aggregate Total Return
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
7/10/2006
- --------------------------------------------------------------------------------
Fund 2.75%
* Source: Lipper Inc.
Aggregate total return reflects the change in the value of an investment,
assuming reinvestment of the fund's dividend income and capital gains. The
$100,000 line graph and the fund's returns do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. During periods of reimbursement by the fund's investment adviser (if
applicable), the fund's total return will be greater than it would be had the
reimbursement not occurred. Past performance is not predictive of future
performance.
3
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
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 10, 2006 (commencement of operations)
to September 30, 2006.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid During
Period+ July 10, 2006
Beginning Ending (commencement
Account Value Account Value of operations) to
July 10, 2006 September 30, 2006 September 30, 2006
- -------------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,027.50 $ 3.34
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,017.80 $ 7.33
- ----------
+ The "Actual" expense calculation is equal to the Fund's annualized expense
ratio of 1.45%, multiplied by the average account value over the period,
multiplied by 83/365 (to reflect the number of days from commencement of
operations to September 30, 2006). The "Hypothetical" expense calculation
is equal to the Fund's annualized expense ratio of 1.45%, multiplied by
the average account value over the period, multiplied by 183/365.
4
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Investments
- -------------------------------------------------------------------------------------------------
Oao Gazprom ADR Russia Energy 3.6%
China Mobile Ltd. Hong Kong Telecommunications Services 3.2
Samsung Electronics Co., Ltd. South Korea Information Technology 2.9
PetroChina Co., Ltd. China Energy 2.6
Lukoil--ADR Russia Energy 2.6
China Overseas Land & Investment Ltd. Hong Kong Financials 2.4
Fomento Economico Mexicano ADR Mexico Consumer Staples 2.3
Digi.com BHD Malaysia Telecommunications Services 2.2
Kookmin Bank South Korea Financials 2.2
Catcher Technology Co., Ltd. Taiwan Information Technology 2.2
----
26.2%
* Excludes short-term securities and investment of cash collateral.
Percentage of
Geographic Region Allocation* Investments
- -----------------------------------------------------------
Europe ex U.K. 15.1%
Asia ex Japan 55.6
Americas ex U.S. 16.8
Middle East/Africa 12.5
-----
100.0%
* Excludes short-term securities and cash collateral investments.
The Fund is actively managed. Current holdings may be different than those
presented above.
5
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENT--98.6%
EQUITIES--97.3%
Brazil--8.3%
Banco do Brasil SA 3,000 $ 65,581
Banco Nossa Caixa SA (a) 3,000 59,823
Brasil Telecom SA (a) 12,100,000 43,435
Companhia Paranaense de Energia-Copel (a) 5,100,000 57,504
NET Servicos de Comunicacao SA (a) 3,493 31,411
Petroleo Brasileiro SA (a) 4,700 87,796
Tam SA--ADR (a) 1,400 44,660
Usinas Siderurgicas de Minas Gerais Prefunded A (a) 2,700 80,768
---------------
470,978
---------------
Chile--0.9%
Lan Airlines SA--ADR 1,400 53,354
---------------
China--5.1%
China Oilfield Services Ltd. 52,000 27,968
China Petroleum & Chemical Corp. 182,000 113,073
PetroChina Co., Ltd. 136,000 146,293
---------------
287,334
---------------
Czech Republic--1.6%
CEZ A.S 2,630 93,250
---------------
Egypt--0.7%
Vodafone Egypt Telecommunications Co. 2,452 41,353
---------------
Hong Kong--6.0%
China Mobile Ltd. 25,000 176,660
China Overseas Land & Investment Ltd.. 174,000 134,234
China Resources Power Holdings Co., Ltd. 30,000 31,731
---------------
342,625
---------------
Hungary--2.5%
Egis Nyrt. 400 55,853
MOL Hungarian Oil and Gas Nyrt. 920 83,928
---------------
139,781
---------------
India--4.1%
Grasim Industries Ltd. 1,100 60,663
Mahindra & Mahindra Ltd. 6,900 102,505
Tata Consultancy Services Ltd. 3,200 71,441
---------------
234,609
---------------
Indonesia--1.3%
PT Indofood Sukses Makmur Tbk 330,000 44,886
PT Telekomunikasi Indonesia 32,000 29,423
---------------
74,309
---------------
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Israel--3.8%
Bank of Hapoalim BM 16,775 $ 79,337
Nice Systems Ltd.--ADR (a) 2,500 69,175
Orbotech Ltd.--ADR 1,300 30,810
Teva Pharmaceutical--ADR 1,100 37,499
---------------
216,821
---------------
Malaysia--4.6%
Digi.com BHD (a) 36,500 123,779
Kuala Lumpur Kepong Berhad 9,500 28,093
RHB Capital BHD 98,900 76,201
Tenaga Nasional Berhad 11,800 31,053
---------------
259,126
---------------
Mexico--7.3%
Alfa SA de CV 15,300 83,679
Cemex S.A. de C.V.--ADR 1,800 54,144
Consorcio ARA, S.A. de C.V 6,900 33,907
Fomento Economico Mexicano--ADR 1,300 126,022
Grupo Mexico SA de CV 36,900 115,634
---------------
413,386
---------------
Philippines--0.9%
Globe Telecom, Inc (e) 2,420 52,189
---------------
Poland--2.0%
BRE Bank SA (a) 465 35,808
KGHM Polska Miedz SA 2,381 76,613
---------------
112,421
---------------
Russia--8.9%
GMK Norilsk Nickel--ADR 900 117,000
Lukoil--ADR 1,900 143,450
Oao Gazprom--ADR 4,700 203,510
Surgutneftegaz OJSC--ADR 700 45,430
---------------
509,390
---------------
South Africa--7.7%
Anglo Platinum Ltd. 271 27,427
Foschini Ltd. 8,442 49,939
Investec Ltd. 9,740 91,185
Metropolitan Holdings Ltd. 25,542 40,237
Mittal Steel South Africa Ltd. 8,366 84,454
Sasol Ltd. 758 24,954
Telkom SA Ltd. 4,329 74,876
Truworths International Ltd. 14,719 44,122
---------------
437,194
---------------
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
South Korea--19.2%
CJ Corp. 255 $ 28,175
Daegu Bank 7,000 117,308
Daewoo Engineering and Construction Co., Ltd. 3,360 63,946
GS Engineering and Construction Corp. 866 60,615
Hanmi Pharm Co., Ltd. 465 47,936
Honam Petrochemical Corp. 870 54,272
Hynix Semiconductor, Inc. (a) 700 27,606
Hyundai Department Store Co., Ltd. 590 42,419
Hyundai Heavy Industries 425 58,866
Hyundai Mobis 500 51,438
Kookmin Bank 1,569 123,755
KT Corp. 650 28,040
POSCO 140 36,266
Pusan Bank 5,300 65,564
Samsung Electro-Mechanics Co., Ltd. (a) 1,050 43,297
Samsung Electronics Co., Ltd. 228 160,068
Shinhan Financial Group Co., Ltd. 970 43,741
SK Corp. 630 41,898
---------------
1,095,210
---------------
Taiwan--11.6%
Advanced Semiconductor Engineering, Inc 65,000 60,403
Asia Cement Corp. 133,640 96,928
Catcher Technology Co., Ltd. 14,271 122,483
China Development Financial Holding Corp. 148,320 61,632
Delta Electronics, Inc 14,000 40,193
High Tech Computer Corp. 4,440 117,541
ProMOS Technologies, Inc 99,000 38,894
Taiwan Semiconductor Manufacturing Co., Ltd.--ADR 6,100 58,560
Unimicron Technology Corp. 22,600 27,934
Wistron Corp. 32,211 36,553
---------------
661,121
---------------
Thailand--0.8%
Thai Airways International Public Co., Ltd. 36,900 45,355
---------------
Total Equities (Cost $5,372,009) 5,539,806
---------------
EXCHANGE TRADED FUNDS--0.9%
iShares MSCI Emerging Markets Index (a)(b) 200 19,354
iShares MSCI India (a) 7,100 35,358
---------------
Total Exchange Trades Funds (Cost $53,476) 54,712
---------------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Rate Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OF CASH COLLATERAL--0.4%
BlackRock Cash Strategies L.L.C. (c)
(Cost $20,000) 5.35% 20,000 $ 20,000
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $5,445,485) 5,614,518
---------------
AFFILIATED INVESTMENTS--0.5%
Dreyfus Institutional Preferred Plus Money Market Fund (c)(d) 5.32% 28,826 28,826
(Cost $28,826) ---------------
TOTAL INVESTMENTS--99.1% (Cost $5,474,311) 5,643,344
---------------
OTHER ASSETS, LESS LIABILITIES--0.9% 49,782
---------------
NET ASSETS--100.0% $ 5,693,126
===============
Notes to Schedule of Investments:
ADR--American Depositary Receipts
OJSC--Open Joint Stock Company
(a) Non-income producing security.
(b) Security, or a portion of thereof, was on loan at September 30, 2006.
(c) Stated rate is the seven day yield for the fund at September 30, 2006.
(d) Affiliated institutional money market fund.
(e) Security valued at fair value using methods determined in good faith by or
under the direction of the Board of Trustees.
Percentage of
Economic Sector Allocation Net Assets
-----------------------------------------------------------
Consumer Discretionary 6.3%
Consumer Staples 4.0
Energy 16.1
Financials 17.5
Health Care 2.5
Industrials 7.2
Information Technology 15.9
Materials 14.1
Telecommunication Services 10.0
Utilities 3.8
Exchange Traded Funds 0.9
Short-term and Other Assets 1.7
-----
100.0%
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A) (including
securities on loan, valued at $19,354 (Note 7)):
Unaffiliated investments (cost $5,445,485) $ 5,614,518
Affiliated investments (Note 1H) (cost $28,826) 28,826
Cash 54,054
Foreign currency, at value (cost $49,992) 49,961
Interest and dividends receivable 2,013
Prepaid expenses 10,817
----------------
Total assets 5,760,189
Liabilities
Collateral for securities on loan (Note 7) $ 20,000
Accrued professional fees 37,052
Accrued accounting, custody, administration and transfer
agent fees (Note 2) 8,142
Accrued chief compliance officer fee (Note 2) 354
Accrued trustees' fees (Note 2) 456
Accrued investment advisory fee (Note 2) 225
Other accrued expenses and liabilities 834
---------------
Total liabilities 67,063
----------------
Net Assets $ 5,693,126
================
Net Assets consist of:
Paid-in capital $ 5,544,154
Accumulated net realized loss (55,341)
Undistributed net investment income 35,323
Net unrealized appreciation 168,990
----------------
Total Net Assets $ 5,693,126
================
Shares of beneficial interest outstanding 277,002
================
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 20.55
================
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Statement of Operations
For the Period July 10, 2006 (commencement of operations) to September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net of foreign witholding taxes $4,990) $ 30,301
Dividend income from affiliated investments (Note 1H) 2,723
Securities lending income (Note 7) 531
-------------
Total investment income 33,555
Expenses
Investment advisory fee (Note 2) $ 13,182
Accounting, custody, administration and transfer agent fees (Note 2) 23,172
Registration fees 11,717
Professional fees 48,800
Administrative service fee (Note 2) 1,500
Trustees' fees and expenses (Note 2) 500
Miscellaneous expenses 6,028
---------------
Total expenses 104,899
Deduct:
Waiver of invesment advisory fee (Note 2) (13,182)
Reimbursement of Fund operating expenses (Note 2) (74,117)
---------------
Total expense deduction (87,299)
---------------
Net Expenses 17,600
-------------
Net investment income 15,955
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (55,341)
Foreign currency transactions and forward foreign currency exchange transactions 19,368
---------------
Net realized gain (loss) (35,973)
Change in unrealized appreciation (depreciation) on:
Investments 169,033
Foreign currency translations (43)
---------------
Change in net unrealized appreciation (depreciation) 168,990
-------------
Net realized and unrealized gain (loss) on investments 133,017
-------------
Net Increase in Net Assets from Operations $ 148,972
=============
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the period
July 10, 2006
(commencement of
operations) to
September 30, 2006
------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 15,955
Net realized gain (loss) (35,973)
Change in net unrealized appreciation (depreciation) 168,990
------------
Net increase (decrease) in net assets from investment operations 148,972
------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 5,544,154
------------
Total Increase in Net Assets 5,693,126
Net Assets
At beginning of period --
------------
At end of period (including net investment income of $35,323) $ 5,693,126
============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the period
July 10, 2006
(commencement of
operations) to
September 30, 2006
------------------
Net Asset Value, Beginning of Period $ 20.00
--------
From Operations:
Net investment income* (a) 0.06
Net realized and unrealized gains (loss) on investments 0.49
--------
Total from operations 0.55
--------
Net Asset Value, End of Period $ 20.55
========
Total Return (b) 2.75%
Ratios/Supplemental data:
Expenses (to average daily net assets)* 1.45%(c)
Net Investment Income (to average daily net assets)* 1.31%(c)
Portfolio Turnover 31%(d)
Net Assets, End of Period (000's omitted) $ 5,693
- ----------
* For the period, 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 (loss) per share and the ratios would have been:
Net investment income (loss) per share (a) $ (0.27)
Ratios (to average daily net assets):
Expenses 8.64%(c)
Net investment income (loss) (5.88)%(c)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
Returns for periods of less than one year have not been annualized.
(c) Computed on an annualized basis.
(d) Not annualized.
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Emerging Markets Core Equity Fund (the
"Fund"), which commenced operation on July 10, 2006, is a separate
diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of
companies that are located in foreign countries represented in the Morgan
Stanley Capital International Emerging Market (MSCI EM) Index. The Fund
may also enter into equity index futures contracts based primarily on the
indices of the countries included in the MSCI EM Index and Canada.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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.
Non-exchange traded derivatives are normally valued on the basis of quotes
obtained from brokers and dealers or pricing services.
Because foreign markets may be open at different times than the NYSE, the
value of the Fund's shares may change on days when shareholders are not
able to buy or sell them. Many securities markets and exchanges outside
the U.S. close prior to the close of the NYSE and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect the events that occur after such close but before the close of the
NYSE.
If market quotations are not readily available or do not accurately
reflect fair value, or the value of a security has been materially
affected by events occurring after the close of the exchange or market on
which the security is principally traded (for example, a foreign exchange
or market), the Fund may value its assets by a method the Trustees believe
accurately reflects the fair value. The Trustees have adopted fair value
pricing procedures, which, among other things, require the Fund to fair
value such securities if there has been a movement in the U.S. market that
exceeds a specified threshold. Although the threshold may be revised by
the Trustees from time to time and the number of days on which fair value
prices will be used will depend on market activity, it is possible that
fair value prices for foreign securities will be used by the Fund to a
significant extent.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
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.
14
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
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 foreign currency transactions, losses deferred due to wash
sales and post-October losses.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income (loss), accumulated net realized gain (loss) and paid in
capital. Undistributed net investment income (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. 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.
E. Foreign currency transactions
The Fund maintains its books and records in U.S. dollars. Investment
security valuations and 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.
F. Foreign Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed
foreign markets.
G. Commitments and contingencies
In the normal course of business, the 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 The Boston Company
Asset Management, LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
15
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
I. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements. Foreign taxes are provided for based on the Fund's
understanding of the tax rules and rates that exist in the foreign markets
in which it invests.
J. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory
and administrative services, and general office facilities, is paid
monthly at the annual rate of 1.10% of the Fund's average daily net
assets. TBCAM voluntarily agreed to limit the Fund's total annual
operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 1.45% of the Fund's average daily net assets
for the period July 10, 2006 (commencement of operations) to September 30,
2006. Pursuant to this arrangement, for the period July 10, 2006
(commencement of operations) to September 30, 2006, TBCAM voluntarily
waived its investment advisory fee in the amount of $13,182 and reimbursed
the Fund for $74,117 of its operating expenses. This arrangement is
voluntary and temporary and may be discontinued or revised by TBCAM at any
time.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as, out-of-pocket expenses. Pursuant to this agreement the
Fund was charged $1,335 for the period July 10, 2006 (commencement of
operations) to September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of TBCAM, to provide custody, administration and 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 $21,837 for the
period July 10, 2006 (commencement of operations) to September 30, 2006.
The Trust also 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 earned $229 for the
period July 10, 2006 (commencement of operations) to September 30, 2006.
See Note 7 for further details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the period July 10, 2006
(commencement of operations) to September 30, 2006, the Fund was charged
$1,018. No other director, officer or employee of TBCAM or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Fund pays each Trustee who is not a
director, officer or employee of TBCAM or its affiliates an annual fee and
a per meeting fee as well as reimbursement for travel and out-of-pocket
expenses. In addition, the Trust pays the legal fees for the independent
counsel of the Trustees.
The 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. For the period July 10, 2006 (commencement of operations) to
September 30, 2006, the Fund did not incur an administrative service fee.
16
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the period July 10, 2006 (commencement of operations) to
September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 7,114,553 $ 1,633,727
============ ============
(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 period
July 10, 2006
(commencement of
operations) to
September 30, 2006
------------------
Shares sold 277,002
Net increase (decrease) 277,002
-------
At September 30, 2006, one shareholder of record (MBC Investment Corp., a
wholly-owned subsidiary of Mellon Financial Corporation and an affiliate
of the Fund) held approximately 90% of the total outstanding shares of the
Fund. Investment activities 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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period July 10, 2006 (commencement
of operations) to September 30, 2006, the Fund did not assess any
redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, was as follows:
Cost for federal income tax purposes $5,475,137
----------
Gross unrealized appreciation $ 292,835
Gross unrealized depreciation (124,628)
----------
Net unrealized appreciation (depreciation) $ 168,207
==========
Undistributed ordinary income 35,323
Undistributed capital gains --
----------
Total distributable earnings $ 203,530
==========
The Fund elected to defer to its fiscal year ended September 30, 2007,
$54,515 of capital losses recognized during the period July 10, 2006
(commencement of operations) to September 30, 2006.
17
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The Fund may trade the following financial instruments with off-balance
sheet risk:
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 Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At September 30, 2006, the Fund did not hold forward currency exchange
contracts.
(7) Security Lending:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to
the Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment
of the collateral. As with other extensions of credit, the Fund bears the
risk of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral.
The Fund loaned securities during the period July 10, 2006 (commencement
of operations) to September 30, 2006 and earned interest on the invested
collateral of $933 of which $402 was rebated to borrowers or paid in fees.
At September 30, 2006, the Fund had securities valued at $19,354 on loan.
See Schedule of Investments for further detail on the security positions
on loan and collateral held.
(8) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. The Fund also
paid an upfront fee equal to 0.015 of 1% of the committed line to become
an eligible borrower on the credit facility. For the period July 10, 2005
(commencement of operations) to September 30, 2006, the expense allocated
to the Fund was $10.
During the period July 10, 2006 (commencement of operations) to September
30, 2006, the Fund had average borrowings outstanding of $68,000 on a
total of four days and incurred $44 of interest expense.
18
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company Emerging Markets Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company Emerging Markets
Core Equity Fund (the "Fund") at September 30, 2006, and the results of its
operations, the changes in its net assets and the financial highlights for the
period from July 10, 2006 (commencement of operations) through September 30,
2006, in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit 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 audit, which included confirmation of securities at
September 30, 2006 by correspondence with the custodian, provides a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
19
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Factors Considered by the Trustees in Approving the Investment Advisory
Agreements
- --------------------------------------------------------------------------------
The 1940 Act 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 related fees initially and, after a two year initial
term, on an annual basis. At a meeting held on March 7, 2006, the Board of
Trustees, including all of the Independent Trustees voting separately in person,
determined that the terms of the Fund's proposed investment advisory agreement
were fair and reasonable and that the agreement is in the best interest of the
Fund.
The Independent Trustees considered the initial approval of the advisory
agreement of the Fund in connection with their broader consideration of the
annual renewal of the advisory agreements of the other funds of the Trust, in
two separate meetings held on September 22 and October 18, 2005. On each date,
the Independent Trustees held executive sessions in which they met privately
without representatives of The Boston Company Asset Management LLC ("TBCAM"),
the Fund's investment adviser, or Mellon Financial Corporation ("Mellon")
present and were advised throughout the process by their own legal counsel.
In conducting this review and in making their determinations, the Independent
Trustees received from TBCAM a broad range of information compiled using an
information request list prepared on their behalf by their own legal counsel in
connection with their annual approval of advisory arrangements with respect to
the funds comprising the Trust generally.
This information included information about TBCAM, its personnel, operations and
financial results and information about the Mellon organization. The Trustees
also discussed in person with representatives of TBCAM the adviser's investment
strategy and process, and the Fund's proposed operations under TBCAM's
management. The information requested by the Independent Trustees and reviewed
by the entire Board included:
1. Financial and Economic Data: TBCAM's income statement, as well as a
profitability analysis of TBCAM, including a separate presentation of the
comparative profitability of several publicly traded investment advisers;
2. Management Teams and Operations: TBCAM's Form ADV, as well as information
concerning its executive management and portfolio management personnel and
overall organizational structure, brokerage and soft dollar policies and
practices;
3. Comparative Performance and Fees: Analyses regarding the performance of
similarly managed accounts of TBCAM, as well as the Fund's proposed management
fee and estimated expense ratio compared to those of comparable funds and
TBCAM's separate account advisory fee schedules; and
4. Other Benefits: The benefits flowing to Mellon and its affiliates in the form
of fees for transfer agency, custody, administration and securities lending
services provided to the Fund and the other funds of the Trust by affiliates of
Mellon.
In considering the approval 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 TBCAM provided therein are fair and reasonable, and they
approved the advisory agreement for an initial two-year period. 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 to be
provided to the Fund by TBCAM. In their deliberations as to the approval 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 would be choosing to
entrust TBCAM, under the supervision of the Trustees, to manage the portion of
their assets invested in the Fund.
The Trustees reviewed the background and experience of the Fund's portfolio
managers and received an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size, education
and experience of TBCAM's investment staff.
In connection with the proposed advisory agreement with TBCAM with respect to
the Fund, the Trustees considered the fact that TBCAM had been in operation
since 1970 and had approximately $60 billion in assets under management as of
December 31, 2005, including approximately $36 million in the emerging markets
core equity strategy proposed to be utilized by the Fund. The Trustees received
a presentation by TBCAM concerning its management and investment personnel, its
investment philosophy and investment strategy.
The Trustees determined that the services proposed by TBCAM to be provided to
the Fund were of high quality and at least commensurate with industry standards.
The Board determined that TBCAM had the expertise and resources to manage the
Fund effectively.
20
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Factors Considered by the Trustees in Approving the Investment Advisory
Agreements
- --------------------------------------------------------------------------------
Investment Performance
The Board reviewed investment results of certain investment company peer group
averages consisting of no load institutional funds without Rule 12b-1 plans
having an investment strategy substantial identical to the Fund selected by
TBCAM from a larger corresponding Morningstar universe of funds in the
investment category. The Board also reviewed the limited amount of TBCAM
emerging markets core equity historical composite performance that was
available, as the firm's emerging markets core equity strategy began operations
on August 1, 2005 and did not yet have a full calendar year of performance.
Advisory Fee and Other Expenses
The Board considered the advisory fee rate proposed to be paid by the Fund to
TBCAM as well as its estimated total expense ratio (after giving effect to
proposed expense caps) and compared each to that of its peer group, a selection
of no-load institutional funds without Rule 12b-1 plans selected by TBCAM from a
larger corresponding Morningstar universe of funds.
With regard to the proposed advisory fee to be payable by the Fund to TBCAM, the
Trustees noted that the proposed management fee of 1.10% was slightly below the
1.11% average management fee of a peer group of institutional funds using a
similar strategy.
They also noted that the Fund's proposed total expense ratio of 1.45% (after
giving effect to the proposed cap) was below the 1.64% average total expense
ratio of the peer group, even though most other funds in the peer group were
significantly larger than the Fund at projected asset levels during its first
year.
The Board also compared the fees proposed to be payable by the Fund relative to
those payable by separate account clients of TBCAM.
Based on the comparative peer group data provided, as well as the additional
scope and complexity of the services to be provided and responsibilities to be
assumed by TBCAM with respect to the Fund relative to its separate account
clients, the Board concluded that the fees proposed to be payable by the Fund
under the advisory agreement were reasonable.
Adviser's Profitability
The Board considered TBCAM's projected profitability in managing the Fund, as
well as the methodology used to compute such profitability, and the various
direct and indirect expenses incurred by TBCAM in managing the Fund. The Board
noted that the information provided indicated that, after giving effect to fee
waivers and expense subsidiaries, TBCAM was projected to experience a net
operating profit in the initial year of the Fund's operations, based on the
Fund's projected asset levels during such period. The Trustees noted that they
intend to monitor annually the profitability of TBCAM.
Economies of Scale
The Board also considered that TBCAM may experience economies of scale as the
Fund grows and the extent to which the proposed fees reflected such economies.
They noted that projected asset levels indicated that significant economies of
scale would not be realized for some time. The Trustees concluded that,
considering initial and projected asset size over the initial term of the
advisory agreement, the implementation of breakpoints or further fee reductions
was not necessary at this time. The Trustees intend to review the need for
breakpoints in connection with further advisory agreement approval
deliberations.
21
Mellon Institutional Funds Investment Trust
The Boston Company Emerging Markets Core Equity Fund
Factors Considered by the Trustees in Approving the Investment Advisory
Agreements
- --------------------------------------------------------------------------------
Other Benefits
As part of their broader review of the advisory agreements of all of the funds
in the Trust, the Board also considered the additional benefits flowing to
Mellon as a result of its relationship with the funds. The Board relied upon
their previous review of these benefits in considering the similar benefits that
may flow to Mellon from the operation of the Fund. Mellon affiliates provide
custodial, administrative, transfer agency and securities lending services to
the funds. In each case, such affiliates were selected on the basis of a
comparative analysis of their capabilities and fees relative to those of
unaffiliated competitors. In addition, the Trustees, 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 TBCAM provided therein are fair and reasonable and, thus, in
approving the agreement for an initial two-year period.
22
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $0
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 $0
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 $0
c/o Harvard University 9/13/1989 Professor of Political
Littauer Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $0
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 32 None $0
The Boston Company President Operating Officer of
Asset Management, LLC and Chief The Boston Company
One Boston Place Executive Asset Management, LLC;
Boston, MA 02108 Officer formerly Senior Vice
7/24/65 President and Chief
Operating Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
23
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; formerly Assistant Vice
One Boston Place Treasurer President and Mutual Funds Controller, Standish
Boston, MA 02108 since 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly Vice
One Boston Place President and Manager, Mutual Fund Operations,
Boston, MA 02108 Standish Mellon Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management Company
("SSRM"), and Vice President, SSRM
24
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6914AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Mellon Equity
Micro Cap Fund
- --------------------------------------------------------------------------------
May 1, 2006 (commencement of
operations) to September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
Mellon Equity Micro Cap Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
Since the inception of the Mellon Equity Micro Cap Fund on April 28, 2006,
equity markets have had to deal with a number of external risks along with
numerous economic cross currents. There continue to be lingering geo-political
risks from many parts of the world, coupled with investor concerns about the
weather and how it may influence world energy markets. There were also
economic-based issues ranging from when the U.S. Federal Reserve would pause or
even cease raising interest rates, to a debate about the strength of the U.S.
economy. All of these factors placed a heavy weight on micro cap stocks, as
these smallest capitalization stocks generally underperformed all other stock
capitalization ranges from the inception of the Fund through September 30, 2006.
This should not be surprising, though, because micro cap stocks tend to have
less financial flexibility than larger issues, and would, in most cases, also
face earnings pressure in the case of an economic slowdown or recession.
For the period May 1, 2006 to September 30, 2006, the Fund provided a total
return of -6.80% as compared to -7.97% for the Dow Jones Wilshire MicroCap
Index, the Fund's benchmark. While we were pleased that the Fund outperformed
its benchmark, absolute returns were negative. We manage the Fund using a
quantitative valuation model along with a sector neutral approach to stock
selection based on the underlying performance benchmark's weightings. Thus
individual stock selection within each economic sector is the primary engine
that drives investment performance.
Our stock selection within health care and technology-based stocks were
especially rewarding. Within the health care sector, we had good selections
among medical products and bio-technology stocks. Most of the health care
companies that the Fund held provided products for very specific niche markets
such as resuscitation equipment and dermatological tissue products used in
reconstructive surgery. Among our technology-based investments, holdings among
computer hardware and electronic equipment firms contributed positively to
relative performance. As for negative influences during the reporting period,
our stock selection among consumer hard goods companies provided disappointing
results. In this sector, our exposure to firms in discretionary spending sectors
such as furniture and leisure boating equipment had a negative impact on the
Fund's performance. Our stock selection among information and business services
firms also did not meet our expectations.
In closing, even though we have gone through a period which provided
disappointing results in the micro cap sector of the equity market, we remain
convinced that this capitalization sector continues to provide many dynamic and
attractive investment opportunities, and should remain a portion of a well
diversified equity portfolio.
Sincerely,
/s/ John R. O'Toole /s/ Peter D. Goslin
John R. O'Toole Peter D. Goslin
2
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Comparison of Change in Value of $100,000 Investment in
Mellon Equity Micro Cap Fund and the Dow Jones Wilshire Micro Cap Index
(Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Aggregate Total Return
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
5/1/2006
- --------------------------------------------------------------------------------
Fund (6.80)%
* Source: Wilshire Associates Incorporated
Aggregate total return reflects 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
Mellon Equity Micro Cap Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
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 May 1, 2006 (commencement of operations)
to September 30, 2006.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid During
Period+ May 1, 2006
Beginning Ending (commencement
Account Value Account Value of operations) to
May 1, 2006 September 30, 2006 September 30, 2006
- ------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 932.00 $ 5.47
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,018.30 $ 6.83
- ----------
+ The "Actual" expense calculation is equal to the Fund's annualized expense
ratio of 1.35%, multiplied by the average account value over the period,
multiplied by 153/365 (to reflect the number of days from commencement of
operations to September 30, 2006). The "Hypothetical" expense calculation
is equal to the Fund's annualized ratio of 1.35%, multiplied by the
average account value over the period, multiplied by 183/365.
4
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- --------------------------------------------------------------------------------
Zoll Medical Corp. Health Care 1.0%
Enzon Pharmaceuticals, Inc. Health Care 0.9
Landauer, Inc. Technology 0.8
Digi International, Inc. Technology 0.8
Dynamex, Inc. Industrials 0.8
Silicon Image, Inc. Technology 0.8
Biosite, Inc. Health Care 0.8
Ameris Bancorp Financials 0.8
Vital Signs, Inc. Health Care 0.8
Vineyard National Bancorp Co. Financials 0.8
---
8.3%
* Excludes short-term securities and cash collateral investments.
Percentage of
Economic Sector Allocation Net Assets
- ------------------------------------------------------------------
Consumer Cyclicals 6.7%
Consumer Hard Goods 4.3
Consumer Staples 1.9
Financials 22.2
Health Care 19.1
Industrials 10.3
Information 8.3
Materials 4.9
Oil & Gas Producer 2.6
Technology 16.9
Telecommunications 1.3
Utilities 1.5
-----
100.0%
The Fund is actively managed. Current holdings may be different than those
presented above.
5
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--106.6%
EQUITIES--100.1%
Consumer Cyclicals--6.7%
Books-A-Million, Inc. 2,000 $ 35,700
Brown Shoe Co., Inc. 1,100 39,424
Deckers Outdoor Corp. (a) 900 42,588
Dover Downs Gaming & Entertainment, Inc. 3,450 41,918
FTD Group, Inc. (a) 2,200 33,990
Haverty Furniture Companies, Inc. 2,100 33,495
Maidenform Brands, Inc. (a) 1,400 27,020
Mothers Work, Inc. (a) 1,350 64,962
O'Charleys, Inc. (a) 3,400 64,498
Perry Ellis International, Inc. (a) 1,400 43,232
Red Lion Hotels Corp. (a) 2,600 27,976
Republic Airways Holding, Inc. (a) 2,800 43,456
Ruth's Chris Steak House, Inc. (a) 2,400 45,168
Shoe Carnival, Inc. (a) 1,750 44,135
---------------
587,562
---------------
Consumer Hard Goods--4.3%
Asbury Automotive Group, Inc. 2,000 41,200
Churchill Downs, Inc. 750 31,545
Hooker Furniture Corp. 3,300 48,378
Keystone Automotive Industries, Inc. (a) 1,000 38,020
Kimball International, Inc., Class B Shares 1,800 34,740
Movado Group, Inc. 1,200 30,504
RC2 Corp. (a) 1,200 40,236
Rush Enterprises, Inc., Class A Shares (a) 2,400 40,032
Steinway Musical Instruments, Inc. (a) 1,700 47,600
Universal Electronics, Inc. (a) 1,400 26,600
---------------
378,855
---------------
Consumer Staples--1.9%
Core-Mark Holding Company, Inc. (a) 1,000 31,340
Reddy Ice Holdings, Inc. 1,650 39,930
Sensient Technologies Corp. 2,200 43,054
The Boston Beer Co., Inc. (a) 650 21,353
WD-40 Co 1,000 35,670
---------------
171,347
---------------
Financials--22.2%
Ameris Bancorp 2,500 68,025
ASTA Funding, Inc. 1,600 59,984
Bancorp Inc/Wilmington DE (a) 2,100 53,529
BancTrust Financial Group, Inc. (b) 1,100 30,679
Bank of Granite Corp. 1,500 26,295
BankFinancial Corp. 2,300 40,227
BankUnited Financial Corp. 2,000 52,140
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Financials (continued)
Cadence Financial Corp. 1,400 $ 28,378
Cardinal Financial Corp. 4,000 43,840
Centerstate Banks of Florida, Inc. 2,000 40,200
City Bank 1,200 56,436
CoBiz, Inc. 1,700 38,862
Community Bancorp (a) 900 27,459
Community Trust Bancorp, Inc. (b) 800 30,120
CorVel Corp. (a) 900 31,572
EZCORP, Inc. (a) 1,500 58,020
Farmers Capital Bank Corp. 800 27,096
First BanCorp 1,400 28,532
First Place Financial Corp. 1,500 33,990
First South Bancorp, Inc. (b) 900 27,531
Firstfed Financial Corp. 1,100 62,392
Heartland Financial USA, Inc. 1,700 43,656
Horizon Financial Corp. 900 26,874
Innkeepers USA Trust REIT 2,050 33,395
Integra Bank Corp. 1,400 35,392
ITLA Capital Corp. 700 37,632
James River Group, Inc. (a) 1,500 44,025
Mercantile Bank Corp. 750 29,663
MetroCorp Bancshares, Inc. (b) 1,400 31,766
National Interstate Corp. 1,250 30,750
NBT Bancorp, Inc. 1,200 27,912
Omega Financial Corp. 800 24,056
Peoples Bancorp, Inc. 1,000 29,230
Pinnacle Financial Partners, Inc. (a)(b) 1,800 64,440
PMA Capital Corp., Class A Shares (a) 6,000 52,920
Security Bank Corp. 1,400 31,654
Shore Bancshares, Inc. 2,000 57,500
Suffolk BanCorp 900 28,728
SWS Group, Inc. 2,100 52,269
Thomas Weisel Partners Group, Inc. (a) 2,050 32,903
TierOne Corp. 1,750 59,378
TriCo Bancshares 1,000 24,750
Vineyard National Bancorp Co 2,600 67,496
Virginia Commerce Bancorp (a) 2,300 51,060
Washington Trust Bancorp, Inc. 1,100 29,161
Western Alliance Bancorp (a) 1,700 55,930
Willow Financial Bancorp, Inc. 2,300 36,018
WSFS Financial Corp. 750 46,643
---------------
1,950,508
---------------
Health Care--19.1%
Albany Molecular Research, Inc. (a) 6,800 63,648
Allos Therapeutics, Inc. (a)(b) 7,000 26,390
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care (continued)
Amsurg Corp. (a) 1,800 $ 40,068
Atherogenics, Inc. (a)(b) 4,100 53,997
Biosite, Inc. (a) 1,500 69,345
Bruker BioSciences Corp. (a) 9,500 66,595
Cambrex Corp. 2,700 55,917
Capital Senior Living Corp. (a)(b) 3,000 27,750
CNS, Inc. 1,700 47,991
DJO, Inc. (a) 1,400 58,142
Enzon Pharmaceuticals, Inc. (a) 9,100 75,075
Genomic Health, Inc. (a) 3,500 50,610
Gentiva Health Services, Inc. 4,000 65,760
Greatbatch, Inc. (a) 2,800 63,336
LHC Group LLC (a) 1,900 42,408
Luminex Corp. (a) 3,000 54,690
Meridian Bioscience, Inc. 1,400 32,914
Myriad Genetics, Inc. (a)(b) 1,100 27,115
New River Pharmaceuticals, Inc. (a)(b) 2,200 56,606
Noven Pharmaceuticals, Inc. (a) 1,400 33,768
Pain Therapeutics, Inc. (a)(b) 7,300 62,926
Palomar Medical Technologies, Inc. (a) 1,450 61,190
Progenics Pharmaceuticals, Inc. (a) 2,500 58,650
Res-Care, Inc. (a) 3,200 64,288
Savient Pharmaceuticals, Inc. (a) 8,400 54,684
Sciele Pharma, Inc. (a) 2,400 45,216
SonoSite, Inc. (a) 1,000 28,400
Telik, Inc. (a) 2,600 46,254
USANA Health Sciences, Inc. (a)(b) 1,100 49,049
Viropharma, Inc. (a) 4,200 51,114
Vital Signs, Inc. 1,200 67,932
Zoll Medical Corp. (a) 2,400 86,136
---------------
1,687,964
---------------
Industrials--10.3%
AMN Healthcare Services, Inc. (a) 2,800 66,500
BlueLinx Holdings, Inc. (b) 4,300 40,936
Builders FirstSource, Inc. (a) 3,000 45,690
CIRCOR International, Inc. 1,300 39,715
Comfort Systems USA, Inc. 5,200 59,592
Dynamex, Inc. (a) 3,400 70,550
Encore Wire Corp. (a)(b) 1,000 35,290
EnPro Industries, Inc. (a) 1,100 33,066
Flow International Corp. (a) 3,200 41,504
Freightcar America, Inc. 1,100 58,300
Heico Corp. 1,400 48,020
K&F Industries Holdings, Inc. (a) 2,600 48,828
Kforce, Inc. (a) 4,000 47,720
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Industrials (continued)
Lufkin Industries, Inc. 750 $ 39,690
Matrix Service Co. (a) 2,400 31,416
Metal Management, Inc. 1,200 33,408
Rofin-Sinar Technologies, Inc. (a) 1,050 63,809
Standard Parking Corp. (a) 1,100 34,518
Tennant Co 1,800 43,812
Valley National Gases, Inc. 1,100 27,467
---------------
909,831
---------------
Information--8.3%
Ambassadors Group, Inc. 1,800 50,904
Cybersource Corp. (a) 5,500 65,065
Ennis, Inc. 2,100 45,465
Entravision Communications Corp. (a) 3,000 22,320
Forrester Research, Inc. (a) 2,000 52,620
ICT Group, Inc. (a) 2,100 66,087
Infocrossing, Inc. (a)(b) 4,600 61,686
Journal Communications, Inc. 3,200 36,064
Lightbridge, Inc. (a) 3,000 35,160
Netratings, Inc. (a) 2,400 34,152
PAREXEL International Corp. (a) 1,700 56,253
Perficient, Inc. (a) 4,300 67,424
SM&A (a) 5,100 31,161
SonicWall, Inc. (a) 4,900 53,508
Vertrue, Inc. (a) 700 27,524
World Wrestling Entertainment, Inc. 1,800 29,574
---------------
734,967
---------------
Materials--4.9%
Gibraltar Industries, Inc. 1,200 26,616
Greif, Inc. 650 52,072
Koppers Holdings, Inc. 3,400 64,498
Pioneer Companies, Inc. (a) 2,100 51,471
Quaker Chemical Corp. 1,500 29,175
Ryerson, Inc. 2,300 50,347
Schulman A, Inc. 2,800 65,828
Spartech Corp. 1,200 32,124
Steel Technologies, Inc. 3,000 58,890
---------------
431,021
---------------
Oil & Gas Producer--2.6%
Arena Resources, Inc. (a) 1,700 54,604
Bronco Drilling Company, Inc. (a) 1,800 31,644
Callon Petroleum Co. (a) 3,700 50,172
NATCO Group, Inc. (a) 1,400 40,320
Rosetta Resources, Inc. (a) 3,000 51,510
---------------
228,250
---------------
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--16.9%
ADE Corp. (a) 2,100 $ 67,242
Aeroflex, Inc. (a) 5,300 54,484
Ansoft Corp. (a) 2,500 62,275
Bel Fuse, Inc. 1,000 32,090
Cabot Microelectronics (a) 1,800 51,876
Cirrus Logic, Inc. (a) 7,200 52,488
Coinstar, Inc. (a) 1,600 46,048
Computer Programs & Systems, Inc. 1,450 47,517
Covansys Corp. (a) 3,600 61,704
CTS Corp. 4,350 59,943
Digi International, Inc. (a) 5,300 71,550
Dolby Laboratories, Inc., Class A (a) 1,800 35,730
DSP Group, Inc. (a) 1,800 41,130
EMS Technologies, Inc. (a) 3,000 56,340
Input/Output, Inc. (a) 3,200 31,776
Landauer Inc. 1,450 73,588
Magma Design Automation, Inc. (a) 4,700 42,770
Mapinfo Corp. (a) 5,000 64,150
Packeteer, Inc. (a) 5,900 50,799
Park Electrochemical Corp. 2,100 66,528
Planar Systems, Inc. (a) 4,000 45,400
ScanSource, Inc. (a) 1,500 45,495
Secure Computing Corp. (a) 6,700 42,411
Silicon Image, Inc. (a) 5,500 69,960
SPSS, Inc. (a) 1,900 47,367
Supertex, Inc. (a) 1,700 66,079
Ulticom, Inc. (a) 4,800 49,968
Zygo Corp. (a) 3,900 49,725
---------------
1,486,433
---------------
Telecommunications--1.3%
Alaska Communications Systems Group, Inc. 1,500 19,905
Consolidated Communications Holdings, Inc. 2,300 43,033
North Pittsburgh Systems, Inc. 2,100 52,857
---------------
115,795
---------------
Utilities--1.6%
Central Vermont Public Service Corp. 1,450 32,060
Energysouth, Inc. (b) 1,400 47,250
Laclede Group Inc./The 800 25,664
South Jersey Industries, Inc. 1,200 35,886
---------------
140,860
---------------
Total Equities (Cost $8,804,808) 8,823,393
---------------
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Description Rate Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OF CASH COLLATERAL--6.5%
BlackRock Cash Strategies L.L.C. (c) (Cost $575,946) 5.35% 575,946 $ 575,946
---------------
TOTAL UNAFFILIATED INVESTMENTS--(Cost $9,380,754) 9,399,339
---------------
AFFILIATED INVESTMENTS--0.3%
Dreyfus Institutional Preferred Plus Money Market Fund (c)(d)
(Cost $28,805) 5.32% 28,805 28,805
---------------
TOTAL INVESTMENTS--106.9% (Cost $9,409,559) 9,428,144
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(6.9)% (607,668)
---------------
NET ASSETS--100% $ 8,820,476
---------------
Notes to Schedule of Investments:
(a) Non-income producing security
(b) Security, or a portion of thereof, was on loan at September 30, 2006.
(c) Stated rate is the seven day yield for the fund at September 30, 2006.
(d) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A) (including securities on loan, valued at
$541,312 (Note 6)):
Unaffiliated investments (cost $9,380,754) $ 9,399,339
Affiliated investments (Note 1F) (cost $28,805) 28,805
Receivable for investments sold 190,779
Interest and dividends receivable 8,887
Prepaid expenses 9,657
-------------
Total assets 9,637,467
Liabilities
Collateral for securities on loan (Note 6) $ 575,946
Payable for investments purchased 202,495
Accrued professional fees 27,493
Accrued accounting, custody, administration and transfer agent fees (Note 2) 5,757
Accrued investment advisory fee (Note 2) 3,263
Accrued trustees' fees (Note 2) 582
Accrued chief compliance officer fee (Note 2) 339
Accrued shareholder reporting fee (Note 2) 300
Other accrued expenses and liabilities 816
-------------
Total liabilities 816,991
-------------
Net Assets $ 8,820,476
=============
Net Assets consist of:
Paid-in capital $ 9,220,709
Accumulated net realized loss (418,818)
Net unrealized appreciation 18,585
-------------
Total Net Assets $ 8,820,476
=============
Shares of beneficial interest outstanding 473,106
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 18.64
=============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Statement of Operations
For the Period May 1, 2006 (commencement of operations) to September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income $ 33,039
Dividend income from affiliated investments (Note 1 F) 5,796
Interest income 4
Securities lending income (Note 6) 1,736
-------------
Total investment income 40,575
Expenses
Investment advisory fee (Note 2) $ 34,780
Professional fees 40,010
Accounting, custody, administration and transfer agent fees (Note 2) 26,902
Registration fees 12,803
Trustees' fees and expenses (Note 2) 931
Miscellaneous expenses 12,867
-------------
Total expenses 128,293
Deduct:
Waiver of invesment advisory fee (Note 2) (34,780)
Reimbursement of Fund operating expenses (Note 2) (46,717)
-------------
Total expense deduction (81,497)
-------------
Net Expenses 46,796
-------------
Net investment loss (6,221)
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (418,818)
Change in unrealized appreciation (depreciation) on:
Investments 18,585
-------------
Net realized and unrealized gain (loss) on investments (400,233)
-------------
Net Decrease in Net Assets from Operations $ (406,454)
=============
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the period
May 1, 2006
(commencement of
operations) to
September 30, 2006
------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ (6,221)
Net realized gain (loss) (418,818)
Change in net unrealized appreciation (depreciation) 18,585
-------------
Net increase (decrease) in net assets from investment operations (406,454)
-------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 9,226,930
-------------
Total Increase in Net Assets 8,820,476
Net Assets
At beginning of period --
-------------
At end of period $ 8,820,476
=============
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the period
May 1, 2006
(commencement of
operations) to
September 30, 2006
------------------
Net Asset Value, Beginning of Period $ 20.00
----------
From Operations:
Net investment income (loss)* (a) (0.01)
Net realized and unrealized gains (loss) on investments (1.35)
----------
Total from operations (1.36)
----------
Net Asset Value, End of Period $ 18.64
==========
Total Return (b) (6.80)%
Ratios/Supplemental data:
Expenses (to average daily net assets)* 1.35%(c)
Net Investment Income (Loss) (to average daily net assets)* (0.18)%(c)
Portfolio Turnover 103%(d)
Net Assets, End of Period (000's omitted) $ 8,820
- ----------
* For the period 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 (loss) per share (a) $ (0.19)
Ratios (to average daily net assets):
Expenses 3.72%(c)
Net investment income (loss) (2.55%)(c)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
Returns for periods of less than one year have not been annualized.
(c) Computed on an annualized basis.
(d) Not annualized.
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Mellon Equity Micro Cap Fund (the "Fund"), which commenced
operations on May 1, 2006, is a separate diversified investment series of
the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of micro
cap U.S. companies with total market capitalizations equal to or less than
$1 billion at the time of investment.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange. Non-exchange traded derivatives are
normally valued on the basis of quotes obtained from brokers and dealers
or pricing services.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield - to - maturity
method on debt securities with greater than sixty days to maturity.
Dividend income is recorded on the ex-dividend date. Realized gains and
losses from securities sold are recorded on the identified cost basis.
Dividends representing a return of capital are reflected as a reduction of
cost.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses are declared and distributed at least annually. Dividends
from net investment income and distributions from capital gains, if any,
are reinvested in additional shares of the Fund unless the shareholder
elects to receive them in cash. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America.
These differences which may result in reclassifications, are primarily due
to differing treatments for post-October losses.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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.
16
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
D. Expenses
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated among the funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. Affiliated issuers
Affiliated issuers are investment companies advised by Mellon Equity
Associates, LLP ("Mellon Equity"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
H. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to Mellon Equity for overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 1.00% of the Fund's average daily net
assets. Mellon Equity voluntarily agreed to limit the Fund's total annual
operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 1.35% of the Fund's average daily net assets
for the period May 1, 2006 (commencement of operations) to September 30,
2006. Pursuant to this arrangement, for the period May 1, 2006
(commencement of operations) to September 30, 2006, Mellon Equity
voluntarily waived its investment advisory fee in the amount of $34,780
and reimbursed the Fund for $46,717 of other operating expenses. This
arrangement is voluntary and temporary and may be discontinued or revised
by Mellon Equity at any time.
The Trust 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 Mellon
Equity, to provide personnel and facilities to perform transfer agency and
certain shareholder services for the Fund. For these services the Fund
pays Dreyfus Transfer, Inc. a fixed fee plus per account and transaction
based fees, as well as, out-of-pocket expenses. Pursuant to this agreement
the Fund was charged $3,074 for the period May 1, 2006 (commencement of
operations) to September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of Mellon Equity, to provide custody, 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
$23,828 for the period May 1, 2006 (commencement of operations) to
September 30, 2006.
17
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Trust also entered into an agreement with Mellon Bank to perform
certain securities lending activities and to act as the Fund's lending
agent. Pursuant to this agreement Mellon Bank receives an agreed upon
percentage of the net lending revenues. Pursuant to this agreement, Mellon
Bank earned $768 for the period May 1, 2006 (commencement of operations)
to September 30, 2006. See Note 6 for further details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the period May 1, 2006
(commencement of operations) to September 30, 2006, the Fund was charged
$1,650. No other director, officer or employee of Mellon Equity or its
affiliates receives any compensation from the Trust or the Fund for
serving as an officer or Trustee of the Trust. The Fund pays each Trustee
who is not a director, officer or employee of Mellon Equity 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 Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, to provide printing and fulfillment services for the Fund.
Pursuant to this agreement the Fund was charged $300 for the period May 1,
2006 (commencement of operations) to September 30, 2006.
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 administration
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. For the period May 1, 2006 (commencement of operations) to
September 30, 2006, the Fund was not charged an administrative service
fee.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the period May 1, 2006 (commencement of operations) to
September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 18,230,226 $ 9,006,600
============ ============
(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 period
May 1, 2006
(commencement of
operations) to
September 30, 2006
------------------
Shares sold 473,106
-------
Net increase (decrease) 473,106
=======
At September 30, 2006, two shareholders of record (including MBC
Investments Corp., a wholly-owned subsidiary of Mellon Financial
Corporation and an affiliate of the Fund) held 99.7% of the total
outstanding shares of the Fund. Investment activities 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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period May 1, 2006 (commencement of
operations) to September 30, 2006, the Fund did not assess any redemption
fees.
18
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, was as follows:
Cost for federal income tax purposes $ 9,409,559
=============
Gross unrealized appreciation $ 403,568
Gross unrealized depreciation (384,983)
-------------
Net unrealized appreciation (depreciation) $ 18,585
=============
Undistributed ordinary income --
Undistributed capital gains --
-------------
Total distributable earnings $ 18,585
=============
The Fund elected to defer to its fiscal year ended September 30, 2007
$418,818 of capital losses recognized during the period May 1, 2006
(commencement of operations) to September 30, 2006.
(6) 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 loaned securities during the period May 1, 2006 (commencement of
operations) to September 30, 2006 and earned interest on the invested
collateral of $3,679 of which $1,943 was rebated to borrowers or paid in
fees. At September 30, 2006, the Fund had securities valued at $541,312 on
loan. See Schedule of Investments for further detail on the security
positions on loan and collateral held.
(7) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. annual rate of 0.060 of 1% on the committed
amount, is allocated ratably among the participating funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. The Fund also
paid an upfront fee equal to 0.015 of 1% of the committed line to become
an eligible borrower on the credit facility. For the period May 1, 2006
(commencement of operations) to September 30, 2006, the expense allocated
to the Fund was $2,636.
During the period May 1, 2006 (commencement of operations) to September
30, 2006. the Fund did not borrow from the line of credit.
19
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Mellon Equity Micro Cap Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mellon Equity Micro Cap Fund (the
"Fund") at September 30, 2006, and the results of its operations, the changes in
its net assets and the financial highlights for the period from May 1, 2006
(commencement of operations) through September 30, 2006, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit 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
audit, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
20
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The 1940 Act 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 related fees initially and, after a two year initial
term, on an annual basis. At a meeting held on March 7, 2006, the Board of
Trustees, including all of the Independent Trustees voting separately in person,
determined that the terms of the Fund's proposed investment advisory agreement
were fair and reasonable and that the agreement is in the best interest of the
Fund.
The Independent Trustees considered the initial approval of the advisory
agreement of the Fund in connection with their broader consideration of the
annual renewal of the advisory agreements of the other funds of the Trust, in
two separate meetings held on September 22 and October 18, 2005. On each date,
the Independent Trustees held executive sessions in which they met privately
without representatives of Mellon Equity Associates, LLP ("Mellon Equity"), the
Fund's investment adviser, or Mellon Financial Corporation ("Mellon") present
and were advised throughout the process by their own legal counsel.
In conducting this review and in making their determinations, the Independent
Trustees received from Mellon Equity a broad range of information compiled using
an information request list prepared on their behalf by their own legal counsel
in connection with their annual approval of advisory arrangements with respect
to the funds comprising the Trust generally.
This information included information about Mellon Equity, its personnel,
operations and financial results and information about the Mellon organization.
The Trustees also discussed in person with representatives of Mellon Equity the
adviser's investment strategy and process, and the Fund's proposed operations
under Mellon Equity's management. The information requested by the Independent
Trustees and reviewed by the entire Board included:
1. Financial and Economic Data: Mellon Equity's income statement, as well as a
profitability analysis of Mellon Equity, including a separate presentation of
the comparative profitability of several publicly traded investment advisers;
2. Management Teams and Operations: Mellon Equity's Form ADV, as well as
information concerning its executive management and portfolio management
personnel and overall organizational structure, brokerage and soft dollar
policies and practices;
3. Comparative Performance and Fees: Analyses regarding the Fund's proposed
management fee and estimated expense ratio compared to those of comparable funds
(there were no comparable performance or fees of similarly managed accounts of
Mellon Equity to review, as the firm did not have an account that was managed
pursuant to a micro cap strategy that was proposed to be utilized by the Fund);
and
4. Other Benefits: The benefits flowing to Mellon and its affiliates in the form
of fees for transfer agency, custody, administration and securities lending
services provided to the Fund and the other funds of the Trust by affiliates of
Mellon.
In considering the approval 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 Mellon Equity provided therein are fair and reasonable, and they
approved the advisory agreement for an initial two-year period. 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 to be
provided to the Fund by Mellon Equity. In their deliberations as to the approval
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 would be
choosing to entrust Mellon Equity, under the supervision of the Trustees, to
manage the portion of their assets invested in the Fund.
The Trustees reviewed the background and experience of the Fund's portfolio
managers and received an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size, education
and experience of Mellon Equity's investment staff.
In connection with the proposed advisory agreement with Mellon Equity with
respect to the Fund, the Trustees considered the fact that Mellon Equity had
been in operation since 1983 and had approximately $21 billion in assets under
management as of December 31, 2005, including approximately $1.1 billion in the
small cap value strategy and $618 million in the small cap core strategy. It was
noted that Mellon Equity did not manage any product that followed the micro cap
strategy that was proposed to be utilized by the Fund. The Trustees received a
presentation by Mellon Equity concerning its management and investment
personnel, its investment philosophy and investment strategy, as well as the
characteristics of its planned micro cap strategy portfolio.
The Trustees determined that the services proposed by Mellon Equity to be
provided to the Fund were of high quality and at least commensurate with
industry standards. The Board determined that Mellon Equity had the expertise
and resources to manage the Fund effectively.
Investment Performance
The Board reviewed investment results of certain investment company peer group
averages consisting of no load institutional funds without Rule 12b-1 plans
having an investment strategy substantial identical to the Fund selected by
Mellon Equity from a larger corresponding Morningstar universe of funds in the
micro cap investment category. There was no historical Mellon Equity composite
performance for the Board to review, as the firm did not currently have a fund
or other investment vehicle that was managed pursuant to the micro cap strategy
that was proposed to be utilized by the Fund.
21
Mellon Institutional Funds Investment Trust
Mellon Equity Micro Cap Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Advisory Fee and Other Expenses
The Board considered the advisory fee rate proposed to be paid by the Fund to
Mellon Equity as well as its estimated total expense ratio (after giving effect
to proposed expense caps) and compared each to that of its peer group, a
selection of no-load institutional funds without Rule 12b-1 plans selected by
Mellon Equity from a larger corresponding Morningstar universe of funds.
With regard to the proposed advisory fee to be payable by the Fund to Mellon
Equity, the Trustees noted that the proposed management fee of 1.00% was below
the 1.14% average management fee of a peer group of institutional funds using a
similar strategy.
They also noted that the Fund's proposed total expense ratio of 1.35% (after
giving effect to the proposed cap) was below the 1.44% average total expense
ratio of the peer group, even though most other funds in the peer group were
significantly larger than the Fund at projected asset levels during its first
year.
There was no comparable separate account client fee to review, as the firm did
not have an account that was managed pursuant to the micro cap strategy that was
proposed to be utilized by the Fund, but Mellon Equity's typical fee schedule on
other strategies was presented.
Based on the comparative peer group data provided, as well as the additional
scope and complexity of the services to be provided and responsibilities to be
assumed by Mellon Equity with respect to the Fund, the Board concluded that the
fees proposed to be payable by the Fund under the advisory agreement were
reasonable.
Adviser's Profitability
The Board considered Mellon Equity's projected profitability in managing the
Fund, as well as the methodology used to compute such profitability, and the
various direct and indirect expenses incurred by Mellon Equity in managing the
Fund. The Board noted that the information provided indicated that, after giving
effect to fee waivers and expense subsidiaries, Mellon Equity was projected to
experience a net operating profit in the initial year of the Fund's operations,
based on the Fund's projected asset levels during such period. The Trustees
noted that they intend to monitor annually the profitability of Mellon Equity.
Economies of Scale
The Board also considered that Mellon Equity may experience economies of scale
as the Fund grows and the extent to which the proposed fees reflected such
economies. They noted that projected asset levels indicated that significant
economies of scale would not be realized for some time. The Trustees concluded
that, considering initial and projected asset size over the initial term of the
advisory agreement, the implementation of breakpoints or further fee reductions
was not necessary at this time. The Trustees intend to review the need for
breakpoints in connection with further advisory agreement approval
deliberations.
Other Benefits
As part of their broader review of the advisory agreements of all of the funds
in the Trust, the Board also considered the additional benefits flowing to
Mellon as a result of its relationship with the funds. The Board relied upon
their previous review of these benefits in considering the similar benefits that
may flow to Mellon from the operation of the Fund. Mellon affiliates provide
custodial, administrative, transfer agency and securities lending services to
the funds. In each case, such affiliates were selected on the basis of a
comparative analysis of their capabilities and fees relative to those of
unaffiliated competitors. In addition, the Trustees, 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 Mellon Equity provided therein are fair and reasonable and,
thus, in approving the agreement for an initial two-year period.
22
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None $0
c/o Decision Resources, Inc. 11/3/1986 Emeritus,
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 $0
c/o Essex Street Associates 11/3/1986 Street
P.O. Box 5600 Associates
Beverly, MA 01915 (family
11/14/43 investment trust
office)
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $0
c/o Harvard University 9/13/1989 Maier, Professor
Littauer Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $0
P.O. Box 2333 11/3/1986 House, Inc.
New London, NH 03257 (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
7/24/65 Management,
LLC; formerly
Senior Vice
President and
Chief Operating
Officer, Mellon
Asset Management
("MAM") and Vice
President and
Chief Financial
Officer, MAM
23
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; formerly Assistant Vice
One Boston Place Treasurer since President and Mutual Funds Controller, Standish
Boston, MA 02108 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly
One Boston Place Vice President and Manager, Mutual Fund
Boston, MA 02108 Operations, Standish Mellon Asset Management
8/19/51 Company, LLC
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of
Mellon Asset Management President Compliance, Mellon Asset Management ("MAM");
One Boston Place formerly Manager of Shareholder Services, MAM,
Boston, MA 02108 and Shareholder Representative, Standish Mellon
1/19/71 Asset Management Company, LLC
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management and
Mellon Asset Management Compliance Chief Compliance Officer, Mellon Funds
One Boston Place Officer Distributor, L.P. and Mellon Optima L/S Strategy
Boston, MA 02108 Fund, LLC; formerly Director, Blackrock, Inc.,
4/8/57 Senior Vice President, State Street Research &
Management Company ("SSRM"), and Vice President,
SSRM
24
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6915AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
International Core Equity Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company International Core Equity Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
For the year ended September 30, 2006, The Boston Company International Core
Equity Fund had a total return of 19.0% compared to a return of 19.2% for its
benchmark, the MSCI EAFE Index. During this period, international stocks
continued to post strong returns as compared to their U.S. peers. Over the past
five years, the MSCI EAFE Index has more than doubled the S&P 500 Index's
average annual returns of 7%. As the Fund's fiscal year came to a close, the
slightest hints of a relative downturn began to emerge. Time will tell whether
2006 is an inflection point in this cycle.
The 12-month period ended September 30, 2006 was, generally speaking, fairly
uneventful as the markets moved higher in a consistent fashion. The one major
exception was the mid-May to mid-June period when the markets hit a "pocket of
turbulence," the MSCI EAFE Index fell nearly 16% in four weeks. However, by the
end of June the markets had recovered sufficiently to end the second quarter
roughly where they began.
In many ways the strong returns were surprising, given consistent rate hikes by
the U.S. Federal Reserve, oil prices that were at all-time highs for much of the
period, a noticeable weakening in the housing market in the U.S., and
geopolitical events in the Middle East, Iraq, North Korea and elsewhere.
Investors generally ignored these issues, or at least looked far enough into the
future to see them easing. Events that seemed to bolster investor confidence
included a moderation in economic growth rates in many regions, a reduction in
inflation fears by the end of the period, corporate profits that showed
remarkable resilience, and a tremendous amount of M&A activity (both real and
rumored).
The strong returns over the period were broad-based with all countries
(excluding New Zealand) and all sectors (excluding Energy) ending the year in
positive territory. Portugal was the best performing country with a 37% return,
and New Zealand was by far the worst performing country falling 7.9%. With
regard to sectors, Energy fell 0.5% on concerns that the price of crude oil was
unsustainably high - fears that are beginning to be realized in the market as
this report goes to press. The Utilities sector was the best performing sector
posting a 32% gain on strong demand, better-than-expected rate increases, and
particularly strong M&A activity.
Stock selection for the Fund was mixed for the 12-month period ended September
30, 2006, contributing to the Fund's relative performance to the benchmark
index. Adding the most value were selections in Germany where the Fund's
holdings gained 38% compared to the benchmark's 24% gain. The selection of U.K.
stocks was also a source of value added as the Fund had a positive spread of 3%
over the benchmark. Offsetting this strength was our disappointing stock
selection for Australia and Japan where the Fund underperformed the benchmark
index by 17% and 3%, respectively. From the sector perspective, the Fund's
performance was impacted negatively by 0.21% by its 0.60% overweight position in
the Energy sector. From the selection point of view, the Fund had its best
results in Financials with a nearly 3% spread over the benchmark in by far the
largest sector by weight. These results were offset by weak stock selection in
Health Care where the Fund's holdings trailed the benchmark's gains by 1.8%.
2
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Looking toward the future we expect more periods of volatility like this year's
mid-year experience. However, over the intermediate- to long-term we expect the
markets to produce modestly positive returns. The global economy is in generally
good shape. Inflation appears to be contained with a few exceptions. Interest
rates should continue to hold steady in a range that is low by historical
standards. Corporate balance sheets are in very good shape. Liquidity is ample.
Valuations by our measures are well within a range of reasonableness.
Regardless of the environment, over the next 12 months the Fund will continue to
seek to invest in stocks which combine better than peer-group business momentum
and better than peer-group valuation characteristics. This is the time-tested
philosophy the Fund has followed since inception, and we believe this
methodology will continue to produce attractive long-term results for
shareholders.
/s/ Remi J. Browne /s/ Peter S. Carpenter
Remi J. Browne Peter S. Carpenter
3
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
International Core Equity Fund and the MSCI EAFE Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 12/8/1988
- --------------------------------------------------------------------------------
Fund 19.01% 25.60% 18.82% 10.65% 8.34%
* 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.
4
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period +
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- ----------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,046.30 $ 4.41
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.76 $ 4.36
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.86%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Investments
- --------------------------------------------------------------------------------
Ing Groep NV CVA Netherlands Financials 2.2%
Societe Generale France Financials 2.1
BNP Paribas France Financials 1.7
HBOS PLC United Kingkom Financials 1.7
BP PLC United Kingkom Energy 1.6
Credit Suisse Group Switerland Financials 1.6
Honda Motor Co., Ltd. Japan Consumer Discretionary 1.6
Canon, Inc. Japan Information Technology 1.5
GlaxoSmithKline PLC United Kingkom Health Care 1.5
Roche Holding AG Switzerland Health Care 1.4
----
16.9%
* Excludes short-term securities and investment of cash collateral.
Percentage of
Geographic Region Allocation* Investments
- -----------------------------------------------------------
Europe ex U.K. 48.3%
U.K. 23.8
Asia ex Japan 6.0
Japan 21.9
-----
100.0%
* Excludes short-term securities and cash collateral investments.
The Fund is actively managed. Current holdings maybe different than those
presented above.
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in The Boston Company International
Core Equity Portfolio ("Portfolio"), at value (Note 1A) $ 2,000,653,233
Receivable for Fund shares sold 15,411,457
Prepaid expenses 99,830
---------------
Total assets 2,016,164,520
Liabilities
Payable for Fund shares redeemed $ 895,198
Accrued administrative service fees (Note 2) 101,582
Accrued registration fee 46,759
Accrued transfer agent fees (Note 2) 14,995
Accrued professional fees 14,189
Accrued shareholder reporting fees (Note 2) 577
Accrued trustees' fees (Note 2) 500
Accrued chief compliance officer fee (Note 2) 369
Other accrued expenses and liabilities 2,438
----------
Total liabilities 1,076,607
---------------
Net Assets $ 2,015,087,913
===============
Net Assets consist of:
Paid-in capital $ 1,798,141,332
Accumulated net realized gain 40,387,485
Undistributed net investment income 6,180,167
Net unrealized appreciation 170,378,929
---------------
Total Net Assets $ 2,015,087,913
===============
Shares of beneficial interest outstanding 51,652,158
===============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 39.01
===============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income allocated from Portfolio (net foreign
witholding taxes $3,185,872) $ 29,706,567
Interest and securities lending income allocated from
Portfolio 1,263,573
Expenses allocated from Portfolio (9,156,881)
---------------
Net investment income allocated from Portfolio 21,813,259
Expenses
Administrative service fees (Note 2) $ 234,844
Registration fees 231,010
Professional fees 58,886
Transfer agent fees (Note 2) 52,172
Insurance expense 2,074
Trustees' fees (Note 2) 2,000
Miscellaneous expenses 31,493
----------
Total expenses 612,479
---------------
Net investment income 21,200,780
---------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investment securities, futures transactions, foreign
currency exchange transactions and forward currency
transactions 38,731,387
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investments securities, futures contracts, foreign
currency exchange translations and forward currency
contracts 123,661,754
---------------
Net realized and unrealized gain (loss) 162,393,141
---------------
Net Increase in Net Assets from Operations $ 183,593,921
===============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 21,200,780 $ 2,848,226
Net realized gain (loss) 38,731,387 16,706,539
Change in net unrealized appreciation (depreciation) 123,661,754 28,802,354
---------------- --------------
Net increase (decrease) in net assets from investment
operations 183,593,921 48,357,119
---------------- --------------
Distributions to Shareholders (Note 1C)
From net investment income (15,633,628) (2,263,100)
From net realized gains on investments (17,704,234) (2,586,841)
---------------- --------------
Total distributions to shareholders (33,337,862) (4,849,941)
---------------- --------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 1,655,730,693 124,417,682
Value of shares issued in reinvestment of distributions 16,673,962 4,058,519
Cost of shares redeemed (94,637,359) (9,593,513)
---------------- --------------
Net increase (decrease) in net assets from Fund share
transactions 1,577,767,296 118,882,688
---------------- --------------
Total Increase (Decrease) in Net Assets 1,728,023,355 162,389,866
Net Assets
At beginning of year 287,064,558 124,674,692
---------------- --------------
At end of year (including undistributed net investment
income of $6,180,167 and $412,285, respectively) $ 2,015,087,913 $ 287,064,558
================ ==============
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- ---------
Net Asset Value, Beginning of Year $ 34.34 $ 27.03 $ 21.62 $ 17.10 $ 18.53
----------- ----------- ----------- ----------- ---------
From Investment Operations:
Net investment income (loss)* (a) 0.71 0.50 0.31 0.23 0.25
Net realized and unrealized gains
(loss) on investments 5.59 7.73 5.49 4.55 (1.48)
----------- ----------- ----------- ----------- ---------
Total from operations 6.30 8.23 5.80 4.78 (1.23)
----------- ----------- ----------- ----------- ---------
Less Distributions to Shareholders:
From net investment income (0.40) (0.39) (0.39) (0.26) (0.20)
From net realized gains on investments (1.23) (0.53) -- -- --
----------- ----------- ----------- ----------- ---------
Total distributions to shareholders (1.63) (0.92) (0.39) (0.26) (0.20)
----------- ----------- ----------- ----------- ---------
Net Asset Value, End of Year $ 39.01 $ 34.34 $ 27.03 $ 21.62 $ 17.10
=========== =========== =========== =========== =========
Total Return 19.01% 31.06% 27.04% 28.23%(b) (6.77%)(b)
Ratios/Supplemental data:
Expenses (to average daily net assets)* (c) 0.88% 1.01% 1.12% 1.16% 1.00%
Net Investment Income (to average daily net assets)* 1.91% 1.59% 1.22% 1.21% 1.29%
Portfolio Turnover N/A N/A N/A 17%(d) 87%(d)
Net Assets, End of Year (000's omitted) $ 2,015,088 $ 287,065 $ 124,675 $ 77,727 $ 51,087
- ----------
* 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 N/A $ 0.19 $ 0.18
Ratios (to average daily net assets):
Expenses (c) N/A N/A N/A 1.34% 1.33%
Net investment income N/A N/A N/A 1.03% 0.96%
(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.
(d) Portfolio turnover represents activity while the Fund was investing
directly in securities until January 27, 2003. The portfolio turnover
ratio for the period since the Fund transferred substantially all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company International Core Equity Fund (the "Fund") is
a separate diversified investment series of the Trust.
The object of the Fund is to achieve long-term growth of capital. The Fund
invests all of its investable assets in an interest of The Boston Company
International Core Equity Portfolio (the "Portfolio"), a subtrust of
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which
is organized as a New York trust, and has the same investment objective as
the Fund. The Portfolio seeks to achieve its objective by investing, under
normal circumstances, at least 80% of net assets in equity securities of
companies represented in the MSCI Europe, Australia, Far East Index and
Canada. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio. As of
September 30, 2006 the Fund owned 91% of the Portfolio's net assets. The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. The Fund records its investments 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
The Funds investment in the portfolio are recorded on the settlement 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 represent pro rata shares of gains
and losses of 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 are declared and distributed at least annually. In
determining the amounts of its dividends, the Fund will take into account
its share of the income, gains or losses, expenses, and any other tax
items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a shareholder elects to receive them in cash.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences
which may result in reclassifications, are primarily due to differing
treatments for foreign currency transactions and losses deferred due to
wash sales.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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
The Boston Company International Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements. Foreign taxes are provided for based on the Fund's
understanding of the tax rules and rates that exist in the foreign markets
in which it invests.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to The Boston Company Asset Management, LLC ("TBCAM"), a
wholly-owned subsidiary of Mellon Financial Corporation, for such
services. See Note 2 of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a wholly
owned subsidiary of The Dreyfus Corporation, a wholly-owned subsidiary of
Mellon Financial Corporation and an affiliate of TBCAM, to provide
personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services, the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as out-of-pocket expenses. Pursuant to this agreement the
Fund was charged $52,172 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,165. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Portfolio Trust for serving as an officer or Trustee of the Trust. The
Fund pays each Trustee who is not a director, officer or employee of TBCAM
or its affiliates an annual fee.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide printing and fulfillment services for the Fund. Pursuant to this
agreement the Fund was charged $577 for the year ended September 30, 2006.
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. For the year ended September 30, 2006, the Fund was charged
$101,123 for fees payable to Mellon Private Wealth Management.
(3) Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2006, aggregated $1,658,279,695 and $127,633,188,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expense 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.
12
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 45,334,340 3,919,181
Shares issued to shareholders in
reinvestment of distributions 479,216 138,802
Shares redeemed (2,520,245) (312,002)
---------- ---------
Net increase 43,293,311 3,745,981
========== =========
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 in the
Fund. The fee does not apply to shares that are acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund received $47,195 in redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings as of September 30,
2006, were as follows:
Undistributed ordinary income $ 19,214,625
Undistributed capital gains 29,537,583
------------
Total distributable earnings $ 48,752,208
============
Tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005, was as follows:
2006 2005
------------ -----------
Ordinary income $ 19,748,254 $ 2,263,100
Capital Gains 13,589,608 2,586,841
------------ -----------
Total Distributions $ 33,337,862 $ 4,849,941
============ ===========
See the corresponding master portfolio for tax basis unrealized
appreciation (depreciation) information.
13
Mellon Institutional Funds Investment Trust
The Boston Company International Core Equity Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Trust and Shareholders of The
Boston Company International Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Boston Company International Core Equity Fund (the "Fund") at September 30,
2006, 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 invesment in the Portfolio
at September 30, 2006 to the Portfolio's records, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
14
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--98.7%
EQUITIES--97.6%
Australia--3.7%
BHP Billiton Ltd. 1,514,900 $ 28,941,562
Caltex Australia Ltd. 469,600 8,365,952
Commonwealth Bank of Australia 328,300 11,195,703
Pacific Brands Ltd. 3,688,400 6,955,813
QBE Insurance Group Ltd. 1,067,900 19,502,310
Telstra Corp. Ltd. 2,149,600 5,944,577
---------------
80,905,917
---------------
Austria--0.6%
Boehler-Uddeholm 220,800 12,419,664
---------------
Belgium--3.0%
Agfa Gevaert NV 263,400 6,245,635
Delhaize Group 88,900 7,468,045
InBev NV 509,900 28,073,340
KBC Groupe 221,000 23,272,935
---------------
65,059,955
---------------
Denmark--0.5%
Carlsberg AS 63,411 5,333,958
Danske Bank AS 160,800 6,325,378
---------------
11,659,336
---------------
Finland--2.2%
Fortum Oyj 373,800 9,958,286
KCI Konecranes Oyj 43,500 825,715
Kesko Oyj 235,000 9,881,017
Metso Corp. 278,000 10,229,666
Nokia Oyj 396,300 7,869,282
Rautaruukki Oyj 312,800 8,983,679
---------------
47,747,645
---------------
France--10.0%
BNP Paribas 338,900 36,462,183
Bouygues SA 284,000 15,189,524
Cap Gemini SA 211,100 11,196,837
Sanofi-Synthelabo SA 184,300 16,405,206
Silicon-On-Insulator Technologies (a) 208,900 6,039,383
Societe Generale 288,300 45,878,332
Suez SA 249,400 10,967,175
Total SA (b) 385,220 25,277,751
Vallourec SA 33,150 7,730,089
Vinci SA 157,900 17,579,070
Vivendi SA 747,600 26,950,412
---------------
219,675,962
---------------
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Germany--6.9%
Bayerische Motoren Werke AG 136,900 $ 7,332,408
Continental AG 252,200 29,241,561
Deutsche Bank AG 118,800 14,334,750
E On AG 200,000 23,706,528
Heidelberger Druckmaschinen 163,600 6,744,030
Henkel KGaA 108,600 15,100,708
Man AG 157,200 13,303,258
Merck KGaA 93,410 9,904,277
MTU Aero Engines Holding AG 185,200 6,920,546
SAP AG 34,430 6,827,992
Thyssenkrupp AG 505,300 17,023,941
---------------
150,439,999
---------------
Greece--0.7%
Coca-Cola Hellenic Bottling Co. SA 423,100 14,581,820
---------------
Hong Kong--1.6%
Bank of East Asia Ltd. 1,852,100 8,451,704
China Mobile Ltd. 3,011,600 21,281,138
HSBC Holdings PLC 58,300 1,063,415
The Wharf(Holdings) Ltd. 1,391,400 4,768,738
---------------
35,564,995
---------------
Ireland--2.0%
Allied Irish Banks PLC 495,100 13,183,523
C & C Group PLC 1,151,600 15,639,050
CRH PLC 467,400 15,782,621
---------------
44,605,194
---------------
Italy--3.3%
AEM Spa 3,513,000 9,488,051
Banca Intesa Spa 2,918,133 19,204,000
Capitalia Spa 2,500,900 20,707,552
Eni Spa 790,100 23,413,160
---------------
72,812,763
---------------
Japan--21.5%
Canon, Inc. 637,950 33,272,136
Daiichi Sankyo Co., Ltd. 283,500 8,041,021
Dainippon Sumitomo Pharma Co., Ltd. 503,000 6,043,155
Daiwa Securities Group 721,700 8,420,139
Diamond Lease Co., Ltd. 136,700 6,585,581
East Japan Railway Co. 859 6,007,400
Fujitsu Ltd. 1,583,300 13,056,762
Honda Motor Co., Ltd. 999,900 33,609,373
Kirin Brewery Co., Ltd. 400 5,341
Kobayashi Pharmaceutical Co., Ltd. 179,600 6,857,980
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Japan (continued)
Komatsu Ltd. 1,708,300 $ 29,505,817
Kubota Corp. 2,432,000 19,973,245
Makita Corp. 280,500 8,240,919
Matsushita Electric Industrial Co., Ltd. 602,200 12,746,592
Mitsubishi Corp. 527,400 9,913,030
Mitsubishi Electric Corp. 1,746,000 14,708,915
Mitsubishi Gas Chemical Co., Inc. 1,290,200 14,015,127
Mizuho Financial Group, Inc. 2,243 17,395,547
Nikon Corp. 499,000 10,308,695
Nippon Suisan Kaisha Ltd. 1,292,800 7,114,724
Nomura Holdings, Inc. 609,400 10,731,962
NTT Corp. 3,883 19,068,157
Orix Corp. 90,280 24,956,752
Sankyo Co., Ltd. 178,500 9,536,322
Sumco Corp. 214,100 15,861,273
Sumitomo Metal Industries, Ltd. 4,268,000 16,369,520
Sumitomo Mitsui Financial 585 6,141,732
Sumitomo Trust & Banking Co., Ltd. 2,163,000 22,635,408
Takeda Chemical Industries 256,700 16,017,941
TDK Corp. 77,900 6,239,387
Tokyo Electric Power Co. 354,000 10,190,500
Tokyo Electron Ltd. 182,400 13,481,941
Toshiba Corp. 1,151,000 7,464,787
Toyo Suisan Kaisha Ltd. 481,900 6,948,401
Toyota Motor Corp. 409,100 22,237,084
---------------
473,702,666
---------------
Netherlands--3.7%
ASM Lithography Holding NV (a) 457,700 10,701,905
DSM NV 347,900 15,258,936
Fugro NV 160,100 6,745,916
Ing Groep NV CVA 1,085,400 47,743,403
---------------
80,450,160
---------------
New Zealand--0.3%
Fletcher Building Ltd. 1,111,700 6,223,797
---------------
Norway--1.8%
DNB NOR ASA 1,086,200 13,306,458
Norsk Hydro ASA 453,200 10,127,549
Orkla ASA 324,200 15,434,071
---------------
38,868,078
---------------
Singapore--0.3%
United Overseas Bank Ltd. 674,500 6,926,884
---------------
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Spain--3.1%
ACS Actividades 458,200 $ 21,729,310
Banco Santander Central 419,600 6,634,698
Corp Mapfre SA 289,900 6,057,936
Repsol YPF SA 360,700 10,734,418
Telefonica SA 1,346,600 23,341,372
---------------
68,497,734
---------------
Sweden--2.8%
Nordea Bank AB 1,093,500 14,330,803
Skandinaviska Enskilda 888,000 23,881,396
Svenska Cellulosa AB 207,400 9,513,242
Volvo AB 230,100 13,711,387
---------------
61,436,828
---------------
Switzerland--6.3%
Baloise Holdings 119,190 11,696,883
Credit Suisse Group 584,400 33,816,956
Roche Holding AG 180,400 31,194,497
Sulzer AG 16,810 13,397,717
The Swatch Group AG 32,420 6,264,634
UBS AG (a) 194,400 11,630,105
Zurich Financial Services AG 119,500 29,366,052
---------------
137,366,844
---------------
United Kingdom--23.3%
Alliance Boots PLC 733,998 10,647,136
AstraZeneca PLC 311,300 19,449,198
Aviva PLC 1,582,000 23,184,860
Barclays PLC 1,633,190 20,603,113
Barratt Developments PLC 878,900 17,536,096
BG Group PLC 588,300 7,146,276
BP PLC 3,257,600 35,485,995
British Airways PLC (a) 2,588,400 20,686,904
British American Tobacco PLC 594,000 16,054,245
BT Group PLC 2,650,800 13,296,826
Enterprise Inns PLC 857,000 16,922,695
GlaxoSmithKline PLC 1,229,000 32,710,540
Greene King PLC 740,300 12,512,144
HBOS PLC 1,810,700 35,822,652
HSBC Holdings PLC 1,507,400 27,494,549
International Power PLC 4,755,000 27,856,792
Kelda Group PLC 403,300 6,420,055
Marks & Spencer Group PLC 1,713,400 20,604,787
National Grid PLC 1,735,100 21,677,641
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom (continued)
Royal Bank of Scotland Group PLC 589,385 $ 20,286,964
Royal Dutch Shell PLC 202,200 6,668,425
Royal Dutch Shell PLC 879,000 29,827,917
United Business Media PLC 859,900 10,662,771
Vodafone Group PLC (a) 8,927,537 20,427,573
WPP Group PLC 1,043,500 12,929,647
Xstrata PLC 666,500 27,532,066
---------------
514,447,867
---------------
Total Equities (Cost $1,963,682,194) 2,143,394,108
---------------
PREFERRED STOCK--1.0%
Fresenius AG (Cost $20,436,694) 125,180 22,337,825
---------------
SHORT-TERM INVESTMENTS--0.1% Rate Maturity Par Value
---- ---------- ------------
U.S. Government--0.1%
U.S. Treasury Bill--0.1% (c)(d) (Cost $2,930,369) 4.80% 12/14/2006 $ 2,960,000 2,930,369
---------------
INVESTMENT OF CASH COLLATERAL--0.0% Shares
------------
BlackRock Cash Strategies L.L.C. (e)
(Cost $1,385) 5.35% 1,385 1,385
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $1,987,050,642) 2,168,663,687
---------------
AFFILIATED INVESTMENTS--1.5%
Dreyfus Institutional Preferred Plus Money Market Fund (e)(f)
(Cost $32,556,045) 5.32% 32,556,045 32,556,045
---------------
TOTAL INVESTMENTS--100.2% (Cost $2,019,606,,687) 2,201,219,732
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.2)% (5,442,465)
---------------
NET ASSETS--100.0% $ 2,195,777,267
===============
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security, or a portion of thereof, was on loan at September 30, 2006.
(c) Denotes all or part of security segregated as collateral for futures
transactions.
(d) Rate noted is yield to maturity.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
(f) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
At September 30, 2006, the Portfolio held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date September 30, 2006 to Deliver Loss
- -----------------------------------------------------------------------------------------------------
Danish Krone 14,860,206 10/2/2006 $ 2,528,226 $ 2,530,861 $ (2,635)
Danish Krone 10,000,000 10/3/2006 1,701,346 1,701,346 --
Japanese Yen 200,000,000 10/2/2006 1,694,127 1,697,217 (3,090)
----------
$ (5,725)
==========
At September 30, 2006, the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain
- -----------------------------------------------------------------------------------------------------
MSCI Pan-Euro (641 Contracts) Long 12/15/2006 $ 18,516,236 $ 214,846
Topix Futures (45 Contracts) Long 12/7/2006 6,011,495 204,293
----------
$ 419,139
==========
Percentage of
Economic Sector Allocation Net Assets
-----------------------------------------------------
Consumer Discretionary 12.3%
Consumer Staples 7.2
Energy 7.9
Financials 29.8
Health Care 7.4
Industrials 9.3
Information Technology 6.1
Materials 8.2
Telecommunication Services 4.9
Utilities 5.5
Short-term and Other Assets 1.4
-----
100.0%
The accompanying notes are an integral part of the financial statements.
20
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (Note 1A) (including securities on loan, valued at $1,312 (Note 6))
Unaffiliated issuers, at value (cost $1,987,050,642) $2,168,663,687
Affiliated issuers, at value (Note 1H) (cost $32,556,045) 32,556,045
Foreign currency, at value (cost, $38,848,306) 38,646,822
Receivable for investments sold 33,539,564
Interest and dividends receivable 5,058,078
Receivable for variation margin on open futures contracts (Note 5) 65,592
Prepaid expenses 13,412
--------------
Total assets 2,278,543,200
Liabilities
Payable for investments purchased $ 82,628,652
Unrealized depreciation on forward currency exchange contracts (Note 5) 5,725
Collateral for securities on loan (Note 6) 1,385
Accrued accounting, administration and custody fees (Note 2) 90,660
Accrued professional fees 22,076
Accrued trustees' fees and expenses (Note 2) 16,560
Other accrued expenses and liabilities 875
-------------
Total liabilities 82,765,933
--------------
Net Assets (applicable to investors' beneficial interest) $2,195,777,267
==============
The accompanying notes are an integral part of the financial statements.
21
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net of foreign withholding taxes of $3,489,769) $ 31,949,989
Dividend income from affiliated investments (Note 1H) 595,403
Interest income 1,383,345
Securitiy lending income (Note 6) 9
--------------
Total investment Income 33,928,746
Expenses
Investment advisory fee (Note 2) $ 9,116,697
Accounting, administration and custody fees (Note 2) 756,469
Professional fees 41,886
Trustees' fees and expenses (Note 2) 80,037
Insurance expense 15,325
Miscellaneous expenses 15,606
-------------
Total expenses 10,026,020
--------------
Net investment income 23,902,726
--------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investments 41,602,599
Financial futures transactions 564,934
Foreign currency transactions and forward currency exchange transactions 147,676
-------------
Net realized gain (loss) 42,315,209
Change in unrealized appreciation (depreciation) on:
Investments 133,295,987
Financial futures contracts 422,677
Foreign currency translations and forward currency exchange contracts (37,601)
-------------
Change in net unrealized appreciation (depreciation) 133,681,063
--------------
Net realized and unrealized gain (loss) 175,996,272
--------------
Net Increase in Net Assets from Operations $ 199,898,998
==============
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets
From Operations
Net investment income (loss) $ 23,902,726 $ 3,115,216
Net realized gain (loss) 42,315,209 17,557,963
Change in net unrealized appreciation (depreciation) 133,681,063 30,186,081
-------------- ------------
Net increase (decrease) in net assets from operations 199,898,998 50,859,260
-------------- ------------
Capital Transactions
Contributions 1,834,896,418 147,880,626
Withdrawals (147,003,408) (17,050,877)
-------------- ------------
Net increase (decrease) in net assets from capital transactions 1,687,893,010 130,829,749
-------------- ------------
Total Increase (Decrease) in Net Assets 1,887,792,008 181,689,009
Net Assets
At beginning of year 307,985,259 126,296,250
-------------- ------------
At end of year $2,195,777,267 $307,985,259
============== ============
The accompanying notes are an integral part of the financial statements.
23
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
Year Ended September 30, (commencement
-------------------------------------- of operations) to
2006 2005 2004 September 30, 2003
----------- --------- ---------- ------------------
Total Return (a) 18.99% 31.12% 27.12% 22.46%(b)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.83% 0.95% 1.04% 1.17%(c)
Net Investment Income (to average daily net
assets)* 1.97% 1.66% 1.30% 1.81%(c)
Portfolio Turnover 51% 58% 80% 63%(b)
Net Assets, End of Year (000's omitted) $ 2,195,777 $ 307,985 $ 126,296 $ 77,660
- ----------
* 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 ratios would have been:
Ratios (to average daily net assets):
Expenses N/A N/A N/A 1.20%(c)
Net investment income N/A N/A N/A 1.78%(c)
(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) Not annualized.
(c) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
24
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The
Boston Company International Core Equity Portfolio (the "Portfolio") is a
separate diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of
companies that are represented in the MSCI Europe, Australia, Far East
Index (EAFE) and Canada.
At September 30, 2006, there were two funds, The Boston Company
International Core Equity Fund and Dreyfus Premier International Equity
Fund (the "Funds") invested in the Portfolio. The value of the Funds'
investment in the Portfolio reflects the Funds' proportionate interests in
the net assets of the Portfolio. At September 30, 2006, The Boston Company
International Core Equity Fund and the Dreyfus Premier International
Equity Fund held approximately 91% and 9% interests in the Portfolio,
respectively.
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates.
A. Investment security valuations
Securities 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange. Non-exchange traded derivatives are
normally valued on the basis of quotes obtained from brokers and dealers
or pricing services.
Because foreign markets may be open at different times than the New York
Stock Exchange ("NYSE"), the value of the Portfolio's shares may change on
days when shareholders are not able to buy or sell them. Many securities
markets and exchanges outside the U.S. close prior to the close of the
NYSE and therefore the closing prices for securities in such markets or on
such exchanges may not fully reflect the events that occur after such
close but before the close of the NYSE.
If market quotations are not readily available or do not accurately
reflect fair value, or the value of a security has been materially
affected by events occurring after the close of the exchange or market on
which the security is principally traded (for example, a foreign exchange
or market) the Portfolio may value its assets by a method the Trustees
believe accurately reflects the fair value. The Trustees have adopted fair
value pricing procedures, which, among other things, require the Portfolio
to fair value such securities if there has been a movement in the U.S.
market that exceeds a specified threshold. Although the threshold may be
revised from time to time by the Trustees and the number of days on which
fair value prices will be used will depend on market activity, it is
possible that fair value prices for foreign securities will be used by the
Portfolio to a significant extent.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
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.
25
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
C. Income taxes
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state 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.
D. Foreign currency transactions
The Portfolio maintains its books and records in U.S. dollars. Investment
security valuations, other assets, and liabilities initially expressed in
foreign currencies are converted into U.S. dollars based upon current
currency exchange rates. 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. Foreign 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
the funds of the Trust or the 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 The Boston Company
Asset Management Company LLC ("TBCAM"), a wholly-owned subsidiary of
Mellon Financial Corporation, or its affiliates.
I. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Portfolio, a minimum threshold for financial
statement recognition of the benefit of positions taken in filing tax
returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date. At this
time, management is evaluating the implications of FIN 48 and its impact,
if any, in the financial statements has not yet been determined.
26
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Investment Advisory Fee and Other Transactions with Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory,
and administrative services, and general office facilities, is paid
monthly at the annual rate of 0.80% of the first $500 million of the
Portfolio's average daily net assets, 0.75% of the next $500 million and
0.70% on assets over $1 billion. During the period October 1, 2005 to
January 31, 2006 the investment advisory fee was paid to TBCAM at an
annual rate of 0.80%.
The Portfolio Trust entered into an agreement with Mellon Bank, N.A.
("Mellon Bank"), a wholly-owned subsidiary of Mellon Financial Corporation
and an affiliate of TBCAM, to provide custody, administration and
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 $756,469 for the year ended September 30, 2006.
The Portfolio Trust also entered into an agreement with Mellon Bank, to
perform certain securities lending activities and to act as the
Portfolio's lending agent. Mellon Bank receives an agreed upon percentage
of the net lending revenues. Pursuant to this agreement, Mellon Bank
earned $4, for the year ended September 30, 2006. See Note 6 for further
details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's and Portfolio Trust's Chief Compliance Officer. No other
director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the Trust. The Fund and Portfolio Trust pays each
Trustee who is not a director, officer or employee of TBCAM or its
affiliates (the "Independent Trustees") an annual fee and the Portfolio
Trust pays each Independent Trustee 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 counsel to the Independent
Trustees.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
-------------- ------------
Investments (non-U.S. Government Securities) $2,290,839,028 $601,791,046
============== ============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2006, as computed on a
federal income tax basis, were as follows:
Aggregate cost $2,042,856,776
==============
Gross unrealized appreciation $ 204,763,363
Gross unrealized depreciation (24,721,942)
--------------
Net unrealized appreciation (depreciation) $ 180,041,421
==============
(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:
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
27
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At September 30, 2006, the Portfolio held open foreign currency exchange
contracts. See Schedule of Investments for further details.
Futures contracts
The Portfolio may enter into financial futures contracts for the purchase
and sale 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 also arise if there is an illiquid secondary market or
if the counterparty does not perform under the contract's terms. The
Portfolio enters into financial futures transactions primarily to seek to
manage its exposure to certain markets and to changes in securities prices
and foreign currencies. Gains and losses are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at the
quoted daily settlement prices established by the exchange on which they
trade.
At September 30, 2006, the Portfolio held open financial futures
contracts. See Schedule of Investments for further details.
(6) Security Lending:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights
in its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event
of borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in
the event it was delayed or prevented from exercising its rights to
dispose of the collateral. The Portfolio also bears the risk in the event
that the interest and/or dividends received on invested collateral is not
sufficient to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities for the year ended September 30, 2006 and
earned interest on the invested collateral of $325 of which $316 was
rebated to borrowers or paid in fees. At September 30, 2006, the Portfolio
had securities valued at $1,312 on loan. See Schedule of Investments for
further detail on the security positions on loan and collateral held.
(7) 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. The Fund/Portfolio also pays
an annual renewal fee, computed at a rate of 0.020 of 1% of the committed
amount and allocated ratably to the participating funds/portfolios. For
the year ended September 30, 2006, the expense allocated to the Portfolio
was $6,717.
For the year ended September 30, 2006, the Portfolio had average
borrowings outstanding of $35,000 on a total of two days and incurred $9
of interest.
28
Mellon Institutional Funds Master Portfolio
The Boston Company International Core Equity Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Shareholders
of The Boston Company International Core Equity Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company International
Core Equity Portfolio (the "Portfolio") at September 30, 2006, 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 three years in the period then ended and the period from January 28, 2003
(commencement of operations) to September 30, 2003, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
29
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Emeritus, Portfolio: $7,758
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: $8,666
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: $7,758
Littauer Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. Portfolio: $7,758
New London, NH 03257 (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
President and
Chief Financial
Officer, MAM
30
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; formerly Assistant Vice President
One Boston Place Treasurer and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon
Boston, MA 02108 Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and Vice President, SSRM
31
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6924AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
Small/Mid Cap Growth Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company Small/Mid Cap Growth Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
Over the first half of the reporting period, and as they had for several years,
a robust economic environment and low inflation helped small and mid cap stocks
post higher returns than their large cap counterparts. However, market
conditions appeared to change during the second half of the reporting period as
economic growth moderated and inflationary pressures seemed to intensify. As a
result, investors began to favor larger stocks over smaller ones.
Despite this shift in investor sentiment, the Fund's holdings continued to
produce relatively attractive returns. For the year ended September 30, 2006 the
Fund had a total return of 7.80%+ compared to a return of 5.88% for its
benchmark, the Russell 2000 Growth Index. We had positioned the Fund for the
changing economy by avoiding companies that we believed would be hurt by the
impact on consumer spending caused by rising interest rates and higher energy
prices. In addition, we focused on valuations in an effort to avoid overpaying
for growth. These strategies helped protect the Fund from the full brunt of
market volatility during the Spring and Fall of 2006.
The Fund achieved particularly strong results in the energy sector, where energy
services companies Oceaneering International and Dril-Quip benefited from
resurgent oil and gas prices. However, the Fund's top individual performers
represented a relatively wide variety of industry groups. For example, in the
industrials sector, Huron Consulting Group gained value as demand for its
business services increased as Fortune 1000 companies sought help in complying
with U.S. regulators' complex financial reporting requirements. Similar forces
helped support the growth of technology company FileNet, which provides
electronic content management services to corporations. FileNet received a
buy-out offer during the reporting period from International Business Machines,
boosting its value. The trend toward outsourcing also helped drive gains for
drug development services provider Covance, which conducts drug research for
large pharmaceutical companies, and Corrections Corp. of America, which operates
prisons for various states and municipalities.
On the other hand, some of the Fund's more disappointing positions for the
reporting period included apparel retailer Jos. A. Bank Clothiers, which
suffered as consumer spending moderated. Among media companies, lower revenues
hurt traditional radio broadcasters, such as Emmis Communications, and earnings
as advertising dollars are lost to online competitors. In fact, any weakness
resulting from the Fund's traditional media holdings was more than offset by
better performance from its positions in Internet-related businesses, such as
Akamai Technologies, Marchex Inc., and ValueClick, each of which use or help
other businesses utilize the Internet.
/s/ B. Randall Watts /s/ Todd Wakefield
B. Randall Watts Todd Wakefield
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
2
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
Small/Mid Cap Growth Fund with the Russell 2500 Growth Index and the Russell
2000 Growth Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/1/1988**
- --------------------------------------------------------------------------------
Fund 7.80%+ 16.32% 12.86% 8.51% 13.25%
* Source: Lipper Inc.
** Combines the performance of the Fund beginning September 1, 1990 and its
predecessor, the Small Cap Equity Limited Partnership, from January 1,
1988 to that date.
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.
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
3
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- ----------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 964.40 $ 4.92
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.05 $ 5.06
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 1.00%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- ---------------------------------------------------------------------------------------
Amdocs, Ltd. Information Information Technology 2.1%
Respironics, Inc. Health Care 2.0
Fisher Scientific International Health Care 2.0
Washington Group International Industrials 1.8
Alliance Data Systems Corp. Information Information Technology 1.7
NeuStar, Inc. Telecommunication Services 1.6
Range Resources Corp. Energy 1.6
Pharmaceutical Product Development, Inc. Health Care 1.6
Laboratory Corp. of America Health Care 1.6
Stericycle, Inc. Industrials 1.5
----
17.5%
* Excludes short-term securities and cash collateral investments.
Percentage of
Economic Sector Allocation Net Assets
- -------------------------------------------------------------
Consumer Discretionary 12.9%
Consumer Staples 4.8
Energy 7.5
Financials 9.3
Health Care 22.4
Industrials 15.1
Information Technology 20.1
Materials 0.9
Telecommunication Services 1.5
Short-term and Other Assets 5.5
-----
100.0%
The Fund is actively managed. Current holdings may be different than those
presented above.
5
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--99.5%
EQUITIES--94.5%
Consumer Discretionary--12.9%
Bebe Stores, Inc 4,700 $ 116,466
Bright Horizons Family Solutions, Inc. (a) 4,650 194,045
California Pizza Kitchen, Inc. (a) 6,390 191,253
Gamestop Corp., Class A Shares (a)(b) 4,280 198,078
Hibbett Sporting Goods, Inc. (a) 6,730 176,191
Lin TV Corp. (a) 10,510 81,768
Lions Gate Entertainment Corp. (a)(b) 25,798 258,238
Panera Bread Co. (a) 2,790 162,518
Penn National Gaming, Inc. (a) 6,470 236,284
Petsmart, Inc. 8,000 222,000
Red Robin Gourmet Burgers, Inc. (a) 2,086 96,185
Select Comfort Corp. (a) 7,030 153,816
Steiner Leisure Ltd.--ADR (a) 5,800 243,890
Tiffany & Co 4,570 151,724
Tractor Supply Co. (a) 3,250 156,845
-----------
2,639,301
-----------
Consumer Staples--4.8%
Dean Foods Corp. (a) 6,200 260,524
Herbalife Ltd. (a) 4,660 176,521
Rite Aid Corp. (a)(b) 38,760 175,970
Ruddick Corp. 8,100 210,843
United Natural Foods, Inc. (a) 4,860 150,611
-----------
974,469
-----------
Energy--7.5%
Cameron International Corp. (a) 4,310 208,216
Consol Energy, Inc. 3,250 103,123
Denbury Resources, Inc. (a) 6,600 190,740
Dril-Quip, Inc. (a) 1,220 82,570
ENSCO International, Inc. 2,360 103,439
Global Industries, Ltd. (a) 5,930 92,271
Hanover Compressor Co. (a) 8,070 147,035
Oil States International, Inc. (a) 5,370 147,675
Range Resources Corp. 12,120 305,909
W-H Energy Services, Inc. (a) 3,680 152,610
-----------
1,533,588
-----------
Financials--9.3%
Arch Capital Group Ltd. ADR (a) 3,630 230,469
CapitalSource, Inc. 9,880 255,102
Capitol Bancorp Ltd 4,800 213,600
Cullen/Frost Bankers, Inc. 2,700 156,114
First Midwest Bancorp, Inc. 4,730 179,220
Montpelier Re Holdings Ltd. (b) 8,280 160,549
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financials (continued)
Portfolio Recovery Associates, Inc. (a) 4,930 $ 216,279
Renaissance Holdings, Ltd 2,000 111,200
The Colonial BancGroup, Inc. 8,300 203,350
Umpqua Holdings Corp. 5,600 160,160
-----------
1,886,043
-----------
Health Care--22.4%
Adams Respiratory Therapeutics, Inc. (a) 2,300 84,157
Alkermes, Inc. (a) 6,200 98,270
ArthroCare Corp. (a) 3,850 180,411
Community Health Systems, Inc. (a) 6,200 231,570
Conor Medsystems, Inc. (a) 4,000 94,280
Covance, Inc. (a) 3,130 207,769
Cytyc Corp. (a) 6,800 166,464
Emdeon Corp. (a) 17,430 204,105
Fisher Scientific International (b) 4,880 381,811
Haemonetics Corp. (a) 3,190 149,292
IMS Health, Inc. 8,900 237,096
Integra LifeSciences Holdings (a) 4,400 164,912
Laboratory Corp. of America Holdings (a) 4,600 301,622
Medarex, Inc. (a) 8,330 89,464
PDL BioPharma, Inc. (a) 3,980 76,416
Pediatrix Medical Group, Inc. (a) 2,300 104,880
PerkinElmer, Inc. 12,210 231,135
Pharmaceutical Product Development, Inc. 8,560 305,506
Resmed, Inc. (a) 3,800 152,950
Respironics, Inc. (a) 10,120 390,733
Triad Hospitals, Inc. (a) 3,800 167,314
VCA Antech, Inc. (a) 5,000 180,300
Vertex Pharmaceuticals, Inc. (a)(b) 2,450 82,443
Viasys Healthcare, Inc. (a) 8,240 224,458
Wellcare Group, Inc. (a) 1,080 61,160
-----------
4,568,518
-----------
Industrials--15.1%
Alaska Air Group, Inc. (a) 5,580 212,263
Bucyrus International, Inc., Class A 2,410 102,232
Copart, Inc. (a) 4,280 120,653
Global Cash Access, Inc. (a) 11,920 179,873
Hub Group, Inc., Class A Shares (a) 12,090 275,410
Huron Consulting Group, Inc. (a) 3,880 152,096
Interline Brands, Inc. (a) 4,020 99,214
Kennametal, Inc. 1,900 107,635
MSC Industrial Direct Co., Inc. 5,190 211,441
Navigant Consulting, Inc. (a) 7,500 150,450
Pacer International, Inc. 5,700 158,232
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Industrials (continued)
Quanta Services, Inc (a)(b) 13,610 $ 229,465
School Specialty, Inc. (a) 5,340 188,449
Stericycle, Inc. (a) 4,100 286,139
UAP Holding Corp. 7,400 158,138
UTI Worldwide, Inc. 3,100 86,707
Washington Group International, Inc. (a) 5,950 350,217
-----------
3,068,614
-----------
Information Technology--20.1%
Alliance Data Systems Corp. (a) 5,800 320,102
Amdocs, Ltd. ADR (a) 10,000 396,000
AMIS Holdings, Inc. (a) 15,580 147,854
Arris Group, Inc. (a) 8,700 99,702
BEA Systems, Inc. (a) 7,880 119,776
Brocade Communications Systems, Inc. (a) 30,130 212,718
Cymer, Inc. (a) 3,710 162,906
Harris Corp. 6,120 272,279
Informatica Corp. (a) 7,960 108,176
Intersil Corp., Class A Shares 5,840 143,372
ManTech International Corp., Class A (a) 5,350 176,604
Micrel, Inc. (a) 13,800 132,342
Microchip Technology, Inc. 5,600 181,552
Net Gear, Inc. (a) 4,990 102,744
Palm, Inc. (a) 9,760 142,106
Polycom, Inc. (a) 8,610 211,203
QLogic Corp. (a) 10,600 200,340
Rackable Systems, Inc. (a) 5,130 140,408
Rudolph Technologies, Inc. (a) 8,530 156,355
Tektronix, Inc. 3,710 107,330
Tessera Technologies, Inc. (a) 4,100 142,598
ValueClick, Inc. (a) 6,940 128,668
Verisign, Inc. (a) 9,800 197,960
Wright Express Corp. (a) 3,980 95,759
-----------
4,098,854
-----------
Materials--0.9%
Kinross Gold Corp. (a) 7,110 89,017
Pan American Silver Corp. (a) 5,310 103,757
-----------
192,774
-----------
Telecommunication Services--1.5%
NeuStar, Inc. (a) 11,070 307,192
-----------
TOTAL EQUITIES (Cost $18,232,459) 19,269,353
-----------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.2%
U.S. Government--0.2%
U.S. Treasury Bill (c)(d) (Cost $34,650) 4.80% 12/14/2006 $ 35,000 $ 34,650
-----------
INVESTMENT OF CASH COLLATERAL--4.8% Shares
----------
BlackRock Cash Strategies L.L.C. (e)
(Cost $987,390) 5.35% 987,390 987,390
-----------
TOTAL UNAFFILIATED INVESTMENTS
(Cost $19,254,499) 20,291,393
-----------
AFFILIATED INVESTMENTS--5.1%
Dreyfus Institutional Preferred
Plus Money Market Fund (e)(f) (Cost $1,036,055) 5.32% 1,036,055 1,036,055
-----------
TOTAL INVESTMENTS--104.6% (Cost $20,290,554) 21,327,448
-----------
LIABILITIES, IN EXCESS OF OTHER ASSETS--(4.6)% (938,894)
-----------
NET ASSETS--100% $20,388,554
===========
Notes to Schedule of Investments:
ADR--American Depositary Receipt
(a) Non-income producing security
(b) Security, or a portion of thereof, was on loan at September 30, 2006.
(c) Rate noted is yield to maturity.
(d) Denotes all or part of security pledged as collateral.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
(f) Affiliated institutional money market fund.
At September 30, 2006 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Loss
- ----------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index (2 Contracts) Long 12/14/2006 $737,000 $ (4,909)
========
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A)
(including securities on loan, valued at
$932,961 (Note 7)):
Unaffiliated investments (cost $19,254,499) $ 20,291,393
Affiliated investments (Note 1F) (cost $1,036,055) 1,036,055
Cash 330,245
Receivable for investments sold 604,150
Interest and dividends receivable 8,472
Receivable for variation margin on open futures contracts (Note 6) 5,827
Prepaid expenses 14,418
------------
Total assets 22,290,560
Liabilities
Collateral for securities on loan (Note 7) $ 987,390
Payable for investments purchased 879,011
Accrued professional fees 21,992
Accrued accounting, custody, administration and transfer agent fees (Note 2) 5,961
Accrued shareholder reporting fee (Note 2) 2,748
Accrued trustees' fees (Note 2) 678
Accrued chief compliance officer fee (Note 2) 339
Accrued administrator services fee (Note 2) 194
Other accrued expenses and liabilities 3,693
---------------
Total liabilities 1,902,006
------------
Net Assets $20,388,554
============
Net Assets consist of:
Paid-in capital $ 18,115,706
Accumulated net realized gain 1,240,863
Net unrealized appreciation 1,031,985
------------
Total Net Assets $ 20,388,554
============
Shares of beneficial interest outstanding 1,366,241
============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 14.92
============
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income $ 109,138
Dividend income from affiliated investments (Note 1F) 47,328
Interest income 1,439
Securities lending income (Note 7) 12,815
------------
Total investment income 170,720
Expenses
Investment advisory fee (Note 2) $ 122,176
Accounting, custody, administration and transfer agent fees (Note 2) 69,858
Administrative service fee (Note 2) 1,053
Registration fees 12,256
Professional fees 32,586
Trustees' fees and expenses (Note 2) 3,341
Insurance expense 4,995
Chief compliance officer expense (Note 2) 4,135
Miscellaneous expenses 11,369
---------------
Total expenses 261,769
Deduct:
Waiver of investment advisory fee (Note 2) (58,142)
---------------
Net Expenses 203,627
------------
Net investment loss (32,907)
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 3,455,400
Financial futures transactions 82,682
---------------
Net realized gain (loss) 3,538,082
Change in unrealized appreciation (depreciation) on:
Investments (1,954,440)
Financial futures contracts (4,909)
---------------
Net change in unrealized appreciation (depreciation) (1,959,349)
Net increase from payments by affiliates (Note 2) 6,357
------------
Net realized and unrealized gain (loss) on investments 1,585,090
------------
Net Increase in Net Assets from Operations $ 1,552,183
============
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ (32,907) $ (64,874)
Net realized gain (loss) 3,538,082 3,158,060
Change in net unrealized appreciation (depreciation) (1,959,349) 848,595
Net increase from payments by affiliates 6,357 --
--------------- -------------
Net increase (decrease) in net assets from investment operations 1,552,183 3,941,781
--------------- -------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 99,425 400,565
Cost of shares redeemed (972,218) (3,854,864)
--------------- -------------
Net increase (decrease) in net assets from Fund share transactions (872,793) (3,454,299)
--------------- -------------
Total Increase (Decrease) in Net Assets 679,390 487,482
Net Assets
At beginning of year 19,709,164 19,221,682
--------------- -------------
At end of year (including accumulated
net investment income of $0 and $5,999) $ 20,388,554 $ 19,709,164
=============== =============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- ------- -------- --------
Net Asset Value, Beginning of Year $ 13.84 $ 11.26 $ 9.48 $ 7.10 $ 8.15
-------- -------- ------- -------- --------
From Operations:
Net investment income (loss) * (a) (0.02) (0.04) (0.08) (0.01) (0.02)
Net realized and unrealized gains (loss) on investments 1.10 2.62 1.86(b) 2.39(b) (1.03)(b)
Net increase from payments by affiliates 0.00(c) -- -- -- --
-------- -------- ------- -------- --------
Total from operations 1.08 2.58 1.78 2.38 (1.05)
-------- -------- ------- -------- --------
Less Distributions to Shareholders:
From net investment income -- -- -- (0.00)(c) --
-------- -------- ------- -------- --------
Total distributions to shareholders -- -- -- (0.00)(c) --
-------- -------- ------- -------- --------
Net Asset Value, End of Year $ 14.92 $ 13.84 $ 11.26 $ 9.48 $ 7.10
======== ======== ======= ======== ========
Total Return (d) 7.80%(e) 22.91% 18.78% 33.54% (12.88)%
Ratios/Supplemental data:
Expenses (to average daily net assets)* 1.00% 1.00% 0.98% 0.74% 0.74%
Net Investment Loss (to average daily net assets)* (0.16)% (0.32)% (0.69)% (0.17)% (0.24)%
Portfolio Turnover 161% 167% 157% 252% 248%
Net Assets, End of Year (000's omitted) $ 20,389 $ 19,709 $19,222 $ 21,852 $ 18,861
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not
to impose a portion of its its investment advisory fee and/or reimbursed
the Fund for all or a portion of its operating expenses. If this voluntary
action had not been taken, the investment income (loss) per share and the
ratios would have been:
Net investment loss per share (a) $ (0.07) $ (0.09) $ (0.12) $ (0.07) $ (0.08)
Ratios (to average daily net assets):
Expenses 1.29% 1.38% 1.33% 1.40% 1.46%
Net investment income (loss) (0.45)% (0.70)% (1.04)% (0.83)% (0.96)%
(a) Calculated using the average shares outstanding.
(b) Amounts include litigation proceeds received by the Fund of $0.03 for the
year ended September 30, 2004, $0.01 for the year ended September 30, 2003
relating to securities litigation and $0.15 for the year ended September
30, 2002 relating to the settlement of multiple class action lawsuits.
(c) Calculates to less than $0.01 per share.
(d) Total return would have been lower in the absence of expense waivers.
(e) For the year ended September 30, 2006, 0.03% of the Fund's return
consisted of a payment by the advisor to compensate the Fund for a trading
error. Excluding this payment, total return would have been 7.77%.
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Small/Mid Cap Growth Fund (the "Fund") is a
separate diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of small
cap and mid cap U.S. companies. The Fund focuses on companies with total
market capitalizations equal to or less than the total market
capitalization of the largest company included in the Russell 2500 Growth
Index. The Fund may also invest in equity index futures based on the
Russell 2000 and S&P Midcap indices, and exchange traded funds based upon
the Russell 2500 Growth Index.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses are declared and distributed at least annually. Dividends
from net investment income and distributions from capital gains, if any,
are reinvested in additional shares of the Fund unless the shareholder
elects to receive them in cash. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America.
These differences which may result in reclassifications, are primarily due
to differing treatments for losses deferred due to wash sales and the
timing of recognition of realized and unrealized gains or losses on
futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions 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.
14
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
D. Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated among the funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. Affiliated issuers
Affiliated issuers are investment companies advised by The Boston Company
Asset Management LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
H. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory,
administrative services, and general office facilities, is paid monthly at
the annual rate of 0.60% of the Fund's average daily net assets. TBCAM
voluntarily agreed to limit the Fund's total annual operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
1.00% of the Fund's average daily net assets for the year ended September
30, 2006. Pursuant to this arrangement, for the year ended September 30,
2006, TBCAM voluntarily waived $58,142 of its advisory fee. This
arrangement is voluntary and temporary and may be discontinued or revised
by TBCAM at any time.
During the year ended September 30, 2006, the Fund received $6,357 from
TBCAM as reimbursement due to a trading error.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a wholly
owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of
Mellon Financial Corporation and an affiliate of TBCAM, to provide
personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as, out-of-pocket expenses. Pursuant to this agreement the
Fund was charged $8,040 for the year ended September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of TBCAM, to provide custody, administration and 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 $61,818 for the
year ended September 30, 2006.
The Trust also 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 earned $5,498 for the
year ended September 30, 2006. See Note 7 for further details.
15
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,135. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Fund for serving as an officer or Trustee of the Trust. The Fund pays each
Trustee who is not a director, officer or employee of TBCAM or its
affiliates an annual fee and a per meeting fee as well as reimbursement
for travel and out-of-pocket expenses. In addition, the Trust pays the
legal fees for the independent counsel of the Trustees.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, to provide printing and fulfillment services for the Fund.
Pursuant to this agreement the Fund was charged $2,748 for the year ended
September 30, 2006.
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. For the year ended September 30, 2006, the Fund was charged
$1,135 for fees payable to Mellon Private Wealth Management.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 31,522,106 $ 32,861,929
============ ============
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 6,818 30,650
Shares redeemed (64,826) (312,833)
------------ ------------
Net increase (decrease) (58,008) (282,183)
============ ============
At September 30, 2006, two shareholders of record held approximately 77%
of the total outstanding shares of the Fund. Investment activities 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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund did not assess any redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, was as follows:
Tax for federal income tax purposes $ 20,324,606
============
Gross unrealized appreciation $ 1,418,991
Gross unrealized depreciation (416,149)
------------
Net unrealized appreciation (depreciation) $ 1,002,842
============
16
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Undistributed ordinary income --
Undistributed capital gains $ 1,270,005
------------
Total distributable earnings $ 2,272,847
============
For the year ended September 30, 2006, the Fund utilized $2,298,542 in
capital loss carry forwards.
(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 financial instruments with off-balance
sheet risk:
Futures contracts
The Fund may enter into financial futures contracts for the purchase or
sale 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 also 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 September 30, 2006, the Fund held open financial futures contracts. See
Schedule of Investments for further detail on security positions and
collateral held.
(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 loaned securities during the year ended September 30, 2006 and
earned interest on the invested collateral of $67,944 of which $55,129 was
rebated to borrowers or paid in fees. At September 30, 2006, the Fund had
securities valued at $932,961 on loan. See Schedule of Investments for
further detail on the security positions on loan and collateral held.
(8) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. For the year
ended September 30, 2006, the expense allocated to the Fund was $251.
During the year ended September 30, 2006, the Fund did not borrow from the
line of credit.
17
Mellon Institutional Funds Investment Trust
The Boston Company Small/Mid Cap Growth Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company Small/Mid Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company Small/Mid Cap
Growth Fund (the "Fund") at September 30, 2006, 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 September 30, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
18
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None $660
c/o Decision Resources, Inc. 11/3/1986 Emeritus,
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 $696
c/o Essex Street Associates 11/3/1986 Street
P.O. Box 5600 Associates
Beverly, MA 01915 (family
11/14/43 investment
trust office)
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $660
c/o Harvard University 9/13/1989 Maier,
Littauer Center 127 Professor of
Cambridge, MA 02138 Political
8/5/44 Economy,
Harvard
University
John H. Hewitt Trustee Trustee since Trustee, 32 None $660
P.O. Box 2333 11/3/1986 Mertens House,
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
7/24/65 Management, LLC;
formerly Senior
Vice President
and Chief
Operating
Officer, Mellon
Asset
Management
("MAM") and
Vice President
and Chief
Financial
Officer, MAM
19
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; formerly Assistant Vice
One Boston Place Treasurer President and Mutual Funds Controller, Standish
Boston, MA 02108 since 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly Vice
One Boston Place President and Manager, Mutual Fund Operations,
Boston, MA 02108 Standish Mellon Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and Vice President, SSRM
20
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6928AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
Large Cap Core Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company Large Cap Core Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
During a year that witnessed continued monetary tightening, an erosion in
housing affordability and volatile energy costs, the twelve month period ended
September 30, 2006 can be seen as a time when the U.S. economy began to shift
gears from above trend growth to at or slightly below the probable long term
growth rate of 3%. This gradual deceleration bodes well for lower inflation as
economic activity moderates.
For the 12-months ended September 30, 2006, The Boston Company Large Cap Core
Fund had a total return of 9.8%. This put the Fund slightly behind the S&P 500
Index, its benchmark, which returned 10.8% over the same period. While stock
selection was strong, modest sector weight variances as compared to the S&P 500
Index detracted from performance for the period.
Equity leadership was mixed, and the market rewarded stocks with both higher
betas and expected growth rates. At least in the recent quarter, there appeared
to be a discernable shift in performance favoring larger cap stocks, however
that shift has been specific to value and core stocks, and not as prevalent in
growth stocks. For the year, the best return within the S&P 500 Index came from
the Telecommunications Services and Financials sectors. The 12-month period
ended September 30, 2006 was robust for stocks; in that all sectors produced a
positive return.
Despite our cognizance of the overall environment, we have not altered the
disciplined investment process with which we manage the Fund. The key component
of our process is to identify companies we believe are undervalued, i.e. where
the stock price does not fully reflect future earnings potential. Our universe
begins with the largest 1000 liquid stocks. We then utilize the expertise of our
analysts' sector specific models to identify those companies that are believed
to have the best combinations of low valuations and fundamental business
strength. Once those candidates are identified, we conduct further fundamental
research to determine those companies that are considered most likely to sustain
their positive business momentum. The continued application of our investment
discipline aggregates a portfolio of companies that we consider to have
attractive valuations and better-than-average business strength. Although we
cannot guarantee performance, we believe that building our portfolio on a
bottom-up, stock-by-stock basis, we can achieve successful individual stock
selection, which is the core result of our investment process.
While economic growth is expected to moderate, our outlook sees no significant
threat of recession. Rather, there are expectations of monetary easing on the
horizon as we head into 2007. Overall, we anticipate a modest deceleration in
company profits, but due to the healthy nature of corporate balance sheets, we
do not
2
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
envision an aggressive reversion scenario. The recent decline in energy prices
has impacted stock prices negatively in that sector, and given off a bullish
signal for the U.S. market. We attribute this to the cooling down of global
demand, and continue to subscribe to our "stronger, longer" energy price thesis.
Our equity outlook is that overall expansion should offset any negative
headwinds from slowing earnings. We welcome much of the worry as a buying
opportunity, and we continue to add attractive positions that are selling at a
discount to their future earnings power.
/s/ Martin Stephan /s/ Sean Fitzgibbon
Martin Stephan Sean Fitzgibbon
3
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
Large Cap Core Fund and the Standard & Poor's 500 Composite Stock Price Index
(Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/3/1991
- --------------------------------------------------------------------------------
Fund 9.84% 12.12% 7.15% 8.76% 12.32%
* 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.
4
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- --------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,025.10 $ 4.57(1)
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.56 $ 4.56(1)
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.90%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
(1) The example reflects the expenses of the Fund and the master portfolio in
which the Fund invests all of its assets.
5
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- --------------------------------------------------------------------------------
Altria Group, Inc. Consumer Staples 3.2%
General Electric Corp. Industrials 3.0
Bank of America Corp. Financials 3.0
Cisco Systems, Inc. Information Technology 2.6
JPMorgan Chase & Co. Financials 2.3
International Business Machines Corp. Information Technology 2.3
ConocoPhillips Energy 2.0
Morgan Stanley Financials 2.0
Citigroup, Inc. Financials 1.8
Hewlett-Packard Co. Information Technology 1.8
----
24.0%
* Excludes short-term securities.
Percentage of
Economic Sector Allocation Net Assets
- -----------------------------------------------------------
Consumer Discretionary 9.3%
Consumer Staples 8.7
Energy 10.5
Financials 19.6
Health Care 14.9
Industrials 10.3
Information Technology 16.7
Materials 2.3
Telecommunication Services 1.5
Utilities 3.2
Short-term and Net Other Assets 3.0
-----
100.0%
The Boston Company Large Cap Core Fund invests all of its investable assets in
an interest of The Boston Company Large Cap Core 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.
6
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in The Boston Company Large Cap Core Portfolio
("Portfolio"), at value (Note 1A) $ 93,589,737
Receivable for Fund shares sold 225,500
Prepaid expenses 4,527
----------------
Total assets 93,819,764
Liabilities
Payable for Fund shares redeemed $ 38,528
Accrued professional fees 11,686
Accrued administrative service fee (Note 2) 10,172
Accrued shareholder reporting fee (Note 2) 6,395
Accrued chief compliance officer fee (Note 2) 1,468
Accrued transfer agent fees (Note 2) 1,370
Accrued trustees' fees (Note 2) 500
Other accrued expenses and liabilities 4,742
---------------
Total liabilities 74,861
----------------
Net Assets $ 93,744,903
================
Net Assets consist of:
Paid-in capital $ 84,342,292
Accumulated net realized gain 3,532,181
Undistributed net investment income 213,510
Net unrealized appreciation 5,656,920
----------------
Total Net Assets $ 93,744,903
================
Shares of beneficial interest outstanding 2,494,636
================
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 37.58
================
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income allocated from Portfolio (net of foreign withholding taxes of $2,147) $ 916,822
Interest income allocated from Portfolio 5,500
Expenses allocated from Portfolio (362,511)
-------------
Net investment income allocated from Portfolio 559,811
Expenses
Administrative service fee (Note 2) $ 40,360
Professional fees 28,249
Registration fees 20,082
Transfer agent fees (Note 2) 8,250
Shareholder reporting expense (Note 2) 7,000
Trustees' fees (Note 2) 3,409
Insurance expense 1,380
Miscellaneous expenses 14,542
---------------
Total expenses 123,272
Deduct:
Reimbursement of Fund operating expenses (Note 2) (45,139)
---------------
Net expenses 78,133
-------------
Net investment income 481,678
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments 3,508,362
Financial futures transactions 357,131
---------------
Net realized gain (loss) 3,865,493
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments 866,918
-------------
Net realized and unrealized gain (loss) 4,732,411
-------------
Net Increase in Net Assets from Operations $ 5,214,089
=============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 481,678 $ 608,708
Net realized gain (loss) 3,865,493 7,108,328
Change in net unrealized appreciation (depreciation) 866,918 (560,299)
-------------- ---------------
Net increase (decrease) in net assets from investment operations 5,214,089 7,156,737
-------------- ---------------
Distributions to Shareholders (Note 1C)
From net investment income (480,413) (528,108)
From net realized gains on investments (5,953,616) --
-------------- ---------------
Total distributions to shareholders (6,434,029) (528,108)
-------------- ---------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 51,023,432 5,655,789
Value of shares issued in reinvestment of distributions 5,246,418 376,548
Cost of shares redeemed (7,340,989) (22,691,547)
-------------- ---------------
Net increase (decrease) in net assets from Fund share transactions 48,928,861 (16,659,210)
-------------- ---------------
Total Increase (Decrease) in Net Assets 47,708,921 (10,030,581)
Net Assets
At beginning of year 46,035,982 56,066,563
-------------- ---------------
At end of year (including undistributed net investment income of
$213,510 and $212,245) $ 93,744,903 $ 46,035,982
============== ===============
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Year $ 39.57 $ 35.24 $ 31.43 $ 26.13 $ 34.00
-------- -------- -------- -------- --------
From Investment Operations:
Net investment income (loss)* (a) 0.36 0.41 0.23 0.36 0.32
Net realized and unrealized gains (loss) on investments 3.22 4.28(b) 3.92(b) 5.30 (5.77)(b)
-------- -------- -------- -------- --------
Total from operations 3.58 4.69 4.15 5.66 (5.45)
-------- -------- -------- -------- --------
Less Distributions to Shareholders:
From net investment income (0.39) (0.36) (0.34) (0.36) (0.21)
From net realized gains on investments (5.18) -- -- -- (2.21)
-------- -------- -------- -------- --------
Total distributions to shareholders (5.57) (0.36) (0.34) (0.36) (2.42)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 37.58 $ 39.57 $ 35.24 $ 31.43 $ 26.13
======== ======== ======== ======== ========
Total Return 9.84%(c) 13.34% 13.23%(c) 21.76%(c) (17.70)%(c)
Ratios/Supplemental data:
Expenses (to average daily net assets)* (d) 0.90% 0.85% 0.83% 0.71% 0.71%
Net Investment Income (to average daily net assets)* 0.98% 1.10% 0.67% 1.23% 0.96%
Net Assets, End of Year (000's omitted) $ 93,745 $ 46,036 $ 56,067 $ 64,150 $ 55,029
- ----------
* 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) $ 0.33 N/A $ 0.23 $ 0.29 $ 0.27
Ratios (to average daily net assets):
Expenses (d) 0.99% N/A 0.84% 0.93% 0.83%
Net investment income 0.89% N/A 0.66% 1.01% 0.84%
(a) Calculated based on average shares outstanding.
(b) Amounts includes litigation proceeds received by the Portfolio of $0.02
for the year ended September 30, 2005, $0.02 for the year ended September
30, 2004 and $0.06 for the year ended September 30, 2002.
(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
The Boston Company Large Cap Core Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Large Cap Core Fund (the "Fund") is a separate
diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital.
The Fund invests all of its investable assets in an interest of The Boston
Company Large Cap Core Portfolio (the "Portfolio"), a subtrust of Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and which has the same investment objective
as the Fund. The Portfolio seeks to achieve its objective by investing,
under normal circumstances, at least 80% of net assets in equity
securities in companies that appear to be undervalued relative to
underlying business fundamentals. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net assets
of the Portfolio. As of September 30, 2006 the Fund owned 100% of the
Portfolio's net assets. The performance of the Fund is directly affected
by the performance of the Portfolio. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. The Fund records its investments 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 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 represent pro rata shares of gains
and losses of 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 are declared and distributed at least annually. In
determining the amounts of its dividends, the Fund will take into account
its share of the income, gains or losses, expenses, and any other tax
items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a shareholder elects to receive them in cash.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales and unrealized gains or
losses on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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
The Boston Company Large Cap Core 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. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to The Boston Company Asset Management, LLC ("TBCAM"), a
wholly-owned subsidiary of Mellon Financial Corporation, for such
services. See Note 2 of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report. TBCAM voluntarily agreed to
limit the total annual operating expenses of the Fund and its pro rata
share of the Portfolio expenses (excluding brokerage commissions, taxes
and extraordinary expenses) to 0.90% of the Fund's average daily net
assets. This agreement is voluntary and temporary and may be discontinued
or revised by TBCAM at any time. Pursuant to this agreement, for the year
ended September 30, 2006, TBCAM voluntarily reimbursed $45,139 of the
Fund's operating expenses.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services, the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as out-of-pocket expenses. Pursuant to this agreement, the
Fund was charged $8,250 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $5,264. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Portfolio Trust for serving as an officer or Trustee of the Trust. The
Fund pays each Trustee who is not a director, officer or employee of TBCAM
or its affiliates an annual fee.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide printing and fulfillment services for the Fund. Pursuant to this
agreement, the Fund was charged $6,395 for the year ended September 30,
2006.
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. For the year ended September 30, 2006, the Fund was charged
$40,360 for fees payable to Mellon Private Wealth Management.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2006 aggregated $56,045,051 and $13,796,610,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expense 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.
12
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 1,384,404 148,469
Shares issued to shareholders in
reinvestment of distributions 146,598 9,893
Shares redeemed (199,694) (585,936)
------------ --------
Net increase 1,331,308 (427,574)
============ ========
At September 30, 2006, one shareholder of record (Mellon Private Wealth
Management, a wholly-owned subsidiary of Mellon Financial Corporation and
an affiliate of the Fund) held approximately 61% of the total outstanding
shares of the Fund. Investment activities of this shareholder could have a
material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
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 in the
Fund. The fee does not apply to shares that are acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund received $60 in redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings as of September 30,
2006, were as follows:
Undistributed ordinary income $ 815,007
Undistributed capital gain 3,131,008
------------
Total distributable earnings $ 3,946,015
============
The tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005 was as follows:
2006 2005
------------ ----------
Distributions paid from:
Ordinary income $ 1,406,425 $ 528,108
Capital gains 5,027,604 --
------------ ----------
Total Distributions $ 6,434,029 $ 528,108
============ ==========
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
13
Mellon Institutional Funds Investment Trust
The Boston Company Large Cap Core Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company Large Cap Core Fund:
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Boston Company Large Cap Core Fund (the "Fund") at September 30, 2006, 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 September 30, 2006 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
14
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENT--97.3%
EQUITIES--97.0%
Consumer Discretionary--9.3%
Circuit City Stores, Inc. 24,090 $ 604,900
Coach, Inc. (a) 11,760 404,544
Fortune Brands, Inc. 5,480 411,603
Hilton Hotels Corp. 32,780 912,923
J.C. Penny Co., Inc. 8,450 577,896
McDonalds Corp. 33,690 1,317,953
Omnicom Group 12,390 1,159,704
Target Corp. 26,570 1,467,993
The Home Depot, Inc. 19,060 691,306
Walt Disney Co. 27,530 850,952
Wyndham Worldwide Corp. (a) 10,564 295,475
---------------
8,695,249
---------------
Consumer Staples--8.7%
Altria Group, Inc. 38,420 2,941,051
Cadbury Schweppes PLC--ADR 34,410 1,471,716
CVS Corp. 22,350 717,882
Dean Foods Corp. (a) 10,650 447,513
Pepsico, Inc. 21,670 1,414,184
The Kroger Co. 50,140 1,160,240
---------------
8,152,586
---------------
Energy--10.5%
Chesapeake Energy Corp. 21,000 608,580
Chevron Corp. 10,672 692,186
ConocoPhillips 30,160 1,795,425
ENSCO International, Inc. 20,450 896,324
Exxon Mobil Corp. 14,024 941,010
Hess Corp. 11,740 486,271
Marathon Oil Corp. 12,590 968,171
Nabors Industries Ltd. (a) 25,020 744,345
National-Oilwell Varco, Inc. (a) 15,770 923,334
Weatherford International Ltd. (a) 20,820 868,610
XTO Energy, Inc. 20,360 857,767
---------------
9,782,023
---------------
Financial--19.6%
Allstate Corp./The 17,120 1,073,938
Ambac Financial Group, Inc. 11,090 917,698
American International Group 12,619 836,135
Bank of America Corp. 51,180 2,741,713
Chubb Corp. 17,450 906,702
Citigroup, Inc. 32,966 1,637,421
E*TRADE Financial Corp. (a) 27,270 652,298
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Financial (continued)
Hartford Financial Services Group, Inc. 10,020 $ 869,235
JPMorgan Chase & Co. 44,230 2,077,041
Lehman Brothers Holdings, Inc. 11,110 820,585
Merrill Lynch & Co., Inc. 11,840 926,125
Metlife, Inc. 14,270 808,824
Morgan Stanley 24,240 1,767,338
PNC Financial Services Group, Inc. 6,470 468,687
Realogy Corp. (a) 9,455 214,439
The Bank of New York Co., Inc. 18,930 667,472
U.S. Bancorp 28,660 952,085
---------------
18,337,736
---------------
Health Care--14.9%
Amerisourcebergen Corp. 19,060 861,512
Amgen, Inc. (a) 20,650 1,477,095
Baxter International, Inc. 25,680 1,167,413
Becton Dickinson & Co. 7,320 517,304
Cigna Corp. 5,990 696,757
Fisher Scientific International 13,020 1,018,685
Mettler-Toledo International, Inc.--ADR (a) 7,540 498,771
Novartis AG--ADR 11,960 698,942
Pfizer, Inc. 36,110 1,024,080
Sanofi-Aventis--ADR 20,820 925,865
Schering-Plough Corp. 65,670 1,450,650
Thermo Electron Corp. (a) 12,610 495,951
Universal Health Services, Inc. 12,020 720,359
Wellpoint, Inc. (a) 15,190 1,170,390
Wyeth 23,810 1,210,500
---------------
13,934,274
---------------
Industrials--10.3%
Eaton Corp. 13,700 943,245
Emerson Electric Co. 11,220 940,909
General Electric Corp. 77,690 2,742,457
Goodrich Corp. 13,680 554,314
L-3 Communications Holdings, Inc. 13,290 1,041,006
Textron, Inc. 16,140 1,412,250
Tyco International Ltd 49,990 1,399,220
US Airways Group, Inc. (a) 14,222 630,461
---------------
9,663,862
---------------
Information Technology--16.7%
Accenture Ltd., Class A 29,360 931,006
Amphenol Corp. 12,850 795,801
Apple Computer, Inc. (a) 12,650 974,430
Autodesk, Inc. (a) 13,390 465,704
Cisco Systems, Inc. (a) 101,640 2,337,720
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Information Technology (continued)
Cognizant Technology Solutions Corp. (a) 6,970 $ 516,198
Google, Inc. (a) 3,790 1,523,201
Hewlett-Packard Co. 44,500 1,632,705
International Business Machines Corp. 24,940 2,043,584
Microsoft Corp. 36,420 995,359
Motorola, Inc. 39,440 986,000
National Semiconductor Corp. 34,720 816,962
Oracle Corp. (a) 31,380 556,681
Texas Instruments, Inc. 32,800 1,090,600
---------------
15,665,951
---------------
Materials--2.3%
Phelps Dodge Corp. 10,990 930,853
Rohm & Haas Co. 14,830 702,201
Smurfit-Stone Container Corp. (a) 13,470 150,864
Steel Dynamics, Inc. 7,010 353,655
---------------
2,137,573
---------------
Telecommunication Services--1.5%
AT&T, Inc. 41,770 1,360,031
---------------
Utilities--3.2%
Constellation Energy Group, Inc. 19,450 1,151,440
P G & E Corp. 26,900 1,120,385
Sempra Energy 14,440 725,603
---------------
2,997,428
---------------
Total Equities (Cost $85,069,793) 90,726,713
---------------
SHORT-TERM INVESTMENTS--0.3% Rate Maturity Par Value
------ ---------- ------------
U.S. Government--0.3%
U.S. Treasury Bill (b) (Cost $296,997) 4.80% 12/14/2006 $ 300,000 296,997
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $85,366,790)
AFFILIATED INVESTMENTS--4.5% Shares
---------
Dreyfus Institutional Preferred Plus Money Market Fund (b)(c)
(Cost $4,211,418) 5.32% 4,211,418 4,211,418
---------------
TOTAL INVESTMENTS--101.8% (Cost $89,578,208) 95,235,128
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.8)% (1,645,391)
---------------
NET ASSETS--100.0% $ 93,589,737
===============
Notes to Schedule of Investments:
ADR--American Depositary Receipts
(a) Non-income producing security.
(b) Rate noted is yield to maturity.
(c) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (Note 1A):
Unaffiliated issuers, at value (cost $85,366,790) $ 91,023,710
Affiliated issuers, at value (cost $4,211,418) (Note 1F) 4,211,418
Receivable for investments sold 2,818,687
Interest and dividends receivable 112,677
Prepaid expenses 2,833
---------------
Total assets 98,169,325
Liabilities
Payable for investments purchased $ 4,537,561
Accrued accounting, administration and custody fees (Note 2) 8,356
Accrued professional fees 6,089
Accrued trustees' fees and expenses (Note 2) 513
Other accrued expenses and liabilities 27,069
------------
Total liabilities 4,579,588
---------------
Net Assets (applicable to investors' beneficial interest) $ 93,589,737
===============
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net of foreign withholding taxes of $2,147) $ 840,057
Dividend income from affiliated investments (Note 1F) 76,765
Interest income 5,500
---------------
Total investment Income 922,322
Expenses
Investment advisory fee (Note 2) $ 245,583
Accounting, administration and custody fees (Note 2) 80,698
Professional fees 17,944
Trustees' fees and expenses (Note 2) 3,546
Insurance expense 11,339
Miscellaneous expenses 3,401
------------
Total expenses 362,511
---------------
Net investment income 559,811
---------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 3,508,362
Financial futures transactions 357,131
------------
Net realized gain (loss) 3,865,493
Change in unrealized appreciation (depreciation) on:
Investments 866,918
---------------
Net realized and unrealized gain (loss) 4,732,411
---------------
Net Increase in Net Assets from Operations $ 5,292,222
===============
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets
From Operations
Net investment income (loss) $ 559,811 $ 688,874
Net realized gain (loss) 3,865,493 7,108,328
Change in net unrealized appreciation (depreciation) 866,918 (560,299)
------------- -------------
Net increase (decrease) in net assets from operations 5,292,222 7,236,903
------------- -------------
Capital Transactions
Contributions 56,045,051 6,081,476
Withdrawals (13,796,610) (23,303,488)
------------- -------------
Net increase (decrease) in net assets from capital transactions 42,248,441 (17,222,012)
------------- -------------
Total Increase (Decrease) in Net Assets 47,540,663 (9,985,109)
Net Assets
At beginning of year 46,049,074 56,034,183
------------- -------------
At end of year $ 93,589,737 $ 46,049,074
============= =============
The accompanying notes are an integral part of the financial statements.
20
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Total Return (a) 9.97% 13.49% 13.34% 21.76%(a) (17.69)%(a)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.74% 0.70% 0.72% 0.71% 0.70%
Net Investment Income (to average daily net assets)* 1.14% 1.24% 0.77% 1.23% 0.97%
Portfolio Turnover 103% 85% 66% 104% 80%
Net Assets, End of Year (000's omitted) $ 93,590 $ 46,049 $ 56,034 $ 64,170 $ 55,007
- ----------
* 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 N/A 0.77% 0.72%
Net investment income N/A N/A N/A 1.17% 0.95%
(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.
21
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The
Boston Company Large Cap Core Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
The objective of the Portfolio is long-term growth of capital. The
Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity and equity-related
securities of companies which appear to be undervalued relative to
underlying business fundamentals.
At September 30, 2006, there was one fund, The Boston Company Large Cap
Core Fund (the "Fund"), invested in the Portfolio. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. The Fund's proportionate interest at
September 30, 2006 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
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.
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.
22
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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
the funds of the Trust or the 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 The Boston Company
Asset Management LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Portfolio, a minimum threshold for financial
statement recognition of the benefit of positions taken in filing tax
returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date. At this
time, management is evaluating the implications of FIN 48 and its impact,
if any, in the financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions with Affiliates:
The investment advisory fee paid to TBCAM 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.
The Portfolio Trust entered into an agreement with Mellon Bank, N.A.
("Mellon Bank"), a wholly-owned subsidiary of Mellon Financial Corporation
and an affiliate of TBCAM, to provide custody, administration and
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 $80,698 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's and Portfolio Trust's Chief Compliance Officer. No other
director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the Trust or Portfolio Trust. The Fund and Portfolio
Trust pays each Trustee who is not a director, officer or employee of
TBCAM or its affiliates (the "Independent Trustees") an annual fee and the
Portfolio Trust pays each Independent Trustee 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 counsel to the Independent
Trustees.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 91,928,597 $ 51,396,084
============ ============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2006, as computed on a
federal income tax basis, were as follows:
Cost for federal income tax purposes $ 111,403,512
=============
Gross unrealized appreciation $ 6,078,903
Gross unrealized depreciation (622,308)
-------------
Net unrealized appreciation (depreciation) $ 5,456,595
=============
23
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The Portfolio may trade the following financial instruments with
off-balance sheet risk:
Futures contracts
The Portfolio may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices at
a fixed price on a future date. Pursuant to margin requirements the
Portfolio deposits either cash or securities in an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, depending on the daily fluctuations in
the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio. There
are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged investments.
Buying futures tends to increase the Portfolio's exposure to the
underlying instrument, while selling futures tends to decrease the
Portfolio's exposure to the underlying instrument or hedge other
investments. In addition, there is the risk that the Portfolio may not be
able to enter into a closing transaction because of an illiquid secondary
market. Losses may arise if there is an illiquid secondary market or if
the counterparty does not perform under the contract's terms. The
Portfolio enters into financial futures transactions primarily to seek to
manage its exposure to certain markets and to changes in securities prices
and foreign currencies. Gains and losses are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at the
quoted daily settlement prices established by the exchange on which they
trade.
At September 30, 2006, the Portfolio did not hold open financial futures
contracts.
(6) 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. The Fund/Portfolio also pays
an annual renewal fee, computed at a rate of 0.020 of 1% of the committed
amount and allocated ratably to the participating funds/portfolios. For
the year ended September 30, 2006, the expense allocated to the Portfolio
was $665.
During the year ended September 30, 2006, the Portfolio had average
borrowings outstanding of $66,750 for a total of eight days and incurred
$90 of interest expense.
24
Mellon Institutional Funds Master Portfolio
The Boston Company Large Cap Core Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company Large Cap Core Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company Large Cap Core
Portfolio (the "Portfolio") at September 30, 2006, 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 September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
25
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Emeritus, Portfolio: $1,012
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: $1,103
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: $1,012
Littauer Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. Portfolio: $1,012
New London, NH 03257 (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
President and
Chief Financial
Officer, MAM
26
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; formerly Assistant Vice President
One Boston Place Treasurer and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon
Boston, MA 02108 Asset Management Company, LLC
e 2001
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and Vice President, SSRM
27
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6930AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Intermediate Tax Exempt Bond Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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 Intermediate Tax Exempt Bond Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
For the year ended September 30, 2006, the Standish Mellon Intermediate Tax
Exempt Bond Fund produced a total return after expenses of 3.58%. The Fund's
return exceeded the Lehman Municipal 3-5-7-10 Year Index, the Fund's benchmark,
which produced a 3.52% return for the same period. In a relatively low interest
rate environment, holding bonds that generate excess income proved to be a
favorable strategy.
Most U.S. bond interest rates followed the course charted by the U.S. Federal
Reserve's monetary actions. Until mid-2006, rising energy prices and increasing
inflation expectations prompted Fed policy makers to push short-term rates
higher. Long-term Treasury rates rose in concert as investors remained concerned
that inflation might spiral beyond the Fed's control. As the summer months
unfolded, however, the central bank moved toward a more neutral stance; longer
rates started to ease as weak housing indicators and declining oil and gas
prices caused inflation fears to recede. By the end of September 2006, yields on
ten-year Treasury notes stood about one-quarter point higher than they had been
one year earlier.
Municipal bonds once again showed their defensive properties as short-term
tax-exempt interest rates rose less than their taxable counterparts. Rates for
municipal securities maturing beyond five years actually fell slightly in the
period. Consequently, total returns from tax-exempt bonds outpaced those from
Treasuries, agencies and investment-grade corporate securities. The tax-free
nature of coupon income only added to municipal bonds' investment advantages.
Credit trends in the municipal market have been increasingly favorable. Recently
the Nelson A. Rockefeller Institute of Government reported that year-over-year
growth in state tax revenues hit 9.9% in the second quarter of 2006. With tax
collections surging, ratings upgrades outnumbered downgrades, and returns
strengthened from tax-backed holdings issued by California and New York City.
Positive economic and industry trends also aided the performance from the Fund's
allocations to revenue bond sectors such as hospitals, industrial development
and tobacco securitization. These sectors produced above-market yields,
triggering demand from income-oriented investors.
The Fed has hiked interest rates quite far, and will likely sit by and watch
over the coming months as the long and variable lags of monetary policy work
their way through the real economy. If the historical record is any guide, both
short- and long-term interest rates ordinarily decline after the Fed completes a
tightening cycle. Whether short-term rates have peaked remains uncertain; the
answer to this key question depends on the pace of economic activity and
investors' expectations for future inflation. Tight credit spreads, a
historically flat yield curve and low volatility make it challenging to find
opportunities in the fixed income markets. In this environment, the Fund is
positioned for high quality with neutral interest rate posture and an emphasis
on the middle portion of your investable maturity spectrum until we face an
eventual return to a more "normal" risk environment.
It has been our privilege to manage the Fund, and we thank you for your
continued support.
/s/ Steven W. Harvey /s/ Christine L. Todd
Steven W. Harvey Christine L. Todd
2
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Comparison of Change in Value of $100,000 Investment in
Standish Mellon Intermediate Tax Exempt Bond Fund and
the Lehman Brothers Municipal 3-5-7-10 Year Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 11/2/1992
- --------------------------------------------------------------------------------
Fund 3.58% 2.84% 4.00% 4.87% 5.33%
* 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 Intermediate Tax Exempt Bond Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- --------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,029.80 $ 2.24
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,022.86 $ 2.23
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.44%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Rate Maturity Investments
- -----------------------------------------------------------------------------------------
New York Dormitory Authority Revenue 5.250% 11/15/2023 3.4%
Tennessee Energy Acquisition Corp 5.250 9/1/2017 2.6
Puerto Rico Commonwealth Fuel Sales Tax Revenue 5.000 7/1/2018 2.4
Puerto Rico Public Financial Corp.
LOC: Government Development Bank for Puerto Rico 5.750 8/1/2027 1.9
Wisconsin State Transportation 5.000 3/1/2010 1.9
Oklahoma DFA Revenue Hillcrest Healthcare System 5.625 8/15/2019 1.9
New York Dormitory Authority State
University Educational Facilities MBIA IBC 5.250 5/15/2015 1.8
Tobacco Settlement Authority Iowa 5.600 6/1/2035 1.7
Florida Hurricane Catastrophe Recovery 5.250 7/1/2012 1.7
Massachusetts State 5.000 7/1/2012 1.7
----
21.0%
* Excluding short-term investments and cash collateral.
Percentage of
Economic Sector Allocation Net Assets
- --------------------------------------------------------------------
General Obligations 16.5%
Government Backed 5.6
Housing Revenue 3.2
Industrial Development 11.3
Insured Bond 36.0
Lease Revenue 4.2
Revenue Bonds 18.9
Special Revenues 2.7
Short-term and Net Other Assets 1.6
-----
100.0%
Summary of Combined Ratings+
- --------------------------------------------------------------------
Percentage of
Quality Breakdown Investments
- --------------------------------------------------------------------
AAA 53.9%
AA 25.6
A 8.8
BBB 11.7
-----
Total 100.0%
+ Based on ratings from Standard & Poor's and/or Moody's Investors Services.
If a security receives split (different) ratings from multiple rating
organizations, the Fund treats the security as being rated in the higher
rating category.
The Fund is actively managed. Current holdings may be different than those
presented above.
5
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par
Security Rate Maturity Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS--98.4%
General Obligations--16.5%
ABAG CA Odd Fellows Homes 5.700% 8/15/2014 1,000,000 $ 1,029,080
California State 5.000 10/1/2011 200,000 211,544
California State 5.000 10/1/2011 70,000 73,560
California State 5.000 6/1/2014 1,435,000 1,552,383
California State NCL 6.600 2/1/2009 1,000,000 1,066,960
California State NCL 5.750 11/1/2011 300,000 329,520
Commonwealth of Massachusetts NCL 6.000 11/1/2010 1,350,000 1,471,203
Goose Creek TX Independent School District 7.000 8/15/2009 110,000 120,241
Goose Creek TX Independent School District 7.000 8/15/2009 260,000 283,761
Massachusetts State 5.000 7/1/2012 2,000,000 2,135,400
New York NY NCL 5.000 6/1/2011 1,000,000 1,055,550
New York NY NCL 5.000 8/1/2011 770,000 814,175
New York NY NCL 5.000 8/1/2011 1,700,000 1,797,529
New York NY NCL 5.000 8/1/2013 1,500,000 1,608,180
Northeast TX Independent School District NCL 7.000 2/1/2009 1,000,000 1,075,110
Puerto Rico Commonwealth Fuel Sales Tax Revenue (a) 5.000 7/1/2018 3,000,000 3,058,410
Puerto Rico Public Building Authority Revenue (a) 5.000 7/1/2028 1,000,000 1,045,050
Puerto Rico Public Financial Corp. LOC:
Government Development Bank for Puerto Rico (a) 5.750 8/1/2027 2,250,000 2,424,735
------------
21,152,391
------------
Government Backed--5.6%
Alpine UT School District 5.000 3/15/2011 25,000 25,704
Dallas Texas Independent School District 5.500 2/15/2017 1,500,000 1,636,290
District of Columbia Prerefunded MBIA NCL 5.750 6/1/2010 10,000 10,752
Goose Creek TX Independent School District PSF 7.000 8/15/2009 230,000 251,413
Met Govt Nashville & Davidson TN Industrial
Development Board Revenue Prerefunded 7.500 11/15/2010 1,000,000 1,127,740
Oklahoma DFA Revenue Hillcrest Healthcare System 5.625 8/15/2019 2,185,000 2,322,786
Palm Beach County FL Solid Waste AMBAC 6.000 10/1/2009 60,000 64,190
Puerto Rico Commonwealth Highway & Transportation Authority Revenue 5.750 7/1/2041 1,500,000 1,670,790
Texas Municipal Power Agency MBIA (b) 0.000 9/1/2016 10,000 6,741
------------
7,116,406
------------
Housing Revenue--3.2%
Colorado HFA Single Family Project AMT (a) 6.800 2/1/2031 1,440,000 1,495,901
Colorado HFA Single Family Project AMT (a) 6.600 8/1/2032 1,180,000 1,210,055
Florida Housing Finance Corp. FSA 5.750 1/1/2017 40,000 40,472
Nebraska Investment Finance Authority SFM FHA VA AMT 6.700 9/1/2026 10,000 10,078
Ohio HFA Mortgage Revenue AMT GNMA 5.350 9/1/2018 190,000 194,334
Rhode Island Housing & Mortgage Finance Corp. 4.950 10/1/2016 150,000 150,749
Tennessee Housing Development Agency Homeownership Project AMT NCL 5.750 7/1/2007 840,000 848,366
Utah HFA AMT SFM 5.400 7/1/2020 205,000 208,944
------------
4,158,899
------------
Industrial Development--11.3%
Connecticut Gaming Authority Mohegan Tribe 5.375 1/1/2011 1,000,000 1,023,360
Gloucester NJ Resource Recovery (a) 6.850 12/1/2029 500,000 541,235
Golden State Tobacco Securitization Corp. AMBAC 5.000 6/1/2020 500,000 522,060
Golden State Tobacco Securitization Corp. 5.000 6/1/2021 1,115,000 1,119,839
Golden State Tobacco Securitization Corp. AMBAC (c) 0.000 6/1/2023 750,000 637,643
Hendersonville TN Kroger 5.950 12/15/2008 170,000 172,848
Mass DFA Waste Management Resource Recovery AMT (a) 6.900 12/1/2029 500,000 540,275
Northern TOB Securitization Corp. Alaska 6.500 6/1/2031 1,000,000 1,097,070
Northern TOB Securitization Corp. Alaska 4.750 6/1/2015 570,000 579,234
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par
Security Rate Maturity Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Development (continued)
Northern TOB Securitization Corp. Alaska 4.625% 6/1/2023 1,000,000 $ 991,240
San Manuel Entertainment Series 2004-C 144A 4.500 12/1/2016 1,000,000 1,007,170
Tobacco Settlement Authority Iowa 5.600 6/1/2035 2,000,000 2,181,580
Tobacco Settlement Authority Southern California 4.750 6/1/2025 1,000,000 1,003,790
Tobacco Settlement Authority Washington 6.500 6/1/2026 960,000 1,054,234
Tobacco Settlement Funding Corp. NJ 5.000 6/1/2010 500,000 514,945
Tobacco Settlement Funding Corp. NJ 4.375 6/1/2019 425,000 424,771
Tobacco Settlement Funding Corp. NY 5.250 6/1/2013 1,000,000 1,027,420
------------
14,438,714
------------
Insured Bond--36.0%
Atlanta GA Airport Revenue AMT FGIC 5.250 1/1/2012 900,000 959,238
Broward County FL School Board AMBAC 5.000 7/1/2013 1,000,000 1,073,180
California State AMBAC 6.000 4/1/2016 1,000,000 1,172,190
Carroll Texas Independent School District MBIA 5.000 2/15/2016 1,155,000 1,257,599
Charleston SC COP MBIA 6.000 12/1/2008 1,000,000 1,051,480
Chicago Illinois Transportation Authority AMBAC 5.250 6/1/2013 1,000,000 1,090,070
Cleveland Ohio Waterworks Revenue MBIA 5.500 1/1/2013 1,500,000 1,601,820
Colorado State Department of Corrections
Penitentiary II Project B AMBAC 5.000 3/1/2015 1,000,000 1,082,650
Cook County IL High School FGIC NCL 7.875 12/1/2014 750,000 960,795
Cook County IL School District FSA NCL 6.750 5/1/2010 1,750,000 1,933,313
District of Columbia MBIA NCL 5.750 6/1/2010 15,000 16,079
Douglas County CO School District MBIA 7.000 12/15/2012 625,000 740,906
Fairfax County VA EDA Residential Recovery AMT AMBAC 6.100 2/1/2011 1,000,000 1,087,550
Farmington New Mexico Pollution Control Revenue FGIC (a) 3.550 4/1/2029 2,000,000 1,985,720
Georgia Municipal Electric Authority Power FGIC NCL 6.250 1/1/2012 1,150,000 1,292,566
Harris County Texas Health Facility Development Corp. MBIA 6.000 6/1/2013 1,000,000 1,125,160
Harris County Texas Toll Revenue FGIC NCL 6.000 8/1/2012 1,000,000 1,119,470
Hawaii Harbor System Revenue AMT FSA 5.000 1/1/2014 1,000,000 1,068,110
Hillsborough County Fl Assessment Revenue FGIC 5.000 3/1/2013 1,000,000 1,067,070
Honolulu City & County Board Water Revenue AMT MBIA 5.000 7/1/2014 1,000,000 1,068,700
Indianapolis Local Public Improvement Bond Bank AMT AMBAC 5.000 1/1/2017 1,000,000 1,069,960
Intermountain Power Agency UT NCL MBIA 6.500 7/1/2010 1,000,000 1,103,180
Louisville & Jefferson County KY Regional
Airport Authority Revenue FSA AMT 5.500 7/1/2011 1,355,000 1,450,365
Mass State School Building Authority Dedicated Sales Tax Revenue FSA 5.000 8/15/2013 1,000,000 1,081,270
Mesa Arizona Utility System Revenue NCL MBIA 6.000 7/1/2020 1,250,000 1,519,650
Mesa Arizona Utility System Revenue NCL FGIC 5.000 7/1/2018 1,000,000 1,105,760
Metropolitan Washington DC Apartment Authority System AMT MBIA 5.000 10/1/2012 1,000,000 1,058,270
Nassau County NY FGIC 6.000 7/1/2010 25,000 27,109
New Jersey Health Care Facilities Financing Authority Revenue AMBAC 4.800 8/1/2021 555,000 560,306
New Jersey State Transportation FSA 5.750 12/15/2014 770,000 883,036
New Jersey State Transportation FSA 5.750 12/15/2014 230,000 261,496
New York Dormitory Authority Presbyterian Hospital AMBAC 4.400 8/1/2013 35,000 35,128
New York Dormitory Authority State University Educational Facilities MBIA 6.000 5/15/2015 1,000,000 1,089,750
New York Dormitory Authority State University Educational Facilities MBIA
IBC 5.250 5/15/2015 2,000,000 2,198,100
North Carolina Medical Care Community HCF Revenue AMBAC 5.000 10/1/2012 750,000 803,213
Pasco County FL Solid Waste AMBAC AMT NCL 6.000 4/1/2010 1,000,000 1,061,220
Pennsylvania Economic DFA Resource Recovery
Revenue; Colver Project AMT AMBAC 5.000 12/1/2012 1,000,000 1,055,730
Port Authority of NY & NJ AMT FGIC 5.000 10/1/2013 1,000,000 1,070,540
Puerto Rico Electric Power Authority Revenue XLCA (c) 5.500 7/1/2016 500,000 569,075
South Carolina Transit Infrastructure Bank Revenue AMBAC NCL 5.250 10/1/2015 1,000,000 1,111,980
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par
Security Rate Maturity Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
Insured Bond (continued)
Stafford TX Economic Development FGIC 6.000% 9/1/2015 525,000 $ 609,420
Sweetwater County Improvement Project Powers Board Lease Revenue MBIA 5.000 12/15/2009 1,120,000 1,167,925
Wisconsin State Certificates of Participation MBIA 5.000 3/1/2010 2,295,000 2,399,377
------------
46,045,526
------------
Lease Revenue--4.2%
New Jersey Economic Development Authority Revenue
School Facilities Construction NCL 5.000 9/1/2012 1,000,000 1,066,210
New York Dormitory Authority Revenue (a) 5.250 11/15/2023 4,000,000 4,298,960
------------
5,365,170
------------
Revenue Bonds--18.9%
California Statewide Communities DFA--Kaiser Permanente (a) 2.300 4/1/2033 1,250,000 1,240,613
Camden NJ Cooper Hospitals NCL 5.600 2/15/2007 75,000 75,048
Energy Northwest Washington Electricity Revenue 5.000 7/1/2011 1,000,000 1,057,340
Energy Northwest Washington Electricity Revenue 5.500 7/1/2015 1,000,000 1,122,220
Franklin County Ohio Revenue Refunding Trinity Health Credit NCL 5.000 6/1/2014 1,340,000 1,435,797
Greenville County South Carolina School District 5.000 12/1/2011 1,000,000 1,058,080
Illinois DFA Depaul University NCL 5.500 10/1/2011 1,000,000 1,076,630
Illinois Financial Authority Student Housing Revenue NCL 5.000 6/1/2012 1,160,000 1,203,929
Illinois HEFA Condell Medical Center 6.000 5/15/2010 345,000 354,391
Illinois HEFA Northwestern University (a) 5.050 11/1/2032 725,000 758,618
Indiana Health Facility Financing Authority Revenue 5.000 11/1/2011 500,000 527,680
Lubbock TX Health Facilities Development St. Joseph Healthcare System 5.000 7/1/2008 2,000,000 2,045,740
Mass DFA Williston School 6.000 10/1/2013 205,000 214,307
Mass HEFA Lahey Clinic Medical Center FGIC 5.000 8/15/2014 1,000,000 1,081,570
Mass HEFA Partners NCL 5.000 7/1/2012 1,250,000 1,330,638
Metropolitan Transportation Authority NY Revenue 5.250 11/15/2014 1,000,000 1,098,920
Michigan State Hospital Finance Authority 5.250 11/15/2010 1,000,000 1,051,200
New Hampshire HEFA Monadnock Hospital 5.250 10/1/2007 180,000 181,764
New Mexico State Hospital Equipment Loan
Revenue Presbyterian Healthcare Services 5.750 8/1/2012 1,000,000 1,100,010
New York NY City Industrial Development Agency Special Facility Revenue AMT 5.500 1/1/2014 1,000,000 1,088,190
Puerto Rico Commonwealth Government Development Bank 5.000 12/1/2015 1,000,000 1,072,040
Puerto Rico Commonwealth Government Development Bank AMT 5.250 1/1/2015 600,000 640,878
Tennessee Energy Acquisition Corp 5.250 9/1/2017 3,000,000 3,312,000
Wisconsin State Transportation 5.500 7/1/2010 15,000 15,962
------------
24,143,565
------------
Special Revenues--2.7%
Florida Hurricane Catastrophe Recovery 5.250 7/1/2012 2,000,000 2,167,520
Jicarilla NM Apache Nation Revenue 5.000 9/1/2013 500,000 522,530
Puerto Rico Commonwealth Highway & Transportation Authority Revenue 5.000 7/1/2007 750,000 756,309
------------
3,446,359
------------
TOTAL BONDS (Cost $124,428,453) 125,867,030
------------
SHORT-TERM INVESTMENTS--0.9%
Short-Term Bonds--0.9%
Idaho Health Facility Authority Revenue FSA (d) 3.800 7/1/2035 200,000 200,000
Indiana Health Facility Financing Authority (d) 3.840 3/1/2030 600,000 600,000
Massachusetts State Development Finance Agency (d) 3.780 10/1/2042 100,000 100,000
University NC Hospital--Chapel Hill Revenue (d) 3.800 2/15/2031 300,000 300,000
------------
Total Short Term Investments (Cost $1,200,000) 1,200,000
------------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Security Rate Maturity Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Companies--0.0%
Wells Fargo National Tax-Free Money Market Fund (e) (Cost $48,140) 3.300% 48,140 $ 48,140
------------
Total Short Term Investments (Cost $1,248,140) 1,248,140
------------
TOTAL INVESTMENTS--99.3% (Cost $125,676,593) 127,115,170
------------
OTHER ASSETS, LESS LIABILITIES--0.7% 812,199
------------
NET ASSETS--100% $127,927,369
============
Notes to Schedule of Investments:
AMBAC--American Municipal Bond Assurance Corp.
AMT--Alternative Minimum Tax
COP--Certification of Participation
DFA--Development Finance Authority
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Authority
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
HEFA--Health & Educational Facilities Authority
HFA--Housing Finance Authority
IBC--Insured Bond Certificate
LOC--Letter of Credit
MBIA--Municipal Bond Insurance Association
NCL--Non-callable
PSF--Public School Fund
SFM--Single Family Mortgage
TOB--Tobacco
VA--Veterans Administration
XLCA--XL Capital Assurance Inc.
(a) Variable Rate Security; rate indicated is as of September 30, 2006.
(b) Zero coupon security.
(c) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specific rate and date.
(d) Variable rate securities that reset monthly or more frequently and have
put features that can be exercised within seven days.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A) (cost $125,676,593) $ 127,115,170
Receivable for Fund shares sold 160,752
Interest receivable 1,696,753
Prepaid expenses 26,678
-------------
Total assets 128,999,353
Liabilities
Payable for Fund shares redeemed $ 988,153
Distributions payable 45,024
Accrued professional fees 15,227
Accrued accounting, custody, administration and transfer agent fees (Note 2) 9,561
Accrued administrative services expense (Note 2) 7,024
Accrued trustees' fees and expenses (Note 2) 3,711
Accrued shareholder reporting fee (Note 2) 1,500
Accrued chief compliance officer fee (Note 2) 344
Other accrued expenses and liabilities 1,440
-------------
Total liabilities 1,071,984
-------------
Net Assets $ 127,927,369
=============
Net Assets consist of:
Paid-in capital $ 126,856,406
Accumulated net realized loss (385,733)
Undistributed net investment income 18,119
Net unrealized appreciation 1,438,577
-------------
Total Net Assets $ 127,927,369
=============
Shares of beneficial interest outstanding 5,897,556
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 21.69
=============
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 4,620,331
Dividend income 101,327
-------------
Total investment income 4,721,658
Expenses
Investment advisory fee (Note 2) $ 464,922
Accounting, custody, administration and transfer agent fees (Note 2) 114,556
Registration fees 43,207
Administrative service fee (Note 2) 32,666
Professional fees 32,467
Trustees' fees and expenses (Note 2) 17,661
Insurance expense 10,450
Miscellaneous expenses 17,393
-------------
Total expenses 733,322
Deduct:
Waiver of invesment advisory fee (Note 2) (210,284)
-------------
Net expenses 523,038
-------------
Net investment income 4,198,620
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (262,859)
Swap transactions 3,999
-------------
Net realized gain (loss) (258,860)
Change in unrealized appreciation (depreciation) on:
Investments 318,653
Swap contracts (13,782)
-------------
Net change in net unrealized appreciation (depreciation) 304,871
-------------
Net realized and unrealized gain (loss) on investments 46,011
-------------
Net Increase in Net Assets from Operations $ 4,244,631
=============
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 4,198,620 $ 3,868,902
Net realized gain (loss) (258,860) (126,873)
Change in net unrealized appreciation (depreciation) 304,871 (1,363,609)
-------------- --------------
Net increase (decrease) in net assets from investment operations 4,244,631 2,378,420
-------------- --------------
Distributions to Shareholders (Note 1C)
From net investment income (4,198,620) (3,868,902)
From net realized gains on investments -- (224,030)
-------------- --------------
Total distributions to shareholders (4,198,620) (4,092,932)
-------------- --------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 50,311,439 23,387,266
Value of shares isued to shareholders in reinvestment of distributions 3,487,897 3,132,979
Cost of shares redeemed (35,231,940) (27,378,355)
-------------- --------------
Net increase (decrease) in net assets from Fund share transactions 18,567,396 (858,110)
-------------- --------------
Total Increase (Decrease) in Net Assets 18,613,407 (2,572,622)
Net Assets
At beginning of year 109,313,962 111,886,584
-------------- --------------
At end of year (including undistributed net investment income of $18,119
and $18,109) $ 127,927,369 $ 109,313,962
============== ==============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of Year $ 21.71 $ 22.05 $ 22.78 $ 22.78 $ 22.04
----------- ----------- ----------- ----------- -----------
From Investment Operations:
Net investment income* (a) 0.78 0.77 0.69 0.81 0.90
Net realized and unrealized gains (loss) on
investments (0.02) (0.29) (0.08) 0.07 0.74
----------- ----------- ----------- ----------- -----------
Total from operations 0.76 0.48 0.61 0.88 1.64
----------- ----------- ----------- ----------- -----------
Less Distributions to Shareholders:
From net investment income (0.78) (0.77) (0.71) (0.81) (0.90)
From net realized gains on investments -- (0.05) (0.63) (0.07) --
----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (0.78) (0.82) (1.34) (0.88) (0.90)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year $ 21.69 $ 21.71 $ 22.05 $ 22.78 $ 22.78
=========== =========== =========== =========== ===========
Total Return (b) 3.58% 2.18% 2.76% 3.88% 7.65%
Ratios/Supplemental data:
Expenses (to average daily net assets)* 0.45% 0.45% 0.50% 0.65% 0.65%
Net Investment Income (to average daily net
assets)* 3.61% 3.50% 3.16% 3.58% 4.09%
Portfolio Turnover 29% 35% 72% 42% 17%
Net Assets, End of Year (000's omitted) $ 127,927 $ 109,314 $ 111,887 $ 70,505 $ 82,162
- ----------
* 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) $ 0.74 $ 0.73 $ 0.65 $ 0.80 $ 0.90
Ratios (to average daily net assets):
Expenses * 0.63% 0.62% 0.68% 0.68% 0.66%
Net investment income * 3.43% 3.33% 2.97% 3.55% 4.08%
(a) Calculated using the average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Mellon Intermediate Tax Exempt Bond Fund (the "Fund") is
a separate diversified investment series of the Trust.
The objective of the Fund is to provide a high level of interest income
exempt from federal income taxes, while seeking preservation of
shareholders' capital. The Fund seeks to achieve its objective by
investing, under normal circumstances, at least 80% of net assets in tax
exempt municipal securities issued by states, territories, and possessions
of the United States, the District of Columbia and their political
subdivisions, agencies and instrumentalities.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Tax-exempt bonds and notes are priced at market on the basis of valuations
furnished by an independent pricing service or dealers, approved by the
Trustees. Such services or dealers determine valuations for normal
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships,
generally recognized by institutional traders, between securities.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange. Non-exchange traded derivatives are
normally valued on the basis of quotes obtained from brokers and dealers
or pricing services.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Realized
gains and losses from securities sold are recorded on the identified cost
basis. Dividends representing a return of capital are reflected as a
reduction of cost.
C. Distributions to shareholders
Distributions on shares of the Fund are declared daily from net investment
income and distributed monthly. Distributions from capital gains, if any,
are distributed annually by the Fund. Distributions from net investment
income and capital gains, if any, are automatically reinvested in
additional shares of the applicable Fund unless the shareholder elects to
receive them in cash. Distributions are recorded on the ex-dividend date.
Income and capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales, post-October losses,
capital loss carryovers and amortization and/or accretion of premiums and
discounts on certain securities.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income (loss), 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 the funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
14
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
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.
G. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
H. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions with Affiliates:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services, and general office facilities, is
paid monthly at the annual rate of 0.40% of the Fund's average daily net
assets. Standish Mellon voluntarily agreed to limit the Fund's total
annual operating expenses (excluding brokerage commissions, taxes and
other extraordinary expenses) to 0.45% of the Fund's average daily net
assets for the year ended September 30, 2006. Pursuant to this
arrangement, for the year ended September 30, 2006, Standish Mellon
voluntarily waived $210,284 of its advisory fee. This arrangement is
voluntary and temporary and may be discontinued or revised by Standish
Mellon at any time.
The Trust 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 $10,721 for the year ended September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an
affiliate of Standish Mellon, to provide custody, 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
$103,835 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,140. No other director, officer or employee
of Standish Mellon or its affiliates receives any compensation from the
Trust or the Fund for serving as an officer or Trustee of the Trust. The
Fund 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 Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, to provide printing and fulfillment services for the Fund.
Pursuant to this agreement the Fund was charged $1,500 for the year ended
September 30, 2006.
15
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond 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. For the year ended September 30, 2006, the Fund was charged
$32,666 for fees payable to Mellon Private Wealth Management.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
------------ ------------
Investments (non-U.S. Government Securities) $ 52,428,222 $ 32,949,312
============ ============
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 2,339,293 1,068,583
Shares issued to shareholders
reinvestment of distributions declared 161,970 143,147
Shares redeemed (1,638,284) (1,251,493)
------------- ----------
Net increase (decrease) 862,979 (39,763)
============= ==========
At September 30, 2006, two shareholders of record held approximately 76%
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
7 days from the day of their purchase. The redemption fee is paid directly
to the Fund, and is designed to offset brokerage commissions, market
impact, and other costs associated with short-term trading in the Fund.
The fee does not apply to shares that were acquired through reinvestment
of distributions. For the year ended September 30, 2006, the Fund did not
assess any redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, were as follows:
Cost for federal income tax purposes $(125,676,593)
=============
Gross unrealized appreciation $ 1,957,862
Gross unrealized depreciation (519,285)
-------------
Net unrealized appreciation (depreciation) $ 1,438,577
=============
Undistributed tax exempt income 60,309
Undistributed ordinary income 2,834
-------------
Total distributable earnings $ 1,501,720
=============
16
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005, were as follows:
2006 2005
---------- ----------
Tax-Exempt Income $4,195,245 $3,866,264
Ordinary Income 3,375 2,638
Capital Gains 0 224,030
---------- ----------
Total Distributions $4,198,620 $4,092,932
========== ==========
At September 30, 2006, the Fund, for federal income tax purposes, has
capital loss carryovers which will reduce the Fund's taxable income
arising from net realized gain on 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
Carry Over Expiration Date
------------ ---------------
$25,970 9/30/2013
$86,973 9/30/2014
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 September 30, 2007,
$272,790 of capital losses recognized during the period November 1, 2005
to September 30, 2006.
(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:
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, credit
default and total return 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. Total return swap agreements involve commitments to pay
interest in exchange for a market-linked return, both based on notional
amounts. To the extent the total return of the security or index
underlying the transaction exceeds or falls short of the offsetting
interest rate obligation, a fund will receive a payment from or make a
payment to the counterparty. In connection with these agreements, cash or
securities may be set aside as collateral in accordance with the terms of
the swap agreement. Swaps are marked to market daily based upon
quotations, which may be furnished by a pricing service or dealers in such
securities and the 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 in the Statement of Assets and
Liabilities. Such risks involve the possibility that there will be no
liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform or disagree as to the
meaning of contractual terms in the agreements, and that there may be
unfavorable changes in interest rates.
At September 30, 2006, the Fund did not hold any open swap contracts.
17
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. For the year
ended September 30, 2006, the expense allocated to the Fund was $1,393.
During the year ended September 30, 2006, the Fund had average borrowings
outstanding of $1,000 for a total of one day and incurred $0 in interest
expense.
18
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Standish Mellon Intermediate Tax Exempt Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon Intermediate Tax
Exempt Bond Fund (the "Fund") at September 30, 2006, 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 September 30, 2006 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
19
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ---------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None $4,903
c/o Decision Resources, Inc. 11/3/1986 Emeritus,
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 $5,109
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 $4,903
c/o Harvard University 9/13/1989 Maier, Professor
Littauer Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $4,903
P.O. Box 2333 11/3/1986 House, Inc.
New London, NH 03257 (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
President and
Chief Financial
Officer, MAM
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; formerly Assistant Vice
One Boston Place Treasurer President and Mutual Funds Controller, Standish
Boston, MA 02108 since 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly Vice
One Boston Place President and Manager, Mutual Fund Operations,
Boston, MA 02108 Standish Mellon Asset Management Company, LLC
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, and 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, L.P.
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"), and Vice President, SSRM
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6933AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
Small Cap Tax-Sensitive Equity Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company Small Cap Tax-Sensitive Equity Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
Over the first half of the reporting period, and as they had for several years,
a robust economic environment and low inflation helped small cap stocks post
higher returns than their large cap counterparts. However, market conditions
appeared to change during the second half of the reporting period as economic
growth moderated and inflationary pressures seemed to intensify. As a result,
investors began to favor larger stocks over smaller ones.
Despite this shift in investor sentiment, the Fund's holdings continued to
produce relatively attractive returns. For the year ended September 30, 2006 the
Fund had a total return of 7.49%+ compared to a return of 5.88% for its
benchmark, the Russell 2000 Growth Index. We had positioned the Fund for the
changing economy by avoiding companies that we believed would be hurt by the
impact on consumer spending caused by rising interest rates and higher energy
prices. In addition, we focused on valuations in an effort to avoid overpaying
for growth. These strategies helped protect the Fund from the full brunt of
market volatility during the Spring and Fall of 2006.
The Fund achieved particularly strong results in the energy sector, where energy
services companies W-H Energy Services and Dril-Quip benefited from resurgent
oil and gas prices. However, the Fund's top individual performers represented a
relatively wide variety of industry groups. For example, in the industrials
sector, Huron Consulting Group gained value as demand for its business services
increased as Fortune 1000 companies sought help in complying with U.S.
regulators' complex financial reporting requirements. Similar forces helped
support the growth of technology company FileNet, which provides electronic
content management services to corporations. FileNet received a buy-out offer
during the reporting period from International Business Machines, boosting its
value. The trend toward outsourcing also helped drive gains for drug development
services provider Covance, which conducts drug research for large pharmaceutical
companies, and Corrections Corp. of America, which operates prisons for various
states and municipalities.
On the other hand, some of the Fund's more disappointing positions for the
reporting period included apparel retailer Jos. A. Bank Clothiers, which
suffered as consumer spending moderated. Among media companies, traditional
publishers, such as Playboy Enterprises, were hurt by higher printing costs and
competition for advertising dollars from online competitors. In fact, any
weakness resulting from the Fund's traditional media holdings was more than
offset by better performance from its positions in Internet-related businesses,
such as Akamai Technologies, Knot Inc., and ValueClick, each of which use or
help other businesses utilize the Internet.
/s/ B. Randall Watts /s/ Todd Wakefield
B. Randall Watts Todd Wakefield
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
2
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
Small Cap Tax-Sensitive Equity Fund and Russell 2000 Growth Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/2/1996
- --------------------------------------------------------------------------------
Fund 7.49%+ 15.46% 11.66% 10.91% 11.83%
* 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.
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
3
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- --------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 955.90 $ 4.85
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.10 $ 5.01
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.99%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- --------------------------------------------------------------------------------
Respironics, Inc. Health Care 2.1%
Washington Group International, Inc. Industrials 1.8
24/7 Real Media, Inc. Information Technology 1.8
Fisher Scientific International Health Care 1.3
Bright Horizons Family Solutions, Consumer Discretionary 1.3
Steiner Leisure Ltd.--ADR Consumer Discretionary 1.3
Lions Gate Entertainment Corp. Consumer Discretionary 1.3
Viasys Healthcare, Inc. Health Care 1.2
Quanta Services Inc. Industrials 1.2
Supertex, Inc. Information Technology 1.2
----
14.5%
* Excludes short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
- -----------------------------------------------------------
Consumer Discretionary 13.0%
Consumer Staples 4.8
Energy 5.5
Financial 7.9
Health Care 22.4
Industrials 15.7
Information Technology 21.6
Materials 1.7
Short-term and Other Assets 7.4
-----
100.0%
The Fund is actively managed. Current holdings may be different than those
presented above.
5
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--108.7%
EQUITIES--92.6%
Consumer Discretionary--13.0%
Bebe Stores, Inc. 36,200 $ 897,036
Bright Horizons Family Solutions, Inc. (a) 47,190 1,969,239
Cache, Inc. (a) 46,300 828,307
California Pizza Kitchen, Inc. (a)(b) 50,230 1,503,384
Casual Male Retail Group, Inc. (a)(b) 65,780 903,159
Hibbett Sporting Goods, Inc. (a) 52,340 1,370,261
Lin TV Corp. (a) 81,580 634,692
Lions Gate Entertainment Corp. (a)(b) 186,200 1,863,862
Panera Bread Co. (a)(b) 21,920 1,276,840
Penn National Gaming, Inc. (a) 39,370 1,437,792
Red Robin Gourmet Burgers, Inc. (a) 16,524 761,922
Ruth's Chris Steak House, Inc. (a) 81,140 1,527,055
Select Comfort Corp. (a) 36,970 808,904
Shutterfly, Inc. (a) 28,040 436,022
Steiner Leisure Ltd.--ADR (a) 45,370 1,907,809
Texas Roadhouse, Inc., Class A (a) 59,580 731,642
Tractor Supply Co. (a) 25,620 1,236,421
VistaPrint Limited (a) 32,580 845,125
---------------
20,939,472
---------------
Consumer Staples--4.8%
Herbalife Ltd. (a) 37,030 1,402,696
Inter Parfums, Inc. (b) 69,000 1,313,760
Performance Food Group Co. (a) 30,100 845,509
Rite Aid Corp. (a)(b) 294,630 1,337,620
Ruddick Corp. 19,100 497,173
The Boston Beer Co., Inc. (a) 34,650 1,138,253
United Natural Foods, Inc. (a) 38,060 1,179,479
---------------
7,714,490
---------------
Energy--5.5%
Arena Resources, Inc. (a)(b) 39,130 1,256,856
Complete Production Services, Inc. (a) 23,515 464,186
Dril-Quip, Inc. (a) 10,020 678,154
Geomet, Inc. (a)(b) 84,350 792,890
Global Industries, Ltd. (a) 45,730 711,559
Hanover Compressor Co. (a)(b) 63,520 1,157,334
Lufkin Industries, Inc. 6,717 355,464
Oil States International, Inc. (a) 42,000 1,155,000
Penn Virginia Corp. 22,940 1,454,625
W-H Energy Services, Inc. (a) 20,890 866,308
---------------
8,892,376
---------------
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financial--7.9%
Arch Capital Group Ltd. ADR (a) 14,300 $ 907,907
Berkshire Hills Bancorp, Inc. (b) 12,100 430,639
CapitalSource, Inc. (b) 50,310 1,299,004
Capitol Bancorp Ltd. (b) 18,760 834,820
Cullen/Frost Bankers, Inc. 8,900 514,598
Dollar Financial Corp. (a) 60,830 1,327,311
Financial Institutions, Inc. 19,620 458,323
First Cash Financial Services, Inc. (a) 38,820 799,304
First Midwest Bancorp, Inc. 36,100 1,367,829
Montpelier Re Holdings Ltd. (b) 65,120 1,262,677
Nara Bancorp, Inc. 27,930 510,840
Portfolio Recovery Associates, Inc. (a)(b) 29,960 1,314,345
The Colonial BancGroup, Inc. 32,640 799,680
Umpqua Holdings Corp. 29,200 835,120
---------------
12,662,397
---------------
Health Care--22.4%
Adams Respiratory Therapeutics, Inc. (a)(b) 17,820 652,034
Alkermes, Inc. (a) 47,400 751,290
Alnylam Pharmaceuticals Inc. (a)(b) 48,700 701,767
Applera Corp.-Celera Genomics Group (a)(b) 49,800 693,216
Array BioPharma, Inc. (a) 62,430 531,904
ArthroCare Corp. (a)(b) 29,690 1,391,273
Centene Corp. (a)(b) 29,600 486,624
Community Health Systems, Inc. (a) 29,700 1,109,295
Conor Medsystems, Inc. (a) 6,500 153,205
Covance, Inc. (a)(b) 24,190 1,605,732
Cytyc Corp. (a) 48,900 1,197,072
DJO, Inc. (a) 27,010 1,121,725
Eclipsys Corp. (a)(b) 48,700 872,217
Emdeon Corp. (a) 129,000 1,510,590
Enzon Pharmaceuticals, Inc. (a)(b) 95,970 791,753
Fisher Scientific International 25,300 1,979,472
Foxhollow Technologies, Inc. (a)(b) 35,800 1,224,002
Haemonetics Corp. (a) 25,210 1,179,828
Home Diagnostics, Inc. (a)(b) 64,490 844,174
Integra LifeSciences Holdings (a)(b) 31,410 1,177,247
InterMune, Inc. (a)(b) 59,300 973,706
Medarex, Inc. (a) 62,150 667,491
Merit Medical Systems, Inc. (a) 60,390 820,096
Natus Medical, Inc. (a)(b) 86,760 1,184,274
PDL BioPharma, Inc. (a)(b) 30,080 577,536
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care (continued)
Pediatrix Medical Group, Inc. (a) 17,700 $ 807,120
PerkinElmer, Inc. 60,160 1,138,829
Respironics, Inc. (a) 79,868 3,083,703
Rigel Pharmaceuticals, Inc. (a) 64,270 660,053
Thoratec Corp. (a)(b) 62,090 969,225
Triad Hospitals (a)(b) 18,150 799,145
VCA Antech, Inc. (a) 38,800 1,399,128
Vertex Pharmaceuticals, Inc. (a)(b) 17,750 597,288
Viasys Healthcare, Inc. (a) 65,040 1,771,690
Wellcare Group, Inc. (a) 8,480 480,222
---------------
35,903,926
---------------
Industrials--15.7%
AAR Corp. (a) 32,300 770,032
Alaska Air Group, Inc. (a) 43,180 1,642,567
Bucyrus International, Inc., Class A 18,750 795,375
Central Parking Corp. (b) 49,130 810,645
CIRCOR International, Inc. 28,940 884,117
Copart, Inc. (a) 32,940 928,579
Global Cash Access, Inc. (a) 94,030 1,418,913
Hub Group, Inc., Class A Shares (a) 60,170 1,370,673
Huron Consulting Group, Inc. (a) 22,041 864,007
Interline Brands, Inc. (a)(b) 31,580 779,394
Kennametal, Inc. 14,990 849,184
MSC Industrial Direct Co., Inc. 28,050 1,142,757
Navigant Consulting, Inc. (a)(b) 40,380 810,023
Pacer International, Inc. 44,920 1,246,979
Quanta Services, Inc. (a)(b) 104,930 1,769,120
Robbins & Myers, Inc. 41,310 1,277,305
School Specialty, Inc. (a)(b) 41,590 1,467,711
Stericycle, Inc. (a) 13,300 928,207
Team, Inc. (a)(b) 31,769 796,131
UAP Holding Corp. (b) 56,600 1,209,542
UTI Worldwide, Inc. 25,000 699,250
Washington Group International, Inc. (a) 45,840 2,698,142
---------------
25,158,653
---------------
Information Technology--21.6%
24/7 Real Media, Inc. (a)(b) 309,720 2,645,009
AMIS Holdings, Inc. (a)(b) 122,400 1,161,576
Ariba, Inc. (a) 27,300 204,477
Arris Group, Inc. (a) 68,750 787,875
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Information Technology (continued)
Art Technology Group, Inc. (a)(b) 443,640 $ 1,135,718
BEA Systems, Inc. (a) 61,120 929,024
Brocade Communications Systems, Inc. (a) 237,200 1,674,632
Cymer, Inc. (a) 28,500 1,251,435
DSP Group, Inc. (a) 46,170 1,054,985
Exar Corp. (a) 62,930 836,340
Forrester Research, Inc. (a) 27,410 721,157
Ikanos Communications, Inc. (a) 63,560 748,101
Informatica Corp. (a) 64,960 882,806
ManTech International Corp., Class A (a) 41,740 1,377,837
Micrel Inc. (a) 65,100 624,309
Net Gear Inc. (a) 39,320 809,599
NIC, Inc. (a)(b) 133,930 689,740
Online Resources Corp. (a)(b) 75,130 920,343
Palm, Inc. (a)(b) 3,700 53,872
Polycom, Inc. (a) 67,570 1,657,492
Progress Software Corp. (a) 19,480 506,480
Rackable Systems, Inc. (a) 40,520 1,109,032
Radyne Corp. (a) 75,530 924,487
Rudolph Technologies, Inc. (a) 89,660 1,643,468
S1 Corp. (a) 100,790 464,642
Silicon Image, Inc. (a) 64,990 826,673
Smart Modular Technologies, Inc. (a) 96,590 963,002
Supertex, Inc. (a)(b) 44,120 1,714,944
Tektronix, Inc. 28,550 825,952
Tessera Technologies, Inc. (a) 32,320 1,124,090
The Knot, Inc. (a) 40,910 905,338
The Ultimate Software Group, Inc. (a) 37,510 882,610
ValueClick, Inc. (a)(b) 52,050 965,007
Verisign, Inc. (a) 48,450 978,690
Wright Express Corp. (a) 31,160 749,710
---------------
34,750,452
---------------
Materials--1.7%
Hecla Mining Co. (a)(b) 217,280 1,247,187
Kinross Gold Corp. (a) 55,940 700,369
Pan American Silver Corp. (a) 41,410 809,150
---------------
2,756,706
---------------
TOTAL EQUITIES (Cost $130,500,250) 148,778,472
---------------
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.3%
U.S. Government--0.3%
U.S. Treasury Bill (c)(d) (Cost $415,796) 4.80% 12/14/2006 420,000 $ 415,796
---------------
INVESTMENT OF CASH COLLATERAL--15.8% Shares
----------
BlackRock Cash Strategies L.L.C. (c)
(Cost $25,440,703) 5.35% 25,440,703 25,440,703
---------------
TOTAL UNAFFILIATED INVESTMENTS--(Cost $156,356,749) 174,634,971
---------------
AFFILIATED INVESTMENTS--4.2%
Dreyfus Institutional Preferred Plus Money Market Fund (e)(f) (Cost 6,700,386) 5.32% 6,700,386 6,700,386
---------------
TOTAL INVESTMENTS--112.9% (Cost $163,057,135) 181,335,357
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(12.9)% (20,783,283)
---------------
NET ASSETS--100% $ 160,552,074
===============
Notes to Schedule of Investments:
ADR--American Depositary Receipt
(a) Non-income producing security
(b) Security, or a portion of thereof, was on loan at September 30, 2006.
(c) Rate noted is yield to maturity.
(d) Denotes all or part of security segregated as collateral for futures
transactions.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
(f) Affiliated institutional money market fund.
At September 30, 2006 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Loss
- --------------------------------------------------------------------------------------------------------------
Russell 2000 Index (22 Contracts) Long 12/14/2006 8,119,500 $ (66,499)
==========
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in securities, at value (Note 1A)
(including securities on loan, valued at $24,312,037 (Note 7)):
Unaffiliated investments (cost $156,356,749) $ 174,634,971
Affiliated investments (Note 1F) (cost $6,700,386) 6,700,386
Cash 1,708,292
Receivable for investments sold 8,501,578
Interest and dividends receivable 58,525
Receivable for Fund shares sold 125,274
Prepaid expenses 18,903
-------------
Total assets 191,747,929
Liabilities
Collateral for securities on loan (Note 7) $ 25,440,703
Payable for investments purchased 5,493,590
Payable for Fund shares redeemed 106,301
Payable for variation margin on open futures contracts (Note 6) 99,167
Accrued professional fees 20,798
Accrued administrator services fee (Note 2) 15,222
Accrued accounting, custody, administration and transfer agent fees (Note 2) 11,552
Accrued trustees' fees and expenses (Note 2) 3,759
Accrued shareholder reporting fee (Note 2) 1,422
Accrued chief compliance officer fee (Note 2) 339
Other accrued expenses and liabilities 3,002
-------------
Total liabilities 31,195,855
-------------
Net Assets $ 160,552,074
=============
Net Assets consist of:
Paid-in capital $ 116,306,620
Accumulated net realized gain 26,033,731
Net unrealized appreciation 18,211,723
-------------
Total Net Assets $ 160,552,074
=============
Shares of beneficial interest outstanding 3,798,537
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 42.27
=============
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income $ 750,097
Dividend income from affiliated investments (Note 1F) 379,768
Interest income 13,261
Securities lending income (Note 7) 177,831
-------------
Total investment income 1,320,957
Expenses
Investment advisory fee (Note 2) $ 1,299,734
Accounting, custody, administration and transfer agent fees
(Note 2) 135,530
Administrative service fee (Note 2) 63,002
Professional fees 40,317
Registration fees 25,129
Trustees' fees and expenses (Note 2) 20,133
Insurance expense 10,988
Miscellaneous expenses 17,164
-------------
Net Expenses 1,611,997
-------------
Net investment loss (291,040)
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 28,436,097
Financial futures transactions 71,459
-------------
Net realized gain (loss) 28,507,556
Change in unrealized appreciation (depreciation) on:
Investments (15,318,234)
Financial futures contracts (94,318)
-------------
Change in net unrealized appreciation (depreciation) (15,412,552)
-------------
Net realized and unrealized gain (loss) 13,095,004
=============
Net Increase in Net Assets from Operations $ 12,803,964
=============
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ (291,040) $ (359,910)
Net realized gain (loss) 28,507,556 12,323,359
Change in net unrealized appreciation (depreciation) (15,412,552) 15,670,893
--------------- -------------
Net increase (decrease) in net assets from investment operations 12,803,964 27,634,342
--------------- -------------
Distributions to Shareholders (Note 1C)
From net realized gains on investments (11,653,235) --
--------------- -------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 25,431,734 28,290,912
Value of shares issued to shareholders in reinvestment of distributions 9,807,382 --
Cost of shares redeemed (35,872,639) (16,262,336)
--------------- -------------
Net increase (decrease) in net assets from Fund share transactions (633,523) 12,028,576
--------------- -------------
Total Increase (Decrease) in Net Assets 517,206 39,662,918
Net Assets
At beginning of year 160,034,868 120,371,950
--------------- -------------
At end of year (including Accumulated net
investment income of $0 and $82) $ 160,552,074 $ 160,034,868
=============== =============
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------------
2006 2005 2004 2003 2002
--------- --------- --------- --------- -----------
Net Asset Value, Beginning of Year $ 42.35 $ 34.71 $ 29.58 $ 22.53 $ 26.23
--------- --------- --------- --------- -----------
From Operations:
Net investment income (loss)* (a) (0.08) (0.10) (0.24) (0.11) (0.13)
Net realized and unrealized gains (loss) on investments 3.08 7.74 5.37(b) 7.16(b) (3.57)(b)
--------- --------- --------- --------- -----------
Total from operations 3.00 7.64 5.13 7.05 (3.70)
--------- --------- --------- --------- -----------
Less Distributions to Shareholders:
From net realized gains on investments (3.08) -- -- -- --
--------- --------- --------- --------- -----------
Total distributions to shareholders (3.08) -- -- -- --
--------- --------- --------- --------- -----------
Net Asset Value, End of Period $ 42.27 $ 42.35 $ 34.71 $ 29.58 $ 22.53
========= ========= ========= ========= ===========
Total Return 7.49% 22.01% 17.34% 31.29%(c) (14.11)%(c)
Ratios/Supplemental data:
Expenses (to average daily net assets)* 0.99% 0.99% 1.03% 1.00% 1.00%
Net Investment Income (Loss)
(to average daily net assets)* (0.18)% (0.26)% (0.71)% (0.43)% (0.47)%
Portfolio Turnover 169% 137% 150% 252% 241%
Net Assets, End of Period (000's omitted) $ 160,552 $ 160,035 $ 120,372 $ 106,718 $ 82,469
- ----------
* 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 (loss) per share (a) N/A N/A N/A $ (0.13) $ (0.15)
Ratios (to average daily net assets):
Expenses N/A N/A N/A 1.07% 1.08%
Net investment income (loss) N/A N/A N/A (0.50)% (0.55)%
(a) Calculated based on average shares outstanding.
(b) Amounts includes litigation proceeds received by the Portfolio of $0.03
for the period ended September 30, 2004, $0.01 for the year ended
September 30, 2003 and $0.02 for the year ended September 30, 2002.
(c) Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Small Cap Tax-Sensitive Equity Fund (the
"Fund") is a separate diversified investment series of the Trust.
The objective of the Fund is to maximize after-tax total return,
consisting of long-term growth of capital. The Fund seeks to achieve its
objective by investing, under normal circumstances, at least 80% of net
assets in equity securities of small capitalization U.S. companies. The
Fund may also invest in equity index futures contracts based primarily
upon the Russell 2000 Index.
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
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses will be declared and distributed at least annually.
Dividends from net investment income and distributions from capital gains,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Income and capital gain
distributions are determined in accordance with income tax regulations
which may differ from accounting principles generally accepted in the
United States of America. These differences which may result in
reclassifications, are primarily due to differing treatments for losses
deferred due to wash sales and the timing of recognition of realized and
unrealized gains or losses on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions 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.
15
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
D. Expenses
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated among the funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. Affiliated issuers
Affiliated issuers are investment companies advised by The Boston Company
Asset Management LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
H. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory
and administrative services, and general office facilities, is paid
monthly at the annual rate of 0.80% of the Fund's average daily net
assets.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as, out-of-pocket expenses. Pursuant to this agreement the
Fund was charged $11,514 for the year ended September 30, 2006.
The Trust entered into an agreement with Mellon Bank, N.A. ("Mellon
Bank"), a wholly-owned subsidiary of Mellon Financial Corporation and an
affiliate of TBCAM, to provide custody, administration and 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 $124,016 for the
year ended September 30, 2006.
The Trust also 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 earned $76,403, for the
year ended September 30, 2006. See Note 7 for further details.
16
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,135. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Fund for serving as an officer or Trustee of the Trust. The Fund pays each
Trustee who is not a director, officer or employee of TBCAM or its
affiliates an annual fee and a per meeting fee as well as reimbursement
for travel and out-of-pocket expenses. In addition, the Trust pays the
legal fees for the independent counsel of the Trustees.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, to provide printing and fulfillment services for the Fund.
Pursuant to this agreement the Fund was charged $1,422 for the year ended
September 30, 2006.
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. For the year ended September 30, 2006, the Fund was charged
$63,002 for fees payable to Mellon Private Wealth Management.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
------------- ------------
Investments (non-U.S. Government Securities) $ 261,648,097 $275,100,343
============= ============
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 604,209 734,506
Shares issued to shareholders
in reinvestment of distributions 244,757 --
Shares redeemed (829,484) (423,368)
------------ ------------
Net increase (decrease) 19,482 311,138
============ ============
At September 30, 2006, one shareholder of record held approximately 66% of
the total outstanding shares of the Fund. Investment activities of this
shareholder could have a material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
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 in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund received $743 in redemption fees.
17
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2006, were as follows:
Cost for federal income tax purposes $163,823,963
------------
Gross unrealized appreciation $ 20,650,955
Gross unrealized depreciation (3,139,561)
------------
Net unrealized appreciation (depreciation) $ 17,511,394
============
Undistributed ordinary income 8,482,851
Undistributed capital gains 18,251,209
------------
Total distributable earnings $ 44,245,454
============
Tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005 was as follows:
2006 2005
------------- -------------
Ordinary income 2,298,653 --
Long-Term Capital Gains 9,354,582 --
------------- -------------
Total Distributions $ 11,653,235 --
============= =============
(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 financial instruments with off-balance
sheet risk:
Futures contracts
The Fund may enter into financial futures contracts for the purchase or
sale 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 also 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 September 30, 2006, the Fund held open financial futures contracts. See
Schedule of Investments for further details.
18
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity 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 loaned securities during the year ended September 30, 2006 and
earned interest on the invested collateral of $896,124 of which $718,293
was rebated to borrowers or paid in fees. At September 30, 2006, the Fund
had securities valued at $24,312,037 on loan. See Schedule of Investments
for further detail on the security positions on loan and collateral held.
(8) 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 fund/portfolio
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating fund/portfolio 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 funds/portfolios at
the end of each quarter. The Fund/Portfolio also pays an annual renewal
fee, computed at a rate of 0.020 of 1% of the committed amount and
allocated ratably to the participating funds/portfolios. For the year
ended September 30, 2006, the expense allocated to the Fund was $2,048.
During the year ended September 30, 2006, the Fund did not borrow from the
line of credit.
19
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax-Sensitive Equity Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company Small Cap Tax-Sensitive Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company Small Cap
Tax-Sensitive Equity Fund (the "Fund") at September 30, 2006, 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 September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
20
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $3,788
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 $4,077
c/o Essex Street Associates 11/3/1986 Street Associates
P.O. Box 5600 (family investment
Beverly, MA 01915 trust office)
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $3,788
c/o Harvard University 9/13/1989 Maier, Professor of
Littauer Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None $3,788
P.O. Box 2333 11/3/1986 House, Inc.
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,
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
21
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
Mellon Asset Management and Treasurer since 1999; Asset Management; formerly Assistant Vice President
One Boston Place Treasurer and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon Asset
Boston, MA 02108 Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management Company
("SSRM"), and Vice President, SSRM
22
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6938AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
International Small Cap Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company International Small Cap Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
For the year ended September 30, 2006, the Fund had a total return of 23.7%
compared to a return of 22.5% for the Fund's benchmark, the S&P Citigroup EMI
ex-U.S. Index. During this period, international small cap stocks continued to
post strong returns versus their larger cap and U.S. peers. It has been nearly
seven years of a bull market in non-U.S. small caps relative to domestic issues,
and as the Fund's fiscal year came to a close, the slightest hints of a relative
downturn began to emerge.
The 12-month period ended September 30, 2006 was, generally speaking, fairly
uneventful as the markets drifted higher in a consistent fashion. The one major
exception was the mid-May to mid-June period when the markets hit a "pocket of
turbulence," the S&P Citigroup EMI ex-U.S. Index fell nearly 20% in four weeks.
However, by the end of June the markets had recovered sufficiently to end the
second quarter roughly where they began.
In many ways the strong returns were surprising, given consistent rate hikes by
the U.S. Federal Reserve, oil prices that were at all-time highs for much of the
period, a noticeable weakening in the housing market in the U.S., and
geopolitical events in the Middle East, Iraq, North Korea and elsewhere.
Investors generally ignored these issues, or at least looked far enough into the
future to see them reversing. Events that seemed to bolster investor confidence
included moderate economic growth rates in many regions, a reduction in
inflation fears by the end of the period, corporate profits that showed
remarkable resilience, and a tremendous amount of M&A activity (both real and
rumored).
The strong returns over the period were broad-based with all countries and all
sectors ending the year in positive territory. Of the 12 countries that have
more than a 2% weighting in the benchmark, Sweden was the best performing
country with a 42% return, and Japan was the worst performing country gaining
only 3.6% (despite a very strong end to 2005). Energy was the worst performing
sector gaining just 6.5% on concerns that the price of crude oil was
unsustainably high -- fears that are beginning to be realized in the market as
this report goes to press. The Materials sector was the best performing sector
posting a 33% gain, as demand for raw materials continued to outstrip supply,
and M&A activity within the steel industry was particularly strong.
The Fund's relative outperformance to its benchmark was, as always, attributable
to stock selection -- not country or sector allocation. Stock selection resulted
in positive performance in 13 of the 22 countries in which the Fund invested,
and in seven of the 10 economic sectors. Adding the most value was selection in
Japan where the Fund's holdings gained 10% compared to the benchmark's 3.6%
gain. The U.K. was also a major source of value added as the Fund had a positive
spread of 8% over the benchmark. From the sector perspective, the Fund had its
best results in Consumer Staples with a nearly 30% spread over the benchmark.
These outstanding results were partially offset by weak stock selection in
Singapore, where the Fund lost money despite the benchmark's Singapore component
posting a 31% gain, and in Information Technology, where the Fund's holdings
trailed the benchmark's gains by 5%.
2
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Looking toward the future we expect more periods of volatility like this year's
mid-year experience. However, over the intermediate- to long- term we expect the
markets to produce modestly positive returns. The global economy is in generally
good shape. Inflation appears to be contained with a few exceptions. Interest
rates should continue to trade in a range that is low by historical standards.
Corporate balance sheets are in very good shape. Liquidity is ample. Valuations
by our measures are well within a range of reasonableness.
Regardless of the environment, over the next 12 months the Fund will continue to
seek to invest in stocks which combine better than peer-group business momentum
and better than peer-group valuation characteristics. This is the time-tested
philosophy the Fund has followed since inception, and we believe this
methodology will continue to produce attractive long-term results for
shareholders.
/s/ Daniel B. LeVan /s/ John W. Evers
Daniel B. LeVan John W. Evers
3
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
International Small Cap Fund and the S&P/CitiGroup EMI ex-US Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/2/1996*
- --------------------------------------------------------------------------------
Fund 23.72% 32.25% 27.18% 17.17% 17.75%
* Combined LP & MF Performance
** Source: Bloomberg 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.
4
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- ---------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,005.80 $ 5.58
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,019.50 $ 5.62
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 1.11%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Investments
- ----------------------------------------------------------------------------------------------
Inmet Mining Corp. Canada Materials 1.3%
Mitsubishi Gas Chemical Co., Inc. Japan Materials 1.2
Oxiana Ltd. Australia Materials 1.0
C & C Group PLC Ireland Consumer Staples 1.0
Vallourec SA France Materials 0.9
China Overseas Land & Investment Ltd. Hong Kong Financials 0.9
Continental AG Germany Consumer Discretionary 0.8
Natexis Banques Populaires France Financials 0.8
IPSCO, Inc. Canada Materials 0.8
Euler Hermes SA France Financials 0.8
---
9.5%
* Excludes short-term securities and cash collateral investments.
Percentage of
Geographic Region Allocation* Investments
- ---------------------------------------------------------
Europe ex U.K. 49.2%
U.K. 19.0
Asia ex Japan 7.7
Japan 18.4
Americas ex U.S. 5.7
-----
100.0%
* Excludes short-term securities and cash collateral investments.
The Boston Company International Small Cap Fund invests in an interest of The
Boston Company International Small Cap 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.
6
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in The Boston Company International Small Cap Portfolio ("Portfolio"),
at value (Note 1A) $ 758,169,037
Receivable for Fund shares sold 522,136
Receivable from Investment Advisor 61,200
Prepaid expenses 21,417
-------------
Total assets 758,773,790
Liabilities
Payable for Fund shares redeemed $ 28,671
Accrued administrative service fees (Note 2) 25,451
Accrued professional fees 13,303
Accrued transfer agent fees (Note 2) 9,214
Accrued shareholder reporting fee (Note 2) 1,335
Accrued trustees' fees (Note 2) 500
Accrued chief compliance officer fee (Note 2) 334
Other accrued expenses and liabilities 4,443
---------------
Total liabilities 83,251
-------------
Net Assets $ 758,690,539
=============
Net Assets consist of:
Paid-in capital $ 507,376,200
Accumulated net realized gain 68,537,140
Distributions in excess of net investment income (53,607)
Net unrealized appreciation 182,830,806
-------------
Total Net Assets $ 758,690,539
=============
Shares of beneficial interest outstanding 31,569,711
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 24.03
=============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income allocated from Portfolio (net foreign witholding taxes $1,227,335) $ 12,441,790
Interest and security lending income allocated from Portfolio 333,607
Expenses allocated from Portfolio (7,244,063)
-------------
Net investment income (loss) allocated from Portfolio 5,531,334
Expenses
Administrative service fee (Note 2) $ 57,752
Professional fees 48,803
Registration fees 43,837
Transfer agent fees (Note 2) 40,846
Insurance expense 2,352
Trustees' fees (Note 2) 2,000
Miscellaneous expenses 38,763
---------------
Total expenses 234,353
-------------
Net investment income 5,296,981
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investment securities, futures transactions, foreign currency
exchange transactions and forward currency transactions 61,512,475
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments securities, futures contracts, foreign currency
exchange translations and forward currency contracts 63,997,049
-------------
Net realized and unrealized gain (loss) on investments 125,509,524
-------------
Net Increase in Net Assets from Operations $ 130,806,505
=============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 5,296,981 $ 4,484,816
Net realized gain (loss) 61,512,475 27,275,211
Change in net unrealized appreciation (depreciation) 63,997,049 86,395,650
-------------- --------------
Net increase (decrease) in net assets from investment operations 130,806,505 118,155,677
-------------- --------------
Distributions to Shareholders (Note 1C)
From net investment income (5,719,295) (3,076,387)
From net realized gains on investments (33,657,881) (15,292,137)
-------------- --------------
Total distributions to shareholders (39,377,176) (18,368,524)
-------------- --------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 225,167,277 220,193,096
Value of shares issued in reinvestment of distributions 25,672,328 16,901,362
Cost of shares redeemed (108,488,250) (24,004,168)
-------------- --------------
Net increase (decrease) in net assets from Fund share transactions 142,351,355 213,090,290
-------------- --------------
Total Increase (Decrease) in Net Assets 233,780,684 312,877,443
Net Assets
At beginning of year 524,909,855 212,032,412
-------------- --------------
At end of year [including distributions in excess of net investment
income of ($53,607) and undistributed net investment income
of $1,355,309, respectively] $ 758,690,539 $ 524,909,855
============== ==============
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ------------ ----------- ------------ ------------
Net Asset Value, Beginning of Period $ 20.84 $ 15.93 $ 12.05 $ 8.91 $ 8.55
----------- ------------ ----------- ------------ ------------
From Investment Operations:
Net investment income* (a) 0.18 0.23 0.14 0.10 0.09
Net realized and unrealized gains (loss) on
investments 4.52 5.86 3.86 3.13 0.38
----------- ------------ ----------- ------------ ------------
Total from operations 4.70 6.09 4.00 3.23 0.47
----------- ------------ ----------- ------------ ------------
Less Distributions to Shareholders:
From net investment income (0.19) (0.17) (0.12) (0.09) (0.11)
From net realized gains on investments (1.32) (1.01)
----------- ------------ ----------- ------------ ------------
Total distributions to shareholders (1.51) (1.18) (0.12) (0.09) (0.11)
----------- ------------ ----------- ------------ ------------
Net Asset Value, End of Period $ 24.03 $ 20.84 $ 15.93 $ 12.05 $ 8.91
=========== ============ =========== ============ ============
Total Return 23.72% 40.20% 33.35% 36.47%(b) 5.39%(b)
Ratios/Supplemental data:
Expenses (to average daily net assets)* (c) 1.11% 1.16% 1.27% 1.39% 1.25%
Net Investment Income (to average daily net
assets)* 0.79% 1.26% 0.99% 1.01% 0.96%
Portfolio Turnover (d) N/A N/A N/A 15% 69%
Net Assets, End of Period (000's omitted) $ 758,691 $ 524,910 $ 212,032 $ 89,570 $ 33,770
- ----------
* 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 N/A $ 0.08 $ 0.04
Ratios (to average daily net assets):
Expenses (c) N/A N/A N/A 1.65% 1.82%
Net investment income N/A N/A N/A 0.75% 0.39%
(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.
(d) Portfolio turnover represents activity while the Fund was investing
directly in securities until January 23, 2003. The portfolio turnover for
the period since the Fund transferred substantially all of its investable
assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company International Small Cap Fund (the "Fund") is a
separate diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund invests all of its investable assets in an interest of The Boston
Company International Small Cap Portfolio (the "Portfolio"), a subtrust of
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which
is organized as a New York trust, and has the same investment objective as
the Fund. The Portfolio seeks to achieve its objective by investing, under
normal circumstances, at least 80% of net assets in equity securities in
companies that are located in foreign countries represented in the S&P
Citigroup EMI Ex-U.S. Index. The Portfolio may invest up to 25% of assets
in emerging market countries. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of
the Portfolio. As of September 30, 2006 the Fund owned 69% of the
Portfolio's net assets. The performance of the Fund is directly affected
by the performance of the Portfolio. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. The Fund records its investments 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
The Fund's investment in the portfolio is recorded on settlement 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 represent pro rata shares of gains
and losses of 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 are declared and distributed at least annually. In
determining the amounts of its dividends, the Fund will take into account
its share of the income, gains or losses, expenses, and any other tax
items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a shareholder elects to receive them in cash.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for foreign currency transactions and losses deferred due to
wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income (loss), accumulated net realized gain (loss) and paid in
capital. Undistributed net investment income (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
The Boston Company International Small Cap 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. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements. Foreign taxes are provided for based on the Fund's
understanding of the tax rules and rates that exist in the foreign markets
in which it invests.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to The Boston Company Asset Management, LLC ("TBCAM"), a
wholly-owned subsidiary of Mellon Financial Corporation, for such
services. See Note 2 of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services, the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as, out-of-pocket expenses. Pursuant to this agreement, the
Fund was charged $40,846 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,129. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Portfolio Trust for serving as an officer or Trustee of the Trust. The
Fund pays each Trustee who is not a director, officer or employee of TBCAM
or its affiliates an annual fee.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide printing and fulfillment services for the Fund. Pursuant to this
agreement, the Fund was charged $1,335 for the year ended September 30,
2006.
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. For the year ended September 30, 2006, the Fund was charged
$43,376 for fees payable to Mellon Private Wealth Management.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2006 aggregated $258,433,990 and $148,638,003,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expense 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
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 9,977,957 12,160,695
Shares issued to shareholders in
reinvestment of distributions 1,232,495 1,026,030
Shares redeemed (4,831,166) (1,306,673)
---------- ----------
Net increase 6,379,286 11,880,052
========== ==========
12
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At September 30, 2006, three shareholders of record held approximately 40%
of the total outstanding shares of the Fund. Investment activities 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 in the
Fund. The fee does not apply to shares that are acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund received $24,385 in redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings as of September 30,
2006, were as follows:
Undistributed ordinary income $ 1,043,012
Undistributed capital gain 68,533,740
------------
Total distributable earnings $ 69,576,752
============
Tax character of distributions paid during the fiscal years ended
September 30, 2006 and September 30, 2005, was as follows:
2006 2005
----------- -----------
Ordinary income $14,680,095 $ 7,466,103
Capital gains long-term 24,697,081 10,902,421
----------- -----------
Total Distributions $39,377,176 $18,368,524
=========== ===========
See the corresponding master portfolio for tax basis unrealized
appreciation (depreciation) information.
13
Mellon Institutional Funds Investment Trust
The Boston Company International Small Cap Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Trust and Shareholders of The
Boston Company International Small Cap Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Boston Company International Small Cap Fund (the "Fund") at September 30,
2006, 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 September 30, 2006 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
14
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--100.0%
COMMON EQUITIES--96.7%
Australia--2.8%
Healthscope Ltd. 971,600 $ 3,425,611
Oil Search Ltd. 1,609,800 4,055,814
Oxiana Ltd. 5,216,500 11,276,299
Pacific Brands Ltd. 1,488,600 2,807,294
Record Investments Ltd. 952,100 7,551,158
United Group Ltd. 109,181 1,155,646
---------------
30,271,822
---------------
Austria--1.1%
Andritz AG 20,200 3,081,316
Boehler-Uddeholm 155,440 8,743,264
---------------
11,824,580
---------------
Belgium--2.2%
Delhaize Group 90,400 7,594,052
Mobistar SA (a) 79,200 6,557,792
NV Union Miniere SA 43,760 6,475,412
Option NV (a) 168,700 3,401,194
---------------
24,028,450
---------------
Canada--5.6%
Astral Media, Inc. 151,900 5,470,249
Canaccord Captial, Inc. 202,900 3,105,056
Ensign Resource Service Group, Inc. 353,100 5,861,827
Gildan Activewear, Inc. (a) 130,300 6,336,587
Inmet Mining Corp. 370,700 14,019,851
IPSCO, Inc. 102,600 8,896,469
Kingsway Financial Servises 210,300 4,780,401
Metro, Inc. 112,100 3,370,825
Northbridge Financial 110,600 2,999,087
Toromont Industries Ltd. 142,900 2,973,353
Trican Well Service Ltd. 214,000 3,606,247
---------------
61,419,952
---------------
Denmark--0.3%
East Asiatic Co., Ltd. 73,600 3,455,458
---------------
Finland--2.0%
Cargotec Corp. 77,100 3,262,345
KCI Konecranes Oyj 210,200 3,990,008
Outokumpu Oyj 126,200 3,221,235
Rautaruukki Oyj 270,800 7,777,430
Wartsila Oyj 78,900 3,201,446
---------------
21,452,464
---------------
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
France--8.1%
Alten (a) 136,220 $ 4,318,174
Bacou Dalloz 32,300 3,786,419
Ciments Francais 29,950 4,750,873
CNP Assurances 45,240 4,388,370
Compagnie Generale de Geophysique SA (a)(b) 34,700 5,337,151
Euler Hermes SA 73,860 8,794,156
Eutelsat Communications 194,900 3,358,540
Iliad SA 92,000 6,614,395
Natexis Banques Populaires 32,500 9,000,264
Nexans SA 71,230 6,191,411
Pierre & Vacances 34,400 3,899,556
Pinguely-Haulotte 174,900 4,526,391
Publicis Groupe 77,500 3,052,266
Silicon-On-Insulator Technologies (SOITEC) (a) 143,100 4,137,078
SR Teleperformance 87,100 3,247,018
Vallourec SA 40,650 9,478,978
Vinci SA 36,540 4,068,013
---------------
88,949,053
---------------
Germany--6.5%
Aareal Bank AG (a) 94,700 4,200,384
Continental AG 78,040 9,048,420
Deutsche Boerse AG 56,970 8,567,422
Deutsche Euroshop AG 45,800 3,174,927
Deutsche Postbank AG 75,690 5,744,099
Hypo Real Estate Holding 53,690 3,349,483
Lanxess (a) 98,700 4,236,382
Leoni AG 114,490 3,992,266
Man AG 76,700 6,490,839
MPC Capital AG 47,100 3,920,802
MTU Aero Engines Holding AG 89,800 3,355,643
Software AG 80,160 4,907,318
Stada Arzneimittel AG 120,960 6,179,571
Wincor Nixdorf AG 28,220 4,102,516
---------------
71,270,072
---------------
Hong Kong--1.9%
China Overseas Land & Investment Ltd. 12,096,000 9,331,608
Hengan International Group Co., Ltd. 3,413,400 7,334,709
Wing Hang Bank Ltd. 395,900 3,867,323
---------------
20,533,640
---------------
Ireland--2.1%
C & C Group PLC 810,800 11,010,891
FBD Holdings PLC 73,900 3,532,686
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Ireland (continued)
Grafton Group PLC (a) 313,570 $ 4,135,110
IAWS Group PLC 216,300 4,015,289
---------------
22,693,976
---------------
Italy--4.9%
AEM Spa 1,787,700 4,828,292
Amplifon Spa 388,500 3,064,084
Azimut Holding Spa 287,400 3,279,809
Banca Popolare di Milano Scarl (BPM) 381,100 5,040,139
Banche Popolari Unite 117,300 3,156,186
Banco Popolare di Verona e Novara 304,560 8,414,908
Credito Emiliano Spa 411,300 5,841,118
Fondiaria-Sai Spa 125,240 5,493,041
Milano Assicurazioni Spa 736,550 5,449,571
Recordati Spa 631,340 4,418,976
Terna Spa 1,766,300 5,140,039
---------------
54,126,163
---------------
Japan--18.1%
Asahi Pretec Corp. 211,500 4,879,667
Chiyoda Integre Co., Ltd. 109,300 2,382,927
CKD Corp. 337,400 3,847,920
Comsys Holdings Corp. 281,000 3,083,363
Creed Corp. 690 2,459,487
Dainippon Screen Manufacturing Co., Ltd. 498,900 4,536,607
Dainippon Sumitomo Pharma Co., Ltd. 309,000 3,712,395
EXEDY Corp. 221,200 5,993,057
Fuji Machine Mfg. Co., Ltd. 152,100 2,916,828
Goldcrest Co., Ltd. 76,500 4,151,765
Hitachi Construction Machinery Co., Ltd. 205,000 4,582,169
Hitachi High-Technologies Corp. 192,900 5,454,966
Izumi Co. Ltdronics, Inc. 157,000 5,702,565
Japan Aviation Electronics Industry Ltd. 299,000 4,232,732
Joint Corp. 193,800 6,629,007
Kansai Paint Co., Ltd. 523,000 3,954,271
Katokichi Co., Ltd. 444,100 3,628,452
Keihin Corp. (a) 166,100 4,247,075
Kenedix, Inc. 1,417 7,906,215
Kyowa Exeo Corp. 501,000 5,234,392
Leopalace21 Corp. 162,700 5,937,152
Makita Corp. 127,500 3,745,872
Mitsubishi Gas Chemical Co., Inc. 1,157,400 12,572,553
Mori Seiki Co., Ltd. 174,800 3,337,347
Nichirei Corp. 578,000 3,048,802
Nippon Shokubai Ltd. 501,000 6,065,786
Nippon System Development Co., Ltd. 189,400 7,713,267
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Japan (continued)
Nissin Kogyo Co., Ltd. 318,400 $ 7,116,891
NTN Corp. 437,000 3,455,745
Pacific Management Corp. 1,730 4,101,262
Ricoh Leasing Co., Ltd. 111,900 2,842,266
Ryohin Keikaku 45,100 3,188,426
Sumisho Lease Co., Ltd. 144,800 8,164,999
Suruga Bank Ltd. 234,000 2,924,257
Taiyo Nippon Sanso Corp. 442,000 3,753,501
Takeuchi MFG Co., Ltd. 72,200 3,356,007
Tamron Co., Ltd. 237,000 4,193,802
Toho Pharmaceutical Co., Ltd. 200,000 3,572,940
Tokyo Ohka Kogyo Co., Ltd. 34,700 922,513
Toshiba Machine Co., Ltd. 580,000 4,601,304
Tsumura & Co. 185,000 4,276,099
Ulvac, Inc. 120,500 4,233,977
Urban Corp. 259,500 3,247,320
Yaskawa Electric Corp. 302,000 2,966,049
---------------
198,873,997
---------------
Netherlands--3.8%
Aalberts Industries NV 89,120 6,605,093
DSM NV 121,800 5,342,163
Fugro NV 170,900 7,200,981
Koninklijke BAM Groep NV 340,150 6,012,464
SBM Offshore NV 222,860 6,055,828
Univar NV 111,000 4,651,721
USG People NV 88,500 6,188,823
---------------
42,057,073
---------------
Norway--1.8%
Aker Yards ASA 69,700 5,343,289
Cermaq ASA 305,700 3,280,948
Tandberg Television ASA (a) 370,100 3,013,141
TGS Nopec Geophysical Co. ASA (a) 497,300 7,872,532
---------------
19,509,910
---------------
Portugal--0.3%
Banco BPI SA 435,650 3,248,137
---------------
Singapore--0.6%
Singapore Petroleum Co., Ltd. 939,000 2,780,557
STATS ChipPAC Ltd. (a) 6,087,000 3,739,179
---------------
6,519,736
---------------
South Korea--2.4%
Cheil Industries, Inc. 84,900 3,684,865
Daegu Bank 172,100 2,884,103
GS Engineering and Construction Corp. 69,200 4,843,561
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
South Korea (continued)
Hyundai Mipo Dockyard 56,300 $ 7,024,107
Pusan Bank 333,900 4,130,503
Simm Tech Co., Ltd. 290,900 3,260,245
---------------
25,827,384
---------------
Spain--4.1%
ACS Actividades 184,670 8,757,642
Banco Pastor SA 456,500 6,992,411
Banco Sabadell SA 184,660 6,635,779
Enagas 210,790 5,107,754
Fadesa Immobiliaria SA 150,960 6,709,176
Immobiliaria Urbis SA 200,810 6,584,656
Sol Melia SA 223,200 4,004,699
---------------
44,792,117
---------------
Sweden--2.8%
Elekta AB 195,100 3,675,504
Getinge AB 186,400 3,409,818
Modern Times Group MTG AB 67,800 3,507,918
Nobia AB 222,400 7,438,432
Oriflame Cosmetics SA 97,500 3,234,383
Wihlborgs Fastigheter AB 272,000 4,901,436
WM-data AB 1,351,300 4,704,056
---------------
30,871,547
---------------
Switzerland--6.5%
Actelion Ltd. (a) 47,500 6,815,564
Bank Sarasin & Cie AG 1,160 3,423,498
Banque Cantonale Vaudoise (BCV) 12,800 5,144,365
Barry Callebaut AG (a) 17,900 8,532,672
Galenica Holding AG 14,500 3,766,196
Geberit AG 3,980 4,851,252
Georg Fischer AG (a) 11,200 5,249,300
Kuoni Reisen Holding AG (a) 10,800 5,554,187
Phonak Holding AG 80,200 5,073,838
Rieter Holding AG 13,760 5,926,386
Sika AG (a) 6,600 8,314,005
Sulzer AG 6,600 5,260,258
Valora Holding AG 15,600 3,630,809
---------------
71,542,330
---------------
United Kingdom--18.8%
Admiral Group PLC 344,800 5,350,052
Amlin PLC 657,900 3,410,954
Barratt Developments PLC 213,320 4,256,229
Bodycote International 696,300 3,095,254
British Airways PLC (a) 943,800 7,543,000
Burren Energy PLC 289,900 4,566,028
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom (continued)
Cattles PLC 733,900 $ 5,216,400
Charter PLC (a) 454,810 7,261,315
Chemring Group PLC 190,100 5,337,153
Close Brothers Group PLC 375,460 7,171,548
Cookson Group PLC 557,900 5,925,957
Crest Nicholson 435,100 4,413,922
Croda International PLC 677,400 6,472,576
CSR PLC (a) 292,900 4,621,502
Enterprise Inns PLC 328,700 6,490,653
First Choice Holidays PLC 1,340,414 5,005,162
Greene King Plc 407,223 6,882,660
IG Group Holdings PLC 775,900 3,761,333
Inchcape PLC 739,200 7,246,399
Informa PLC 590,900 5,471,873
International Power PLC 1,400,300 8,203,547
Kier Group PLC 129,310 4,443,662
Michael Page International PLC 930,300 6,699,431
Morgan Sindall PLC 263,300 5,701,911
Persimmon PLC 182,810 4,578,174
Regus Group PLC (a) 1,811,800 3,603,093
Restaurant Group PLC 1,233,714 5,541,942
SIG PLC 287,030 5,270,266
Smith News PLC (a) 459,690 1,034,633
Speedy Hire PLC 324,630 5,702,420
Tate & Lyle PLC 233,100 3,139,130
The Carphone Warehouse PLC 719,330 4,136,722
Tullow Oil PLC 722,570 5,098,677
United Business Media PLC 363,000 4,501,205
Vedanta Resources PLC 272,000 5,920,861
Victrex PLC 274,490 4,066,434
Viridian Group PLC 161,065 3,228,694
WH Smith PLC (a) 459,690 3,095,295
Wolfson Microelectronics PLC (a) 596,100 5,232,729
Wolverhampton & Dudley Brew PLC 166,200 4,479,502
WS Atkins PLC 201,400 3,294,634
---------------
206,472,932
---------------
TOTAL COMMON EQUITIES (Cost $842,251,919) 1,059,740,793
---------------
PREFERRED STOCKS--2.1%
Fresenius AG 44,300 7,905,142
Henkel KGaA 57,100 7,939,691
Hugo Boss AG 92,000 3,966,304
ProSiebenSat.1 Media AG 134,700 3,731,971
---------------
TOTAL PREFERRED STOCKS (Cost $18,226,729) 23,543,108
---------------
The accompanying notes are an integral part of the financial statements.
20
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.0%
U.S. Government--0.0%
U.S. Treasury Bill (c)(d) (Cost $430,645) 4.80% 12/14/2006 $ 435,000 $ 430,645
--------------
INVESTMENT OF CASH COLLATERAL--0.4% Shares
------------
BlackRock Cash Strategies L.L.C. (e) (Cost $4,925,543) 5.35% 4,925,543 4,925,543
--------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $865,834,836) 1,088,640,089
--------------
AFFILIATED INVESTMENTS--0.8%
Dreyfus Institutional Preferred Plus Money Market Fund (e)(f) 5.32% 8,662,088 8,662,088
--------------
(Cost $8,662,088)
TOTAL INVESTMENTS--100.0% (Cost $874,496,924) 1,097,302,177
OTHER ASSETS, LESS LIABILITIES--0.0% 21,580
--------------
NET ASSETS--100.0% $1,097,323,757
==============
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security, or a portion of thereof, was on loan at September 30,2006.
(c) Denotes all or part of security segregated as collateral for futures
transactions.
(d) Rate noted is yield to maturity.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
(f) Affiliated institutional money market fund.
At September 30, 2006, the Portfolio held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date September 30, 2006 to Deliver Gain
- ------------------------------------------------------------------------------------------------------------------------------
Australian Dollar 930,000 10/3/2006 $694,358 $694,358 $ --
-----
Percentage of
Economic Sector Allocation* Net Assets
------------------------------------------------------------------
Consumer Discretionary 17.8%
Consumer Staples 6.4
Energy 4.8
Financials 21.5
Health Care 5.4
Industrials 20.2
Information Technology 6.3
Materials 12.4
Telecommunication Services 1.6
Utilities 2.4
Short-term and Other Assets 1.2
-----
100.0%
The accompanying notes are an integral part of the financial statements.
21
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (Note 1A) (including securities on loan, valued at
$4,698,280 (Note 6))
Unaffiliated issuers, at value (cost $865,834,836) $1,088,640,089
Affiliated issuers, at value (Note 1H) (cost $8,662,088) 8,662,088
Cash 2,788,223
Foreign currency, at value (identified cost, $4,120,004) 4,106,089
Receivable for investments sold 2,888,368
Interest and dividends receivable 2,032,748
Prepaid expenses 14,558
--------------
Total assets 1,109,132,163
Liabilities
Payable for investments purchased $ 6,796,053
Collateral for securities on loan (Note 7) 4,925,543
Accrued accounting, administration and custody fees (Note 2) 54,769
Accrued professional fees 22,231
Accrued trustees' fees and expenses (Note 2) 7,891
Other accrued expenses and liabilities 1,919
---------------
Total liabilities 11,808,406
--------------
Net Assets (applicable to investors' beneficial interest) $1,097,323,757
==============
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net of foreign withholding taxes of $1,794,225) $ 17,374,312
Dividend income from affiliated investments (Note 1H) 786,121
Interest income 464,392
Securitiy lending income (Note 6) 11,878
-------------
Total investment Income 18,636,703
Expenses
Investment advisory fee (Note 2) $ 9,659,458
Accounting, administration and custody fees (Note 2) 633,462
Professional fees 43,909
Trustees' fees and expenses (Note 2) 75,438
Insurance expense 16,931
Miscellaneous expenses 19,421
---------------
Total expenses 10,448,619
-------------
Net investment income 8,188,084
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 87,176,452
Financial futures transactions 2,181,620
Foreign currency transactions and forward currency exchange transactions (137,210)
---------------
Net realized gain (loss) 89,220,862
Change in unrealized appreciation (depreciation) on:
Investments 90,754,811
Financial futures contracts (57,672)
Foreign currency translations and forward currency exchange contracts 202,475
---------------
Change in net unrealized appreciation (depreciation) 90,899,614
-------------
Net realized and unrealized gain (loss) 180,120,476
-------------
Net Increase in Net Assets from Operations $ 188,308,560
=============
The accompanying notes are an integral part of the financial statements.
23
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 8,188,084 $ 5,388,858
Net realized gain (loss) 89,220,862 31,357,090
Change in net unrealized appreciation (depreciation) 90,899,614 99,455,142
--------------- -------------
Net increase (decrease) in net assets from operations 188,308,560 136,201,090
--------------- -------------
Capital Transactions
Contributions 481,080,065 353,355,799
Withdrawals (229,295,440) (51,694,287)
--------------- -------------
Net increase (decrease) in net assets from capital transactions 251,784,625 301,661,512
--------------- -------------
Total Increase (Decrease) in Net Assets 440,093,185 437,862,602
Net Assets
At beginning of year 657,230,572 219,367,970
--------------- -------------
At end of year $ 1,097,323,757 $ 657,230,572
=============== =============
The accompanying notes are an integral part of the financial statements.
24
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
Year Ended September 30, (commencement
----------------------------------- of operations) to
2006 2005 2004 September 30, 2003
------------ --------- -------- ------------------
Total Return (a) 23.75% 40.24% 33.42% 36.44%(b)(c)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 1.08% 1.12% 1.20% 1.46%(d)
Net Investment Income (to average daily net assets)* 0.85% 1.32% 1.06% 1.29%(d)
Portfolio Turnover 65% 50% 72% 46%(c)
Net Assets, End of Year (000's omitted) $ 1,097,324 $657,231 $219,368 $89,545
- ----------
* 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 ratios would have been:
Ratios (to average daily net assets):
Expenses N/A N/A N/A 1.49%(d)
Net investment income N/A N/A N/A 1.26%(d)
(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) Total return would have been lower in the absence of expense waivers.
(c) Not annualized.
(d) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
25
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The
Boston Company International Small Cap Portfolio (the "Portfolio") is a
separate diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of
companies that are located in foreign countries represented in the
Citigroup Extended Market Ex-U.S. Index. The Portfolio may invest up to
25% of assets in emerging market countries.
At September 30, 2006, there were two funds, The Boston Company
International Small Cap Fund and Dreyfus Premier International Small Cap
Fund invested in the Portfolio (the "Funds"). The value of the Funds'
investment in the Portfolio reflects the Funds' proportionate interests in
the net assets of the Portfolio. At September 30, 2006, The Boston Company
International Small Cap Fund and the Dreyfus Premier International Small
Cap Fund held 69% and 31% interests in the Portfolio, respectively.
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates.
A. Investment security valuations
Securities 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange. Non-exchange traded derivatives are
normally valued on the basis of quotes obtained from brokers and dealers
or pricing services.
Because foreign markets may be open at different times than the New York
Stock Exchange ("NYSE"), the value of the Portfolio's shares may change on
days when shareholders are not able to buy or sell them. Many securities
markets and exchanges outside the U.S. close prior to the close of the
NYSE and therefore the closing prices for securities in such markets or on
such exchanges may not fully reflect the events that occur after such
close but before the close of the NYSE.
If market quotations are not readily available or do not accurately
reflect fair value, or the value of a security has been materially
affected by events occurring after the close of the exchange or market on
which the security is principally traded (for example, a foreign exchange
or market) the Portfolio may value its assets by a method the Trustees
believe accurately reflects the fair value. The Trustees have adopted fair
value pricing procedures, which, among other things, require the Portfolio
to fair value such securities if there has been a movement in the U.S.
market that exceeds a specified threshold. Although the threshold may be
revised from time to time by the Trustees and the number of days on which
fair value prices will be used will depend on market activity, it is
possible that fair value prices for foreign securities will be used by the
Portfolio to a significant extent.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
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.
26
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
C. Income taxes
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state 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.
D. Foreign currency transactions
The Portfolio maintains its books and records in U.S. dollars. Investment
security valuations, other assets, and liabilities initially expressed in
foreign currencies are converted into U.S. dollars based upon current
currency exchange rates. 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. Foreign 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
the funds of the Trust or the 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 The Boston Company
Asset Management LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
I. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Fund, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns
(including whether an entity is taxable in a particular jurisdiction), and
requires certain expanded tax disclosures. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to
all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact, if any, in the
financial statements has not yet been determined.
27
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory
and administrative services, and general office facilities, is paid
monthly at the annual rate of 1.00% of the Portfolio's average daily net
assets.
The Portfolio Trust entered into an agreement with Mellon Bank, N.A.
("Mellon Bank"), a wholly-owned subsidiary of Mellon Financial Corporation
and an affiliate of TBCAM, to provide custody, administration and
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 $633,462 for the year ended September 30, 2006.
The Portfolio Trust also entered into an agreement with Mellon Bank, to
perform certain securities lending activities and to act as the
Portfolio's lending agent. Mellon Bank receives an agreed upon percentage
of the net lending revenues. Pursuant to this agreement, Mellon Bank
earned $5,657, for the year ended September 30, 2006. See Note 6 for
further details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's and Portfolio Trust's Chief Compliance Officer. No other
director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the Trust or Portfolio Trust. The Fund and Portfolio
Trust pays each Trustee who is not a director, officer or employee of
TBCAM or its affiliates (the "Independent Trustees") an annual fee and the
Portfolio Trust pays each Independent Trustee 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 counsel to the Independent
Trustees.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
------------- -------------
Investments (non-U.S. Government Securities) $ 864,334,515 $ 603,065,677
============= =============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2006, as computed on a
federal income tax basis, were as follows:
Cost for federal income tax purposes $ 874,501,379
=============
Gross Unrealized appreciation $ 242,792,887
Gross Unrealized depreciation (19,992,089)
-------------
Net unrealized appreciation (depreciation) $ 222,800,798
=============
(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:
Forward currency exchange contracts
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At September 30, 2006, the Portfolio held foreign currency exchange
contracts. See Schedule of Investments for further details.
28
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Futures contracts
The Portfolio may enter into financial futures contracts for the purchase
or sale 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 also arise if there is an illiquid secondary market or
if the counterparty does not perform under the contract's terms. The
Portfolio enters into financial futures transactions primarily to seek to
manage its exposure to certain markets and to changes in securities prices
and foreign currencies. Gains and losses are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at the
quoted daily settlement prices established by the exchange on which they
trade.
At September 30, 2006, the Portfolio did not hold financial futures
contracts.
(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 September 30, 2006
and earned interest on the invested collateral of $85,055 of which $73,177
was rebated to borrowers or paid in fees. At September 30, 2006, the
Portfolio had securities valued at $4,698,280 on loan. See Schedule of
Investments for further detail on the security positions on loan and
collateral held.
(7) 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. The Fund/Portfolio also pays
an annual renewal fee, computed at a rate of 0.020 of 1% of the committed
amount and allocated ratably to the participating funds/portfolios. For
the year ended September 30, 2006, the expense allocated to the Portfolio
was $9,989.
For the year ended September 30, 2006, the Portfolio had average
borrowings outstanding of $2,603,000 on a total of two days and incurred
$763 of interest.
29
Mellon Institutional Funds Master Portfolio
The Boston Company International Small Cap Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Shareholders
of The Boston Company International Small Cap Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company International
Small Cap Portfolio (the "Portfolio") at September 30, 2006, 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 three years in the period then ended and the period from January 28, 2003
(commencement of operations) to September 30, 2003, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
30
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Emeritus, Portfolio: $9,101
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 Portfolio: $10,367
P.O. Box 5600 Associates
Beverly, MA 01915 (family
11/14/43 investment
trust office)
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None Fund: $500
c/o Harvard University 9/13/1989 Maier, Professor Portfolio: $9,101
Littauer Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. Portfolio: $9,101
New London, NH 03257 (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
7/24/65 Management, LLC;
formerly Senior
Vice President
and Chief
Operating
Officer, Mellon
Asset Management
("MAM") and Vice
President and
Chief Financial
Officer, MAM
31
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; formerly Assistant Vice President
One Boston Place Treasurer and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 since 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management; formerly Vice President and
One Boston Place Manager, Mutual Fund Operations, Standish Mellon
Boston, MA 02108 Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and Vice President, SSRM
32
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6939AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
Small Cap Growth Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company Small Cap Growth Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
Over the first half of the reporting period, and as they had for several years,
a robust economic environment and low inflation helped small cap stocks post
higher returns than their large cap counterparts. However, market conditions
appeared to change during the second half of the reporting period as economic
growth moderated and inflationary pressures seemed to intensify. As a result,
investors began to favor larger stocks over smaller ones.
Despite this shift in investor sentiment, the Fund's holdings continued to
produce relatively attractive returns. For the year ended September 30, 2006 the
Fund had a total return of 7.28%+ compared to a return of 5.88% for its
benchmark, the Russell 2000 Growth Index. We had positioned the Fund for the
changing economy by avoiding companies that we believed would be hurt by the
impact on consumer spending caused by rising interest rates and higher energy
prices. In addition, we focused on valuations in an effort to avoid overpaying
for growth. These strategies helped protect the Fund from the full brunt of
market volatility during the Spring and Fall of 2006.
The Fund achieved particularly strong results in the energy sector, where energy
services companies W-H Energy Services and Dril-Quip benefited from resurgent
oil and gas prices. However, the Fund's top individual performers represented a
relatively wide variety of industry groups. For example, in the industrials
sector, Huron Consulting Group gained value as demand for its business services
increased as Fortune 1000 companies sought help in complying with U.S.
regulators' complex financial reporting requirements. Similar forces helped
support the growth of technology company FileNet, which provides electronic
content management services to corporations. FileNet received a buy-out offer
during the reporting period from International Business Machines, boosting its
value. The trend toward outsourcing also helped drive gains for drug development
services provider Covance, which conducts drug research for large pharmaceutical
companies, and Corrections Corp. of America, which operates prisons for various
states and municipalities.
On the other hand, some of the Fund's more disappointing positions for the
reporting period included apparel retailer Jos. A. Bank Clothiers, which
suffered as consumer spending moderated. Among media companies, traditional
publishers, such as Playboy Enterprises, were hurt by higher printing costs and
competition for advertising dollars from online competitors. In fact, any
weakness resulting from the fund's traditional media holdings was more than
offset by better performance from its positions in Internet-related businesses,
such as Akamai Technologies, Knot Inc., and ValueClick, each of which use or
help other businesses utilize the Internet.
/s/ B. Randall Watts /s/ P. Hans Von Der Luft
B. Randall Watts, Jr. P. Hans Von Der Luft
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
2
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
Small Cap Growth Fund and the Russell 2000 Growth Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 12/23/1996
- --------------------------------------------------------------------------------
Fund 7.28%+ 15.29% 11.15% 12.92%
* 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.
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
3
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period +
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- ----------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 954.10 $ 5.39(1)
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,019.55 $ 5.57(1)
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 1.10%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
(1) The example reflects the expenses of the Fund and the master portfolio in
which the Fund invests all of its assets.
4
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- ------------------------------------------------------------------------------
Respironics, Inc. Health Care 2.0%
Washington Group International, Inc. Industrials 1.7
24/7 Real Media, Inc. Information Technology 1.7
Hub Group, Inc., Class A Shares Industrials 1.4
Bright Horizons Family Solutions, Inc. Consumer Discretionary 1.3
Fisher Scientific International Health Care 1.3
Steiner Leisure Ltd.--ADR Consumer Discretionary 1.2
Lions Gate Entertainment Corp. Consumer Discretionary 1.2
Viasys Healthcare, Inc. Health Care 1.2
Quanta Services, Inc. Industrials 1.1
----
14.1%
* Excludes short-term securities and cash collateral investments.
Percentage of
Economic Sector Allocation Net Assets
- ------------------------------------------------------------------
Consumer Discretionary 13.1%
Consumer Staples 4.8
Energy 6.1
Financials 7.9
Health Care 22.8
Industrials 16.2
Information Technology 23.1
Materials 1.7
Short-term and Net Other Assets 4.3
-----
100.0%
The Boston Company Small Cap Growth Fund invests all of its investable assets in
an interest of The Boston Company Small Cap Growth 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
The Boston Company Small Cap Growth Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in The Boston Company Small Cap
Growth Portfolio ("Portfolio"), at value (Note 1A) $ 42,092,878
Receivable for Fund shares sold 35,039
Prepaid expenses 6,729
-------------
Total assets 42,134,646
Liabilities
Payable for Fund shares redeemed $ 4,540
Accrued administrative service fees (Note 2) 12,438
Accrued professional fees 7,813
Accrued shareholder reporting fees (Note2) 2,884
Accrued trustees' fees (Note 2) 500
Accrued chief compliance officer fee (Note 2) 339
Accrued transfer agent fees (Note 2) 238
Other accrued expenses and liabilities 3,101
-------------
Total liabilities 31,853
-------------
Net Assets $ 42,102,793
=============
Net Assets consist of:
Paid-in capital $ 48,929,506
Accumulated net realized loss (9,321,596)
Net unrealized appreciation 2,494,883
-------------
Total Net Assets $ 42,102,793
=============
Shares of beneficial interest outstanding 847,654
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 49.67
=============
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income allocated from Portfolio $ 264,607
Interest and security lending income allocated from Portfolio 42,592
Expenses allocated from Portfolio (417,484)
-------------
Net investment loss allocated from Portfolio (110,285)
Expenses
Administrative service fees (Note 2) $ 45,033
Professional fees 25,206
Registration fees 14,980
Transfer agent fees (Note 2) 7,988
Insurance expense 808
Trustees' fees (Note 2) 448
Miscellaneous expenses 4,135
-------------
Total expenses 98,598
Deduct:
Reimbursement of Fund operating expense (Note 2) (96,588)
-------------
Net expenses 2,010
-------------
Net investment loss (112,295)
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments 6,881,368
Financial futures transactions (50,962)
-------------
Net realized gain (loss) 6,830,406
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments (4,053,098)
Financial futures contracts (13,041)
-------------
Net change in net unrealized appreciation (depreciation) (4,066,139)
-------------
Net realized and unrealized gain (loss) on investments 2,764,267
-------------
Net Increase in Net Assets from Operations $ 2,651,972
=============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ (112,295) $ (198,710)
Net realized gain (loss) 6,830,406 4,319,415
Change in net unrealized appreciation (depreciation) (4,066,139) 2,750,040
--------------- -------------
Net increase (depreciation) in net assets from investment operations 2,651,972 6,870,745
--------------- -------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares
Institutional Class 11,509,182 18,873,206
Service Class -- 2,808,281
Cost of shares redeemed
Institutional Class (8,381,712) (4,858,947)
Service Class -- (20,103,492)
--------------- -------------
Net increase (decrease) in net assets from Fund share transactions 3,127,470 (3,280,952)
--------------- -------------
Total Increase (Decrease) in Net Assets 5,779,442 3,589,793
Net Assets
At beginning of year 36,323,351 32,733,558
--------------- -------------
At end of year [including accumulated net
investment income of $0 and $5,968, respectively] $ 42,102,793 $ 36,323,351
=============== =============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------------
2006 2005 2004(a) 2003(a) 2002(a)
--------- --------- --------- --------- -----------
Net Asset Value, Beginning of Year $ 46.30 $ 37.95 $ 32.41 $ 24.78 $ 29.28
--------- --------- --------- --------- -----------
From Investment Operations:
Net investment income (loss) * (b) (0.14) (0.20) (0.33) (0.11) (0.16)
Net realized and unrealized gains (loss) on investments 3.51 8.55 5.87(c) 7.74(c) (4.34)(c)
--------- --------- --------- --------- -----------
Total from operations 3.37 8.35 5.54 7.63 (4.50)
--------- --------- --------- --------- -----------
Net Asset Value, End of Year $ 49.67 $ 46.30 $ 37.95 $ 32.41 $ 24.78
========= ========= ========= ========= ===========
Total Return (d) 7.28% 22.00% 17.09% 30.79%(b) (15.37)%(b)
Ratios/Supplemental data:
Expenses (to average daily net assets)* (e) 1.10% 1.17% 1.18% 1.00% 1.00%
Net Investment Income (Loss)
(to average daily net assets)* (0.30)% (0.48)% (0.87)% (0.42)% (0.52)%
Net Assets, End of Year (000's omitted) $ 42,103 $ 36,323 $ 18,274 $ 21,168 $ 18,780
- ----------
* 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 (loss) per share (a) $ (0.28) $ (0.31) $ (0.40) $ (0.30) $ (0.25)
Ratios (to average daily net assets):
Expenses (e) 1.38% 1.41% 1.37% 1.66% 1.29%
Net investment income (0.58)% (0.72)% (1.06)% (1.08)% (0.81)%
(a) Prior to August 31, 2005, the Fund offered two classes of shares:
Institutional Class and Service Class. The financial highlights for
periods prior to the year ended September 30, 2005, represent those of the
Institutional Class.
(b) Calculated based on average shares outstanding.
(c) Amounts include litigation proceeds received by the Fund of $0.06 for the
year ended September 30, 2004, less than $0.01 for the year ended
September 30, 2003, and $0.01 for the year ended September 30, 2002.
(d) Total return would have been lower in the absence of expense waivers.
(e) 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
The Boston Company Small Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Small Cap Growth Fund (the "Fund") is a
separate diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund invests all of its investable assets in an interest in The Boston
Company Small Cap Growth Portfolio (the "Portfolio"), a subtrust of Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and has the same investment objective as
the Fund. The Portfolio seeks to achieve its investment objective by
investing, under normal circumstances, at least 80% of its net assets in
equity securities of small cap U.S. companies. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. As of September 30, 2006 the Fund owned
100% of the Portfolio's net assets. The performance of the Fund is
directly affected by the performance of the Portfolio. The financial
statements of the Portfolio are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. The Fund records its investments 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 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 represent pro rata shares of gains
and losses of 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 are declared and distributed at least annually. In
determining the amounts of its dividends, the Fund will take into account
its share of the income, gains or losses, expenses, and any other tax
items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a shareholder elects to receive them in cash.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales, capital loss carryovers
and the timing of recognition of realized and unrealized gains or losses
on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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
The Boston Company Small Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
F. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to The Boston Company Asset Management, LLC ("TBCAM"), a
wholly-owned subsidiary of Mellon Financial Corporation, for such
services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. TBCAM voluntarily agreed to
limit the total annual operating expenses of the Fund and its pro rata
share of the Portfolio expenses (excluding brokerage commissions, taxes
and extraordinary expenses) to 1.10% of the Fund's average daily net
assets. This agreement is voluntary and temporary and may be discontinued
or revised by TBCAM at any time. Pursuant to this agreement, for the year
ended September 30, 2006, TBCAM voluntary reimbursed $96,588 of the Fund's
operating expenses.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services, the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as, out-of-pocket expenses. Pursuant to this agreement, the
Fund was charged $7,988 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,135. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Portfolio Trust for serving as an officer or Trustee of the Trust. The
Fund pays each Trustee who is not a director, officer or employee of TBCAM
or its affiliates an annual fee.
The Trust has contracted Mellon Investor Services LLC, a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide printing and fulfillment services for the Fund. Pursuant to this
agreement the Fund was charged $2,884 for the year ended September 30,
2006.
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. For the year ended September 30, 2006, the Fund was charged
$14,194 for fees payable to Mellon Private Wealth Management.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2006, aggregated $11,475,471 and $8,367,737,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expense and realized and unrealized gains and losses based on
applicable tax allocation rules.
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Institutional Class:
Shares sold 237,244 415,461
Shares redeemed (174,108) (112,485)
-------- --------
Net increase 63,136 (302,976)
======== ========
11
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
For the
Year Ended
September 30, 2005
------------------
Service Class:*
Shares sold 67,826
Shares redeemed (452,872)
--------
Net increase (385,046)
========
* During the year ended September 30, 2005, the Fund had offered two
classes of shares: Institutional Class and Service class. On August
31, 2005, the Service Class was liquidated and closed.
At September 30, 2006, one shareholder of record held approximately 41% of
the total outstanding shares of the Fund. Investment activities of this
shareholder could have a material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
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 in the
Fund. The fee does not apply to shares that are acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund received $3,100 in redemption fees.
(5) Federal Taxes:
As of September 30, 2006, the components of distributable earnings on a
tax basis were as follows:
2006 2005
----------- ------------
Capital loss carry forward $(9,255,887) $(16,095,157)
At September 30, 2006, the Fund, for federal income tax purposes, has
capital loss carryovers which will reduce the Fund's taxable income
arising from net realized gain on 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
Carry Over Expiration Date
------------ ---------------
$6,959,561 9/30/2010
$2,296,326 9/30/2011
It is uncertain whether the Fund will be able to realize the benefits of
the losses before they expire.
See the corresponding master portfolio for tax basis unrealized
appreciation (depreciation) information.
12
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Growth Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company Small Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Boston Company Small Cap Growth Fund (the "Fund") at September 30, 2006, 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 September 30, 2006 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
13
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--105.9%
EQUITIES--95.7%
Consumer Discretionary--13.1%
Bebe Stores, Inc. 9,600 $ 237,888
Bright Horizons Family Solutions, Inc.(a) 12,440 519,121
Cache, Inc. (a) 12,120 216,827
California Pizza Kitchen, Inc.(a) 13,160 393,879
Casual Male Retail Group, Inc.(a)(b) 17,330 237,941
Hibbett Sporting Goods, Inc. (a) 13,870 363,117
Lin TV Corp.(a) 20,970 163,147
Lions Gate Entertainment Corp. (a)(b) 49,700 497,497
Panera Bread Co.(a) 5,820 339,015
Penn National Gaming, Inc.(a) 10,390 379,443
Red Robin Gourmet Burgers, Inc.(a) 4,331 199,702
Ruth's Chris Steak House, Inc. (a) 21,700 408,394
Select Comfort Corp. (a) 9,680 211,798
Shutterfly, Inc. (a) 7,340 114,137
Steiner Leisure Ltd.--ADR (a) 11,970 503,339
Texas Roadhouse, Inc., Class A (a) 15,610 191,691
Tractor Supply Co. (a) 6,830 329,616
VistaPrint Ltd. (a) 8,690 225,419
---------------
5,531,971
---------------
Consumer Staples--4.8%
Herbalife Ltd. (a) 9,680 366,678
Inter Parfums, Inc. 18,700 356,048
Performance Food Group Co. (a) 7,900 221,911
Rite Aid Corp. (a)(b) 78,400 355,936
Ruddick Corp. 5,000 130,150
The Boston Beer Co., Inc. (a) 8,830 290,066
United Natural Foods, Inc. (a) 9,970 308,970
---------------
2,029,759
---------------
Energy--6.1%
Arena Resources, Inc. (a) 10,250 329,230
Complete Production Services, Inc. (a) 9,310 183,779
Dril-Quip, Inc. (a) 2,640 178,675
Geomet, Inc. (a) 22,080 207,552
Global Industries Ltd. (a) 12,140 188,898
Hanover Compressor Co. (a) 16,810 306,278
Lufkin Industries, Inc. 3,400 179,928
Oil States International, Inc. (a) 11,070 304,425
Penn Virginia Corp. 6,030 382,362
W-H Energy Services, Inc. (a) 7,790 323,051
---------------
2,584,178
---------------
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financial--7.9%
Arch Capital Group Ltd.--ADR (a) 3,800 $ 241,262
Berkshire Hills Bancorp, Inc. 3,100 110,329
Capital Source, Inc. (b) 13,250 342,115
Capitol Bancorp Ltd. 4,960 220,720
Cullen/Frost Bankers, Inc. 2,400 138,768
Dollar Financial Corp. (a) 15,920 347,374
Financial Institutions, Inc. 5,150 120,304
First Cash Financial Services, Inc. (a) 10,160 209,194
First Midwest Bancorp, Inc. 9,510 360,334
Montpelier Re Holdings Ltd. (b) 16,060 311,403
Nara Bancorp, Inc. 7,470 136,626
Portfolio Recovery Associates, Inc. (a) 7,910 347,012
The Colonial BancGroup, Inc. 8,670 212,415
Umpqua Holdings Corp. 7,700 220,220
---------------
3,318,076
---------------
Health Care--22.8%
Adams Respiratory Therapeutics, Inc. (a)(b) 4,710 172,339
Alkermes, Inc.(a) 12,600 199,710
Alnylam Pharmaceuticals, Inc. (a) 13,000 187,330
Applera Corp.-Celera Genomics Group (a) 12,920 179,846
Array BioPharma, Inc. (a)(b) 16,750 142,710
ArthroCare Corp. (a) 7,660 358,948
Centene Corp. (a) 7,800 128,232
Community Health Systems, Inc. (a) 7,900 295,065
Conor Medsystems, Inc. (a) 7,700 181,489
Covance, Inc. (a) 6,270 416,203
Cytyc Corp. (a) 13,100 320,688
DJO, Inc. (a) 7,070 293,617
Eclipsys Corp. (a) 13,000 232,830
Emdeon Corp. (a) 32,470 380,224
Enzon Pharmaceuticals, Inc. (a)(b) 25,480 210,210
Fisher Scientific International 6,600 516,384
Foxhollow Technologies, Inc. (a)(b) 9,600 328,224
Haemonetics Corp. (a) 6,640 310,752
Home Diagnostics, Inc. (a)(b) 16,900 221,221
Integra LifeSciences Holdings (a) 8,380 314,082
InterMune, Inc. (a)(b) 16,000 262,720
Medarex, Inc. (a) 16,810 180,539
Merit Medical Systems, Inc. (a) 15,620 212,120
Natus Medical, Inc. (a)(b) 22,270 303,986
PDL BioPharma, Inc. (a)(b) 7,990 153,408
Pediatrix Medical Group, Inc. (a) 4,690 213,864
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care (continued)
PerkinElmer, Inc. 15,980 $ 302,501
Respironics, Inc. (a) 20,800 803,088
Rigel Pharmaceuticals, Inc. (a) 17,220 176,849
Thoratec Corp. (a)(b) 16,250 253,663
Triad Hospitals (a) 4,850 213,546
VCA Antech, Inc. (a) 10,300 371,418
Vertex Pharmaceuticals, Inc. (a)(b) 4,650 156,473
Viasys Healthcare, Inc. (a) 17,020 463,625
Wellcare Group, Inc. (a) 2,220 125,719
---------------
9,583,623
---------------
Industrials--16.2%
AAR Corp. (a) 8,470 201,925
Alaska Air Group, Inc. (a) 11,500 437,460
Bucyrus International, Inc., Class A 4,790 203,192
Central Parking Corp. (b) 13,100 216,150
CIRCOR International, Inc. 7,730 236,152
Copart, Inc. (a) 8,870 250,045
Global Cash Access, Inc. (a) 24,610 371,365
Hub Group, Inc., Class A Shares (a) 23,960 545,809
Huron Consulting Group, Inc. (a) 5,910 231,672
Interline Brands, Inc. (a) 8,410 207,559
Kennametal, Inc. 4,010 227,167
MSC Industrial Direct Co., Inc. (b) 7,340 299,032
Navigant Consulting, Inc. (a) 10,690 214,441
Pacer International, Inc. 11,890 330,066
Quanta Services, Inc. (a) 27,060 456,232
Robbins & Myers, Inc. 10,920 337,646
School Specialty, Inc. (a) 10,800 381,132
Stericycle, Inc. (a) 3,500 244,265
Team, Inc. (a) 8,200 205,492
UAP Holding Corp. 15,100 322,687
UTI Worldwide, Inc. 6,800 190,196
Washington Group International, Inc. (a) 11,960 703,966
---------------
6,813,651
---------------
Information Technology--23.1%
24/7 Real Media, Inc. (a)(b) 81,680 697,547
AMIS Holdings, Inc. (a) 32,080 304,439
Ariba, Inc. (a) 23,844 178,592
Arris Group, Inc. (a)(b) 18,010 206,395
Art Technology Group, Inc. (a) 117,820 301,619
BEA Systems, Inc. (a) 15,390 233,928
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Information Technology (continued)
Brocade Communications Systems, Inc. (a) 62,520 $ 441,391
Cymer, Inc. (a) 7,390 324,495
DSP Group, Inc. (a) 12,200 278,770
Exar Corp. (a) 16,180 215,032
Forrester Research, Inc. (a) 7,280 191,537
Ikanos Communications, Inc. (a) 16,670 196,206
Informatica Corp. (a) 16,740 227,497
ManTech International Corp., Class A (a) 10,780 355,848
Micrel, Inc. (a) 28,600 274,274
Net Gear, Inc. (a) 10,310 212,283
NIC, Inc. (a) 34,670 178,551
Online Resources Corp. (a) 19,900 243,775
Palm, Inc. (a) 19,420 282,755
Polycom, Inc. (a) 17,800 436,634
Progress Software Corp. (a) 5,410 140,660
Rackable Systems, Inc. (a) 10,610 290,396
Radyne Corp. (a) 25,740 315,058
Rudolph Technologies, Inc. (a) 23,470 430,205
S1 Corp. (a) 26,420 121,796
Silicon Image, Inc. (a) 17,010 216,367
Smart Modular Technologies, Inc. 25,690 256,129
Supertex, Inc. (a) 11,670 453,613
Tektronix, Inc. 7,230 209,164
Tessera Technologies, Inc. (a) 8,460 294,239
The Knot, Inc. (a) 10,740 237,676
The Ultimate Software Group, Inc. (a) 9,970 234,594
ValueClick, Inc. (a) 13,790 255,667
Verisign, Inc. (a) 12,500 252,500
Wright Express Corp. (a) 8,170 196,570
---------------
9,686,202
---------------
Materials--1.7%
Hecla Mining Co. (a)(b) 56,880 326,491
Kinross Gold Corp. (a) 14,800 185,296
Pan American Silver Corp. (a) 11,030 215,522
---------------
Total Equities (Cost $37,773,727) 727,309
---------------
40,274,769
---------------
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.2%
U.S. Government--0.2%
U.S. Treasury Bill (c)(d) (Cost $103,949) 4.80% 12/14/2006 $ 105,000 $ 103,949
---------------
INVESTMENT OF CASH COLLATERAL--10.0% Shares
-----------
BlackRock Cash Strategies L.L.C. (e) (Cost $4,211,924) 5.35% 4,211,924 4,211,924
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $42,089,600) 44,590,642
---------------
AFFILIATED INVESTMENTS--3.7%
Dreyfus Institutional Preferred Plus Money Market Fund (e)(f)
(Cost $1,529,206) 5.32% 1,529,206 1,529,206
---------------
TOTAL INVESTMENTS--109.6% (Cost $43,618,806) 46,119,848
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(9.6)% (4,026,970)
---------------
NET ASSETS--100.0% $ 42,092,878
===============
Notes to Schedule of Investments:
ADR--American Depository Receipts
(a) Non-income producing security.
(b) Security, or a portion of thereof, was on loan at September 30, 2006
(c) Denotes all or part of security segregated as collateral for futures
transactions.
(d) Rate noted is yield to maturity.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
(f) Affiliated institutional money market fund.
At September 30,2006, the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Loss
- --------------------------------------------------------------------------------------------
Russell 2000 Index (2 Contracts) Long 12/14/2006 $738,250 $ (6,159)
========
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (Note 1A)(including securities
on loan, valued at $4,004,653 (Note 6))
Unaffiliated issuers, at value (cost $42,089,600) $ 44,590,642
Affiliated issuers, at value (Note 1F) (cost $1,529,206) 1,529,206
Cash 501,796
Receivable for investments sold 1,074,351
Interest and dividends receivable 16,831
Prepaid expenses 8,595
----------------
Total assets 47,721,421
Liabilities
Payable for investments purchased $ 1,389,713
Collateral for securities on loan (Note 6) 4,211,924
Payable for variation margin on open futures contracts
(Note 5) 12,730
Accrued accounting, administration and custody fees
(Note 2) 7,090
Accrued professional fees 5,898
Accrued trustees' fees and expenses (Note 2) 815
Other accrued expenses and liabilities 373
---------------
Total liabilities 5,628,543
----------------
Net Assets (applicable to investors' beneficial interest) $ 42,092,878
================
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income $ 176,506
Dividend income from affiliated investments (Note 1F) 88,101
Interest income 3,160
Securitiy lending income (Note 6) 39,432
-------------
Total investment Income 307,199
Expenses
Investment advisory fee (Note 2) $ 304,971
Accounting, administration and custody fees (Note 2) 87,743
Professional fees 18,191
Insurance expense 6,359
Trustees' fees and expenses (Note 2) 4,913
Miscellaneous 3,467
---------------
Total expenses 425,644
Deduct:
Waiver of invesment advisory fee (Note 2) (8,160)
---------------
Net Expenses 417,484
-------------
Net investment loss (110,285)
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 6,881,368
Financial future transactions (50,962)
---------------
Net realized gain (loss) 6,830,406
Change in unrealized appreciation (depreciation) on:
Investments (4,053,098)
Financial future contracts (13,041)
---------------
Change in net unrealized appreciation (depreciation) (4,066,139)
-------------
Net realized and unrealized gain (loss) 2,764,267
-------------
Net Increase in Net Assets from Operations $ 2,653,982
=============
The accompanying notes are an integral part of the financial statements.
20
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ (110,285) $ (146,281)
Net realized gain (loss) 6,830,406 4,319,415
Change in net unrealized appreciation (depreciation) (4,066,139) 2,750,040
--------------- -------------
Net increase (decrease) in net assets from operations 2,653,982 6,923,174
--------------- -------------
Capital Transactions
Contributions 11,475,471 21,655,858
Withdrawals (8,367,737) (25,017,269)
--------------- -------------
Net increase (decrease) in net assets from capital transactions 3,107,734 (3,361,411)
--------------- -------------
Total Increase (Decrease) in Net Assets 5,761,716 3,561,763
Net Assets
At beginning of year 36,331,162 32,769,399
--------------- -------------
At end of year $ 42,092,878 $ 36,331,162
=============== =============
The accompanying notes are an integral part of the financial statements.
21
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------------
2006 2005 2004 2003 2002
-------- --------- -------- -------- ---------
Total Return 7.32%(a) 22.05% 17.12%(a) 30.79%(a) (15.37)%(a)
-------- --------- -------- -------- ---------
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 1.10% 1.12% 1.15% 1.00% 1.00%
Net Investment Income (to average daily net assets)* (0.29)% (0.42)% (0.83)% (0.42)% (0.51)%
Portfolio Turnover 166% 135% 153% 261% 239%
Net Assets, End of Year (000's omitted) $ 42,093 $ 36,331 $ 32,769 $ 29,910 $ 24,500
- ----------
* 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 ratios would have been:
Ratios (to average daily net assets):
Expenses 1.12% N/A 1.18% 1.28% 1.18%
Net investment income (0.31)% N/A (0.86)% (0.70)% (0.69)%
(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 absense of
expense waiver.
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The
Boston Company Small Cap Growth Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of its net assets in equity securities of
small cap U.S. companies.
At September 30, 2006, there was one Fund, The Boston Company Small Cap
Growth Fund (the "Fund") invested in the Portfolio. The value of the
Fund's investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. The Fund's proportionate
interest at September 30, 2006 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity. Dividend
income is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
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 only 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.
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.
23
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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
the funds of the Trust or the 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 represent issuers in which the Portfolio held
investments in other investment companies advised by The Boston Company
Asset Management, LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Portfolio, a minimum threshold for financial
statement recognition of the benefit of positions taken in filing tax
returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date. At this
time, management is evaluating the implications of FIN 48 and its impact,
if any, in the financial statements has not yet been determined.
(2) Investment Advisory Fee and Other Transactions with Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory
and administrative services and general office facilities is paid monthly
at the annual rate of 0.80% of the Portfolio's average daily net assets.
TBCAM voluntarily agreed to limit the total annual operating expenses of
the Fund and its pro rata share of the Portfolio expenses (excluding
brokerage commission, taxes and extraordinary expense) to 1.10% of the
Fund's average daily net assets. Pursuant to this agreement, for the year
ended September 30, 2006, TBCAM voluntarily waived a portion of its
investment advisory fee in the amount of $8,160. This agreement is
voluntary and temporary and may be discontinued or revised by TBCAM at any
time.
The Portfolio Trust entered into an agreement with Mellon Bank, N.A.
("Mellon Bank"), a wholly-owned subsidiary of Mellon Financial Corporation
and an affiliate of TBCAM, to provide custody, administration and
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 $87,743 for the year ended September 30, 2006.
The Portfolio Trust also entered into an agreement with Mellon Bank to
perform certain securities lending activities and to act as the
Portfolio's lending agent. Mellon Bank receives an agreed upon percentage
of the net lending revenues. Pursuant to this agreement, Mellon Bank
earned $16,969, for the year ended September 30, 2006. See Note 6 for
further details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's and Portfolio Trust's Chief Compliance Officer. No other
director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the Trust or Portfolio Trust. The Fund and Portfolio
Trust pays each Trustee who is not a director, officer or employee of
TBCAM or its affiliates (the "Independent Trustees") an annual fee and the
Portfolio Trust pays each Independent Trustee 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 counsel to the Independent
Trustees.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
----------- -----------
Investments (non-U.S. Government Securities) $64,217,023 $60,668,570
=========== ===========
24
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2006, as computed on a
federal income tax basis, were as follows:
Aggregate cost $ 43,690,675
=============
Gross unrealized appreciation $ 3,490,124
Gross unrealized depreciation (1,060,951)
-------------
Net unrealized appreciation (depreciation) $ 2,429,173
=============
(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:
Futures contracts
The Portfolio may enter into financial futures contracts for the purchase
or sale 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 also arise if there is an illiquid secondary market or
if the counterparty does not perform under the contract's terms. The
Portfolio enters into financial futures transactions primarily to seek to
manage its exposure to certain markets and to changes in securities prices
and foreign currencies. Gains and losses are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at the
quoted daily settlement prices established by the exchange on which they
trade.
At September 30, 2006, the Portfolio held open financial futures
contracts. See Schedule of Investments for further details.
(6) Security Lending:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights
in its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event
of borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in
the event it was delayed or prevented from exercising its rights to
dispose of the collateral.
The Portfolio loaned securities during the year ended September 30, 2006
and earned interest on the invested collateral of $171,430 of which
$131,998 was rebated to borrowers or paid in fees. At September 30, 2006,
the Portfolio had securities valued at $4,004,653 on loan. See Schedule of
Investments for further detail on the security positions on loan and
collateral held.
25
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) 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. The Fund/Portfolio also pays
an annual renewal fee, computed at a rate of 0.020 of 1% of the committed
amount and allocated ratably to the participating funds/portfolios. For
the year ended September 30, 2006, the expense allocated to the Portfolio
was $452.
For the year ended September 30, 2006, the Portfolio had average
borrowings outstanding of $78,000 on a total of one day and incurred $12
of interest.
26
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Growth Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company Small Cap Growth Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company Small Cap Growth
Portfolio (the "Portfolio") at September 30, 2006, 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 September 30, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 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 September 30,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Decision Portfolio: $799
260 Charles Street Resources, Inc.
Waltham, MA 02453 ("DRI")
9/30/40 (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: $866
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 Portfolio: $799
Littauer Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. Portfolio: $799
New London, NH 03257 (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
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; formerly Assistant Vice
One Boston Place Treasurer President and Mutual Funds Controller, Standish
Boston, MA 02108 since 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly Vice
One Boston Place President and Manager, Mutual Fund Operations,
Boston, MA 02108 Standish Mellon Asset Management Company, LLC
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, and 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, L.P.
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"), and Vice President, SSRM
29
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6941AR0906
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report The Boston Company
Small Cap Value Fund
- --------------------------------------------------------------------------------
Year Ended September 30, 2006
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://www.melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://www.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
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2006.
Financial markets showed substantial resilience over the past 12 months,
shrugging off concerns that the slowdown in the housing market could drag the
rest of the economy into a recession. The U.S. Federal Reserve paused in its
tightening cycle in August, after 17 consecutive rate hikes since June 2004, as
it became convinced that inflationary forces, and expectations, were under
control. Perhaps the most notable feature of this cycle is that the housing
market is in decline at a time when interest rates are not high, historically
speaking. In previous cycles, housing market declines typically follow a period
of Fed interest rate tightenings that drive rates to extreme levels, choking off
credit, including mortgage financing. In this environment, credit for housing
and other sectors remains plentiful, with the housing pullback largely a
function of prices soaring beyond affordable levels for many prospective buyers.
The stock market climbed the proverbial "wall of worry" during 2006, with the
S&P 500 Index hitting new highs and providing a gain of 11.7% over the 12-month
period ended September 30, 2006, including a 5.7% advance in the third quarter.
With U.S. monetary policy moderating, energy prices in a swoon and the inflation
threat receding, investors clearly feel that the case for a soft landing is
being reinforced.
In the bond markets, short-term rates advanced steadily, for the most part, in
cadence with the Fed's rate increases, with the 3-month Treasury bill ending the
third quarter at 4.9%, up approximately 1.25% over the past 12-month period
ended September 30, 2006. Longer-term bonds were more stable, with the 10-year
Treasury note ending approximately 0.30% higher for the same period at 4.7%. At
quarter end, this resulted in an inverted yield curve, which is often a leading
indicator of recession.
Going forward, there is still much debate over the impact of the housing
downturn on the overall economy. We believe that the housing market is in for
prolonged weakness. As mortgage rates are already at relatively modest levels,
any boost provided by lower mortgage rates in the future is likely to be smaller
for housing than it has been in previous cycles. However, there are other
bullish factors that should mitigate the drag of the housing market. As noted,
liquidity remains plentiful and corporations are flush with cash. Spreads of
high yield bonds above Treasuries remain tight -- an indicator that credit is
still available for riskier borrowers. High yield spreads tend to widen when the
market perceives a recession is likely.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/s/ Patrick J. Sheppard
Patrick J. Sheppard
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
The Boston Company Small Cap Value Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
September 2006
During the reporting period's first half, robust economic growth and low
inflation helped support small cap stock prices. However, investors grew more
risk-averse during the second half, when signs of accelerating inflation and
slower economic growth began to emerge. As a result, small cap stocks gave back
some of their previous gains. Fortunately, inflationary pressures appeared to
wane during the summer, sparking a market rally that favored value-oriented
stocks.
For the year ended September 30, 2006 the Fund had a total return of 12.42%+
compared to a return of 14.01% for its benchmark, the Russell 2000 Value Index.
The Fund participated in most of the market's gains, deriving particularly
strong returns from the energy sector. We focused primarily on energy services
companies that benefited from rising crude oil and natural gas prices for much
of the reporting period. Winners included Tetra Technologies, Veritas DGC and
Global Industries. Although falling commodity prices eroded energy stock prices
during the third quarter of 2006, we had pared back the Fund's exposure to the
sector, helping to reduce the impact on the Fund's performance.
The Fund's returns also received strong contributions from its holdings in the
financials sector, where brokerage firms Piper Jaffray Cos., Raymond James
Financial and Knight Capital benefited from higher levels of trading and
investment banking activity. In addition, the Fund's holdings of thrifts and
mortgage finance companies fared well. The consumer staples sector was an area
of emphasis for the Fund that was driven higher by several packaged foods
providers, including Sanderson Farms, Lance Inc., and Ralcorp Holdings, as
investors increasingly turned to companies that tend to produce consistent
earnings under a variety of economic conditions.
Success in these areas was offset by disappointments in others. Despite an
overweight position in the information technology sector, the Fund did not
participate fully in the sector's gains due to lagging results from
communications equipment providers such as network security company SafeNet,
which suffered from earnings deterioration among other issues. Some of the
Fund's application software holdings missed their earnings targets, including
Epiq Systems, Plato Learning and Motive. In the materials sector, the Fund did
not participate as heavily as the benchmark in gains among steel companies. In
addition, the Fund's
2
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
chemicals holdings lagged the benchmark as one company announced a questionable
acquisition and the portfolio lacked exposure to the specialty chemicals group,
which was the best performing segment within chemicals for the benchmark.
Finally, company-specific issues affecting various aerospace and defense
contractors undermined the Fund's investments in the industrials sector.
We have continued to employ our bottom-up security selection strategy, which
recently has identified a number of companies we believe present value-oriented
opportunities in the health care and technology sectors. Although we have
continued to find pockets of opportunity among energy companies, we recently
reduced the Fund's exposure to the sector to a slightly overweight position. We
have found relatively few companies meeting our investment criteria in the
financials and consumer discretionary sectors, areas that could be negatively
affected by deteriorating credit conditions and slower consumer spending,
respectively, in a slower-growth economic environment.
/s/ Stephanie Brandaleone /s/ Joseph Corrado
Stephanie Brandaleone Joseph Corrado
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
3
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
Small Cap Value Fund and the Russell 2000 Value Index (Unaudited)
- --------------------------------------------------------------------------------
[GRAPHICS]
Average Annual Total Returns
(for period ended 9/30/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 2/1/2000
- --------------------------------------------------------------------------------
Fund 12.42%+ 21.04% 19.36% 18.92%
* Source: Lipper Inc.
Average annual total returns reflect the change in the value of an investment,
assuming reinvestment of the fund's dividends from 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.
+ Part of the fund's recent performance is attributable to positive returns
from its initial public offering (IPO) investments. There can be no
guarantee that IPOs will have or continue to have a positive effect on the
fund's performance.
4
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Shareholder Expense Example (Unaudited)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2006 to September 30, 2006).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
- ------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 999.20 $ 4.61(1)
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,020.46 $ 4.66(1)
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.92%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
(1) The example reflects the expenses of the Fund and the master portfolio in
which the Fund invests all its assets.
5
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Portfolio Information as of September 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Investments
- --------------------------------------------------------------------------------
Ralcorp Holdings, Inc. Consumer Staples 1.9%
Option Care, Inc. Health Care 1.5
Universal Compression Holdings, Inc. Energy 1.4
BankAtlantic Bancorp, Inc. Financials 1.4
AGCO Corp. Industrials 1.3
Shaw Group, Inc. Industrials 1.3
Longs Drug Stores Corp. Consumer Staples 1.3
Regis Corp. Consumer Discretionary 1.3
Esterline Technologies Corp. Industrials 1.3
Piper Jaffray Companies, Inc. Financials 1.2
----
13.9%
* Excludes short-term securities and cash collateral investments.
Percentage of
Economic Sector Allocation Net Assets
- ------------------------------------------------------
Consumer Discretionary 12.4%
Consumer Staples 6.9
Energy 5.2
Financials 22.4
Health Care 8.0
Industrials 19.3
Information Technology 16.5
Materials 5.5
Telecommunications Services 0.8
Utilities 1.7
Short-term and other Assets 1.3
-----
100.0%
The Boston Company Small Cap Value Fund invests all of its investable assets in
an interest of The Boston Company Small Cap Value 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
The Boston Company Small Cap Value Fund
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investment in The Boston Company Small Cap Value Portfolio ("Portfolio"), at value (Note 1A) $ 538,051,313
Receivable for Fund shares sold 1,806,794
Prepaid expenses 17,943
-------------
Total assets 539,876,050
Liabilities
Payable for Fund shares redeemed $ 234,588
Accrued administrator services fee (Note 2) 46,813
Accrued professional fees 16,123
Accrued registration fee 8,909
Accrued transfer agent fees (Note 2) 4,967
Accrued trustees' fees (Note 2) 1,000
Accrued chief compliance officer fee (Note 2) 369
Other accrued expenses and liabilities 2,871
------------
Total liabilities 315,640
-------------
Net Assets $ 539,560,410
=============
Net Assets consist of:
Paid-in capital $ 485,516,077
Accumulated net realized gain 19,869,798
Undistributed net investment income 820,716
Net unrealized appreciation 33,353,819
-------------
Total Net Assets $ 539,560,410
=============
Shares of beneficial interest outstanding 22,768,061
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 23.70
=============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income allocated from Portfolio (net of foreign withholding taxes of $720) $ 3,433,069
Interest and securities lending income allocated from Portfolio 1,006,578
Expenses allocated from Portfolio (2,850,460)
-------------
Net investment income allocated from Portfolio 1,589,187
Expenses
Administrative service fees (Note 2) $ 145,930
Professional fees 37,339
Registration fees 33,078
Transfer agent fees (Note 2) 27,036
Trustees' fees (Note 2) 2,000
Insurance expense 1,753
Miscellaneous expenses 21,914
------------
Total expenses 269,050
-------------
Net investment income 1,320,137
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments and financial futures transactions 18,994,109
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments and financial futures transactions 14,188,217
-------------
Net realized and unrealized gain (loss) 33,182,326
-------------
Net Increase in Net Assets from Operations $ 34,502,463
=============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 1,320,137 $ 78,684
Net realized gain (loss) 18,994,109 12,483,311
Change in net unrealized appreciation (depreciation) 14,188,217 8,515,565
------------- -------------
Net increase (decrease) in net assets from investment operations 34,502,463 21,077,560
------------- -------------
Distributions to Shareholders (Note 1C)
From net investment income (446,329) --
From net realized gains on investments (13,455,548) (9,863,596)
------------- -------------
Total distributions to shareholders (13,901,877) (9,863,596)
------------- -------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 374,463,760 124,024,069
Value of shares issued in reinvestment of distributions 10,108,779 8,437,601
Cost of shares redeemed (55,259,897) (15,210,189)
------------- -------------
Net increase (decrease) in net assets from Fund share transactions 329,312,642 117,251,481
------------- -------------
Total Increase (Decrease) in Net Assets 349,913,228 128,465,445
Net Assets
At beginning of year 189,647,182 61,181,737
------------- -------------
At end of year (including undistributed net
investment income of $820,716 and $78,874, respectively) $ 539,560,410 $ 189,647,182
============= =============
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------
2006 2005 2004 2003 2002
--------- --------- -------- -------- --------
Net Asset Value, Beginning of Year $ 22.55 $ 21.91 $ 18.49 $ 14.30 $ 13.86
--------- --------- -------- -------- --------
From Investment Operations:
Net investment income (loss)* (a) 0.09 0.02 (0.05) (0.01) 0.05
Net realized and unrealized
gains (loss) on investments 2.58 4.29 5.27 4.24 0.75
--------- --------- -------- -------- --------
Total from operations 2.67 4.31 5.22 4.23 0.80
--------- --------- -------- -------- --------
Less Distributions to Shareholders:
From net investment income (0.03) -- -- (0.02) (0.04)
From net realized gains on investments (1.49) (3.67) (1.80) (0.02) (0.32)
--------- --------- -------- -------- --------
Total distributions to shareholders (1.52) (3.67) (1.80) (0.04) (0.36)
--------- --------- -------- -------- --------
Net Asset Value, End of Year $ 23.70 $ 22.55 $ 21.91 $ 18.49 $ 14.30
========= ========= ======== ======== ========
Total Return 12.42% 21.34% 29.92% 29.64%(b) 5.43%(b)
Ratios/Supplemental data:
Expenses (to average daily net assets)* (c) 0.94% 1.05% 1.18% 1.15% 1.00%
Net Investment Income (Loss) (to average daily net assets)* 0.40% 0.08% (0.24)% (0.05)% 0.32%
Portfolio Turnover (d) N/A N/A N/A 51% 164%
Net Assets, End of Year (000's omitted) $ 539,560 $ 189,647 $ 61,182 $ 45,305 $ 35,934
- ----------
* 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 N/A $ (0.03) $ 0.01
Ratios (to average daily net assets):
Expenses (c) N/A N/A N/A 1.28% 1.24%
Net investment income N/A N/A N/A (0.18)% 0.08%
(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.
(d) Portfolio turnover represents activity while the Fund was investing
directly in securities until January 27, 2003. The portfolio turnover
ratio for the period since the Fund transferred substantially all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Small Cap Value Fund (the "Fund") is a
separate diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest of The Boston
Company Small Cap Value Portfolio (the "Portfolio"), a subtrust of Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and has the same investment objective as
the Fund. The Portfolio seeks to achieve its objective by investing, under
normal circumstances, at least 80% of net assets in equity securities of
small cap U.S. companies. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of
the Portfolio. As of September 30, 2006, the Fund owned 89% of the
Portfolio's net assets. The performance of the Fund is directly affected
by the performance of the Portfolio. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Fund shares are valued as of the close of regular trading (normally 4:00
p.m., Eastern Time) on each day that the New York Stock Exchange ("NYSE")
is open. The Fund records its investments 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
The Funds investment in the portfolio are recorded on settlement 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 represent pro rata shares of gains
and losses of 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 are declared and distributed at least annually. In
determining the amounts of its dividends, the Fund will take into account
its share of the income, gains or losses, expenses, and any other tax
items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a shareholder elects to receive them in cash.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales and the timing of
recognition of realized and unrealized gains or losses on futures
contracts.
Permanent book and tax basis differences relating to shareholder
distributions result in reclassifications among undistributed net
investment income (loss), 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
The Boston Company Small Cap Value 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. Federal Income Taxes
Each year the Fund intends to qualify as a regulated investment company by
distributing substantially all of its taxable income and realized gains
under Subchapter M of the Internal Revenue Code to shareholders.
Accordingly, no provision for income taxes is required in the financial
statements. Foreign taxes are provided for based on the Fund's
understanding of the tax rules and rates that exist in the foreign markets
in which it invests.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to The Boston Company Asset Management, LLC ("TBCAM"), a
wholly-owned subsidiary of Mellon Financial Corporation, for such
services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report.
The Trust entered into an agreement with Dreyfus Transfer, Inc., a
wholly-owned subsidiary of The Dreyfus Corporation, a wholly-owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide personnel and facilities to perform transfer agency and certain
shareholder services for the Fund. For these services, the Fund pays
Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based
fees, as well as out-of-pocket expenses. Pursuant to this agreement the
Fund was charged $27,036 for the year ended September 30, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended September 30,
2006, the Fund was charged $4,165. No other director, officer or employee
of TBCAM or its affiliates receives any compensation from the Trust or the
Portfolio Trust for serving as an officer or Trustee of the Trust. The
Fund pays each Trustee who is not a director, officer or employee of TBCAM
or its affiliates an annual fee.
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. For the year ended September 30, 2006, the Fund was charged
$73,096 for fees payable to Mellon Private Wealth Management.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2006 aggregated $383,271,435 and $69,274,182,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expense 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
September 30, 2006 September 30, 2005
------------------ ------------------
Shares sold 16,310,078 5,902,209
Shares issued to shareholders
in reinvestment of distributions 464,397 411,390
Shares redeemed (2,415,192) (697,539)
---------- ----------
Net increase (decrease) 14,359,283 (5,616,060)
========== ==========
12
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At September 30, 2006, one shareholder of record held approximately 12% of
the total outstanding shares of the Fund. Investment activities of this
shareholder could have a material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
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 in the
Fund. The fee does not apply to shares that are acquired through
reinvestment of distributions. For the year ended September 30, 2006, the
Fund received $31,354 in redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings as of September 30,
2006, were as follows:
Undistributed ordinary income $ 10,867,117
Undistributed capital gain 10,216,351
------------
Total distributable earnings $ 21,083,468
============
The tax character of distributions paid during the fiscal year ended
September 30, 2006 and September 30, 2005 was as follows:
2006 2005
------------ ------------
Distributions paid from:
Ordinary income $ 5,056,028 $ 5,315,302
Capital gains 8,845,849 4,548,294
------------ ------------
Total Distributions $ 13,901,877 $ 9,863,596
============ ============
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
13
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Value Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of The Boston Company Small Cap Value Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Boston Company Small Cap Value Fund (the "Fund") at September 30, 2006, 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 September 30, 2006 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
14
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--118.4%
EQUITIES--98.7%
Consumer Discretionary--12.4%
Aeropostale, Inc. (a) 61,800 $ 1,806,414
Asbury Automotive Group, Inc. (b) 90,700 1,868,420
Big 5 Sporting Goods Corp. (b) 258,894 5,902,783
CEC Entertainment, Inc. (a) 73,500 2,315,985
Charming Shoppes, Inc. (a)(b) 363,400 5,189,352
Courier Corp. 79,030 2,935,174
Cox Radio, Inc., Class A Shares (a) 316,800 4,862,880
Entercom Communications Corp. (b) 168,500 4,246,200
Gentex Corporation (b) 259,800 3,691,758
Hot Topic, Inc. (a)(b) 232,900 2,594,506
Jos A Bank Clothiers, Inc. (a)(b) 169,200 5,069,232
Kenneth Cole Productions, Class A Shares (b) 134,000 3,265,580
Keystone Automotive Industries, Inc. (a) 114,700 4,360,894
Lin TV Corp. (a)(b) 388,410 3,021,830
Matthews International Corp., Class A (b) 81,100 2,985,291
New York & Company, Inc. (a) 180,900 2,366,172
Red Lion Hotels Corp. (a) 93,900 1,010,364
Regis Corp. (b) 208,800 7,485,480
Ruby Tuesday (b) 88,446 2,493,293
Tenneco, Inc. (a) 134,800 3,152,972
Zale Corp. (a)(b) 164,100 4,552,134
---------------
75,176,714
---------------
Consumer Staples--6.9%
BJ'S Wholesale Club, Inc. (a)(b) 230,000 6,711,400
Casey's General Stores, Inc. (b) 238,500 5,311,395
J & J Snack Food Corp. (b) 65,000 2,021,500
Lance, Inc. (b) 115,300 2,538,906
Longs Drug Stores Corp. 164,400 7,564,044
Ralcorp Holdings, Inc. (b) 229,400 11,063,962
Sanderson Farms, Inc. (b) 173,600 5,617,696
The Boston Beer Co., Inc. (a) 36,400 1,195,740
---------------
42,024,643
---------------
Energy--5.2%
CARBO Ceramics, Inc. (b) 63,800 2,298,714
Dril-Quip, Inc. (a) 33,400 2,260,512
Foundation Coal Holdings, Inc. (b) 113,100 3,661,047
Global Industries, Ltd. (a)(b) 157,500 2,450,700
Oil States International, Inc. (a)(b) 157,300 4,325,750
Tetra Technologies (a) 138,800 3,353,408
Universal Compression Holdings, Inc. (a)(b) 155,500 8,311,475
Veritas DGC, Inc. (a)(b) 77,200 5,081,304
---------------
31,742,910
---------------
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financials--22.4%
Alabama National Bancorp/Del (b) 51,800 $ 3,535,350
American Financial Realty Trust REIT (b) 314,900 3,514,284
Annaly Capital Management, Inc. 470,200 6,178,428
Aspen Insurance Holdings Ltd 205,100 5,297,733
Assured Guaranty Ltd 198,700 5,152,291
BankAtlantic Bancorp, Inc. 570,200 8,108,244
Capital Trust, Inc., Class A REIT (b) 93,400 3,804,182
CBRE Realty Finance, Inc. (a) 108,760 1,658,590
Citizens Banking Corp. (b) 146,800 3,854,968
Cowen Group, Inc. (a) 49,800 787,338
Crystal River Capital, Inc. (b) 80,600 1,844,128
Education Realty Trust, Inc. REIT (b) 311,246 4,593,991
Financial Federal Corp. (b) 206,950 5,546,260
First Potomac Realty Trust REIT (b) 121,900 3,683,818
First Republic Bank (b) 110,400 4,698,624
Firstmerit Corp. (b) 196,200 4,545,954
Flushing Financial Corp. (b) 135,900 2,378,250
Horace Mann Educators Corp. 164,600 3,165,258
Innkeepers USA Trust REIT (b) 253,900 4,136,031
Jones Lang Lasalle (b) 64,200 5,487,816
KMG America Corp. (a) 94,196 692,341
Lasalle Hotel Properties (b) 99,100 4,294,994
Lexington Corporate Properties Trust REIT (b) 189,400 4,011,492
Mission West Properties REIT 208,000 2,373,280
Pacific Capital BanCorp 44,900 1,210,953
Piper Jaffray Companies, Inc. (a) 116,400 7,056,168
Provident Bankshares Corp. 81,800 3,030,690
Provident Financial Services, Inc. (b) 112,700 2,086,077
Redwood Trust, Inc. REIT (b) 105,400 5,308,998
Security Capital Assurance Ltd. (a) 128,980 3,089,071
South Financial Group, Inc. 165,600 4,310,568
Sterling Bancshares, Inc. (b) 186,000 3,766,500
Sterling Financial Corp. 98,200 3,184,626
Strategic Hotels and Resorts, Inc. 159,300 3,166,884
Triad Guaranty, Inc. (a)(b) 129,400 6,621,398
---------------
136,175,578
---------------
Health Care--8.0%
Amedisys, Inc. (a)(b) 121,200 4,808,004
K-V Pharmaceutical Co., Class A (a)(b) 122,564 2,904,767
Lifepoint Hospitals, Inc. (a)(b) 123,900 4,376,148
Magellan Health Services, Inc. (a)(b) 127,700 5,440,020
Medical Action Industries, Inc. (a)(b) 89,900 2,417,411
Option Care, Inc. (b) 650,700 8,712,873
Pediatrix Medical Group, Inc. (a) 107,500 4,902,000
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care (continued)
Phase Forward, Inc. (a)(b) 406,800 $ 4,857,192
Providence Service Corp. (a)(b) 102,100 2,816,939
RehabCare Group, Inc. (a) 122,800 1,608,680
Res-Care, Inc. (a) 278,500 5,595,065
---------------
48,439,099
---------------
Industrials--19.3%
Adesa, Inc. 197,800 4,571,158
AGCO Corp. (a)(b) 314,200 7,964,970
Bowne & Co., Inc. 270,000 3,855,600
Casella Waste Systems, Inc. (a)(b) 210,900 2,180,706
Central Parking Corp. (b) 253,600 4,184,400
Clean Harbors, Inc. (a)(b) 156,600 6,819,930
Comfort Systems USA, Inc. (b) 112,100 1,284,666
Corrections Corp. of America (a) 86,750 3,751,938
Electro Rent Corporation (b) 89,600 1,524,096
Enersys (a)(b) 83,200 1,334,528
Esterline Technologies Corp. (a) 221,300 7,471,088
Granite Construction, Inc. (b) 72,400 3,862,540
GSI Group, Inc. (a) 191,633 1,791,769
II-VI, Inc. (a) 159,805 3,982,341
Infrasource services, Inc. (a)(b) 210,900 3,701,295
Insituform Technologies, Inc. (a) 104,421 2,535,342
Labor Ready (a) 220,700 3,515,751
Laidlaw International, Inc. (b) 165,700 4,528,581
LECG Corp. (a)(b) 309,100 5,798,716
McGrath Rentcorp. (b) 157,900 4,042,240
Pike Electric Corp. (a) 221,600 3,301,840
School Specialty, Inc. (a)(b) 152,400 5,378,196
Shaw Group, Inc. (a) 331,200 7,829,568
The Brink's Co. (b) 69,400 3,682,364
Toro Co. (b) 138,500 5,840,545
United Rentals, Inc. (a)(b) 191,500 4,452,375
United Stationers, Inc. 78,000 3,627,780
Waste Connections, Inc. (a)(b) 114,400 4,336,904
---------------
117,151,227
---------------
Information Technology--16.5%
Actel Corp. (a)(b) 192,100 2,987,155
Avid Technology, Inc. (a)(b) 117,400 4,275,708
Brocade Communications Systems, Inc. (a)(b) 464,500 3,279,370
Cirrus Logic, Inc. (a)(b) 342,400 2,496,096
Comtech Telecommunications Corp. (a)(b) 183,800 6,153,624
CSG Systems International , Inc. (a)(b) 203,000 5,365,290
Electronics for Imaging, Inc. (a) 189,700 4,340,336
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Information Technology (continued)
Emulex Corp. (a) 289,000 $ 5,251,130
Epicor Software Corp. (a) 238,600 3,128,046
EPIQ Systems, Inc. (a)(b) 161,500 2,375,665
FEI Co. (a) 232,500 4,908,075
Foundry Networks, Inc. (a)(b) 421,000 5,536,150
Hutchinson Technology, Inc. (a)(b) 125,700 2,643,471
Micrel, Inc. (a) 262,300 2,515,457
MKS Instruments, Inc. (a) 64,221 1,304,329
Net Gear, Inc. (a)(b) 241,700 4,976,603
NIC, Inc. (a) 516,000 2,657,400
Palm, Inc. (a)(b) 80,500 1,172,080
Perot Systems Corp., Class A (a)(b) 400,900 5,528,411
Powerwave Technologies, Inc. (a) 180,452 1,371,435
Progress Software Corp. (a) 141,600 3,681,600
SI International, Inc. (a)(b) 158,200 5,059,236
Sybase, Inc. (a)(b) 197,000 4,775,280
Symmetricom, Inc. (a)(b) 330,000 2,663,100
Tekelec (a)(b) 227,900 2,953,584
Tibco Software, Inc. (a) 383,700 3,445,626
WebEx Communications, Inc. (a)(b) 142,200 5,548,644
---------------
100,392,901
---------------
Materials--5.5%
AMCOL International Corp. (b) 111,900 2,787,429
Compass Minerals International, Inc. (b) 118,300 3,349,073
FMC Corp. 79,500 5,093,565
Glatfelter (b) 224,900 3,047,395
Metal Management, Inc. (b) 175,000 4,872,000
Neenah Paper, Inc. 118,000 4,039,140
RTI International Metals, Inc. (a)(b) 108,700 4,737,146
Schweitzer-Mauduit International, Inc. 121,700 2,309,866
Wausau Paper Corp. (b) 217,000 2,929,500
---------------
33,165,114
---------------
Telecommunication Services--0.8%
Cincinnati Bell, Inc. (a) 1,038,000 5,003,160
---------------
Utilities--1.7%
El Paso Electric Co. (a)(b) 194,400 4,342,896
PNM Resources, Inc. (b) 216,200 5,960,632
---------------
10,303,528
---------------
Total Equities (Cost $564,073,040) 599,574,874
---------------
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Schedule of Investments--September 30, 2006
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--0.1%
U.S. Government--0.1%
U.S. Treasury Bill (c)(d) (Cost $767,242) 4.80% 12/14/2006 $ 775,000 $ 767,242
---------------
INVESTMENT OF CASH COLLATERAL--19.6% Shares
-------------
BlackRock Cash Strategies L.L.C. (e) (Cost $119,213,787) 5.35% 119,213,787 119,213,787
---------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $684,054,069) 719,555,903
---------------
AFFILIATED INVESTMENTS--2.5%
Dreyfus Institutional Preferred
Plus Money Market Fund (e)(f) (Cost $14,960,206) 5.32% 14,960,206 14,960,206
---------------
TOTAL INVESTMENTS--120.9% (Cost $699,014,275) 734,516,109
LIABILITIES IN EXCESS OF OTHER ASSETS--(20.9)% (126,803,093)
---------------
NET ASSETS--100% $ 607,713,016
===============
Notes to Schedule of Investments:
REIT--Real Estate Investment Trust
(a) Non-income producing security
(b) Security, or a portion of thereof, was on loan at September 30, 2006.
(c) Rate noted is yield to maturity.
(d) Denotes all or part of security pledged as collateral.
(e) Stated rate is the seven day yield for the fund at September 30, 2006.
(f) Affiliated institutional money market fund.
At September 30, 2006, the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain
- ---------------------------------------------------------------------------------------------------------------
Russell 2000 Index (14 Contracts) Long 12/14/2006 $ 5,003,250 $ 121,387
==========
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Statement of Assets and Liabilities
September 30, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (Note 1A) (including securities on loan, valued at
$112,922,624 (Note 6))
Unaffiliated issuers, at value (cost $684,054,069) $ 719,555,903
Affiliated issuers, at value (Note 1F) (cost $14,960,206) 14,960,206
Receivable for investments sold 4,325,669
Interest and dividends receivable 708,135
Prepaid expenses 5,390
-------------
Total assets 739,555,303
Liabilities
Collateral for securities on loan (Note 6) $ 119,213,787
Payable for investments purchased 12,550,747
Payable for variation margin on open futures contracts (Note 5) 37,100
Accrued professional fees 18,322
Accrued accounting, administration and custody fees (Note 2) 16,243
Accrued trustees' fees and expenses (Note 2) 5,863
Other accrued expenses and liabilities 225
-------------
Total liabilities 131,842,287
-------------
Net Assets (applicable to investors' beneficial interest) $ 607,713,016
=============
The accompanying notes are an integral part of the financial statements.
20
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Statement of Operations
For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Dividend income (net of foreign withholding taxes of $830) $ 3,908,703
Dividend income from affiliated Investments (Note 1F) 1,034,862
Interest income 28,051
Security lending income (Note 6) 84,077
-------------
Total investment Income 5,055,693
Expenses
Investment advisory fee (Note 2) $ 2,997,416
Accounting, administration and custody fees (Note 2) 163,579
Professional fees 33,031
Trustees' fees and expenses (Note 2) 33,705
Insurance expense 13,850
Miscellaneous expenses 5,074
-------------
Total expenses 3,246,655
-------------
Net investment income 1,809,038
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 20,726,220
Financial futures transactions 715,316
-------------
Net realized gain (loss) 21,441,536
Change in unrealized appreciation (depreciation) on:
Investments 15,709,451
Financial futures contracts 92,556
-------------
Change in net unrealized appreciation (depreciation) 15,802,007
-------------
Net realized and unrealized gain (loss) 37,243,543
-------------
Net Increase in Net Assets from Operations $ 39,052,581
=============
The accompanying notes are an integral part of the financial statements.
21
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 1,809,038 $ 226,171
Net realized gain (loss) 21,441,536 14,244,903
Change in net unrealized appreciation (depreciation) 15,802,007 8,955,116
-------------- -------------
Net increase (decrease) in net assets from operations 39,052,581 23,426,190
-------------- -------------
Capital Transactions
Contributions 427,309,889 158,240,730
Withdrawals (78,684,651) (27,943,665)
-------------- -------------
Net increase (decrease) in net assets from capital transactions 348,625,238 130,297,065
-------------- -------------
Total Increase (Decrease) in Net Assets 387,677,819 153,723,255
Net Assets
At beginning of year 220,035,197 66,311,942
-------------- -------------
At end of year $ 607,713,016 $ 220,035,197
============== =============
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
Year Ended September 30, (commencement
------------------------------------- of operations) to
2006 2005 2004 September 30, 2003
---------- ---------- --------- ------------------
Total Return (a) 12.50% 21.45% 30.07% 29.85%(b)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.86% 0.94% 1.03% 1.10%(c)
Net Investment Income (to average daily net assets)* 0.48% 0.19% (0.10)% (0.07)%(c)
Portfolio Turnover 60% 70% 123% 102%(b)
Net Assets, End of Year (000's omitted) $ 607,713 $ 220,035 $ 66,312 $ 45,373
- ----------
* 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 ratios would have been:
Ratios (to average daily net assets):
Expenses N/A N/A N/A 1.10%(c)
Net investment income N/A N/A N/A (0.07)%(c)
(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) Not annualized.
(c) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
23
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Organization and Significant Accounting Policies:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The
Boston Company Small Cap Value Portfolio (the "Portfolio"), is a separate
diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of small
cap U.S. companies.
At September 30, 2006, there were two funds, The Boston Company Small Cap
Value Fund and Dreyfus Premier Small Cap Equity Fund invested in the
Portfolio (the "Funds"). The value of the Funds' investment in the
Portfolio reflects the Funds' proportionate interests in the net assets of
the Portfolio. At September 30, 2006, The Boston Company Small Cap Value
Fund and the Dreyfus Premier Small Cap Equity Fund held 89% and 11%
interests in the Portfolio, respectively.
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates.
A. Investment security valuations
Securities 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
calculated mean price (average of last bid and last offer). 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.
Exchange traded options and futures are valued at the settlement price
determined by the relevant exchange. Non-exchange traded derivatives are
normally valued on the basis of quotes obtained from brokers and dealers
or pricing services.
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield-to-maturity method
on debt securities with greater than sixty days to maturity when required
for federal income tax purposes. Dividend income is recorded on the
ex-dividend date. Realized gains and losses from securities sold are
recorded on the identified cost basis. Dividends representing a return of
capital are reflected as a reduction of cost.
C. Income taxes
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state income taxes on
any taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since at least one
of the Portfolio's investors is a regulated investment company that
invests all or substantially all of its assets in the Portfolio, the
Portfolio normally must satisfy the source of income and diversification
requirements applicable to regulated investment companies (under the
Internal Revenue Code) in order for its investors to satisfy them.
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.
24
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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
the funds of the Trust or the 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 The Boston Company
Asset Management LLC ("TBCAM"), a wholly-owned subsidiary of Mellon
Financial Corporation, or its affiliates.
G. New Accounting Requirements
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through
entities such as the Portfolio, a minimum threshold for financial
statement recognition of the benefit of positions taken in filing tax
returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date. At this
time, management is evaluating the implications of FIN 48 and its impact,
if any, in the financial statements has not yet been determined.
(2) Investment Advisory and Other Transactions With Affiliates:
The investment advisory fee paid to TBCAM for overall investment advisory,
administrative services, and general office facilities, is paid monthly at
the annual rate of 0.80% of the Portfolio's average daily net assets.
The Portfolio Trust entered into an agreement with Mellon Bank, N.A.
("Mellon Bank"), a wholly-owned subsidiary of Mellon Financial Corporation
and an affiliate of TBCAM, to provide custody, administration and
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 $163,579 for the year ended September 30, 2006.
The Portfolio Trust also entered into an agreement with Mellon Bank to
perform certain securities lending activities and to act as the
Portfolio's lending agent. Mellon Bank receives an agreed upon percentage
of the net lending revenues. Pursuant to this agreement, Mellon Bank
earned $36,639 for the year ended September 30, 2006. See Note 6 for
further details.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's and Portfolio Trust's Chief Compliance Officer. No other
director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the Trust or Portfolio Trust. The Fund and Portfolio
Trust pays each Trustee who is not a director, officer or employee of
TBCAM or its affiliates (the "Independent Trustees") an annual fee and the
Portfolio Trust pays each Independent Trustee 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 counsel to the Independent
Trustees.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2006 were as follows:
Purchases Sales
------------- -------------
Investments (non-U.S. Government Securities) $ 572,139,893 $ 218,335,949
============= =============
25
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2006, as computed on a
federal income tax basis, were as follows:
Cost for federal income tax purposes $ 700,836,275
==============
Gross Unrealized appreciation $ 47,401,672
Gross Unrealized depreciation (12,216,650)
--------------
Net unrealized appreciation (depreciation) $ 35,185,022
==============
(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:
Futures contracts
The Portfolio may enter into financial futures contracts for the purchase
or sale 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 also arise if there is an illiquid secondary market or
if the counterparty does not perform under the contract's terms. The
Portfolio enters into financial futures transactions primarily to seek to
manage its exposure to certain markets and to changes in securities prices
and foreign currencies. Gains and losses are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at the
quoted daily settlement prices established by the exchange on which they
trade.
At September 30, 2006, the Portfolio held open financial futures
contracts. See Schedule of Investments for further details.
(6) Security Lending:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights
in its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event
of borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in
the event it was delayed or prevented from exercising its rights to
dispose of the collateral.
The Portfolio loaned securities during the year ended September 30, 2006
and earned interest on the invested collateral of $1,699,163 of which
$1,615,086 was rebated to borrowers or paid in fees. At September 30,
2006, the Portfolio had securities valued at $112,922,624 on loan. See
Schedule of Investments for further detail on the security positions on
loan and collateral held.
26
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) 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. The Fund/Portfolio also pays
an annual renewal fee, computed at a rate of 0.020 of 1% of the committed
amount and allocated ratably to the participating funds/portfolios. For
the year ended September 30, 2006, the expense allocated to the Portfolio
was $2,541.
During the year ended September 30, 2006, the Fund did not borrow from the
line of credit.
27
Mellon Institutional Funds Master Portfolio
The Boston Company Small Cap Value Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company Small Cap Value Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Boston Company Small Cap Value
Portfolio (the "Portfolio") at September 30, 2006, 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 three
years in the period then ended and the period from January 28, 2003
(commencement of operations) to September 30, 2003, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2006
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 September 30, 2006. The Trust's Statement of Additional
Information includes additional information about the Trust's trustees and is
available, without charge, upon request by writing Mellon Institutional Funds at
P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795.
Independent Trustees
Number of Trustee
Principal Portfolios in Other Remuneration
Name Position(s) Term of Office Occupation(s) Fund Complex Directorships (period ended
Address, and Held and Length of During Past Overseen by Held by September 30,
Date of Birth with Trust Time Served 5 Years Trustee Trustee 2006)
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Decision Resources, Inc. Portfolio: $4,451
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 Fund: $500
c/o Essex Street Associates 11/3/1986 Associates (family Portfolio: $4,858
P.O. Box 5600 investment trust office)
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: $4,451
Littauer Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 32 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $4,451
New London, NH 03257
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 32 None $0
The Boston Company President Operating Officer of
Asset Management, LLC and Chief The Boston Company
One Boston Place Executive Asset Management, LLC;
Boston, MA 02108 Officer formerly Senior Vice
7/24/65 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 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; formerly Assistant Vice
One Boston Place Treasurer President and Mutual Funds Controller, Standish
Boston, MA 02108 since 2002 Mellon Asset Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management; formerly Vice
One Boston Place President and Manager, Mutual Fund Operations,
Boston, MA 02108 Standish Mellon Asset Management Company, LLC
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, and 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 L.P. and Mellon Optima L/S Strategy Fund, LLC;
Boston, MA 02108 formerly Director, Blackrock, Inc., Senior Vice
4/8/57 President, State Street Research & Management
Company ("SSRM"), and 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
6944AR0906
Item 2. Code of Ethics.
The Registrant has adopted a Code of Ethics, as defined in Item 2(b) of
Form N-CSR, that applies to the Principal Executive Officer and
Principal Financial Officer. For the fiscal year ended September 30,
2006, 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.
(a) AUDIT FEES: The aggregate fees billed for professional services
rendered by the Registrant's principal accountant,
PricewaterhouseCoopers LLP, for the audit of the Registrant's
annual financial statements or services that are normally provided
by the accountant in connection with statutory and regulatory
filings or engagements for the fiscal years ended September 30,
2006 and 2005 were $321,524 and $183,941, respectively.
(b) AUDIT-RELATED FEES: The aggregate fees billed for the fiscal years
ended September 30, 2006 and 2005 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 $61,000 and $57,000, respectively. The nature of the services
comprising the fees disclosed under this Item for both years
consist of the examination of securities and similar investments
of the Registrant's investment series pursuant to the requirements
of Rule 17f-2 under the Investment Company Act of 1940.
(c) TAX FEES: The aggregate fees billed for the fiscal years ended
September 30, 2005 and 2006 for professional services rendered by
PricewaterhouseCoopers LLP for tax compliance, tax advice, and tax
planning were $119,085 and $45,840, respectively.
(d) ALL OTHER FEES: Other than the services reported in paragraphs (a)
through (c) of this Item, PricewaterhouseCoopers LLP billed no
other fees for products or services provided for the fiscal years
ended September 30, 2006 and 2005.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICY: The Registrant's audit
committee pre-approves all audit and non-audit services to be
performed by the Registrant's accountant before the accountant is
engaged by the Registrant to perform such services.
(e) (2) 100% of the services described in each of paragraphs (b)
through (d) of this Item 4 were pre-approved by the Registrant's
audit committee before the accountant was engaged by the
Registrant to perform such services.
(f) Not applicable.
(g) The aggregate non-audit fees billed by PricewaterhouseCoopers LLP
for services rendered to the Registrant and the Registrant's
investment advisers, and any entity controlling, controlled by or
under common control with the advisers that provides ongoing
services to the Registrant for the fiscal years ended September
30, 2006 and 2005 were $0 and $0, respectively. 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 September
30, 2006 and 2005 were $105,570 and $75,000, 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) The Registrant's Audit Committee of the Board of Trustees had
pre-approved all of the non-audit services that were rendered to
the Registrant's investment advisers and any entity controlling,
controlled by, or under common control with the investment
advisers that provides ongoing services to the Registrant, and no
such non-audit services were not pre-approved.
Item 5. Audit Committee of Listed Registrants.
Not applicable to the Registrant.
Item 6. Schedule of Investments
Included as part of the report to shareholders filed under Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable to the Registrant.
Item 8. 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) There were no changes in the Registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under
the Investment Company Act of 1940 that occurred during the
Registrant's second fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
Item 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
-----------------------------------------------------
Barbara A. McCann, Vice President and Secretary
Date: December 8, 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
-----------------------------------------------------
Patrick J. Sheppard, President and \
Chief Executive Officer
Date: December 8, 2006
By (Signature and Title): /s/ STEVEN M. ANDERSON
-----------------------------------------------------
Steven M. Anderson, Vice President and Treasurer
Date: December 8, 2006