UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4813
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MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
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(Exact name of registrant as specified in charter)
Mellon Financial Center, One Boston Place, Boston, Massachusetts 02108
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(Address of principal executive offices) (Zip code)
Barbara A. McCann
Vice President and Secretary
One Boston Place, Boston, MA 02108
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(Name and address of agent for service)
with a copy to:
Christopher P. Harvey, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Registrant's telephone number, including area code: (617) 248-6000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2006
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Item 1. Reports to Stockholders.
[LOGO] Mellon
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Mellon Institutional Funds
Annual Report Standish Mellon
Fixed Income Fund
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Year Ended December 31, 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
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Mellon Institutional Funds
February 2007
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2006.
Financial markets showed substantial resilience in 2006, shrugging off concerns
that the slowdown in the housing market could drag the rest of the economy into
recession. The U.S. Federal Reserve (Fed) paused in its tightening cycle in
August, after 17 rate hikes since June 2004, as the Fed became convinced that
inflationary forces, and expectations, were under control. Perhaps the most
notable feature of this cycle is that the housing bubble is bursting at a time
when rates are not high. In previous cycles, housing market declines typically
follow a period of Fed 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 hitting new highs and providing a gain of 15.8%, including an 8.8%
advance in the fourth 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 6-month Treasury bill ending the
year at 4.9%, up about 70 basis points. Rates on longer-term bonds increased to
a lesser degree, with the 10-year Treasury note ending about 30 basis points
higher at 4.7%. This produced 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, because rates are already at relatively modest levels. Thus,
the boost provided by lower mortgage rates in the future is likely to be smaller
for housing than in 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 Fixed Income Fund
Management Discussion and Analysis
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With solid economic growth and rising inflation during the first half of 2006,
the U.S. Federal Reserve (Fed) raised the federal funds rate 100 basis points to
5.25% between December 13, 2005 to June 29, 2006. By mid-year, significant
deterioration in the U.S. housing market and related slowdown in growth pushed
the Fed to pause in its rate hike cycle, and for the remainder of the year, the
Fed left the federal funds rate unchanged. While measures of inflation and
growth declined modestly during the second half of the year, the employment
picture was strong. With low unemployment and solid job gains, the Fed is
concerned that tightness in the labor market will result in higher wages and
rising inflation. While their inflation outlook remains hawkish, the Fed's view
on growth has softened due primarily to weakness in the U.S. housing market.
With continued high inventories of unsold homes, the slowdown in U.S. housing
activity continues to pose a significant risk for the economy into 2007. In this
mixed economic environment, 10-year Treasury yields have ranged between 4.5% and
5.25%, closing the year at 4.70%. The yield curve flattened with both 2- and
30-year Treasuries yielding 4.80% at year-end.
For 2006, the Standish Mellon Fixed Income Fund (Fund) returned 4.38% compared
to 4.33% for the Fund's benchmark, the Lehman Brothers U.S. Aggregate Index.
Various sectors outperformed Treasuries, with below investment grade and
emerging market bonds posting the strongest returns for the period. Amid low
volatility, the environment for spreads across sectors has remained favorable.
The Fund's allocation to high yield, emerging market and BBB-rated corporate
bonds have contributed positively to performance. The portfolio's position in
Treasury Inflation Protected Securities (TIPS) detracted from returns as
negative inflation accruals resulted in underperformance as compared to nominal
Treasuries. With the outperformance of high quality sectors, the underweight
position of the Fund in mortgages was also a slight negative. The Fund's
exposure to international bonds, both hedged and unhedged, benefited returns as
a result of their yield advantage relative to domestic bonds.
As we begin the new year, we expect the Fed will leave the federal funds rate
unchanged as it waits to see if moderating growth brings inflation down to a
rate of approximately 2%. The risks to this view include inflationary pressures
arising from a strong labor market or weaker growth due to further declines in
housing activity. As the interplay between growth and inflation keeps the Fed on
hold, we expect an environment of low volatility and a flat yield curve to
persist over the short term. However, with the possibility of the Fed lowering
the federal funds rate and a steeper yield curve, we continue to position the
Fund to remain underweight the long end in favor of intermediate bonds.
The portfolio is well positioned to take advantage of this environment. We have
increased the Fund's allocation to mortgages in order to capitalize on low
volatility and favorable supply and demand conditions. We are likely to reduce
the Fund's position in TIPS, as declining oil prices and a slowing economy are
unlikely to result in higher inflation expectations. We see incremental
opportunities to add international bonds in order to take advantage of the
hedged yield advantage of some countries relative to the U.S., including Japan,
Poland and Sweden.
As always, we look forward to serving you in 2007.
Catherine A. Powers Kent J. Wosepka
Senior Portfolio Manager Senior Portfolio Manager
Standish Mellon Asset Management Standish Mellon Asset Management
Company LLC Company LLC
2
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Comparison of Change in Value of $100,000 Investment in Standish Mellon
Fixed Income Fund and the Lehman Brothers U.S. Aggregate Index
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[LINE GRAPH]
Standish Mellon Lehman Brothers
PERIOD Fixed Income Fund U. S. Aggregate Index *
12/31/96 100,000 100,000
12/31/97 109,544 109,654
12/31/98 115,295 119,180
12/31/99 114,484 118,200
12/31/00 126,178 131,942
12/31/01 135,213 143,084
12/31/02 147,227 157,757
12/31/03 154,944 164,231
12/31/04 163,912 171,357
12/31/05 168,841 175,519
12/31/06 176,140 183,125
Average Annual Total Returns
(for period ended 12/31/2006)
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Since
Inception
1 Year 3 Years 5 Years 10 Years 3/30/1987
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4.38% 4.35% 5.43% 5.82% 7.40%
* Source: Lipper Inc.
Average annual total returns reflect the change in the value of an investment,
assuming reinvestment of the fund's dividend income and capital gains. The
$100,000 line graph and the fund's returns do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. During periods of reimbursement by the fund's investment adviser (if
applicable), the fund's total return will be greater than it would be had the
reimbursement not occurred. Past performance is not predictive of future
performance.
3
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Shareholder Expense Example (Unaudited)
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As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (July 1, 2006 to December 31, 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=8.6), then multiply the result by the number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value July 1, 2006 to
July 1, 2006 December 31, 2006 December 31, 2006
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,051.20 $2.59
Hypothetical (5% return
per year before expenses) $1,000.00 $1,022.68 $2.55
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+ Expenses are equal to the Fund's annualized expense ratio of 0.50%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period). The example reflects the
combined expenses of the Fund and the master portfolio in which it invests
all its assets.
4
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Portfolio Information as of December 31, 2006 (Unaudited)
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The Standish Mellon Fixed Income Fund invests all of its investable assets
in an interest of the Standish Mellon Fixed Income Portfolio (See Note 1
of the Fund's Notes to Financial Statements). The Portfolio is actively
managed. Current holdings may be different than those presented below.
Percentage of
Summary of Combined Ratings Investments
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Quality Breakdown
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AAA and higher 56.5%
AA 4.4
A 14.9
BBB 19.0
BB 4.1
B 1.1
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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 Portfolio treats the security as being rated in the
higher rating category.
Percentage of
Top Ten Holdings* Rate Maturity Investments
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FNMA (TBA) 5.500% 1/1/2036 7.7%
FNMA (TBA) 5.000 1/1/2021 4.0
FNMA (TBA) 6.000 1/1/2036 3.1
FHLMC Gold (TBA) 5.500 1/1/2022 2.4
U.S. Treasury Note 4.625 11/15/2016 2.4
Poland Government Bond 5.750 6/24/2008 2.2
FHLMC Gold (TBA) 6.000 1/1/2022 2.2
U.S. Treasury Bond 4.500 2/15/2036 2.2
U.S. Treasury Inflation-Indexed Bond 3.000 7/15/2012 1.8
FHLMC Gold (TBA) 5.000 1/1/2022 1.4
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29.4%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
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Treasury/Agency 10.0%
Mortgage Pass through 29.4
Credit 37.1
ABS/CMO/CMBS 17.5
Emerging Markets 4.7
Municipal 1.3
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100.0%
5
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Statement of Assets and Liabilities
December 31, 2006
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Assets
Investment in Standish Mellon Fixed Income Portfolio (Portfolio), at value (Note 1A) $ 555,519,677
Receivable for Fund shares sold 6,869,232
Receivable from advisor 18,699
Prepaid expenses 7,538
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Total assets 562,415,146
Liabilities
Distributions payable $ 1,992,321
Payable for Fund shares redeemed 797,406
Accrued administrative services expense (Note 2) 23,807
Accrued professional fees 13,395
Accrued transfer agent fees (Note 2) 8,041
Accrued shareholder reporting expense (Note 2) 4,350
Accrued trustees' fees (Note 2) 500
Accrued chief compliance officer fee (Note 2) 679
Other accrued expenses and liabilities 2,288
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Total liabilities 2,842,787
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Net Assets $ 559,572,359
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Net Assets consist of:
Paid-in capital $ 745,610,369
Accumulated net realized loss (183,618,201)
Distributions in excess of net investment income (752,376)
Net unrealized depreciation (1,667,433)
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Total Net Assets $ 559,572,359
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Shares of beneficial interest outstanding 28,528,792
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Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 19.61
=============
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Statement of Operations
For the Year Ended December 31, 2006
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Investment Income (Note 1B)
Interest and security lending income allocated from Portfolio $ 24,185,967
Dividend income allocated from Portfolio 837,086
Expenses allocated from Portfolio (2,105,209)
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Net investment income allocated from Portfolio 22,917,844
Expenses
Administrative service fees (Note 2) $ 144,015
Professional fees 50,638
Registration fees 25,741
Transfer agent fees (Note 2) 19,295
Trustees' fees and expenses (Note 2) 2,000
Insurance expense 1,679
Miscellaneous expenses 19,232
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Total expenses 262,600
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Net investment income 22,655,244
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Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments 688,522
Financial futures transactions (694,568)
Written options transactions (267,401)
Foreign currency transactions and forward foreign currency exchange transactions (582,162)
Swap transactions 529,965
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Net realized gain (loss) (325,644)
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments (1,546,112)
Financial futures contracts 373,845
Written options contracts (50,511)
Foreign currency translation and forward foreign currency exchange contracts 176,205
Swap contracts (217,496)
------------
Net change in net unrealized appreciation (depreciation) (1,264,069)
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Net realized and unrealized gain (loss) on investments (1,589,713)
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Net Increase in Net Assets from Operations $ 21,065,531
=============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Statements of Changes in Net Assets
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For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 22,655,244 $ 18,867,149
Net realized gain (loss) (325,644) 3,077,515
Change in net unrealized appreciation (depreciation) (1,264,069) (8,030,510)
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Net increase (decrease) in net assets from investment operations 21,065,531 13,914,154
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Distributions to Shareholders (Note 1C)
From net investment income (22,263,301) (22,878,370)
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Total distributions to shareholders (22,263,301) (22,878,370)
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Fund Share Transactions (Note 4)
Net proceeds from sale of shares 177,478,086 51,996,373
Value of shares issued to shareholders in reinvestment of distributions 15,312,591 15,442,638
Cost of shares redeemed (net of redemption fees of $4,451 and $0,
respectively) (87,911,791) (65,890,204)
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Net increase (decrease) in net assets from Fund share transactions 104,878,886 1,548,807
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Total Increase (Decrease) in Net Assets 103,681,116 (7,415,409)
Net Assets
At beginning of year 455,891,243 463,306,652
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At end of year (including distributions in excess of investment income of
$752,376 and $282,143, respectively) $ 559,572,359 $ 455,891,243
============= =============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Financial Highlights
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Year Ended December 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Net Asset Value, Beginning of the Year $ 19.66 $ 20.08 $ 20.08 $ 19.70 $ 18.93
--------- --------- --------- --------- ---------
From Operations:
Net investment income * (a) 0.93 0.82 0.77 0.75 0.93
Net realized and unrealized gains (loss) on investments (0.10) (0.23) 0.36 0.28 0.71
--------- --------- --------- --------- ---------
Total from investment operations 0.83 0.59 1.13 1.03 1.64
--------- --------- --------- --------- ---------
Less Distributions to Shareholders:
From net investment income (0.88) (1.01) (1.13) (0.65) (0.87)
--------- --------- --------- --------- ---------
Total distributions to shareholders (0.88) (1.01) (1.13) (0.65) (0.87)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year $ 19.61 $ 19.66 $ 20.08 $ 20.08 $ 19.70
========= ========= ========= ========= =========
Total Return 4.38% 2.96% 5.74% 5.24%(b) 8.89%(b)
Ratios/Supplemental data:
Expenses (to average daily net assets) * (c) 0.50% 0.49% 0.48% 0.42% 0.38%
Net Investment Income (to average daily net assets) * 4.75% 4.09% 3.77% 3.76% 4.86%
Net Assets, End of Year (000's omitted) $ 559,572 $ 455,891 $ 463,307 $ 595,789 $ 941,240
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not
to impose a portion of its investment advisory fee and/or reimbursed the
Fund for all or a portion of its operating expenses. If this voluntary
action had not been taken, the investment income per share and the ratios
would have been:
Net investment income per share (a) N/A N/A N/A $ 0.73 $ 0.93
Ratios (to average daily net assets):
Expenses (c) N/A N/A N/A 0.45% 0.42%
Net investment income N/A N/A N/A 3.73% 4.82%
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
(c) Includes the Fund's share of the Portfolio's allocated expenses.
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Notes to Financial Statements
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(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 Fixed Income Fund (the "Fund") is a separate
diversified investment series of the Trust.
The object of the Fund is primarily to achieve a high level of current
income, consistent with conserving principal and liquidity, and
secondarily to seek capital appreciation when changes in interest rates
and economic conditions indicate that capital appreciation may be
available without significant risk to principal. The Fund invests all of
its investable assets in an interest of Standish Mellon Fixed Income
Portfolio (the "Portfolio"), a subtrust of Mellon Institutional Funds
Master Portfolio (the "Portfolio Trust"), which is organized as a New York
trust and has the same investment objective as the Fund. The Portfolio
seeks to achieve its objective by investing, under normal circumstances,
at least 80% of net assets in fixed income securities issued by U.S. and
foreign governments and companies. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net assets
of the Portfolio (100% at December 31, 2006). 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 investment in the Portfolio at value. The
Portfolio values its securities at value as discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. Securities transactions and income
The Fund's investment in the Portfolio is recorded on settlement date. The
Portfolio's securities transactions are recorded as of the trade date as
discussed in Note 1B of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report. 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 wash sales,
foreign currency gains and losses, post-October losses, capital loss
carryovers, and the timing of recognition of realized and unrealized gains
and losses on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income(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.
10
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. Federal Income Taxes
Each year the Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Code. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timely distributions of its income to its shareholders, and the
diversification of its assets, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net
capital gain which are distributed to shareholders.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
(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 Standish Mellon Asset Management Company LLC ("Standish
Mellon"), a wholly-owned subsidiary of Mellon Financial Corporation, for
such services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. Standish Mellon voluntarily
agreed to limit the total operating expenses of the Fund and its pro rata
share of the Portfolio expenses (excluding brokerage commissions, taxes
and extraordinary expenses) to 0.50% of the Fund's average daily net
assets.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
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 $19,295, for the year ended December 31, 2006.
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 $4,850 for the year ended
December 31, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended December 31,
2006, the Fund was charged $4,000. No other director, officer or employee
of Standish Mellon 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 Standish Mellon or its affiliates an annual fee.
11
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to Fund shares that are held
in accounts serviced by such Plan Administrator. 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 December 31, 2006, the Fund was charged
$161,161 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 December 31, 2006, aggregated $186,365,938 and $109,974,249,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules.
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Shares sold 9,061,206 2,590,559
Shares issued to shareholders for
reinvestment of distributions 788,837 777,096
Shares redeemed (4,504,759) (3,260,750)
---------- ----------
Net increase (decrease) 5,345,284 (106,905)
========== ==========
At December 31, 2006, two shareholders of record held in the aggregate
approximately 21% 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 December 31, 2006, the
Fund received $4,451 in redemption fees.
(5) Federal Taxes:
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ --
Undistributed capital gains --
Total distributable earnings --
Capital loss carry forward 182,759,530
Tax character of distributions paid during the fiscal year ended December
31, 2006, were as follows:
2006 2005
------------ ------------
Ordinary income $ 22,263,301 $ 22,878,370
12
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 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 investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
Capital Loss Expiration
Carryover Date
------------ ----------
$ 27,099,636 12/31/2007
118,614,149 12/31/2008
36,020,187 12/31/2009
1,025,558 12/31/2014
------------
182,759,530
============
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 ending December 31, 2007,
$252,518 of capital losses and $227,501 of currency losses recognized
during the period November 1, 2006 to December 31, 2006.
See the corresponding master portfolio for tax basis unrealized
appreciation (depreciation) information.
13
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Standish Mellon Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Standish Mellon Fixed Income Fund (the "Fund") at December 31, 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 Standish
Mellon Fixed Income Portfolio (the "Portfolio") at December 31, 2006 to the
Portfolio's records, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 2, 2007
14
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--143.4%
BONDS AND NOTES--132.3%
Asset Backed--14.4%
Accredited Mortgage Loan Trust 2005-3 A2 (a) 5.450% 9/25/2035 USD 257,588 $ 257,611
Accredited Mortgage Loan Trust 2006-1 A1 (a) 5.410 4/25/2036 931,153 931,258
ACE Securities Corp. 2006-ASL1 A (a) 5.490 2/25/2036 468,888 468,933
American Express Credit Account Master Trust 2004-C 144A (a) 5.850 2/15/2012 2,219,137 2,223,131
American General Mortgage Loan Trust 2006-1 A1 144A 5.750 12/25/2035 93,688 93,520
Americredit Automobile Receivables Trust 2005-DA A2 4.750 11/6/2008 278,432 278,377
Bayview Financial Acquisition Trust 2005-B 1A6 5.208 4/28/2039 200,000 194,721
Capital Auto Receivables Asset Trust 2004-2 D 144A 5.820 5/15/2012 1,950,000 1,924,433
Capital One Multi-Asset Execution Trust 2004-C1 C1 3.400 11/16/2009 3,138,000 3,135,324
Carrington Mortgage Loan Trust (a) 5.390 5/25/2036 1,231,396 1,231,482
Centex Home Equity 2005-D AV1 (a) 5.460 10/25/2035 179,401 179,416
Centex Home Equity 2005-D M2 (a) 5.810 10/25/2035 40,000 40,212
Centex Home Equity 2005-D M3 (a) 5.830 10/25/2035 70,000 70,418
Centex Home Equity 2006-A AV1 (a) 5.400 6/25/2036 636,910 636,921
Chase Credit Card Master Trust 2004-2 C (a) 5.900 9/15/2009 1,000,000 1,001,404
Chase Manhattan Auto Owner Trust 2005-B A2 4.770 3/15/2008 620,610 620,374
Citigroup Mortgage Loan Trust, Inc. 2005-WF1 A5 5.010 2/25/2035 145,000 140,313
Citigroup Mortgage Loan Trust, Inc. 2005-WF2 AF2 4.922 8/25/2035 899,989 893,038
Citigroup Mortgage Loan Trust, Inc. 2005-WF2 AF7 5.249 8/25/2035 1,955,000 1,915,995
Citigroup Mortgage Loan Trust, Inc. 2006-WF1 A2A 5.701 3/25/2036 484,701 483,318
Countrywide Asset-Backed Certificates 2004-3 M3 (a) 6.220 5/25/2034 380,000 382,118
Countrywide Asset-Backed Certificates 2006-SPS1 A (a) 5.460 12/25/2025 2,415,435 2,416,088
Countrywide Asset-Backed Certificates 2006-SPS2 A (a) 5.510 5/25/2026 4,556,611 4,558,608
Credit-Based Asset Servicing and Securitization 2005-CB8 AF5 5.653 12/25/2035 300,000 298,294
Credit-Based Asset Servicing and Securitization 2005-CB4 AV1 (a) 5.450 8/25/2035 309,204 309,201
Credit-Based Asset Servicing and Securitization 2005-CB7 AF1 5.208 11/25/2035 837,371 833,363
Credit-Based Asset Servicing and Securitization 2005-CB8 AF1B 5.451 12/25/2035 927,141 923,135
Credit-Based Asset Servicing and Securitization 2006-CB1 AF1 5.457 1/25/2036 1,382,422 1,375,755
Credit-Based Asset Servicing and Securitization 2006-CB2 AF1 5.717 12/25/2036 466,577 464,864
CS First Boston Mortgage Securities Corp. 2002-HE4 6.940 8/25/2032 513,703 517,298
CSAB Mortgage Backed Trust 2006-3 A1A 6.000 11/25/2036 4,694,654 4,698,560
First NLC Trust 2005-3 AV2 (a) 5.580 12/25/2035 1,174,193 1,174,603
Ford Credit Auto Owner Trust 2004-A C 4.190 7/15/2009 75,000 74,271
Ford Credit Auto Owner Trust 2005-B B 4.640 4/15/2010 1,465,000 1,452,775
Ford Credit Auto Owner Trust 2006-C C 5.470 9/15/2012 590,000 590,000
GMAC Mortgage Corp. Loan Trust 2006-HE3 A1 (a) 5.420 10/25/2036 1,910,421 1,910,631
Green Tree Financial Corp. 1994-7 M1 9.250 3/15/2020 641,280 663,560
GSAA Home Equity Trust 2006-7 AV1 (a) 5.430 3/25/2046 1,759,923 1,759,923
GSAMP Trust 2006-S4 A1 (a) 5.410 5/25/2036 1,153,154 1,153,096
Home Equity Asset Trust 2005-4 2A1 (a) 5.440 10/25/2035 50,497 50,502
Home Equity Asset Trust 2005-5 2A1 (a) 5.460 11/25/2035 677,861 677,943
Home Equity Asset Trust 2005-8 2A1 (a) 5.460 2/25/2036 425,831 425,928
Home Equity Asset Trust 2005-8 M4 (a) 5.930 2/25/2036 160,000 160,592
Home Equity Mortgage Trust 2006-3 A1 5.472 9/25/2036 1,195,134 1,194,884
Home Equity Mortgage Trust 2006-4 A1 5.671 11/25/2036 479,147 479,618
Home Equity Mortgage Trust 2006-5 A1 5.500 1/25/2037 3,213,650 3,212,110
Honda Auto Receivables Owner Trust 2004-1 A3 2.400 2/21/2008 183,899 183,355
Hyundai Auto Receivables Trust 2004-A B 3.460 8/15/2011 53,845 52,845
Hyundai Auto Receivables Trust 2006-A A2 5.130 2/16/2009 96,323 96,265
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Backed (continued)
JP Morgan Acquisition Corp. 2006-CW1 A2 (a) 5.390% 5/25/2036 USD 617,172 $ 617,215
JP Morgan Mortgage Acquisition Corp. 2005-FRE1 A2F1 5.375 10/25/2035 269,854 268,850
MBNA Credit Card Master Note Trust 2002-C1 C1 6.800 7/15/2014 65,000 69,145
Morgan Stanley ABS Capital I 2005-WMC6 A2A (a) 5.460 7/25/2035 231,300 231,336
Morgan Stanley ABS Capital I 2006-HE3 A2A (a) 5.390 4/25/2036 543,298 543,307
Morgan Stanley Home Equity Loans 2005-2 A2A (a) 5.440 5/25/2035 69,603 69,603
Morgan Stanley Home Equity Loans 2006-1 B1 (a) 6.900 12/25/2035 175,000 177,576
Morgan Stanley Home Equity Loans 2006-3 A1 (a) 5.400 4/25/2036 1,049,169 1,049,186
Newcastle Mortgage Securities Trust 2006-1 A1 (a) 5.420 3/25/2036 1,403,172 1,403,422
Nissan Auto Receivables Owner Trust 2006-B A1 5.081 5/15/2007 47,457 47,463
Nomura Asset Acceptance Corp. 2005-WF1 2A5 5.159 3/25/2035 983,000 959,864
Origen Manufactured Housing 2004-B A2 3.790 12/15/2017 94,690 92,740
Origen Manufactured Housing 2005-A A1 4.060 7/15/2013 477,728 475,643
Origen Manufactured Housing 2005-B A1 5.250 2/15/2014 1,196,745 1,192,241
Origen Manufactured Housing 2005-B A2 5.247 12/15/2018 200,000 198,902
Origen Manufactured Housing 2005-B A3 5.605 5/15/2022 100,000 99,505
Ownit Mortgage Loan Asset-Backed Certification 2006-1 AF1 5.424 12/25/2036 1,585,423 1,576,998
Popular ABS Mortgage Pass--Through Trust 2005-5 AF6 5.331 11/25/2035 25,000 24,685
Popular ABS Mortgage Pass--Through Trust 2005-D AF1 5.361 1/25/2036 1,044,063 1,038,660
Popular ABS Mortgage Pass--Through Trust 2005-6 M1 5.910 1/25/2036 150,000 150,169
Renaissance Home Equity Loan Trust 2006-2 AF1 5.999 8/25/2036 1,982,287 1,978,028
Renaissance Home Equity Loan Trust 2006-2 M1 6.252 8/25/2036 1,750,000 1,781,243
Renaissance Home Equity Loan Trust 2006-2 M2 6.301 8/25/2036 170,000 172,876
Renaissance Home Equity Loan Trust 2006-3 AF1 5.917 11/25/2036 2,326,552 2,323,807
Residential Asset Mortgage Products, Inc. 2003-RS9 MI1 5.800 10/25/2033 25,000 24,778
Residential Asset Mortgage Products, Inc. 2004-RS12 AI6 4.547 12/25/2034 80,000 77,820
Residential Asset Mortgage Products, Inc. 2005-EFC5 A1 (a) 5.450 10/25/2035 694,136 694,256
Residential Asset Mortgage Products, Inc. 2005-RZ1 A1 (a) 5.450 4/25/2035 11,402 11,403
Residential Asset Securities Corp. 2003-KS7 MI3 5.750 9/25/2033 384,662 375,022
Residential Asset Securities Corp. 2005-AHL2 A1 (a) 5.450 10/25/2035 359,887 359,934
Residential Asset Securities Corp. 2005-EMX3 AI1 (a) 5.460 9/25/2035 467,336 467,409
Residential Asset Securities Corp. 2005-EMX3 M1 (a) 5.780 9/25/2035 145,000 145,658
Residential Asset Securities Corp. 2005-EMX3 M2 (a)_ 5.800 9/25/2035 165,000 165,626
Residential Funding Mortgage Securities 2005-HI3 A4 5.490 9/25/2035 100,000 98,859
Residential Funding Mortgage Securities II 2006-HSA2 AI2 5.500 3/25/2036 300,000 299,159
Saxon Asset Securities Trust 2005-3 A2A (a) 5.470 11/25/2035 89,341 89,347
Soundview Home Equity Loan Trust 2005-B M2 5.725 5/25/2035 270,000 267,529
Soundview Home Equity Loan Trust 2005-M M3 5.825 5/25/2035 540,000 533,300
Specialty Underwriting & Residential Finance 2005-BC2 A2A (a) 5.450 12/25/2035 2,686 2,686
Specialty Underwriting & Residential Finance 2006-BC2 A2A (a) 5.410 2/25/2037 1,675,376 1,675,585
Specialty Underwriting & Residential Finance 2006-BC2 A2B 5.573 2/25/2037 350,000 349,566
Structured Asset Securities Corp. 2005-S3 M1 (a) 5.850 6/25/2035 1,425,000 1,433,100
Structured Asset Securities Corporation 2006-WF2 A1 (a) 5.380 7/25/2036 396,619 396,602
Terwin Mortgage Trust 2006-9HGA A1 (a) (b) 5.430 10/25/2037 523,361 523,271
USAA Auto Owner Trust 2004-1 A3 2.060 4/15/2008 620 619
Vanderbilt Mortgage Finance 1999-A 1A6 6.750 3/7/2029 1,110,000 1,149,860
Wells Fargo Home Equity Trust 2006-1 A1 (a) 5.350 5/25/2036 1,200,276 1,200,276
Wells Fargo Mortgage Backed Securities Trust 2003-1 2A9 5.750 2/25/2033 195,000 191,796
WFS Financial Owner Trust 2004-3 B 3.510 2/17/2012 12,919 12,727
WFS Financial Owner Trust 2003-3 A4 3.250 5/20/2011 1,630,257 1,613,451
WFS Financial Owner Trust 2004-1 D 3.170 8/22/2011 571,033 566,104
WFS Financial Owner Trust 2004-4 C 3.210 5/17/2012 822,494 806,591
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Backed (continued)
WFS Financial Owner Trust 2005-2 B 4.570% 11/19/2012 USD 911,000 $ 902,000
Whole Auto Loan Trust 2004-1 A3 2.960 6/15/2008 8,898 8,849
-------------
Total Asset Backed (Cost $79,942,316) 79,796,031
-------------
Collateralized Mortgage Obligations--11.6%
Banc of America Mortgage Securities 2004-F 2A7 (a) 4.147 7/25/2034 33,928 33,130
Chaseflex Trust 2006-2 A1A (a) 5.590 9/25/2036 856,259 855,354
Citicorp Residential Mortgage Securities 2006-1 A1 5.956 7/25/2036 3,969,988 3,968,960
Citicorp Residential Mortgage Securities 2006-2 A1A 5.872 9/25/2036 2,174,414 2,172,001
Citicorp Residential Mortgage Securities 2006-2 A2 5.557 9/25/2036 2,600,000 2,599,662
Countrywide Home Loans 2005-31 2A1 5.515 1/25/2036 4,452,252 4,429,753
First Horizon Alternative Mortgage Securities 2004-FA1 1A1 6.250 10/25/2034 259,053 260,577
GNMA 2004-9 A 3.360 8/16/2022 48,572 46,843
GNMA 2003-48 AC 2.712 2/16/2020 1,888,493 1,826,851
GNMA 2003-72 A 3.206 4/16/2018 1,160,135 1,133,449
GNMA 2003-88 AC 2.914 6/16/2018 1,265,434 1,223,760
GNMA 2003-96 B 3.607 8/16/2018 375,796 368,958
GNMA 2004-12A 3.110 1/16/2019 870,585 838,888
GNMA 2004-23 B 2.946 3/16/2019 4,680,357 4,491,469
GNMA 2004-25 AC 3.377 1/16/2023 851,353 822,459
GNMA 2004-43 A 2.822 12/16/2019 1,252,902 1,203,506
GNMA 2004-51 A 4.145 2/16/2018 1,421,956 1,394,428
GNMA 2004-57 A 3.022 1/16/2019 810,619 781,711
GNMA 2004-67 A 3.648 9/16/2017 612,654 598,265
GNMA 2004-77 A 3.402 3/16/2020 722,381 700,459
GNMA 2004-97 AB 3.084 4/16/2022 1,859,248 1,793,919
GNMA 2005-12 A 4.044 5/16/2021 19,364 18,948
GNMA 2005-14 A 4.130 2/16/2027 51,564 50,599
GNMA 2005-32 B 4.385 8/16/2030 1,399,000 1,374,894
GNMA 2005-50 A 4.015 10/16/2026 36,544 35,668
GNMA 2005-52 A 4.287 1/16/2030 17,772 17,437
GNMA 2005-87 A 4.449 3/16/2025 1,251,866 1,229,759
GNMA 2005-9 A 4.026 5/16/2022 1,652,791 1,617,504
GNMA 2005-90 A 3.760 9/16/2028 1,805,988 1,747,383
GNMA 2006-5 A 4.241 7/16/2029 1,676,604 1,638,615
GNMA 2006-55 A 4.248 7/16/2029 2,340,427 2,279,356
GNMA 2006-6 A 4.045 10/16/2023 238,660 233,490
GNMA 2006-9 A 4.201 8/16/2026 2,372,650 2,315,606
GNR 2005-29 A 4.016 7/16/2027 1,089,941 1,060,944
GNR 2006-3 A 4.212 1/16/2028 2,223,106 2,171,997
GNR 2006-66 A 4.087 8/16/2030 2,740,826 2,670,387
GNMA 2006-67 A 3.947 11/16/2030 2,775,000 2,684,813
Indymac Index Mortgage Loan Trust 2006-AR25 4A2 (a) 6.199 9/25/2036 2,790,069 2,806,349
Indymac Index Mortgage Loan Trust 2006-AR9 B1 (a) 6.074 6/25/2036 124,934 125,153
Indymac Index Mortgage Loan Trust 2006-AR9 B2 (a) 6.074 6/25/2036 249,854 248,139
JP Morgan Alternative Loan Trust 2006-S4 A6 5.710 12/25/2036 1,265,000 1,262,799
JP Morgan Mortgage Trust 2005-A1 5A1(a) 4.484 2/25/2035 43,459 42,251
JP Morgan Mortgage Trust 2005-A7 1A2 (a) 4.994 10/25/2035 150,000 147,897
Morgan Stanley Mortgage Loan Trust 2006-15XS A6B 5.830 11/25/2036 800,000 806,308
Nomura Asset Acceptance Corp. 2005-AP2 A5 4.976 5/25/2035 1,128,000 1,093,131
Structured Asset Mortgage Investments, Inc. 1998-2 B (a) 5.988 4/30/2030 41,827 41,750
Washington Mutual 2003-AR10 A5 (a) 4.062 10/25/2033 72,000 70,570
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations (continued)
Washington Mutual 2003-AR10 A6 (a) 4.062% 10/25/2033 USD 2,089,000 $ 2,049,087
Washington Mutual 2004-AR7 A6 (a) 3.943 7/25/2034 221,000 214,650
Washington Mutual 2004-AR9 A7 (a) 4.159 8/25/2034 1,442,000 1,403,569
Washington Mutual 2005-AR4 A4B (a) 4.673 4/25/2035 706,000 693,499
Wells Fargo Mortgage Backed Securities Trust 2005-AR1 1A1 (a) 4.544 2/25/2035 581,408 570,175
-------------
Total Collateralized Mortgage Obligations (Cost $64,725,463) 64,267,129
-------------
Corporate--34.1%
Banking--4.7%
Capital One Financial Co. (a) 5.633 9/10/2009 2,500,000 2,511,295
Chevy Chase Bank FSB 6.875 12/1/2013 1,500,000 1,500,000
City National Corp. 5.125 2/15/2013 640,000 626,760
Colonial Bank 8.000 3/15/2009 460,000 478,542
Colonial Bank NA 6.375 12/1/2015 1,100,000 1,128,659
Compass Bank 5.500 4/1/2020 15,000 14,715
Countrywide Home Loan 2.875 2/15/2007 150,000 149,580
Greater Bay Bancorp. 5.250 3/31/2008 50,000 49,854
JPMorgan Chase & Co. (c) 5.125 9/15/2014 1,644,000 1,616,573
Manuf & Traders Trust Co. (a) 5.585 12/28/2020 625,000 620,513
MBNA Corp. 6.125 3/1/2013 1,590,000 1,650,973
Popular North America, Inc. (a) 5.706 12/12/2007 130,000 130,276
PP&L Capital Funding, Inc. 8.375 6/15/2007 190,000 192,373
Regions Financial Corp. (a) 5.455 8/8/2008 1,725,000 1,727,003
SB Treasury Co. 144A (a) (c) 9.400 6/30/2049 235,000 247,342
Sovereign Bancorp. 144A (a) 5.649 3/1/2009 215,000 215,519
Sovereign Bancorp. 144A 4.800 9/1/2010 1,175,000 1,149,759
Suntrust Capital II 7.900 6/15/2027 59,000 61,527
Suntrust Preferred Capital I (a) 5.853 12/15/2036 1,245,000 1,254,503
Tokai PFD Capital Co. 144A CVT (a) 9.980 6/30/2049 240,000 254,527
USB Capital IX (a) (c) 6.189 4/15/2042 1,785,000 1,822,997
Wachovia Bank NA 5.000 8/15/2015 1,130,000 1,094,590
Washington Mutual, Inc. 4.625 4/1/2014 2,470,000 2,312,295
Washington Mutual, Inc. (a) 5.674 1/15/2010 1,195,000 1,200,253
Wells Fargo & Co. 6.375 8/1/2011 850,000 890,134
Western Financial Bank FSB 9.625 5/15/2012 920,000 1,005,168
Zions Bancorporation 6.000 9/15/2015 1,341,000 1,365,572
Zions Bancorporation (a) 5.494 4/15/2008 835,000 835,538
-------------
26,106,840
-------------
Basic Materials--1.3%
Cabot Corp. 144A 5.250 9/1/2013 960,000 932,800
Equistar Chemicals LP/ Equistar Funding Corp. 10.125 9/1/2008 530,000 563,125
Georgia-Pacific Corp. 7.000 1/15/2015 990,000 987,525
Georgia-Pacific Corp. 8.000 1/15/2024 980,000 994,700
ICI Wilmington, Inc. 4.375 12/1/2008 589,000 577,920
Lubrizol Corp. 4.625 10/1/2009 930,000 912,276
Lubrizol Corp. 6.500 10/1/2034 70,000 70,440
Lubrizol Corp. (c) 5.500 10/1/2014 650,000 633,664
Reliance Steel & Alum 144A (b) 6.200 11/15/2016 750,000 744,495
Weyerhaeuser Co. 7.125 7/15/2023 543,000 542,851
-------------
6,959,796
-------------
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Communications--1.8%
AT&T Corp. 7.300% 11/15/2011 USD 1,055,000 $ 1,142,223
AT&T, Inc. (a) 5.464 5/15/2008 820,000 820,435
Comcast Corp. (a) 5.674 7/14/2009 450,000 451,001
Comcast Corp. (c) 5.500 3/15/2011 360,000 361,518
COX Communications, Inc. (c) 7.125 10/1/2012 75,000 79,955
New Cingular Wireless Services, Inc. 8.750 3/1/2031 442,000 574,408
News America Holdings, Inc. 7.700 10/30/2025 1,020,000 1,147,109
Nextel Communications, Inc. 5.950 3/15/2014 635,000 618,373
Nextel Partners, Inc. 8.125 7/1/2011 750,000 780,938
Qwest Corp. 7.875 9/1/2011 120,000 127,800
Qwest Corp. 8.875 3/15/2012 90,000 100,238
Qwest Corp. (a) 8.610 6/15/2013 85,000 92,013
TCI Communications, Inc. 7.875 2/15/2026 825,000 942,127
Time Warner, Inc. (c) 6.750 4/15/2011 1,123,000 1,175,565
Verizon Communications (a) 5.504 8/15/2007 760,000 759,999
Verizon Global Funding Corp. 7.750 6/15/2032 11,000 12,907
Verizon Global Funding Corp. (c) 5.850 9/15/2035 735,000 703,944
Viacom, Inc. 5.625 5/1/2007 125,000 125,064
-------------
10,015,617
-------------
Consumer Cyclical--0.9%
Caesars Entertainment, Inc. 8.875 9/15/2008 900,000 938,250
Coors Brewing Co. 6.375 5/15/2012 10,000 10,348
Daimler Chrysler NA Holding Corp. (a) 5.790 3/13/2009 150,000 150,143
DaimlerChrysler NA Holding Corp. 4.875 6/15/2010 460,000 448,409
DaimlerChrysler NA Holding Corp. 8.500 1/18/2031 334,000 397,605
Erac USA Finance Co. 144A 7.350 6/15/2008 70,000 71,752
Harrahs Operating Co., Inc. 7.125 6/1/2007 110,000 110,516
Heinz (H.J.) Co. 144A 6.428 12/1/2008 700,000 712,488
Hewlett-Packard Co. (a) 5.496 5/22/2009 870,000 871,375
May Department Stores Co. 3.950 7/15/2007 30,000 29,708
May Department Stores Co. 5.950 11/1/2008 40,000 40,272
May Department Stores Co. 4.800 7/15/2009 30,000 29,521
Mohegan Tribal Gaming Authority 6.125 2/15/2013 80,000 79,400
Mohegan Tribal Gaming Authority 8.000 4/1/2012 840,000 874,650
Yum! Brands, Inc. 6.250 4/15/2016 315,000 322,758
-------------
5,087,195
-------------
Consumer Noncyclical--0.8%
Aramark Services, Inc. 7.000 5/1/2007 185,000 185,510
Aramark Services, Inc. 6.375 2/15/2008 113,000 112,996
Safeway, Inc. 4.125 11/1/2008 85,000 83,022
Safeway, Inc. 5.625 8/15/2014 935,000 922,622
Stater Brothers Holdings 8.125 6/15/2012 925,000 938,875
Temple-Inland 6.625 1/15/2018 995,000 1,031,769
Westvaco Corp. 7.950 2/15/2031 544,000 595,613
Wyeth 5.500 2/1/2014 571,000 573,930
-------------
4,444,337
-------------
Energy--0.2%
Amerada Hess Corp. 6.650 8/15/2011 1,105,000 1,150,608
Amoco Co. 6.500 8/1/2007 50,000 50,274
Chevron Phillips 7.000 3/15/2011 18,000 18,895
-------------
1,219,777
-------------
The accompanying notes are an integral part of the financial statements.
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Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financial--14.7%
Aegon Funding Corp. 5.750% 12/15/2020 USD 1,215,000 $ 1,228,044
American Express (a) 6.800 9/1/2066 540,000 575,823
American International Group, Inc. 144A 5.050 10/1/2015 595,000 578,563
Ameriprise Financial, Inc. (a) 7.518 6/1/2066 1,190,000 1,306,823
Amvescap PLC 5.900 1/15/2007 55,000 55,005
Amvescap PLC 4.500 12/15/2009 135,000 131,611
Amvescap PLC 5.375 2/27/2013 1,125,000 1,113,343
Amvescap PLC 5.375 12/15/2014 175,000 171,845
AON Corp. 6.950 1/15/2007 170,000 170,075
AON Corp. 8.205 1/1/2027 760,000 878,053
Archstone-Smith Operating Trust REIT 5.625 8/15/2014 85,000 85,495
Archstone-Smith Operating Trust REIT 3.000 6/15/2008 60,000 57,974
Archstone-Smith Operating Trust REIT 5.000 8/15/2007 866,000 863,804
Archstone-Smith Operating Trust REIT 5.250 5/1/2015 251,000 246,276
Arden Realty LP REIT 5.250 3/1/2015 111,000 109,556
Arden Realty LP REIT 5.200 9/1/2011 820,000 818,353
Assurant, Inc. 6.750 2/15/2034 676,000 726,317
Bear Stearns Co., Inc. 5.500 8/15/2011 1,120,000 1,131,035
Bear Stearns Co., Inc. 3.250 3/25/2009 2,710,000 2,599,849
Boeing Capital Corp. 7.375 9/27/2010 1,055,000 1,131,068
Boston Properties, Inc. 5.625 4/15/2015 695,000 697,474
Boston Properties, Inc. 6.250 1/15/2013 58,000 60,362
Brandywine Operation Partners (a) 5.814 4/1/2009 815,000 815,000
Caterpillar Financial Service Corp. 3.100 5/15/2007 35,000 34,708
Chubb Corp. 5.472 8/16/2008 2,525,000 2,531,651
CIT Group Funding Co. Canada 5.600 11/2/2011 1,225,000 1,233,723
CIT Group, Inc. (c) 4.750 8/15/2008 985,000 976,637
CIT Group, Inc. (a) 5.524 8/15/2008 135,000 135,279
Citigroup, Inc. 4.750 12/15/2010 20,000 19,587
Commercial Net Lease Realtor REIT 6.150 12/15/2015 585,000 591,480
Countrywide Financial Corp. (a) 5.501 1/5/2009 3,800,000 3,799,122
Countrywide Home Loan, Inc. 4.125 9/15/2009 125,000 121,398
Countrywide Home Loans, Inc. (c) 4.000 3/22/2011 624,000 592,399
Credit Suisse USA, Inc. 5.500 8/16/2011 1,740,000 1,758,964
Credit Suisse, Inc. 4.125 1/15/2010 2,665,000 2,585,514
DaimlerChrysler Holding Corp. (a) 5.901 10/31/2008 265,000 266,026
Duke Really LP 5.875 8/15/2012 1,150,000 1,167,942
Duke Realty Corp REIT 5.250 1/15/2010 160,000 159,210
Duke Realty Corp REIT 3.500 11/1/2007 1,219,000 1,198,659
Duke Realty Corp REIT 7.750 11/15/2009 929,000 983,325
Duke Realty Corp REIT 6.950 3/15/2011 40,000 42,220
EOP Operating LP 7.000 7/15/2011 1,397,000 1,511,804
Erac USA Finance Co. 144A 7.950 12/15/2009 1,088,000 1,159,963
Erac USA Finance Co. 144A (a) 5.626 4/30/2009 345,000 345,668
ERP Operating LP REIT 4.750 6/15/2009 58,000 57,062
ERP Operating LP REIT 5.125 3/15/2016 830,000 806,077
ERP Operating LP REIT (c) 6.625 3/15/2012 200,000 210,881
ERP Operating LP REIT 5.375 8/1/2016 367,000 363,164
Federal Realty Investment Trust REIT 6.000 7/15/2012 305,000 311,295
Federal Realty Investment Trust REIT 5.650 6/1/2016 760,000 756,838
Ford Motor Credit Corp. (a) 6.194 9/28/2007 80,000 79,892
The accompanying notes are an integral part of the financial statements.
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Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financial (continued)
Ford Motor Credit Corp. 5.625% 10/1/2008 USD 85,000 $ 83,470
Glencore Funding LLC 144A 6.000 4/15/2014 728,000 709,676
GMAC LLC (a) 6.274 1/16/2007 310,000 309,998
GMAC LLC (a) 6.225 3/20/2007 120,000 120,008
Goldman Sachs Group, Inc. 4.500 6/15/2010 1,165,000 1,140,230
Hanover Insurance Group 7.625 10/15/2025 10,000 10,717
Hartford Financial Services Group 5.550 8/16/2008 970,000 973,830
Hartford Financial Services Group 5.663 11/16/2008 450,000 451,646
Healthcare Realty Trust REIT 5.125 4/1/2014 210,000 200,377
Host Hotels & Resorts 144A 6.875 11/1/2014 230,000 232,875
HRPT Properties Trust REIT (a) 5.961 3/16/2011 1,120,000 1,120,384
HSBC Finance Corp. 5.500 1/19/2016 1,125,000 1,130,310
HSBC Finance Corp. (c) 4.750 4/15/2010 18,000 17,759
HSBC Financial Capital Trust IX (a) 5.911 11/30/2035 3,435,000 3,451,990
International Lease Finance Corp. 4.750 1/13/2012 23,000 22,363
Jefferies Group, Inc. 7.500 8/15/2007 43,000 43,345
Jefferies Group, Inc. 7.750 3/15/2012 2,015,000 2,193,195
Jefferies Group, Inc. 5.500 3/15/2016 5,000 4,869
John Deere Capital Corp. 4.400 7/15/2009 665,000 651,422
Kingsway America, Inc. 144A (b) 7.500 2/1/2014 50,000 50,703
Lehman Brothers Holdings (c) 4.250 1/27/2010 2,800,000 2,725,587
Lehman Brothers Holdings (c) 5.500 4/4/2016 435,000 434,941
Lehman Brothers Holdings E-Capital Trust I (a) 6.153 8/19/2065 250,000 252,278
Leucadia National Corp. 7.000 8/15/2013 1,260,000 1,278,900
Liberty Property LP 5.500 12/15/2016 555,000 547,152
Lincoln National Corp. (a) 7.000 5/17/2066 1,230,000 1,303,660
Mack-Cali Realty LP REIT 5.050 4/15/2010 485,000 477,114
Mack-Cali Realty LP REIT 5.250 1/15/2012 870,000 855,757
Mack-Cali Realty LP REIT 5.125 1/15/2015 601,000 577,844
Mack-Cali Realty LP REIT 5.800 1/15/2016 645,000 646,781
Marsh & McLennan Co., Inc. 5.375 3/15/2007 230,000 229,924
MassMutual Global Funding II 144A 3.800 4/15/2009 687,000 665,404
MBNA Capital 8.278 12/1/2026 50,000 52,121
Merrill Lynch & Co. 4.790 8/4/2010 2,900,000 2,860,528
MetLife, Inc. 5.000 6/15/2015 2,208,000 2,141,493
Morgan Stanley 4.000 1/15/2010 2,750,000 2,660,919
Morgan Stanley 4.750 4/1/2014 1,389,000 1,328,060
Morgan Stanley (a) 5.485 2/9/2009 1,050,000 1,051,663
NB Capital Trust IV 8.250 4/15/2027 245,000 255,718
Nippon Life Insurance 144A 4.875 8/9/2010 1,000,000 978,097
Phoenix Cos Inc/The 6.675 2/16/2008 515,000 519,445
Regency Centers LP 5.250 8/1/2015 444,000 430,471
Residential Capital Corp. 6.125 11/21/2008 850,000 854,211
Residential Capital Corp. (a) 6.742 6/29/2007 60,000 60,297
Residential Capital Corp. (c) 6.375 6/30/2010 848,000 857,869
Residential Capital Corp. 144A (a) 7.204 4/17/2009 1,460,000 1,467,834
Simon Property Group LP REIT 4.600 6/15/2010 70,000 68,273
Simon Property Group LP REIT 5.000 3/1/2012 906,000 890,051
Simon Property Group LP REIT 5.625 8/15/2014 25,000 25,212
Simon Property Group LP REIT (c) 5.750 5/1/2012 806,000 814,262
SLM Corp. (a) 5.517 7/27/2009 2,130,000 2,133,725
-------------
81,716,994
-------------
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care--0.4%
Bayer Corp. 144A (a) 6.200% 2/15/2008 USD 275,000 $ 275,770
Quest Diagnostics, Inc. 5.125 11/1/2010 460,000 452,998
Unitedhealth Group, Inc. 5.375 3/15/2016 1,145,000 1,133,864
Wellpoint, Inc. 5.000 1/15/2011 590,000 582,800
-------------
2,445,432
-------------
Industrial--3.6%
Altria Group, Inc. 7.750 1/15/2027 1,035,000 1,255,340
American Standard, Inc. 7.375 2/1/2008 165,000 167,742
Ball Corp. 6.875 12/15/2012 330,000 336,600
Baxter International, Inc. 5.196 2/16/2008 145,000 144,635
BJ Services Co. (a) 5.540 6/1/2008 625,000 625,184
Carnival PLC 7.300 6/1/2007 120,000 120,842
Centex Corp. 4.750 1/15/2008 110,000 108,954
Colorado Interstate Gas 5.950 3/15/2015 45,000 44,400
Crown Americas, Inc. 7.625 11/15/2013 780,000 803,400
Crown Americas, Inc. 7.750 11/15/2015 445,000 461,688
D.R. Horton, Inc. 8.000 2/1/2009 80,000 83,770
D.R. Horton, Inc. 6.000 4/15/2011 100,000 100,438
D.R. Horton, Inc. 7.875 8/15/2011 60,000 64,470
D.R. Horton, Inc. 5.875 7/1/2013 120,000 117,970
Enterprise Products Operations 4.625 10/15/2009 250,000 244,771
Enterprise Products Operations 4.000 10/15/2007 110,000 108,654
Enterprise Products Operations (c) 5.600 10/15/2014 1,860,000 1,826,766
Healthcare Realty Trust, Inc. 8.125 5/1/2011 570,000 618,207
Johnson Controls, Inc. (c) 5.250 1/15/2011 230,000 228,187
L-3 Communications Corp. 7.625 6/15/2012 1,450,000 1,500,750
L-3 Communications Corp. (c) 6.375 10/15/2015 240,000 237,600
L-3 Communications Corp. 144A 3.000 8/1/2035 40,000 42,000
Mohawk Industries, Inc. 5.750 1/15/2011 1,020,000 1,020,701
Northrop Grumman Corp. 7.125 2/15/2011 545,000 581,329
Oakmont Asset Trust 144A 4.514 12/22/2008 80,000 78,093
Owens Corning, Inc. 144A 6.500 12/1/2016 355,000 360,622
Panamsat Corp. 144A (c) 9.000 6/15/2016 85,000 89,994
Pemex Project Funding Master Trust (c) 5.750 12/15/2015 860,000 853,980
Raytheon Co. 6.750 8/15/2007 248,000 249,827
Raytheon Co. 5.500 11/15/2012 388,000 390,435
RPM International, Inc. 4.450 10/15/2009 190,000 183,472
Sealed Air Corp. 144A 5.625 7/15/2013 1,229,000 1,216,048
Sealed Air Corp. 144A 6.875 7/15/2033 125,000 125,072
Sempra Energy 4.621 5/17/2007 80,000 79,695
Speedway Motorsports, Inc. 6.750 6/1/2013 50,000 50,000
Terex Corp. 7.375 1/15/2014 755,000 766,325
Tyson Foods, Inc. (c) 6.850 4/1/2016 705,000 723,910
Waste Management, Inc. 6.500 11/15/2008 55,000 56,034
Waste Management, Inc. 6.875 5/15/2009 1,236,000 1,277,716
Waste Management, Inc. 7.375 8/1/2010 280,000 297,838
Waste Management, Inc. 7.000 7/15/2028 996,000 1,068,940
Waste Management, Inc. 7.375 5/15/2029 35,000 39,522
Windstream Corp 144A 8.125 8/1/2013 985,000 1,066,263
Windstream Corp 144A 8.625 8/1/2016 315,000 344,925
-------------
20,163,109
-------------
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Services--0.9%
Altria Group, Inc. 7.200% 2/1/2007 USD 140,000 $ 140,111
Coventry Health Care, Inc. 5.875 1/15/2012 1,235,000 1,219,374
CVS Corp. 4.000 9/15/2009 360,000 348,043
CVS Corp. 5.750 8/15/2011 430,000 435,171
Federated Retail Holding 5.900 12/1/2016 455,000 454,292
Medco Health Solutions, Inc. 7.250 8/15/2013 375,000 402,517
MGM Mirage, Inc 8.500 9/15/2010 825,000 882,750
MGM Mirage, Inc. 6.000 10/1/2009 410,000 408,975
Nuveen Investments, Inc. 5.000 9/15/2010 615,000 605,020
-------------
4,896,253
-------------
Transportation--0.7%
CSX Corp. 6.250 10/15/2008 865,000 877,137
FedEx Corp. 2.650 4/1/2007 1,116,000 1,108,420
Norfolk Southern Corp. 6.750 2/15/2011 337,000 354,411
Ryder System, Inc. 3.500 3/15/2009 130,000 124,234
Union Pacific Corp. 3.875 2/15/2009 1,400,000 1,358,451
-------------
3,822,653
-------------
Utilities--4.1%
American Electric Power (c) 5.250 6/1/2015 1,300,000 1,269,073
American Electronic Power 4.709 8/16/2007 105,000 104,485
Appalachian Power Co. 5.950 5/15/2033 19,000 18,302
CINergy Corp. 6.530 12/16/2008 100,000 101,848
Cogentrix Energy, Inc. 144A 8.750 10/15/2008 145,000 154,326
Consolidated Edison 5.300 12/1/2016 1,130,000 1,110,487
Consumers Energy Co. 5.000 2/15/2012 75,000 73,169
Consumers Energy Co. 5.375 4/15/2013 1,150,000 1,138,870
Dominion Resources, Inc. 7.195 9/15/2014 1,105,000 1,212,529
Dominion Resources, Inc. (a) 5.664 9/28/2007 1,170,000 1,170,466
DTE Energy Co. 6.650 4/15/2009 279,000 286,405
DTE Energy Co. 6.350 6/1/2016 565,000 586,914
FirstEnergy Corp. (c) 6.450 11/15/2011 906,000 944,787
FPL Energy National Wind 144A 5.608 3/10/2024 212,626 208,643
FPL Group Capital, Inc 5.625 9/1/2011 2,250,000 2,274,656
FPL Group Capital, Inc. 5.551 2/16/2008 295,000 295,381
Gulf Power Co. 5.300 12/1/2016 1,350,000 1,328,706
Mirant North America LLC 7.375 12/31/2013 555,000 563,325
National Grid PLC 6.300 8/1/2016 1,570,000 1,626,025
Niagara Mohawk Power Corp. 7.750 10/1/2008 1,013,000 1,049,770
Nisource Finance Corp. 5.250 9/15/2017 820,000 768,549
Nisource Finance Corp. (a) 5.940 11/23/2009 785,000 785,233
Oneok, Inc. 5.510 2/16/2008 50,000 49,965
Pacific Gas & Electric Co. 3.600 3/1/2009 565,000 545,747
Pepco Holdings, Inc. 5.500 8/15/2007 878,000 877,297
Public Service Co. of Colorado 4.375 10/1/2008 958,000 942,554
Republic Services, Inc. 7.125 5/15/2009 20,000 20,785
Republic Services, Inc. 6.750 8/15/2011 840,000 880,471
Southern Natural Gas Co. 6.700 10/1/2007 1,910,000 1,923,805
Texas Utilities Corp. 4.800 11/15/2009 215,000 209,827
Windsor Financing LLC 144A (b) 5.881 7/15/2017 261,822 260,853
-------------
22,783,253
-------------
Total Corporate (Cost $189,451,139) 189,661,256
-------------
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds--2.0%
Erie County NY Tob Asset Securitization Corp. 6.000% 6/1/2028 USD 1,105,000 $ 1,110,790
Michigan Tobacco Settlement Finance Authority (a) 7.500 6/1/2034 945,000 946,040
New York County Tobacco Trust IV 6.000 6/1/2027 175,000 174,088
Tobacco Settlement Authority Iowa 6.500 6/1/2023 3,615,000 3,595,768
Tobacco Settlement Authority Michigan 7.309 6/1/2034 4,990,000 5,209,410
-------------
Total Municipal Bonds (Cost $10,823,371) 11,036,096
-------------
Sovereign Bonds--2.8%
Argentina Bonos (a) 5.590 8/3/2012 1,745,000 1,265,561
Banco Nacional de Desenvolvimento Economico e Social (a) 5.167 6/16/2008 1,470,000 1,449,788
Egyptian T-Bills 144A (b) 5.736 3/15/2007 5,270,000 5,423,989
Republic of El Salvador 144A 8.500 7/25/2011 870,000 961,350
Republic of Peru 9.125 2/21/2012 965,000 1,121,813
Republic of Peru 9.125 2/21/2012 135,000 155,925
Republic of South Africa 9.125 5/19/2009 1,524,000 1,645,920
Russian Federation 144A (b) 8.250 3/31/2010 1,963,920 2,052,296
United Mexican States 8.000 9/24/2022 1,105,000 1,350,310
-------------
Total Sovereign Bonds (Cost $15,108,509) 15,426,952
-------------
Yankee Bonds--5.5%
Bank of Scotland 144A (a) 7.000 4/1/2049 640,000 646,257
BHP Billiton Finance 5.250 12/15/2015 10,000 9,841
British Sky Broadcasting PLC 6.875 2/23/2009 143,000 147,210
British Sky Broadcasting PLC 8.200 7/15/2009 1,055,000 1,123,365
CBA Capital Trust I 144A (b) 5.805 6/30/2015 46,000 46,198
Chuo Mitsui Trust & Banking Co. Ltd. 144A (a) 5.506 2/15/2049 1,435,000 1,370,624
Deutsche Telekom International Finance BV 8.250 6/15/2030 1,120,000 1,376,861
Export-Import Bank of Korea 4.500 8/12/2009 995,000 975,268
Falconbridge Ltd. 5.375 6/1/2015 20,000 19,559
Falconbridge Ltd. 6.000 10/15/2015 165,000 168,273
France Telecom SA 8.500 3/1/2031 1,000,000 1,312,728
French Telecom 7.750 3/1/2011 135,000 147,052
Glitnir Banki HF 144A (a) 7.451 9/14/2049 470,000 495,306
Glitnir Banki HF 144A (a) 5.534 10/15/2008 110,000 109,767
Glitnir Banki HF 144A (a) 6.693 6/15/2016 605,000 624,585
Industrial Bank of Korea 144A (a) 4.000 5/19/2014 270,000 261,535
ING Groep NV (a) 5.775 11/30/2049 875,000 865,835
Kaupthing Bank 144A 7.125 5/19/2016 1,435,000 1,522,070
Landsbanki Islands HF 144A 6.100 8/25/2011 1,225,000 1,245,421
Mizuho JGB Investment 144A (a) 9.870 8/30/2049 1,075,000 1,139,194
MUFG Capital Financial 1 Ltd. (a) 6.346 3/15/2049 2,160,000 2,192,158
National Westminster Bank PLC (a) 7.750 10/16/2007 77,000 78,042
Northern Rock PLC 144A (a) 5.600 4/30/2014 730,000 706,320
Pemex Finance, Ltd. 9.690 8/15/2009 132,000 142,621
Pemex Finance, Ltd. 9.030 2/15/2011 63,750 67,896
Potash Corp. of Saskatchewan 4.875 3/1/2013 36,000 34,730
Resona Bank Ltd. 144A (a) 5.850 1/10/2049 1,015,000 991,104
Royal KPN NV 8.375 10/1/2030 1,850,000 2,119,647
Sappi Papier Holding AG 144A 6.750 6/15/2012 601,000 599,403
Shinsei Finance Cayman Ltd. 144A (a) 6.418 7/20/2048 1,295,000 1,293,506
SMFG Preferred Capital 144A (a) 6.078 7/25/2049 1,500,000 1,487,394
Socgen Real Estate LLC 144A (a) 7.640 12/29/2049 2,093,000 2,125,352
The accompanying notes are an integral part of the financial statements.
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Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds (continued)
St George Funding Co. 144A 8.485% 6/30/2017 USD 1,320,000 $ 1,386,767
St. George Bank Ltd. 144A 5.300 10/15/2015 941,000 924,099
Sumitomo Mitsui Banking 144A (a) 5.625 7/15/2049 675,000 659,839
Telefonica Emisiones 5.984 6/20/2011 1,165,000 1,185,887
Teva Pharmaceutical Finance LLC 6.150 2/1/2036 865,000 840,456
Tyco International Group SA 6.875 1/15/2029 130,000 147,782
-------------
Total Yankee Bonds (Cost $30,658,713) 30,589,952
-------------
Pass Thru Securities--43.5%
Non--Agency Pass Thru Securities--8.4%
Banc of America Commercial Mortgage, Inc. 2005-2 A2 4.247 7/10/2043 1,944,000 1,919,680
Bayview Commercial Asset Trust 2003-1 A 144A (a) 5.930 8/25/2033 404,499 404,593
Bayview Commercial Asset Trust 2003-2 A 144A (a) 5.930 12/25/2033 537,721 539,401
Bayview Commercial Asset Trust 2004-1 A 144A (a) 5.710 4/25/2034 643,242 644,046
Bayview Commercial Asset Trust 2005-3A B1 144A (a) 6.450 11/25/2035 176,890 177,317
Bayview Commercial Asset Trust 2005-3A B3 144A (a) 8.350 11/25/2035 353,781 359,381
Bayview Commercial Asset Trust 2005-4A B3 144A (a) 8.850 1/25/2036 232,059 232,059
Bayview Commercial Asset Trust 2006-1A B2 144A (a) 7.050 4/25/2036 258,642 258,966
Bayview Commercial Asset Trust 2006-2A B2 144A (a) 6.820 7/25/2036 467,465 467,392
Bayview Commercial Asset Trust 2006-SP1 A1 144A (a) 5.620 4/25/2036 449,536 449,677
Bayview Commercial Asset Trust 2006-SP2 A1 (a) 5.630 4/25/2036 1,541,459 1,541,459
Bear Stearns Commercial Mortgage Securities 2006-PW13 A3 5.518 9/11/2041 540,000 545,740
Bear Stearns Commercial Mortgage Securities 2003-T12 A3 4.240 8/13/2039 2,218,000 2,146,169
Bear Stearns Commercial Mortgage Securities 2005-T20 A2 5.127 10/12/2042 45,000 44,816
Bear Stearns Commercial Mortgage Securities 2006-PW12 AAB (a) 5.686 9/11/2038 950,000 973,146
Bear Stearns Commercial Mortgage Securities 2006-PW14 AAB 5.171 12/1/2038 3,125,000 3,094,457
Bear Stearns Commercial Mortgage Securities 2006-T24 AB 5.533 10/12/2041 1,350,000 1,366,875
Bear Stearns Commercial Mortgage Securities, Inc. 1998-C1 A2 6.440 6/16/2030 90,000 91,043
Bear Stearns Commercial Mortgage Securities, Inc. 2003-T10 A2 4.740 3/13/2040 60,000 58,330
Bear Stearns Commercial Mortgage Securities, Inc. 2004-PWR5 A2 4.254 7/11/2042 135,000 131,580
Bear Stearns Commercial Mortgage Securities, Inc. 2005-T18 A2 4.556 2/13/2042 80,000 78,544
Calwest Industrial Trust 2002-CALW A 144A 6.127 2/15/2017 2,282,000 2,370,636
Capco America Securitization Corp. 1998-D7 A1B 6.260 10/15/2030 1,225,000 1,239,313
Chase Commercial Mortgage Securities Corp. 1997-1 D 7.370 6/19/2029 17,938 17,939
Chase Commercial Mortgage Securities Corp. 1997-1 E 7.370 6/19/2029 67,000 67,130
Chase Commercial Mortgage Securities Corp. 1997-2 C 6.600 12/19/2029 75,000 75,476
Citigroup/Deutsche Bank Commercial Mortgage 2005-CD1 A2FX (a) 5.225 7/15/2044 20,000 19,994
Citigroup/Deutsche Bank Commercial Mortgage 2006-CD2 A2 5.408 1/15/2046 775,000 779,604
Credit Suisse/Morgan Stanley Commercial Mortgage Certificate 144A (a) 5.540 5/15/2023 1,230,000 1,230,383
Crown Castle Towers 2006-1A D 144A 5.772 11/15/2036 1,000,000 998,470
Crown Castle Towers LLC, 2005-1A D 144A 5.612 6/15/2035 660,000 656,543
DLJ Commercial Mortgage Corp. 1998-CF2 A1B 6.240 11/12/2031 168,558 170,398
DLJ Commercial Mortgage Corp. 1998-CF2 B1(a) 7.041 11/12/2031 2,450,000 2,521,800
Global Signal Trust 2006-1 D 144A 6.052 2/15/2036 1,160,000 1,170,588
Global Signal Trust 2006-1 E 144A 6.495 2/15/2036 425,000 430,800
GMAC Commercial Mortgage Securities, Inc. 2003-C3 A2 4.223 4/10/2040 130,000 126,844
Impac CMB Trust 2005-8 2M2 (a) 6.100 2/25/2036 139,630 139,845
Impac CMB Trust 2005-8 2M3 (a) 6.850 2/25/2036 110,741 109,917
Impac Secured Assets Corp. 2006-1 2A1 (a) 5.700 5/25/2036 748,452 749,774
JP Morgan Chase Commercial Mortgage 2006-LDP7 ASB (a) 5.876 4/15/2045 955,000 987,872
JP Morgan Chase Commercial Mortgage Sec. Co. 2005-LDP4 A2 4.790 10/15/2042 30,000 29,545
JP Morgan Chase Commercial Mortgage Security Co. 2005-LDP5 A2 5.198 12/15/2044 1,605,000 1,601,549
The accompanying notes are an integral part of the financial statements.
25
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Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Non--Agency Pass Thru Securities (continued)
JP Morgan Chase Commercial Mortgage Security Co. 2006-LDP6 A2 5.379% 4/15/2043 USD 10,000 $ 10,042
LB Commercial Conduit Mortgage Trust 1999-C1 B 6.930 6/15/2031 27,000 27,916
LB-UBS Commercial Mortgage Trust 2006-C3 A2 5.532 3/15/2039 20,000 20,234
Mach One Trust 2004-1A A1 144A 3.890 5/28/2040 980,832 968,817
Merrill Lynch Mortgage Trust, Inc. 2005-CIP1 A2 4.960 7/12/2038 1,090,000 1,080,453
Merrill Lynch Mortgage Trust, Inc. 2005-CKI1 A2 (a) 5.224 11/12/2037 375,000 375,639
Morgan Stanley Capital 1998-HF1 E (a) 7.308 3/15/2030 74,000 75,333
Morgan Stanley Capital I 1999-CAM1 A4 7.020 3/15/2032 25,773 26,391
Morgan Stanley Capital I 1999-RM1 A2 6.710 12/15/2031 134,071 136,554
Morgan Stanley Capital I 1999-RM1 E (a) 7.002 12/15/2031 100,000 103,119
Morgan Stanley Capital I 2006-HQ9 A3 5.712 7/12/2044 2,605,000 2,660,656
Morgan Stanley Capital I 2006-HQ9 A4 (a) 5.731 7/12/2044 960,000 986,751
Morgan Stanley Capital I 2006-HQ9 AAB 5.685 7/12/2044 425,000 434,278
Morgan Stanley Capital I 2006-IQ12 AAB 5.325 12/15/2043 2,700,000 2,697,586
Morgan Stanley Capital I 2006-T21 A2 5.090 10/12/2052 1,350,000 1,343,377
Morgan Stanley Dean Witter Capital I 2001-PPM A2 6.400 2/15/2031 21,092 21,519
Morgan Stanley Dean Witter Capital I 2001-PPM A3 6.540 2/15/2031 17,032 17,421
Mortgage Capital Funding, Inc. 1997-MC2 C 6.881 11/20/2027 70,000 69,938
SBA CMBS Trust 2006-1A D 144A 5.852 11/15/2036 400,000 400,796
Washington Mutual Asset Securities Corp. 2003-C1A A 144A 3.830 1/25/2035 4,141,854 3,998,815
-------------
46,474,726
-------------
Agency Pass Thru Securities--35.1%
Fannie Mae Grantor Trust 2001-T6 B 6.088 5/25/2011 76,000 79,028
Fannie Mae Grantor Trust 2002-T11 A 4.769 4/25/2012 27,767 27,559
FHLMC Gold 4.000 10/1/2009 471,809 460,408
FHLMC Gold 4.500 10/1/2009 40,662 40,255
FHLMC Gold 4.500 4/1/2010 41,678 40,979
FHLMC Gold 3.500 9/1/2010 395,588 382,936
FHLMC Gold 7.000 11/1/2031 126,230 129,844
FHLMC Gold 7.000 11/1/2031 150,432 154,739
FHLMC Gold 5.500 1/1/2034 768,770 761,079
FHLMC Gold 5.500 3/1/2034 268,333 265,649
FHLMC Gold (TBA) (d) 4.500 1/1/2022 8,500,000 8,189,223
FHLMC Gold (TBA) (d) 5.000 1/1/2022 10,285,000 10,101,804
FHLMC Gold (TBA) (d) 5.500 1/1/2022 17,625,000 17,856,372
FHLMC Gold (TBA) (d) 6.000 1/1/2022 16,265,000 16,249,744
FNMA 4.840 6/22/2007 1,225,000 1,222,788
FNMA 4.000 5/1/2010 1,777,921 1,724,292
FNMA 3.640 6/1/2010 2,665,000 2,509,281
FNMA 3.530 7/1/2010 1,308,239 1,238,574
FNMA 5.000 10/1/2011 59,058 58,907
FNMA 5.139 12/25/2011 798,439 801,067
FNMA 8.500 6/1/2012 14,925 15,136
FNMA 4.060 6/1/2013 28,000 26,189
FNMA 4.500 11/1/2014 26,169 25,578
FNMA 6.500 12/1/2015 7,640 7,824
FNMA 6.000 7/1/2017 7,756 7,870
FNMA 5.000 1/1/2019 367,703 361,879
FNMA 5.500 11/1/2024 1,497,028 1,489,056
FNMA 5.500 12/1/2024 20,231 20,123
FNMA 5.500 1/1/2025 3,789,711 3,769,530
FNMA 7.500 2/1/2029 10,691 11,163
The accompanying notes are an integral part of the financial statements.
26
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Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Agency Pass Thru Securities (continued)
FNMA 7.500% 9/1/2029 USD 836 $ 873
FNMA 7.500 11/1/2029 834 871
FNMA 7.000 11/1/2031 2,435 2,514
FNMA 7.000 5/1/2032 19,109 19,658
FNMA 7.000 6/1/2032 27,695 28,489
FNMA 5.500 2/1/2033 114,024 112,885
FNMA 5.500 1/1/2034 768,276 760,444
FNMA 5.500 1/1/2034 1,700,163 1,682,832
FNMA 5.500 8/1/2034 62,316 61,648
FNMA 5.500 9/1/2034 89,477 88,518
FNMA 4.900 1/1/2014 454,451 445,056
FNMA 5.140 1/1/2016 75,000 74,696
FNMA 5.500 9/1/2034 209,472 207,226
FNMA 5.500 9/1/2034 65,898 65,192
FNMA 5.500 9/1/2034 95,247 94,226
FNMA 5.500 9/1/2034 24,667 24,402
FNMA (c) 4.250 9/15/2007 1,350,000 1,340,713
FNMA (TBA) (d) 4.500 1/1/2021 1,565,000 1,509,247
FNMA (TBA) (d) 5.000 1/1/2021 9,390,000 9,228,605
FNMA (TBA) (d) 5.000 1/1/2021 30,685,000 29,620,599
FNMA (TBA) (d) 6.000 1/1/2021 1,840,000 1,865,300
FNMA (TBA) (d) 5.500 1/1/2036 57,565,000 56,881,416
FNMA (TBA) (d) 6.000 1/1/2036 22,710,000 22,859,023
FNMA (TBA) (d) 6.500 1/1/2036 150,000 152,813
GNMA 9.000 2/15/2021 18,151 19,556
GNMA 8.000 8/15/2025 9,739 10,317
GNMA 8.000 11/15/2025 14,824 15,703
GNMA 8.000 5/15/2026 3,195 3,386
GNMA 8.000 11/15/2026 11,372 12,053
GNMA 6.000 1/15/2032 3,934 3,994
GNMA 6.500 7/15/2032 9,260 9,514
-------------
195,230,645
-------------
Total Pass Thru Securities (Cost $243,904,244) 241,705,371
-------------
U.S. Treasury Obligations--14.8%
U.S. Treasury Bond (c) 5.250 11/15/2028 440,000 461,416
U.S. Treasury Bond (c) 4.500 2/15/2036 17,034,000 16,198,278
U.S. Treasury Inflation-Indexed Bond (c) 3.000 7/15/2012 12,481,589 12,844,803
U.S. Treasury Inflation-Indexed Bond (c) 2.000 1/15/2016 6,485,160 6,261,681
U.S. Treasury Note 4.625 11/15/2016 17,890,000 17,772,606
U.S. Treasury Note (c) 4.375 12/31/2007 6,235,000 6,196,761
U.S. Treasury Note (c) 4.875 4/30/2008 9,360,000 9,351,220
U.S. Treasury Note (c) 5.125 6/30/2008 150,000 150,469
U.S. Treasury Note (c) 5.000 7/31/2008 4,210,000 4,216,909
U.S. Treasury Note (c) 4.625 8/31/2011 125,000 124,605
U.S. Treasury Note (c) 5.125 5/15/2016 7,600,000 7,828,296
U.S. Treasury Note (c) 4.625 2/29/2008 620,000 617,384
-------------
Total U.S. Treasury Obligations (Cost $82,945,803) 82,024,428
-------------
The accompanying notes are an integral part of the financial statements.
27
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Denominated--3.6%
Brazil--0.6%
Republic of Brazil (c) 12.500% 1/5/2016 BRL 2,580,000 $ 1,371,569
Republic of Brazil 12.500 1/5/2016 3,025,000 1,608,138
-------------
2,979,707
-------------
Euro--0.1%
Nordic Telecommunications Co. Holdings 144A 8.250 5/1/2016 EUR 355,000 515,265
-------------
Poland--2.9%
Poland Government Bond 5.750 6/24/2008 PLN 46,525,000 16,312,131
-------------
Total Foreign Denominated (Cost $18,772,177) 19,807,103
-------------
TOTAL BONDS AND NOTES (Cost $736,331,735) 734,314,318
-------------
Shares
---------
Common Stock--0%
Hong Kong--0%
GuangDong Alliance (i) 228,997 0
HK Property (i) 228,997 0
-------------
TOTAL COMMON STOCK (Cost $ 0) 0
-------------
Convertible Stock--0%
AES Trust VII 6.00% CVT Pfd 900 44,550
Sovereign Capital Trust IV 4.375% CVT Pfd 900 44,550
-------------
TOTAL CONVERTIBLE STOCK (Cost $85,276) 89,100
-------------
Contract
Size
----------
PURCHASED OPTIONS--0%
Cap 3M Libor, Strike Price 5.75%, 6/27/2007 (b) 854,000 1,989
2 Yr Floor 3M Libor, Strike Price 4.00%, 1/13/2009 (b) 262,500 27,840
-------------
TOTAL PURCHASED OPTIONS (COST $118,671) 29,829
-------------
Rate Maturity Par Value
------ --------- ----------
SHORT-TERM INVESTMENTS--0%
U.S. Treasury Bill--0%
U.S. Treasury Bill (e) (f) (Cost $247,706) 4.850 3/8/2007 USD 250,000 247,845
-------------
Shares
----------
INVESTMENT OF CASH COLLATERAL--11.1%
BlackRock Cash Strategies L.L.C (g) (Cost $61,835,718) 5.320 61,835,718 61,835,718
-------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $798,619,106) 796,516,810
-------------
AFFILIATED INVESTMENTS--4.5%
Dreyfus Institutional Preferred Plus
Money Market Fund (g) (h) (Cost $24,858,517) 5.350 24,858,517 24,858,517
-------------
TOTAL INVESTMENTS--147.9% (Cost $823,477,623) 821,375,327
-------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(47.9%) (265,855,650)
-------------
NET ASSETS--100% $ 555,519,677
=============
The accompanying notes are an integral part of the financial statements.
28
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------
Notes to Schedule of Investments
144A--Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $60,749,746 or 10.9% of net
assets.
FHLMC--Federal Home Loan Mortgage Company
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
REIT--Real Estate Investment Trust
TBA--To Be Announced
BRL--Brazilian Real
EUR--Euro
MXN--Mexican Peso
PLN--Poland Zloty
(a) Variable Rate Security; rate indicated as of December 31, 2006.
(b) Illiquid security. At the period end, the value of these securities
amounted to $9,131,635 or 1.6% of net assets.
(c) Security, or a portion thereof, was on loan at December 31, 2006.
(d) Delayed delivery security.
(e) Rate noted is yield to maturity
(f) Denotes all or part of security segregated as collateral.
(g) Stated rate is the seven-day yield for the fund at December 31, 2006.
(h) Affiliated institutional money market fund.
(i) Security valued at fair value using methods determined in good faith by or
under the direction of the Board of Trustees.
At December 31, 2006 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- -------------------------------------------------------------------------------------------------------
U.S. 2 Year Treasury Note (125 Contracts) Long 3/30/2007 $25,603,516 $ (99,929)
U.S. 10 Year Treasury Note (246 Contracts) Short 3/21/2007 26,940,844 502,928
U.S. 2 Year Treasury Note (30 Contracts) Long 3/30/2007 6,159,844 (38,977)
U.S. Long Bond CBT (98 Contracts) Short 3/21/2007 11,140,047 218,942
U.S. 5 Year Treasury Note (329 Contracts) Long 3/30/2007 34,807,172 (242,348)
----------
$ 340,616
==========
At December 31, 2006 the Portfolio held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2006 to Receive Gain/(Loss)
- ---------------------------------------------------------------------------------------------------------------
Euro 370,000 3/21/2007 $ 490,012 $ 491,435 $ 1,423
Euro 370,000 3/21/2007 490,012 486,513 (3,499)
Poland Zloty 48,280,000 3/21/2007 16,690,289 16,860,485 170,196
----------- ----------- --------
Total $17,670,313 $17,838,433 $168,120
=========== =========== ========
Local
Principal Contract Value at Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2006 to Deliver Gain
- ---------------------------------------------------------------------------------------------------------------
Euro 370,000 3/21/2007 $ 490,012 $ 486,513 $ 3,499
=========== =========== ========
The accompanying notes are an integral part of the financial statements.
29
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006, the Fund held the following open swap agreements:
Unrealized
Credit Default Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Swaps Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup Dow Jones CDX.NA.IG.4 7% and 10% tranche Buy (0.6850%) 6/20/2010 470,000 USD $(10,492)
Citigroup CenturyTel, Inc. 7.875% due 8/15/2012 Buy (1.1600%) 9/20/2015 853,000 475
Citigroup CenturyTel, Inc. 7.875% due 8/15/2012 Buy (1.1900%) 9/20/2015 1,985,000 (2,946)
Citigroup Dow Jones CDX.NA.IG.4 7% and 10% tranche Buy (0.7050%) 6/20/2010 3,277,000 (69,531)
Deutsche Bank Kaupthing Bank HF, 5.519%, due 12/1/2009 Sell 0.5200% 9/20/2007 2,600,000 6,361
Deutsche Bank Kaupthing Bank HF, 5.519%, due 12/1/2009 Sell 0.6500% 9/20/2007 650,000 2,221
JPMorgan Kimberly-Clark Corp., 6.875%, due 2/15/2014 Buy (0.3700%) 12/20/2016 300,000 527
JPMorgan Kimberly-Clark Corp., 6.875%, due 2/15/2014 Buy (0.3700%) 12/20/2016 440,000 772
JPMorgan Kimberly-Clark Corp., 6.875%, due 2/15/2014 Buy (0.3700%) 12/20/2016 150,000 263
JPMorgan Kimberly-Clark Corp., 6.875%, due 2/15/2014 Buy (0.1900%) 12/20/2011 558,000 15
JPMorgan Master Asset Backed Securities Trust Series
2005-WMCI, due 3/25/2035 Buy (1.1800%) 4/25/2009 1,450,000 4,333
Morgan Stanley CenturyTel, Inc. 7.875% due 8/15/2012 Buy (1.1500%) 9/20/2015 247,000 306
Morgan Stanley Citigroup Mortgage Loan Trust,
7.25%, due 12/25/2035 Buy (1.2000%) 12/25/2035 1,450,000 30,595
Morgan Stanley Dow Jones CDX.NA.IG.4 7% and 10% tranche Buy (0.6850%) 6/20/2010 470,000 (9,669)
Morgan Stanley JP Morgan Mortgage Acquisition Corp.,
7.15%, due 10/25/2035 Buy (1.1700%) 10/25/2035 1,450,000 31,477
Morgan Stanley V.F. Corp., 8.50% due 10/01/2010 Buy (0.7200%) 6/20/2016 1,410,000 (19,684)
Morgan Stanley V.F. Corp., 8.50% due 10/01/2010 Buy (0.4600%) 6/20/2011 1,610,000 (17,284)
Morgan Stanley V.F. Corp., 8.50% due 10/01/2010 Buy (0.4500%) 6/20/2011 845,000 (8,729)
UBS AG Dow Jones CDX.NA.IG.7 7% and 10% tranche Buy (1.1200%) 12/20/2016 5,200,000 1,539
UBS AG Dow Jones CDX.NA.IG.7 10% and 15% tranche Sell 0.5300% 12/20/2016 10,400,000 6,582
UBS AG V.F. Corp., 8.50% due 10/01/2010 Buy (0.4500%) 6/20/2011 2,480,000 (25,613)
----------
$(78,482)
==========
Unrealized
Interest Rate Floating Rate Pay/Receive Fixed Expiration Notional Appreciation/
Swaps Counterparty Index Floating Rate Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan SEK-STIBOR-SIDE Receive 3.7525% 12/4/2008 74,600,000 SEK $(35,320)
Merrill Lynch JPY--LIBOR--BBA Receive 0.8775% 5/11/2008 2,375,000,000 JPY 26,627
----------
$ (8,693)
==========
The accompanying notes are an integral part of the financial statements.
30
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $58,440,217) (Note 6)
Unaffiliated issuers, at value (Note 1A) (cost $798,619,106) $796,516,810
Affiliated issuers, at value (Note 1A) (cost $24,858,517) (Note 1H) 24,858,517
Cash 47,471
Foreign currency, at value (identified cost, $37) 38
Receivable for investments sold 7,142,601
Receivable from brokers (Note 6) 59,395
Interest and dividends receivable 5,875,267
Unrealized appreciation on forward foreign currency exchange contracts, at value (Note 5) 175,118
Unrealized appreciation on swap contracts, at value (Note 5) 112,093
Receivable for variation margin on open futures contracts (Note 5) 7,265
------------
Total assets 834,794,575
------------
Liabilities
Payable for investments purchased $217,118,188
Collateral for securities on loan (Note 6) 61,835,718
Unrealized depreciaton on swap contracts, at value (Note 5) 199,268
Due to custodian 15,068
Unrealized depreciation on forward foreign currency exchange contracts, at value (Note 5) 3,499
Accrued accounting, administration and custody fees (Note 2) 30,619
Accrued professional fees 19,903
Accrued trustees' fees and expenses (Note 2) 13,002
Other accrued expenses and liabilities 39,633
------------
Total liabilities 279,274,898
------------
Net Assets (applicable to investors' beneficial interest) $555,519,677
============
The accompanying notes are an integral part of the financial statements.
31
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Statement of Operations
For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $24,130,465
Dividend income 67,580
Dividend income from affiliated investments (Note 1H) 769,506
Security lending income (Note 6) 55,502
-----------
Total investment Income 25,023,053
Expenses
Investment advisory fee (Note 2) $1,791,430
Accounting, administration and custody fees (Note 2) 192,723
Professional fees 53,994
Trustees' fees and expenses (Note 2) 36,017
Insurance expense 24,192
Miscellaneous expenses 6,853
----------
Total expenses 2,105,209
-----------
Net investment income 22,917,844
-----------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 688,522
Financial futures transactions (694,568)
Written options transactions (267,401)
Foreign currency transactions and forward foreign currency exchange transactions (582,162)
Swap transactions 529,965
----------
Net realized gain (loss) (325,644)
Change in unrealized appreciation (depreciation) on:
Investments (1,546,113)
Financial futures contracts 373,845
Written options contracts (68,358)
Foreign currency translations and forward foreign currency exchange contracts 176,206
Swap contracts (199,649)
----------
Change in net unrealized appreciation (depreciation) (1,264,069)
-----------
Net realized and unrealized gain (loss) (1,589,713)
-----------
Net Increase in Net Assets from Operations $21,328,131
===========
The accompanying notes are an integral part of the financial statements.
32
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 22,917,844 $ 19,032,176
Net realized gain (loss) (325,644) 3,077,515
Change in net unrealized appreciation (depreciation) (1,264,069) (8,030,510)
------------ ------------
Net increase (decrease) in net assets from investment operations 21,328,131 14,079,181
------------ ------------
Capital Transactions
Contributions 186,365,938 67,138,420
Withdrawals (109,974,249) (88,960,526)
------------ ------------
Net increase (decrease) in net assets from capital transactions 76,391,689 (21,822,106)
------------ ------------
Total Increase (Decrease) in Net Assets 97,719,820 (7,742,925)
Net Assets
At beginning of year 457,799,857 465,542,782
------------ ------------
At end of year $555,519,677 $457,799,857
============ ============
The accompanying notes are an integral part of the financial statements.
33
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Total Return (a) 4.44% 3.00% 5.77% 5.25% 8.89%
Ratios/Supplemental Data:
Expenses (to average daily net assets) * 0.44% 0.45% 0.45% 0.41% 0.38%
Net Investment Income (to average daily net assets)* 4.79% 4.12% 3.80% 3.78% 4.86%
Portfolio Turnover: (b)
Inclusive 382% 380% 301% 398% 384%
Exclusive 139% 106% 98% -- --
Net Assets, End of Year (000's omitted) $555,520 $457,800 $465,543 $611,008 $944,098
- ----------
* 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 0.42% 0.39%
Net investment income N/A N/A N/A 3.77% 4.85%
(a) Total return for the Portfolio has been calculated based on the total
return for the invested Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements. Total return would have been lower in the absence of
expense waivers.
(b) Beginning in 2004, the portfolio turnover rate is presented inclusive and
exclusive of the effect of rolling forward purchase commitments.
The accompanying notes are an integral part of the financial statements.
34
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income 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. Standish
Mellon Fixed Income Portfolio (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust.
The objective of the Portfolio is to achieve a high level of current
income, consistent with conserving principal and liquidity, and
secondarily to seek capital appreciation when changes in interest rates
and economic conditions indicate that capital appreciation may be
available without significant risk to principal by investing, under normal
circumstances, at least 80% of net assets in fixed income securities
issued by U.S. and foreign governments and companies.
At December 31, 2006 there was one fund, Standish Mellon Fixed Income Fund
(the "Fund"), invested in the Portfolio. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. The Fund's proportionate interest at
December 31, 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 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. Non-exchange traded derivatives are
normally valued on the basis of quotes obtained from brokers and dealers,
including counterparties, 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 then is valued at amortized cost based
upon the value on such date unless the Trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of coupon interest earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments. Net realized gains and losses on foreign
currency transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Portfolio's books and the
U.S. dollar equivalent amounts actually received or paid.
C. Income taxes
The Portfolio is treated as a disregarded entity for federal tax purposes.
No provision is made by the Portfolio for federal or state income taxes on
any taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since the
Portfolio's investor is a regulated investment company that invests all or
substantially all of its assets in the Portfolio, the Portfolio normally
must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them.
35
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Section 988 of the Internal Revenue Code provides that gains or losses on
certain transactions attributable to fluctuations in foreign currency
exchange rates must be treated as ordinary income or loss. For financial
statement purposes, such amounts are included in net realized gains or
losses.
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
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
H. Affiliated issuers
Affiliated issuers are investment companies advised by Standish Mellon
Asset Management Company LLC ("Standish Mellon"), a wholly-owned
subsidiary of Mellon Financial Corporation, or its affiliates.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
36
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Investment Advisory Fee and Other Transactions with Affiliates:
The investment advisory fee paid to Standish Mellon for overall investment
advisory administrative services, and general office facilities is paid
monthly at the annual rate of 0.40% of the Portfolio's first $250,000,000
of average daily net assets, 0.35% of the next $250,000,000 of average
daily net assets, and 0.30% of the average daily net assets in excess of
$500,000,000.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
The Portfolio Trust has 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 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 $192,723 during the year ended December 31, 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 $23,586 for the year ended December 31, 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 Standish Mellon or its affiliates
received any compensation from the Trust or the Portfolio Trust for
serving as an officer or Trustee of the Trust or the Portfolio Trust. The
Fund and Portfolio Trust pays each Trustee who is not a director, officer
or employee of Standish Mellon 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 December 31, 2006 were as follows:
Purchases Sales
--------------- ---------------
U.S. Government Securities $ 2,264,003,326 $ 2,172,385,508
=============== ===============
Non-U.S. Government Securities $ 313,941,052 $ 113,442,061
=============== ===============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2006, as computed on a federal
income tax basis, were as follows:
Cost for federal income tax purposes $ 823,742,767
===============
Gross unrealized appreciation 4,189,807
Gross unrealized depreciation (6,557,247)
---------------
Net unrealized appreciation (depreciation) ($2,367,440)
===============
(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:
37
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Options
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at
a specified price. The Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Portfolio's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the Portfolio's
exposure to the underlying instrument, or hedge other Portfolio
investments. Options, both held and written by the Portfolio, are
reflected in the accompanying Statement of Assets and Liabilities at
market value. The underlying face amount at value of any open purchased
option is shown in the Schedule of Investments. This amount reflects each
contract's exposure to the underlying instrument at year end. Losses may
arise from changes in the value of the underlying instruments, if there is
an illiquid secondary market for the contract, or if the counterparty does
not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers including counterparties.
For the year ended December 31, 2006, the Portfolio entered into the
following transactions:
Number of
Written Put Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of period 1 $ 55,875
Options written 6 100,250
Options expired (5) (116,423)
Options closed (2) (39,702)
--------- ---------
Outstanding, end of period -- $ --
========= =========
Number of
Written Call Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of period 1 $ 52,260
Options written 5 187,315
Options expired (3) (42,527)
Options closed (3) (197,048)
--------- ---------
Outstanding, end of period -- $ --
========= =========
At December 31, 2006, the Portfolio had no written options outstanding.
Forward currency exchange contracts
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At December 31, 2006, the Portfolio held forward currency exchange
contracts. See Schedule of Investments for further details.
38
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income 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 appreciation or depreciation 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 December 31, 2006, the Portfolio held open financial futures contracts.
See the Schedule of Investments for further details.
Swap agreements
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated
by another instrument. The Portfolio may enter into interest rate, 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 Portfolio with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. In a credit default swap, one party makes a stream of payments
to another party in exchange for the right to receive a specified return
in the event of a default by a third party on its obligation. The
Portfolio may use credit default swaps to provide a measure of protection
against defaults of issuers (i.e., to reduce risk where the Portfolio owns
or has exposure to the corporate or sovereign issuer) or to take an active
long or short position with respect to the likelihood of a particular
corporate or sovereign issuer's default. 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, the portfolio 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. The Portfolio earns
interest on cash set aside as collateral. 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 appreciation or depreciation 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 December 31, 2006, the Portfolio held open swap agreements. See the
Schedule of Investments for further details.
(6) Security Lending:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights
in its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event
of borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in
the event it was delayed or prevented from exercising its rights to
dispose of the collateral. The Portfolio also bears the risk in the event
that the interest and/or dividends received on invested collateral is not
sufficient to meet the Portfolio's obligations due on the loans.
39
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Portfolio loaned securities during the year ended December 31, 2006
and earned interest on the invested collateral of $3,638,399 of which,
$3,582,897 was rebated to borrowers or paid in fees. At December 31, 2006,
the Portfolio had securities valued at $58,440,217 on loan of which,
$61,835,718 was collateralized with cash and $247,825 was collateralized
with securities. See the Schedule of Investments for further detail on the
security positions on loan and investment of cash collateral held.
(7) Delayed Delivery Transactions:
The Portfolio may purchase securities on a when-issued, delayed delivery
or forward commitment basis. Payment and delivery may take place a month
or more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Portfolio
instructs its custodian to segregate securities having value at least
equal to the amount of the purchase commitment.
The Portfolio may enter into to be announced (TBA) purchase commitments to
purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Portfolio holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the Portfolio may enter into offsetting contracts for the
forward sale of other securities it owns. Income on the securities will
not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date. Unsettled TBA purchase commitments are valued at the current market
value of the underlying securities, according to the procedures described
under "Investment security valuations" above.
The Portfolio may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
At December 31, 2006, the Portfolio held delayed delivery securities. See
the Schedule of Investments for further details.
(8) Line of Credit:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in the
Trust are parties to a committed line of credit facility, which enables
each portfolio/fund to borrow, in the aggregate, up to $35 million.
Interest is charged to each participating portfolio/fund based on its
borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of
1%. In addition, a facility fee, computed at an annual rate of 0.060 of 1%
on the committed amount, is allocated ratably among the participating
portfolios/funds at the end of each quarter. 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 December 31, 2006, the expense allocated to the Portfolio
was $3,294. The facility fee and interest expense are included in
miscellaneous expenses on the statement of operations.
For the year ended December 31, 2006, the Portfolio had average borrowings
outstanding of $12,000 for a total of three days and incurred $6 of
interest expense. At December 31, 2006 the Fund had no borrowings
outstanding.
40
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
Standish Mellon Fixed Income Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon Fixed Income
Portfolio (the "Portfolio") at December 31, 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 December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 2, 2007
41
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Factors Considered by Mellon Trustees in Approving Advisory Agreements
(Unaudited)
- --------------------------------------------------------------------------------
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 the related fees on an annual basis. The
Fund is not a party to an investment advisory agreement directly with any
investment adviser and does not invest directly in portfolio securities.
Instead, the Fund invests all of its investable assets in the Standish
Mellon Fixed Income Portfolio (the "Portfolio"), which is managed by
Standish Mellon Asset Management Company LLC ("Standish Mellon"). The
Fund's Board of Trustees determines annually whether the Fund should
continue to invest in the Portfolio. The members of the Fund's Board of
Trustees also serve as the Board of Trustees of the Portfolio. In that
capacity, they consider annually whether to continue the investment
advisory agreement between the Portfolio and Standish Mellon. In their
most recent deliberations concerning their decision to approve the
continuation of the investment advisory agreement, the Board of Trustees
conducted the review and made the determinations that are described below.
In conducting this review and in making such determinations, the
Independent Trustees received from the Portfolio's investment adviser,
Standish Mellon ("the Adviser") a broad range of information in response
to a written request prepared on their behalf by their own legal counsel.
The Independent Trustees met alone in a private session with their legal
counsel on September 28, 2006 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
the Adviser attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 17, 2006.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: The Adviser's balance sheet and income
statements, as well as a profitability analysis of the Adviser, including
a separate presentation of the Adviser's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: The Adviser's Form ADV, as well as
information concerning the Adviser's executive management, portfolio
management, client service personnel and overall organizational structure,
insurance coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
the Adviser's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: The Adviser's commentary on the
Fund's performance (rather than the Portfolio alone), and any material
portfolio manager and strategy changes that may have affected the Fund in
the prior year, as well as the Fund's "fact sheets" prepared by the
Adviser providing salient data about the Fund and Portfolio, including
Portfolio's holdings, strategies, recent market conditions and outlook, as
well as the Adviser's views concerning the issues of breakpoints in the
management fee schedule of the Portfolio and potential economies of scale;
and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
advisory agreement and the compensation to the Adviser provided therein
were fair and reasonable in light of the services performed, expenses
incurred and such other matters as the Trustees considered relevant in the
exercise of their reasonable judgment. The following summary does not
detail all the matters that were considered. Some of the factors that
figured prominently in the Trustees' determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by the Adviser. In their deliberations as to the
continuation of the advisory agreement, the Trustees were also mindful of
the fact that, by choosing to invest in the Fund, the Fund's shareholders
have chosen to entrust the Adviser, under the supervision of the Board, to
manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
the Adviser. The Board determined that the services provided were of high
quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of the Adviser to
receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of the Adviser's investment staff, technological
infrastructure and overall responsiveness to changes in market conditions.
The Board determined that the Adviser had the expertise and resources to
manage the Portfolio effectively.
42
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Factors Considered by Mellon Trustees in Approving Advisory Agreements
(Unaudited)
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund (rather than
the Portfolio alone) against a peer group of investment companies selected
by the Adviser with input from the Trustees. The Board also compared the
Fund's investment performance against the average performance of a larger
universe of funds regarded by Lipper as having similar investment
objectives and considered the Fund's performance rankings against that
universe. In addition to the information received by the Board at the
September 28, 2006 Board meeting, the Trustees received similar detailed
comparative performance information for the Fund at each regular Board
meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2006 based on the Lipper materials
provided to the Board at the September 28, 2006 meeting. The Board found
that the Fund outperformed its peer group average return for the one-year
period (1.47% vs. 1.40%), three-year period (4.46% vs. 4.20%) and
five-year period (4.95% vs. 4.87%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Portfolio to the
Adviser. The Lipper data presenting the Portfolio's "net management fees"
included fees paid by the Portfolio, as calculated by Lipper, for
administrative services provided by Mellon Bank, N.A., the Portfolio's
custodian. Such reporting was necessary, according to Lipper, to allow the
Board to compare the Portfolio's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Portfolio's contractual advisory fee was 0.376% (based on the
following breakpoints: 0.40% of the first $250 million; 0.35% of the next
$250 million; and 0.30% over $500 million), in the 1st quintile (best) of
its peer group of funds, the median fee of which was 0.440%. The
Portfolio's net management fee was 0.427% (which included 0.05% in
administrative service fees under Lipper's calculation methodology),
slightly higher than the peer group median net management fee of 0.40%.
Based on the Lipper data, as well as other factors discussed at the
September 28, 2006 meeting, the Board determined that the Portfolio's
advisory fee is reasonable relative to its peer group averages.
The Board also compared the fees payable by the Portfolio relative to
those payable by separate account clients of the Adviser. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by the Adviser with respect to the Portfolio
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable relative to the
nature and quality of services provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds.
The Board found that the actual net expense ratio of 0.485% was slightly
higher than the median net expense ratio of the peer group of 0.479%
largely due to the Fund's small asset size compared to its peer group.
The Adviser's Profitability
The Board considered the Adviser's profitability in managing the Portfolio
and Fund and the Mellon Institutional Funds as a group, as well as the
methodology used to compute such profitability, and the various direct and
indirect expenses incurred by the Adviser or its affiliated investment
adviser, The Boston Company Asset Management, LLC ("TBCAM") in managing
the Portfolio and other funds in the Mellon Institutional Funds family of
funds. The Independent Trustees had observed that the Adviser, based on
profitability information submitted to them by the Adviser, incurred
losses in managing all but one of the investment companies in the Mellon
Institutional Funds family of funds. The Trustees observed that the
Adviser had experienced profits in operating the Portfolio in both 2004
and 2005 and concluded these were not excessive.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Fund and the Boston
Company International Core Equity Portfolio, two of the largest funds in
the complex, already had breakpoints in their fee arrangements that
reflected economies resulting from their size. The Board also noted that
at the March 7, 2006 meeting, management had presented a Breakpoint
Discussion Memorandum that had proposed a framework for future
breakpoints. The Board concluded that, at existing asset levels and
considering current asset growth projections, the implementation of
additional fee breakpoints or other fee reductions was not necessary at
this time.
43
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Factors Considered by Mellon Trustees in Approving Advisory Agreements
(Unaudited)
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Portfolio's advisory
agreement and the compensation to the Adviser provided therein are fair
and reasonable and, thus, in approving the continuation of the agreement
for a one-year period.
44
Trustees and Officers (Unaudited)
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended December 31, 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 with and Length of During Past Overseen by Held by December 31,
Date of Birth Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 30 None Fund: $500
c/o Decision Resources, 11/3/1986 Decision Resources, Portfolio: $5,769
Inc. Inc. ("DRI")
260 Charles Street (biotechnology
Waltham, MA 02453 research and
9/30/40 consulting firm);
formerly Chairman of
the Board and Chief
Executive Officer,
DRI
Caleb Loring III Trustee Trustee since Trustee, Essex 30 None Fund: $500
c/o Essex Street 11/3/1986 Street Associates Portfolio: $6,469
Associates (family investment
P.O. Box 5600 trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 30 None Fund: $500
c/o Harvard University 9/13/1989 Maier, Professor of Portfolio: $5,769
Littauer Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $5,769
New London, NH 03257
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 30 None $0
The Boston Company President and Operating Officer of
Asset Management, LLC Chief The Boston Company
One Boston Place Executive Asset Management,
Boston, MA 02108 Officer LLC; formerly Senior
7/24/65 Vice President and
Chief Operating
Officer, Mellon
Asset Management
("MAM") and Vice
President and Chief
Financial Officer,
MAM
45
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President and Since 2003 Senior Vice President and Head of Operations, Mellon
Mellon Asset Management Secretary Asset Management ("MAM"); formerly First Vice
One Boston Place President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President and Vice President Vice President and Mutual Funds Controller, Mellon
Mellon Asset Management Treasurer since 1999; Asset Management; formerly Assistant Vice President
One Boston Place Treasurer since and Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 2002 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 First 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
Mary T. Lomasney Chief Compliance Since 2005 First Vice President, Mellon Asset Management and
Mellon Asset Management Officer Chief Compliance Officer, Mellon Funds Distributor,
One Boston Place 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
46
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6923AR1206
[MELLON LOGO]
MELLON INSTITUTIONAL FUNDS
ANNUAL REPORT STANDISH MELLON
YIELD PLUS FUND
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 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.
[MELLON LOGO]
MELLON INSTITUTIONAL FUNDS
February 2007
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2006.
Financial markets showed substantial resilience in 2006, shrugging off concerns
that the slowdown in the housing market could drag the rest of the economy into
recession. The U.S. Federal Reserve (Fed) paused in its tightening cycle in
August, after 17 rate hikes since June 2004, as the Fed became convinced that
inflationary forces, and expectations, were under control. Perhaps the most
notable feature of this cycle is that the housing bubble is bursting at a time
when rates are not high. In previous cycles, housing market declines typically
follow a period of Fed 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 hitting new highs and providing a gain of 15.8%, including an 8.8%
advance in the fourth 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 6-month Treasury bill ending the
year at 4.9%, up about 70 basis points. Rates on longer-term bonds increased to
a lesser degree, with the 10-year Treasury note ending about 30 basis points
higher at 4.7%. This produced 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, because rates are already at relatively modest levels. Thus,
the boost provided by lower mortgage rates in the future is likely to be smaller
for housing than in 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 - Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
MANAGEMENT DISCUSSION AND ANALYSIS
The economy continued to grow in 2006, though at a declining pace as the year
progressed. After a very strong first quarter, weakness in the U.S. housing
sector began to emerge, reducing the overall level of economic activity. On a
year-over-year basis, real gross domestic product grew at an approximate 3%
pace, down from the prior year, but still near the long-term trend growth rate
of the economy. Strong employment, high corporate profitability and continued
solid retail sales offset weak housing and automobile sectors.
The U.S. Federal Reserve (Fed) raised the federal funds rate five times from
December 13, 2005 to June 29, 2006, for a total increase of 100 basis points, to
its current 5.25% level. Since August, the Fed has left the federal funds rate
unchanged, citing moderating economic activity related to the housing market.
The last rate increase by the Fed in June coincided with the peak in long-term
interest rates during the year. Both 2-year and 10-year Treasury notes began
the year yielding approximately 4.40%. But by late June, both had risen
approximately 85 basis points to 5.25%. Since that time, however, long-term
interest rates have fallen at a more rapid pace than short-term interest rates,
with the 2-year note at year end yielding 4.81% and the 10-year note yielding
4.70%.
The prospects for 2007 are mixed. Employment and retail spending remain strong
and credit conditions are easy. But the potential still exists that the slowdown
in the U.S. housing market will gradually extend into other sectors, possibly
leading to a recession. With headline inflation beginning to decline, the Fed
has room to ease interest rates, if necessary. However, with the economy
apparently still expanding at near-trend growth, the Fed's current policy is to
wait for further signals from the economy before acting.
For 2006, the Standish Mellon Yield Plus Fund (Fund) returned 5.00%, under
performing its benchmark, the Merrill Lynch (ML) Constant Maturity 3-month LIBOR
Index, which returned 5.12%. (In September, the Fund's benchmark was changed
from the 6-month Treasury Bill to its current benchmark.) The Fund was
negatively affected by the increase in interest rates during the first half of
the year, and until September, the Fund's holdings had an approximate duration
of 6 months, as compared to a 3-month duration period of the Fund's new
benchmark. Offsetting this duration effect, the Fund benefited from its strong
overweight position in higher yielding corporate and asset-backed securities,
which had yields in excess of LIBOR. These holdings also benefited from the
continued narrowing in credit spreads during the year.
Laurie A. Carroll Johnson S. Moore
Managing Director of Short Duration, Associate Director for Short
Index and Stable Value Strategies Duration Strategies
Standish Mellon Asset Management Company LLC Standish Mellon Asset Management
Company LLC
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN
STANDISH MELLON YIELD PLUS FUND WITH THE MERRILL LYNCH 6 MONTH T-BILL INDEX
AND THE MERRILL LYNCH CONSTANT MATURITY 3-MONTH LIBOR INDEX
[LINE GRAPH]
Standish Mellon
Yield Plus Fund
(Standish Mellon Merrill Lynch 6 Month Merrill Lynch Constant
PERIOD Enhanced Yield Fund) T-Bill Index * Maturity 3-month LIBOR Index *(1)
12/31/96 100,000 100,000 100,000
12/31/97 105,935 105,574 105,831
12/31/98 112,028 111,462 112,089
12/31/99 117,194 116,630 118,062
12/31/00 125,311 124,219 125,916
12/31/01 132,977 130,688 132,222
12/31/02 137,182 133,571 134,805
12/31/03 139,196 135,287 136,547
12/31/04 140,254 136,941 138,319
12/31/05 143,984 141,189 142,662
12/31/06 151,189 147,985 149,973
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 12/31/2006)
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/3/1989
- ------ ------- ------- -------- --------
5.00% 2.79% 2.60% 4.22% 5.27%
* 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.
(1) The ML Constant Maturity 3-month Libor Index is an unmanaged index of
3-month constant maturity dollar-denominated deposits derived from
interest rates on the most recent available dollar-denominated deposits.
An individual cannot invest directly in the index. Effective September 1,
2006, the fund changed its benchmark from the ML 6-month US Treasury Bill
Index to the ML Constant Maturity 3-month Libor Index because the adviser
believes the ML Constant Maturity 3-month Libor Index is more consistent
with the characteristics, credit quality and duration target of the fund
given the investments, strategies, and other characteristics reflected in
this supplement.
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS 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 1, 2006 to December 31, 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=8.6), then multiply the result by the number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD +
ACCOUNT VALUE ACCOUNT VALUE JULY 1, 2006 TO
JULY 1, 2006 DECEMBER 31, 2006 DECEMBER 31, 2006
------------- ----------------- -----------------
Actual $1,000.00 $1,026.00 $1.79
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.44 $1.79
- ------------------
+ Expenses are equal to the Fund's annualized expense ratio of 0.35%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period). The example reflects the
combined expenses of the Fund and the master portfolio in which it invests
all its assets.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2006 (UNAUDITED)
The Standish Mellon Yield Plus Fund invests all of its investable assets in an
interest of the Standish Mellon Yield Plus 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 below.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
- -------------------------- ------------
Treasury/Agency 0.5%
Floating rate credit 20.1
Asset-Backed 67.4
Cash & equivalents 12.0
-----
100.0%
PERCENTAGE OF
TOP TEN HOLDINGS* RATE MATURITY INVESTMENTS
- ----------------- ---- -------- -------------
Residential Asset Securities Corp. 2005-EMX2 A2 5.510% 7/25/2035 4.6%
Fremont Home Loan Trust 2006-1 M1 5.670 4/25/2036 4.6
Countrywide Alternative Loan Trust 2006-6CB 1A2 5.500 5/25/2036 4.3
Countrywide Alternative Loan Trust 2005-65CB 1A5 5.500 1/25/2036 4.1
Chase Manhattan Auto Owner Trust 2003-B A4 2.570 2/16/2010 2.7
M & I Auto Loan Trust 2003-1 A4 2.970 4/20/2009 2.5
Residential Asset Securities Corp. 2005-EMX4 M7 6.600 11/25/2035 2.4
American Express Issuance Trust 2005-1 C 5.680 8/15/2011 2.3
Option One Mortgage Loan Trust 2005-4 M4 5.950 11/25/2035 2.3
Advanta Business Card Master Trust 2005-C1 C1 5.860 8/22/2011 2.3
----
32.1%
* Excluding short-term investments and investment of cash collateral.
SUMMARY OF COMBINED RATINGS
Percentage of
Quality Breakdown Investments
- ----------------- -----------
AAA and higher 40.2%
AA 19.6
A 11.7
BBB 28.5
-----
TOTAL 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors Services. If a
security receives split (different) ratings from multiple rating organizations,
the Portfolio treats the security as being rated in the higher rating category.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS
Investment in Standish Mellon Yield Plus Portfolio (Portfolio), at value (Note 1A) $ 21,400,439
Prepaid expenses 6,174
------------
Total assets 21,406,613
LIABILITIES
Distributions payable $ 13,743
Payable to advisor 226
Accrued professional fees 8,099
Accrued shareholder reporting expense (Note 2) 2,530
Accrued transfer agent fees (Note 2) 3,381
Accrued chief compliance officer fees (Note 2) 710
Accrued trustees' fees and expenses (Note 2) 501
Other accrued expenses and liabilities 387
--------
Total liabilities 29,577
------------
NET ASSETS $ 21,377,036
============
NET ASSETS CONSIST OF:
Paid-in capital $ 23,859,929
Accumulated net realized loss (2,465,620)
Net unrealized depreciation (17,273)
TOTAL NET ASSETS $ 21,377,036
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,112,811
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 19.21
============
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME (NOTE 1B)
Interest and security lending income allocated from Portfolio $ 1,459,227
Dividend income from affiliated investments allocated from Portfolio 98,047
Expenses allocated from Portfolio (94,392)
------------
Net investment income allocated from Portfolio 1,462,882
EXPENSES
Professional fees $ 31,528
Insurance expense 12,196
Transfer agent fees (Note 2) 8,293
Chief compliance officer expense (Note 2) 4,005
Shareholder services expense 2,847
Trustees' fees (Note 2) 2,001
Miscellaneous expenses 8,302
-----------
Total expenses 69,172
Deduct:
Reimbursement of Fund operating expenses (Note 2) (69,172)
-----------
Net expenses --
------------
Net investment income 1,462,882
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investments (142,302)
Swap transactions (40,873)
Financial futures transactions 9,289
-----------
Net realized gain (loss) (173,886)
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments 270,316
Financial futures contracts 6,864
-----------
Net change in unrealized appreciation (depreciation) 277,180
------------
Net realized and unrealized gain (loss) on investments 103,294
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,566,176
============
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,462,882 $ 1,886,132
Net realized gain (loss) (173,886) (301,054)
Change in net unrealized appreciation (depreciation) 277,180 (109,258)
------------- -----------
Net increase (decrease) in net assets from investment operations 1,566,176 1,475,820
------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (1,476,693) (1,940,395)
------------- -----------
Total distributions to shareholders (1,476,693) (1,940,395)
------------- -----------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 5,751,020 15,151,988
Value of shares issued to shareholders in reinvestment of distributions 1,238,342 1,492,509
Cost of shares redeemed (net of redemption fees of $0 and $50, respectively) (24,361,166) (44,750,190)
------------- -----------
Net increase (decrease) in net assets from Fund share transactions (17,371,804) (28,105,693)
------------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (17,282,321) (28,570,268)
NET ASSETS
At beginning of year 38,659,357 67,229,625
------------- -----------
At end of year $ 21,377,036 $38,659,357
============= ===========
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2006 2005 2004 2003 2002
------- -------- -------- ---------- ---------
NET ASSET VALUE, BEGINNING OF THE YEAR $ 19.16 $ 19.32 $ 19.48 $ 19.55 $ 19.55
------- -------- -------- ---------- ---------
FROM OPERATIONS:
Net investment income * (a) 0.87 0.62 0.27 0.31 0.58
Net realized and unrealized gain (loss) on investments 0.07 (0.11) (0.12) (0.04) 0.03
------- -------- -------- ---------- ---------
Total from investment operations 0.94 0.51 0.15 0.27 0.61
------- -------- -------- ---------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.89) (0.67) (0.31) (0.34) (0.61)
------- -------- -------- ---------- ---------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (0.89) (0.67) (0.31) (0.34) (0.61)
------- -------- -------- ---------- ---------
NET ASSET VALUE, END OF YEAR $ 19.21 $ 19.16 $ 19.32 $ 19.48 $ 19.55
======= ======== ======== ========== =========
TOTAL RETURN (b) 5.00% 2.66% 0.75% 1.48% 3.14%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) * (c) 0.29% 0.32% 0.45% 0.36% 0.36%
Net Investment Income (to average daily net assets) * 4.54% 3.24% 1.33% 1.60% 2.99%
Net Assets, End of Year (000's omitted) $21,377 $ 38,659 $ 67,230 $ 141,837 $ 146,620
- --------------------
* For the periods indicated, the investment adviser voluntarily agreed not
to impose all or a portion of its investment advisory fee and/ or
reimbursed the Fund for a portion of its operating expenses. If this
voluntary action had not been taken, the investment income per share and
the ratios would have been:
Net investment income per share (a) $ 0.78 $ 0.57 $ 0.25 $ 0.30 $ 0.56
Ratios (to average daily net assets):
Expenses (c) 0.75% 0.62% 0.51% 0.43% 0.46%
Net investment income 4.09% 2.95% 1.27% 1.53% 2.89%
(a) Calculated based on average shares outstanding,
(b) Total return would have been lower in the absence of expense waivers.
(c) Includes the Fund's share of the Standish Mellon Enhanced Yield Portfoli's
allocated expenses.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS 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 Yield Plus Fund (the "Fund") is a separate
diversified investment series of the Trust.
The Fund's Board of Trustees approved, effective September 1, 2006, the
change in the Fund's name from "Standish Mellon Enhanced Yield Fund" to
"Standish Mellon Yield Plus Fund".
The objective of the Fund is to achieve a high level of current income
consistent with preserving principal and liquidity. The Fund invests all
of its investable assets in an interest of Standish Mellon Yield Plus
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 dollar-denominated money market instruments,
short-term fixed income securities and asset-backed securities of U.S. and
foreign governments, banks and companies. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio (100% at December 31, 2006). 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 investment in the Portfolio at value. The
Portfolio values its securities at value as discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
The Fund's investment in the Portfolio is recorded on settlement date. The
Portfolio's securities transactions are recorded as of the trade date as
discussed in Note 1B of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report. 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 post-October losses, capital loss
carryovers, and the timing of recognition of realized and unrealized gains
and losses on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income(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 portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS 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"
under Subchapter M of the Code. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timely distributions of its income to its shareholders, and the
diversification of its assets, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net
capital gain which are distributed to shareholders.
(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 Standish Mellon Asset Management Company LLC ("Standish
Mellon"), a wholly-owned subsidiary of Mellon Financial Corporation, for
such services. See Note 2 of the Portfolio's Notes to Financial
Statements, which are included elsewhere in this report. Standish Mellon
voluntarily agreed to limit the total operating expenses of the Fund and
its pro rata share of the Portfolio expenses (excluding brokerage
commissions, taxes and extraordinary expenses) to 0.25% of the Fund's
average daily net assets for the period January 1, 2006 to August 31, 2006
and to 0.40% for the period from September 1, 2006 to December 31, 2006.
Pursuant to this agreement, for the year ended December 31, 2006, Standish
Mellon voluntarily reimbursed the Fund for $69,172 of its operating
expenses. This agreement is voluntary and temporary and may be
discontinued or revised by Standish Mellon at any time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
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 $8,293, for the year ended December 31, 2006.
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 $2,740 for the year ended
December 31, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended December 31,
2006, the Fund was charged $4,005. No other director, officer or employee
of Standish Mellon 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 Standish Mellon 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 December 31, 2006, the Fund was charged $2,789
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 December 31, 2006, aggregated $6,989,509 and $25,868,412,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
NOTES TO FINANCIAL STATEMENTS
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
Shares sold 299,660 786,928
Shares issued to shareholders for
reinvestment of distributions 64,517 77,632
Shares redeemed (1,268,985) (2,327,112)
---------- ----------
Net increase (decrease) (904,808) (1,462,552)
========== ==========
At December 31, 2006, two shareholders of record held in the aggregate
approximately 52% 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
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 December 31, 2006, the Fund did not
assess any redemption fees.
(5) FEDERAL TAXES:
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ __
Undistributed capital gains __
Total distributable earnings __
Capital loss carry forward $ 2,411,660
Tax character of distributions paid during the fiscal year ended December
31, 2006, were as follows:
2006 2005
----------- -----------
Ordinary income $ 1,476,693 $ 1,940,395
At December 31, 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 investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
CAPITAL LOSS
CARRY OVER EXPIRATION DATE
- ------------- ---------------
$ 848,377 12/31/2007
816,280 12/31/2008
228,931 12/31/2012
256,792 12/31/2013
261,280 12/31/2014
- ------------
$ 2,411,660
============
Utilization of the capital loss carryovers above could be subject to
limitations imposed by the Internal Revenue Code related to share
ownership activity. At December 31, 2006, $80,787 in capital loss
carryovers expired.
The Fund elected to defer to its fiscal year ending December 31, 2007
$54,389 of capital losses recognized during the period November 1, 2006 to
December 31, 2006.
See the corresponding master portfolio for tax basis unrealized
appreciation (depreciation) information.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON YIELD PLUS FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Standish Mellon Yield Plus Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Standish Mellon Yield Plus Fund, formerly Standish Mellon Enhanced Yield Fund,
(the "Fund") at December 31, 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 December 31, 2006
to the Portfolio's records, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 23, 2007
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- -------- ---- -------- ----------- ------------
UNAFFILIATED INVESTMENTS--91.0%
BONDS AND NOTES--89.4%
ASSET BACKED--66.1%
Accredited Mortgage Loan Trust 2006-2 M7 (a) 6.200% 9/25/2036 $ 250,000 $ 249,085
Advanta Business Card Master Trust 2005-C1 C1 (a) 5.860 8/22/2011 500,000 502,544
American Express Issuance Trust 2005-1 C (a) 5.680 8/15/2011 500,000 502,611
Asset Backed Funding Certificates 2005-WMC1 M4 (a) 5.940 6/25/2035 500,000 502,303
Asset Backed Securities Corp Home Equity 2006-HE5 M7 (a) 6.250 7/25/2036 250,000 249,166
Bayview Financial Acquisition Trust 2006-A1A1 5.614 2/28/2041 381,775 379,923
Bear Stearns Alt-A Trust 2005-1 A1 (a) 5.630 1/25/2035 228,971 229,452
Centex Home Equity 2003-B AF4 3.235 2/25/2032 102,441 100,779
Chase Funding Mortgage Loan Asset Backed 2003-3 2A2 (a) 5.620 4/25/2033 271,374 271,707
Chase Manhattan Auto Owner Trust 2003-B A4 2.570 2/16/2010 593,944 587,857
Citigroup Mortgage Loan Trust, Inc. 2005-OPT4 A2B (a) 5.500 7/25/2035 355,000 355,063
Citigroup Mortgage Loan Trust, Inc. 2006-WF1 A2A 5.701 3/25/2036 264,382 263,628
Coldwater Cdo, Ltd. 144A (a) (b) 6.600 8/5/2046 350,000 347,375
Collegiate Funding Services Education Loan 2005-AA1 (a) 5.383 9/29/2014 217,592 217,259
Countrywide Alternative Loan Trust 2005-65CB 1A5 (a) 5.500 1/25/2036 891,114 890,215
Countrywide Alternative Loan Trust 2006-6CB 1A2 (a) 5.500 5/25/2036 935,500 933,235
Countrywide Asset-Backed Certificates 2006-13 MV7 (a) 6.300 1/25/2037 250,000 249,576
Countrywide Asset-Backed Certificates CWL2004-15 AF3 4.025 1/25/2031 249,248 247,136
Countrywide Home Loans 2004-16 1A1 (a) 5.750 9/25/2034 293,002 294,209
Fremont Home Loan Trust 2006-1 M1 (a) 5.670 4/25/2036 1,000,000 1,000,330
Gracechurch Card Funding PLC (a) 5.660 9/15/2010 500,000 500,547
GS Auto Loan Trust 2004-1 A4 2.650 5/16/2011 283,732 280,908
Household Automotive Trust 2003-1 A4 2.220 11/17/2009 271,791 269,111
M & I Auto Loan Trust 2003-1 A4 2.970 4/20/2009 554,573 547,917
Nomura Home Equity Loan, Inc. 2006-WF1 M8 (a) 6.320 3/25/2036 300,000 297,086
Opteum Mortgage Acceptance Corp. 2005-5 2A1A 5.470 12/25/2035 302,796 301,211
Option One Mortgage Loan Trust 2005-4 M4 (a) 5.950 11/25/2035 500,000 502,598
Popular ABS Mortgage Pass-Through Trust 2004-4 AF4 4.628 9/25/2034 350,000 342,774
Residential Asset Securities Corp. 2005-EMX2 A2 (a) 5.510 7/25/2035 1,000,000 1,000,427
Residential Asset Securities Corp. 2005-EMX4 M7 (a) 6.600 11/25/2035 500,000 506,936
Residential Funding Mortgage Securities II 2006-HSA2 AI3 5.550 3/25/2036 200,000 199,785
Structured Asset Securities Corp. 2006-EQ1A M7 144A (a) 6.320 7/25/2036 250,000 250,000
Structured Asset Securities Corp. 2006-S2 M3 (a) 5.680 6/25/2036 381,000 381,004
Wachovia Auto Owner Trust 2004-B A4 3.440 3/21/2011 400,000 391,057
----------
Total Asset Backed (Cost $ 14,153,118) 14,144,814
----------
CORPORATE--12.2%
AUTOMOBILES--2.3%
Daimler Chrysler NA Holding Corp. (a) 5.790 3/13/2009 500,000 500,478
----------
BROADCASTING--3.3%
Comcast Corp. (a) 5.674 7/14/2009 350,000 350,779
Time Warner, Inc. (a) 5.606 11/13/2009 350,000 350,227
----------
701,006
----------
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- -------- ---- --------- ----------- ------------
FINANCIAL--1.1%
SLM Corp. (a) 5.601% 10/25/2011 $ 250,000 $ 250,178
------------
REAL ESTATE--4.0%
Brandywine Operation Partners (a) 5.814 4/1/2009 350,000 350,000
HRPT Properties Trust REIT (a) 5.961 3/16/2011 500,000 500,172
------------
850,172
------------
UTILITIES--1.5%
Nisource Finance Corp. (a) 5.940 11/23/2009 310,000 310,092
------------
Total Corporate (Cost $ 2,610,339) 2,611,926
------------
YANKEE BONDS--7.9%
Glitnir Banking HF 144A (a) 5.534 10/15/2008 250,000 249,470
Kaupthing Bank HF 144A (a) 6.070 1/15/2010 385,000 387,646
Landsbanki Islands HF 144A (a) 6.070 8/25/2009 350,000 352,592
Telecom Italia Capital (a) (c) 5.984 7/18/2011 350,000 349,478
Telefonica Emisiones SAU (a) 5.665 6/19/2009 350,000 350,426
------------
Total Yankee Bonds (Cost $ 1,683,576) 1,689,612
------------
U.S. GOVERNMENT AGENCY--2.7%
FHLMC 5.000 6/15/2016 202,587 202,008
FHLMC 4.500 1/15/2019 219,199 217,908
FHLMC 4.900 10/15/2018 160,775 160,490
------------
Total U.S. Government Agency (Cost $ 596,534) 580,406
------------
U.S. TREASURY OBLIGATIONS--0.5%
U.S. Treasury Note (d) (Cost $99,691) 3.750 3/31/2007 100,000 99,672
------------
TOTAL BONDS AND NOTES (Cost $ 19,143,258) 19,126,430
------------
INVESTMENT OFCASH COLLATERAL--1.6% SHARES
---------
BlackRock Cash Strategies L.L.C (e) (Cost $357,000) 5.320 357,000 357,000
------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $ 19,500,258) 19,483,430
------------
AFFILIATED INVESTMENTS--10.4%
Dreyfus Institutional Preferred Plus Money Market (e)
(f) (Cost $2,231,178) 5.350 2,231,178 2,231,178
------------
TOTAL INVESTMENTS--101.4% (COST $ 21,731,436) 21,714,608
------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.4%) (314,169)
------------
NET ASSETS--100.0% $ 21,400,439
============
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
NOTES TO SCHEDULE OF INVESTMENTS
144A--Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end, the
value of these securities amounted to $1,587,083 or 7.4% of net assets.
FHLMC--Federal Home Loan Mortgage Company
REIT--Real Estate Investment Trust
(a) Variable Rate Security; rate indicated as of December 31, 2006.
(b) Illiquid security. At the period end, the value of these securities
amounted to $347,375 or 1.6% of net assets.
(c) Security, or a portion thereof, was on loan at December 31, 2006.
(d) Denotes all of part of security pledged as collateral for futures.
(e) Stated rate is the seven-day yield for the fund at December 31, 2006.
(f) Affiliated institutional money market fund.
At December 31, 2006 the Fund held the following futures contracts:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE GAIN/(LOSS)
- -------- -------- --------------- --------------- -----------
US 2 YR Treasury (15 Contracts) Long 3/30/2007 $ 3,070,547 $ (10,107)
US 5 YR Treasury (15 Contracts) Short 3/30/2007 1,586,578 10,612
EURO BOND (1 Contracts) Long 3/19/2007 236,713 (19)
EURO BOND (1 Contracts) Long 6/18/2007 237,163 (244)
EURO BOND (1 Contracts) Long 9/17/2007 237,588 (306)
EURO BOND (1 Contracts) Long 12/17/2007 238,000 (381)
----------
$ (445)
==========
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS
Investments in securities (including securities on loan, valued at $349,478) (Note 6)
Unaffiliated issuers, at value (Note 1A) (cost $19,500,258) $ 19,483,430
Affiliated issuers (Note 1F), at value (Note 1A) (cost $2,231,178) 2,231,178
Receivable from Investment Advisor 14,717
Interest and dividends receivable 55,659
Prepaid expenses 664
-------------
Total assets 21,785,648
LIABILITIES
Collateral for securities on loan (Note 6) $ 357,000
Due to custodian 14,717
Payable for variation margin on open futures contracts (Note 5) 359
Accrued accounting, administration and custody fees (Note 2) 10,394
Accrued trustees' fees and expenses (Note 2) 1,360
Accrued professional fees 815
Other accrued expenses and liabilities 564
-----------
Total liabilities 385,209
-------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $ 21,400,439
=============
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME (NOTE 1B)
Interest income $ 1,458,946
Dividend income from affiliated investments (Note 1F) 98,047
Security lending income (Note 6) 281
------------
Total investment income 1,557,274
EXPENSES
Investment advisory fee (Note 2) $ 64,675
Accounting, administration and custody fees (Note 2) 66,526
Professional fees 27,513
Trustees' fees and expenses (Note 2) 4,647
Insurance expense 6,007
Miscellaneous expenses 3,884
-------------
Total expenses 173,252
DEDUCT
Waiver of investment advisory fee (Note 2) (64,675)
Reimbursement of Fund operating expenses (Note 2) (14,185)
-------------
Total expense deductions (78,860)
-------------
Net expenses 94,392
------------
Net investment income 1,462,882
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (142,302)
Swap transactions (40,873)
Financial futures transactions 9,289
-------------
Net realized gain (loss) (173,886)
Change in unrealized appreciation (depreciation) on:
Investments 270,316
Financial futures contracts 6,864
-------------
Change in net unrealized appreciation (depreciation) 277,180
------------
Net realized and unrealized gain (loss) 103,294
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,566,176
============
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,462,882 $ 1,886,132
Net realized gain (loss) (173,886) (301,054)
Change in net unrealized appreciation (depreciation) 277,180 (109,258)
----------------- --------------
Net increase (decrease) in net assets from investment operations 1,566,176 1,475,820
----------------- --------------
CAPITAL TRANSACTIONS
Contributions 6,989,509 16,645,003
Withdrawals (25,868,412) (46,674,285)
----------------- --------------
Net increase (decrease) in net assets from capital transactions (18,878,903) (30,029,282)
----------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (17,312,727) (28,553,462)
NET ASSETS
At beginning of year 38,713,166 67,266,628
----------------- --------------
At end of year $ 21,400,439 $ 38,713,166
================= ==============
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2006 2005 2004 2003 2002
--------- --------- --------- ---------- ----------
TOTAL RETURN (a) 5.00% 2.66% 0.79% 1.48% 3.14%
RATIOS:
Expenses (to average daily net assets)* 0.29% 0.32% 0.41% 0.36% 0.36%
Net Investment Income (to average daily net assets)* 4.54% 3.24% 1.36% 1.60% 2.99%
Portfolio Turnover 43% 75% 39% 113% 160%
Net Assets, End of Period (000's omitted) $ 21,400 $ 38,713 $ 67,267 $ 141,856 $ 146,771
- -------------------
* For the periods indicated, the investment adviser voluntarily agreed not
to impose all or a portion of its investment advisory fee and/ or
reimbursed the Fund for a portion of its operating expenses. If this
voluntary action had not been taken, the investment income per share and
the ratios would have been:
Ratios (to average daily net assets):
Expenses 0.54% 0.44% N/A 0.37% 0.38%
Net investment income 4.29% 3.12% N/A 1.59% 2.97%
(a) Total return for the Portfolio has been calculated based on the total
return for the invested Fund, assuming all distributions were invested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements. Total return would have been lower in the absence of
expense waivers.
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS 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. Standish
Mellon Yield Plus Portfolio (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust.
The Fund's Board of Trustees approved, effective September 1, 2006, the
change in the Fund's name from "Standish Mellon Enhanced Yield Portfolio"
to "Standish Mellon Yield Plus Portfolio".
The objective of the Portfolio is to achieve a high level of current
income consistent with preserving principal and liquidity. The Portfolio
seeks to achieve its objective by investing, under normal circumstances,
at least 80% of net assets in dollar-denominated money market instruments,
short-term fixed income securities and asset-backed securities of U.S. and
foreign governments, banks and companies.
At December 31, 2006 there was one fund, Standish Mellon Yield Plus Fund
(the "Fund"), invested in the Portfolio. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. The Fund's proportionate interest at
December 31, 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 quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which 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,
including counterparties, 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 then is valued at amortized cost based
upon the value on such date unless the Trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of coupon interest earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on 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.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
D. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve
future claims that may be made against the Portfolio that have not yet
occurred. However, based on experience, the Portfolio expects the risks of
loss to be remote.
E. EXPENSES
The majority of expenses of the Trust or Portfolio Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated among
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
F. AFFILIATED ISSUERS
Affiliated issuers are investment companies advised by Standish Mellon
Asset Management Company LLC ("Standish Mellon"), a wholly-owned
subsidiary of Mellon Financial Corporation, or its affiliates.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 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, administrative services, and general office facilities is paid
monthly at the annual rate of 0.20% of the Portfolio's average daily net
assets. Standish Mellon voluntarily agreed to limit the total operating
expenses of the Fund and its pro rata share of the Portfolio expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.25% of the fund's average daily net assets for the period January 1,
2006 through August 31, 2006 and 0.40% for the period September 1, 2006 to
December 31, 2006. Pursuant to these agreements, for the year ended
December 31, 2006, Standish Mellon voluntarily waived a portion of its
investment advisory fee in the amount of $64,675 and reimbursed the
Portfolio $14,185 of other operating expenses. This agreement is voluntary
and temporary and may be discontinued or revised by Standish Mellon at any
time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
The Portfolio Trust has 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 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 $66,526 during the year ended December 31, 2006.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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 $119 for the year ended December 31, 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 Standish Mellon or its affiliates
received any compensation from the Trust or the Portfolio Trust for
serving as an officer or Trustee of the Trust or the Portfolio Trust. The
Fund and Portfolio Trust pays each Trustee who is not a director, officer
or employee of Standish Mellon 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 December 31, 2006 were as follows:
PURCHASES SALES
------------ -------------
U.S. Government Securities $ 99,625 $ 3,909,335
============ =============
Non-U.S. Government Securities $ 12,437,216 $ 25,739,588
============ =============
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2006, as computed on a federal
income tax basis, were as follows:
Cost for federal income tax purposes $ 21,731,436
=============
Gross unrealized appreciation 32,390
Gross unrealized depreciation (49,218)
-------------
Net unrealized appreciation (depreciation) ($16,828)
=============
(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 appreciation and depreciation 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 December 31, 2006, the Portfolio held open financial futures contracts.
See the Schedule of Investments for further details.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
SWAP AGREEMENTS
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated
by another instrument. The Portfolio may enter into interest rate, 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 Portfolio with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. In a credit default swap, one party makes a stream of payments
to another party in exchange for the right to receive a specified return
in the event of a default by a third party on its obligation. The
Portfolio may use credit default swaps to provide a measure of protection
against defaults of issuers (i.e., to reduce risk where the Portfolio owns
or has exposure to the corporate or sovereign issuer) or to take an active
long or short position with respect to the likelihood of a particular
corporate or sovereign issuer's default. 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, the portfolio 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. The Portfolio earns
interest on cash set aside as collateral. 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 appreciation or depreciation 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 December 31, 2006, the Portfolio did not hold any swap agreements.
(6) SECURITY LENDING:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights
in its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event
of borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in
the event it was delayed or prevented from exercising its rights to
dispose of the collateral. The Portfolio also bears the risk in the event
that the interest and/or dividends received on invested collateral is not
sufficient to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended December 31, 2006
and earned interest on the invested collateral of $17,816 of which,
$17,535 was rebated to borrowers or paid in fees. At December 31, 2006,
the Portfolio had securities valued at $349,478 on loan. See the 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 December 31, 2006, the expense allocated to the Portfolio
was $50. The commitment fee is aggregated with miscellaneous expenses on
the Statement of Operations.
For the year ended December 31, 2006, the Portfolio did not borrow from
the line of credit.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
Standish Mellon Yield Plus Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon Yield Plus
Portfolio, formerly Standish Mellon Enhanced Yield Portfolio, (the "Portfolio")
at December 31, 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
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 23, 2007
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
FACTORS CONSIDERED BY BOARD OF TRUSTEES IN APPROVING ADVISORY AGREEMENT
(UNAUDITED)
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 the related fees on an annual basis. The Fund is not a
party to an investment advisory agreement directly with any investment adviser
and does not invest directly in portfolio securities. Instead, the Fund invests
all of its investable assets in the Standish Mellon Yield Plus Portfolio (the
"Portfolio"), which is managed by Standish Mellon Asset Management Company LLC
("Standish Mellon"). The Fund's Board of Trustees determines annually whether
the Fund should continue to invest in the Portfolio. The members of the Fund's
Board of Trustees also serve as the Board of Trustees of the Portfolio. In that
capacity, they consider annually whether to continue the investment advisory
agreement between the Portfolio and Standish Mellon. In their most recent
deliberations concerning their decision to approve the continuation of the
investment advisory agreement, the Board of Trustees conducted the review and
made the determinations that are described below. In conducting this review and
in making such determinations, the Independent Trustees received from the
Portfolio's investment adviser, Standish Mellon (the "Adviser") a broad range of
information in response to a written request prepared on their behalf by their
own legal counsel. The Independent Trustees met alone in a private session with
their legal counsel on September 28, 2006 to review these materials and to
discuss the proposed continuation of the Fund's advisory agreement.
Representatives of the Adviser attended a portion of the September meeting to
provide an overview of its organization, personnel, resources and strategic
plans, and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire Board then
met on October 17, 2006.
The information requested by the Independent Trustees and reviewed by the entire
Board included:
(i) Financial and Economic Data: The Adviser's balance sheet and income
statements, as well as a profitability analysis of the Adviser, including a
separate presentation of the Adviser's profitability relative to that of several
publicly traded investment advisers;
(ii) Management Teams and Operations: The Adviser's Form ADV, as well as
information concerning the Adviser's executive management, portfolio management,
client service personnel and overall organizational structure, insurance
coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper Analytical
Services ("Lipper") regarding the Fund's historical performance, management fee
and expense ratio compared to other funds, and the Adviser's separate account
advisory fee schedules;
(iv) Specific Facts Relating to the Fund: The Adviser's commentary on the Fund's
performance (rather than the Portfolio alone) and any material portfolio manager
and strategy changes that may have affected the Fund in the prior year, as well
as the Fund's "fact sheets" prepared by the Adviser providing salient data about
the Fund and Portfolio, including Portfolio holdings, strategies, recent market
conditions and outlook, as well as the Adviser's views concerning the issues of
breakpoints in the management fee schedule of the Portfolio and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency, custody,
administration and securities lending services provided to the Funds by
affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the Board
of Trustees, including the Independent Trustees, did not identify any single
factor as all-important or controlling, and individual Trustees did not
necessarily attribute the same weight or importance to each factor. The Trustees
determined that the terms and conditions of the advisory agreement and the
compensation to the Adviser provided therein were fair and reasonable in light
of the services performed, expenses incurred and such other matters as the
Trustees considered relevant in the exercise of their reasonable judgment. The
following summary does not detail all the matters that were considered. Some of
the factors that figured prominently in the Trustees' determination are
described below.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by the Adviser. In their deliberations as to the
continuation of the advisory agreement, the Trustees were also mindful of the
fact that, by choosing to invest in the Fund, the Fund's shareholders have
chosen to entrust the Adviser, under the supervision of the Board, to manage the
portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment management,
administrative, compliance and related services provided by the Adviser. The
Board determined that the services provided were of high quality and at least
commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of the Adviser to receive
an overview of its organization, personnel, resources and strategic plans. Among
other things, the Trustees considered the size, education and experience of the
Adviser's investment staff, technological infrastructure and overall
responsiveness to changes in market conditions.
The Board determined that the Adviser had the expertise and resources to manage
the Portfolio effectively.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
FACTORS CONSIDERED BY BOARD OF TRUSTEES IN APPROVING ADVISORY AGREEMENT
(UNAUDITED)
INVESTMENT PERFORMANCE
The Board considered the investment performance of the Fund (rather than the
Portfolio alone) against a peer group of investment companies selected by the
Adviser with input from the Trustees. The Board also compared the Fund's
investment performance against the average performance of a larger universe of
funds regarded by Lipper as having similar investment objectives and considered
the Fund's performance rankings against that universe. In addition to the
information received by the Board at the September 28, 2006 Board meeting, the
Trustees received similar detailed comparative performance information for the
Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and five-year
periods ended July 31, 2006 based on the Lipper materials provided to the Board
at the September 28, 2006 meeting. The Board found that the Fund outperformed
its peer group average returns for the one-year period (4.19% vs. 3.97%) and the
five-year period (2.61% vs. 2.50%), but underperformed its peer group average
returns for the three-year period (2.23% vs. 2.41%).
ADVISORY FEE AND OTHER EXPENSES
The Board considered the advisory fee rate paid by the Portfolio to the Adviser.
The Lipper data presenting the Portfolio's "net management fees" included fees
paid by the Portfolio, as calculated by Lipper, for administrative services
provided by Mellon Bank, N.A., the Portfolio's custodian. Such reporting was
necessary, according to Lipper, to allow the Board to compare the Portfolio's
advisory fees to those peers that include administrative fees within a blended
advisory fee.
The Portfolio's contractual advisory fee was 0.20%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.37%. The Portfolio's
net management fee, after giving effect to expense limitations, was 0.057%
(which included administrative services fees under Lipper's calculation
methodology), well below the peer group median net management fee of 0.288%.
Based on the Lipper data, as well as other factors discussed at the September
28, 2006 meeting, the Board determined that the Portfolio's advisory fee is
reasonable relative to its peer group averages, both with and without giving
effect to expense limitations.
The Board also compared the fees payable by the Portfolio relative to those
payable by separate account clients of the Adviser. Based on the additional
scope and complexity of the services provided and responsibilities assumed by
the Adviser with respect to the Portfolio relative to these other types of
clients, the Board concluded that the fees payable under the advisory agreement
were reasonable relative to the nature and quality of the services provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds. The
Board found that the actual net expense ratio of 0.322% (after giving effect to
expense limitations) was lower than the median net expense ratio of the peer
group of 0.37%, notwithstanding the fact that all of the other funds in the peer
group were larger than the Fund.
THE ADVISER'S PROFITABILITY
The Board considered the Adviser's profitability in managing the Portfolio and
Fund and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect expenses
incurred by the Adviser or its affiliated investment adviser, The Boston Company
Asset Management, LLC ("TBCAM") in managing the Portfolio and other funds in the
Mellon Institutional Funds family of funds. The Independent Trustees had
observed that the Adviser, based on the profitability information submitted to
them by the Adviser, incurred losses in managing all but one of the investment
companies in the Mellon Institutional Funds family of funds, including the
Portfolio and Fund. The Trustees observed that the Adviser had incurred losses
in operating the Portfolio and Fund in both 2004 and 2005.
ECONOMIES OF SCALE
The Board also considered the extent to which economies of scale might be
realized as the Portfolio and Fund grow. They observed that the Standish Mellon
Fixed Income Portfolio and The Boston Company International Core Equity
Portfolio, two of the largest funds in the complex, already had breakpoints in
their fee arrangements that reflected economies resulting from their size. The
Board also noted that at the March 7, 2006 meeting, management had presented a
Breakpoint Discussion Memorandum that had proposed a framework for future
breakpoints. The Board concluded that, at existing asset levels and considering
current assets growth projections, the implementation of additional fee
breakpoints or other fee reductions was not necessary at this time.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON YIELD PLUS PORTFOLIO
FACTORS CONSIDERED BY BOARD OF TRUSTEES IN APPROVING ADVISORY AGREEMENT
(UNAUDITED)
OTHER BENEFITS
The Board also considered the additional benefits flowing to Mellon as a result
of its relationship with the Mellon Institutional Funds as a group, including
revenues received by Mellon affiliates in consideration of custodial,
administrative, transfer agency and securities lending services provided by such
affiliates to the Funds. In each case, such affiliates were selected by the
Board on the basis of a comparative analysis of their capabilities and fees
relative to those of unaffiliated competitors.
The Board considered the fact that Mellon operates businesses other than the
Mellon Institutional Funds, some of which businesses share personnel, office
space and other resources and that these were a component of the profitability
analysis provided. The Board also considered the intangible benefits that accrue
to Mellon and its affiliates by virtue of its relationship with the Funds and
the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in determining
that the terms and conditions of the Portfolio's advisory agreement and the
compensation to the Adviser provided therein are fair and reasonable and, thus,
in approving the continuation of the agreement for a one-year period.
28
TRUSTEES AND OFFICERS (UNAUDITED)
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended December 31, 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
TERM OF
OFFICE NUMBER OF TRUSTEE
AND PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIP (PERIOD ENDED
ADDRESS, AND HELD WITH TIME DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH TRUST SERVED 5 YEARS TRUSTEE TRUSTEE 2006)
- ----------------------- ----------- --------- -------------------- ------------- ------------ ----------------
Samuel C. Fleming Trustee Trustee Chairman Emeritus, 30 None Fund: $500
c/o Decision Resources, since Decision Resources, Portfolio: $949
Inc. 11/3/1986 Inc.
260 Charles Street ("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 Trustee, 30 None Fund: $500
c/o Essex Street since Essex Street Portfolio: $1,015
Associates 11/3/1986 Associates (family
P.O. Box 5600 investment trust
Beverly, MA 01915 office)
11/14/43
Benjamin M. Friedman Trustee Trustee William Joseph 30 None Fund: $500
c/o Harvard University since Maier, Portfolio: $949
Littauer Center 127 9/13/1989 Professor of
Cambridge, MA 02138 Political
8/5/44 Economy, Harvard
University
John H. Hewitt Trustee Trustee Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 since House, Inc. Portfolio: $949
New London, NH 03257 11/3/1986 (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 30 None $0
The Boston Company President Operating Officer of
Asset Management, LLC and Chief The Boston Company
One Boston Place Executive Asset Management,
Boston, MA 02108 Officer LLC; formerly Senior
7/24/65 Vice President
and Chief Operating
Officer,
Mellon Asset
Management
("MAM") and Vice
President and Chief
Financial Officer,
MAM
29
Principal Officers who are Not Trustees
NAME TERM OF OFFICE
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH HELD WITH TRUST TIME SERVE DURING PAST 5 YEARS
- ----------------------- --------------- --------------- ---------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon Asset and Secretary Mellon Asset Management ("MAM");
Management formerly First Vice President, MAM and Mellon Global
One Boston Place 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 First Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management;
One Boston Place formerly Vice President and Manager, Mutual Fund
Boston, MA 02108 Operations, Standish Mellon Asset Management
8/19/51 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 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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[MELLON LOGO]
MELLON INSTITUTIONAL FUNDS
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
International Fixed Income Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 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
February 2007
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2006.
Financial markets showed substantial resilience in 2006, shrugging off concerns
that the slowdown in the housing market could drag the rest of the economy into
recession. The U.S. Federal Reserve (Fed) paused in its tightening cycle in
August, after 17 rate hikes since June 2004, as the Fed became convinced that
inflationary forces, and expectations, were under control. Perhaps the most
notable feature of this cycle is that the housing bubble is bursting at a time
when rates are not high. In previous cycles, housing market declines typically
follow a period of Fed 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 hitting new highs and providing a gain of 15.8%, including an 8.8%
advance in the fourth 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 6-month Treasury bill ending the
year at 4.9%, up about 70 basis points. Rates on longer-term bonds increased to
a lesser degree, with the 10-year Treasury note ending about 30 basis points
higher at 4.7%. This produced 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, because rates are already at relatively modest levels. Thus,
the boost provided by lower mortgage rates in the future is likely to be smaller
for housing than in 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 International Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
The first part of 2006 was a challenging environment for global bonds as G3
(U.S., Europe and Japan) 10-year yields rose 40 basis points. During the
remainder of the year, bonds rallied on weak economic data and a slowing housing
market.
The predominant drivers of G3 yields were the continued tightening by the U.S.
Federal Reserve (Fed) until July, as well as the steady diet of rate hikes from
the European Central Bank (ECB) and the Bank of Japan (BoJ). The BoJ tightening
cycle is truly groundbreaking as the zero interest rate policy ended and is a
signal that Japan is finally returning to sustainable economic growth.
This environment was made more challenging by significant reversals in the
direction of bond yields during 2006. The first half of 2006 saw global bond
yields rise, only to peak in June and then reverse direction for the remainder
of the year. Fortunately, Standish Mellon International Fixed Income Fund (Fund)
was well positioned to capture this shift in bond yields. The Fund was short in
duration at the start of 2006, yet after the Fed tightened interest rates and
the U.S. housing market displayed serious signs of weakness, the Fund's holdings
were reallocated to longer duration bonds to take advantage of a potential drop
in interest rates in the U.S. As the Fed held interest rates steady in July,
global bonds started a hesitant rally that carried yields of the U.S. 10-year
Treasury from 5.25% all the way down to 4.4% by November.
The tight correlation between global bond yields in 2006 saw European and
Japanese bond yields rally alongside U.S. yields in the second half of the year,
despite their central banks' rate hikes. U.S. bonds outperformed in the second
half but for the year as a whole, Japanese bonds were the best performers,
followed by Canadian bonds.
In November, the U.S. dollar began to slide relative to the euro as investors
reacted to the weaker outlook for the U.S., and the bond market started to
discount interest rate cuts by the Fed expected in 2007. The dollar fell
broadly, but the Japanese yen continues to be the funding currency of choice,
which has kept the currency on the weak and cheap.
The riskiest corners of the global bond markets, such as high yield and emerging
market debt, generated the highest absolute returns in 2006, and the 4th quarter
was no exception. Spread sectors were fair to rich, and as a result we
tactically reduced credit exposure of the Fund. However, if spreads widen, we
will welcome increased volatility and add credit and emerging exposure.
The Fund's 4.27% return outperformed its benchmark, the J.P. Morgan Non-U.S.
Government Bond Index (Hedged), which returned 3.10% in 2006. Our global short
duration stance and slight extension, as yields peaked later in the year,
contributed to this positive performance during this period. Our country
positioning was also a significant contributor to positive performance as we
positioned the Fund overweight in U.S. bonds in the summer and short in European
and U.K. bonds for most of the year. Although we positioned the Fund to have
neutral exposure to Japanese bonds, which were the best performing, we were
"barbelled" in
2
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Japan and benefited as the yield curve flattened. The Fund's allocation to
emerging market bonds and exposure to high yield bonds, which produced some of
the best performance in all of fixed income, contributed positively to Fund
performance during the year. In addition, the Fund's allocation to Polish local
currency bonds performed well in the latter part of 2006 and continues to be a
solid contributor.
Globally, bonds rallied early in the fourth quarter but sold off strongly in
December and our long duration exposure detracted from performance. We
anticipate global bonds to perform well in 2007 as economic growth slows and
inflation risks fade away.
During the year David Leduc replaced Charles Dolan as a co-portfolio manager of
the Fund. Thomas Fahey continues as the Fund's other co-portfolio manager.
We appreciate your continued investment in the Fund and look forward to working
on your behalf over the next year.
Thomas F. Fahey David Leduc
Portfolio Manager Portfolio Manager
Standish Mellon Asset Standish Mellon Asset
Management Company LLC Management Company LLC
3
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Comparison of Change in Value of $100,000 Investment in Standish Mellon
International Fixed Income Fund and the JP Morgan Non-US Hedged Index
- --------------------------------------------------------------------------------
[LINE GRAPH]
Standish Mellon JP Morgan Non-US
PERIOD International Fixed Income Fund Hedged Index*
12/31/96 100,000 100,000
12/31/97 111,863 111,329
12/31/98 121,631 124,840
12/31/99 122,593 127,869
12/31/00 134,466 139,962
12/31/01 139,942 148,420
12/31/02 148,952 158,825
12/31/03 156,236 161,964
12/31/04 163,858 170,398
12/31/05 171,604 179,934
12/31/06 178,937 185,512
Average Annual Total Returns
(for period ended 12/31/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/3/1991
- --------------------------------------------------------------------------------
4.27% 4.63% 5.04% 5.99% 7.97%
* 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
Standish Mellon International Fixed Income 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 1, 2006 to December 31, 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=8.6), then multiply the result by the number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value July 1, 2006 to
July 1, 2006 December 31, 2006 December 31, 2006
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,051.00 $3.67
Hypothetical (5% return
per year before
expenses) $1,000.00 $1,021.63 $3.62
- -----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.71%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Portfolio Information as of December 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Summary of Combined Ratings
- --------------------------------------------------------------------------------
Percentage of
Quality Breakdown Investments
- --------------------------------------------------------------------------------
AAA and higher 64.0%
AA 7.4
A 10.6
BBB 11.6
BB 3.5
B 2.9
-----
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.
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
Deutsche Republic 4.750 7/4/2034 11.0%
Singapore Government Bond 3.500 7/1/2012 4.3
Development Bank of Japan 1.600 6/20/2014 3.7
European Investment Bank 1.400 6/20/2017 3.7
United Kingdom Gilt 8.000 9/27/2013 3.6
Development Bank of Japan 1.700 9/20/2022 3.1
Canadian Government Bond 5.000 6/1/2014 3.0
United Kingdom Gilt 4.750 6/7/2010 2.7
Hellenic Republic Government Bond 3.700 7/20/2015 2.5
United Kingdom Gilt 5.000 3/7/2012 2.5
----
39.8%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- --------------------------------------------------------------------------------
Government 40.1%
Corporate 39.2
Emerging Markets 12.5
ABS/CMBS/CMO 6.3
Cash & Equivalents 1.9
-----
100.0%
The Fund is actively managed. Current holdings may be different than those
presented above.
6
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments - December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--97.1%
BONDS AND NOTES--96.4%
Asset Backed--0.8%
Capital Auto Receivables Asset Trust 2006-2 B 5.070% 12/15/2011 USD 320,000 $ 318,995
Home Equity Mortgage Trust 2006-5 A1 5.500 1/25/2037 419,172 418,971
-------------
Total Asset Backed (Cost $738,866) 737,966
-------------
Collateralized Mortgage Bonds--3.7%
Government National Mortgage Association 2004-23 B 2.946 3/16/2019 582,980 559,452
Government National Mortgage Association 2005-76 A 3.963 5/16/2030 560,997 545,790
Government National Mortgage Association 2005-79 A 3.998 10/16/2033 556,099 542,017
Government National Mortgage Association 2006-67 A 3.947 11/16/2030 960,000 928,800
Government National Mortgage Association 2006-68 A 3.888 7/16/2026 480,000 464,025
JP Morgan Alternative Loan Trust 2006-S4 A6 5.710 12/25/2036 440,000 439,234
-------------
Total Collateralized Mortgage Obligations (Cost $3,485,373) 3,479,318
-------------
Corporate--6.2%
Banking--0.6%
Chevy Chase Bank FSB 6.875 12/1/2013 380,000 380,000
Suntrust Preferred Capital I (a) (b) 5.853 12/15/2036 190,000 191,450
-------------
571,450
-------------
Basic Materials--0.3%
Georgia-Pacific Corp. 144A (a) 7.000 1/15/2015 265,000 264,338
-------------
Communications--0.8%
Qwest Corp. (a) 8.610 6/15/2013 170,000 184,025
Time Warner, Inc. (a) 5.606 11/13/2009 605,000 605,393
-------------
789,418
-------------
Finance--2.1%
Merrill Lynch & Co. 144A (a) 5.450 12/4/2009 910,000 909,867
Residential Capital Corp. (a) 6.738 6/29/2007 245,000 246,213
Residential Capital Corp. (a) 6.675 11/21/2008 745,000 754,298
-------------
1,910,378
-------------
Industrials--1.2%
SAB Miller 144A (a) 5.663 7/1/2009 675,000 675,614
Windstream Corp. 144A 8.125 8/1/2013 305,000 330,163
Windstream Corp. 144A 8.625 8/1/2016 95,000 104,025
-------------
1,109,802
-------------
Utilities--1.2%
Dominion Resources, Inc. (a) 5.663 9/28/2007 575,000 575,229
Nisource Finance Corp. (a) 5.940 11/23/2009 580,000 580,172
1,155,401
-------------
Total Corporate Bonds (Cost $5,746,899) 5,800,787
-------------
Sovereign Bonds--3.5%
Argentina Bonos (a) 5.590 8/3/2012 675,000 489,544
Egyptian Treasury Bill 144A (c) 8.400 2/1/2007 2,150,000 2,304,693
Republic of Peru 9.125 2/21/2012 425,000 494,063
-------------
Total Sovereign Bonds (Cost $3,078,008) 3,288,300
-------------
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments - December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds--3.1%
Glitnir Banki HF 144A (a) 7.451% 9/14/2009 USD 395,000 $ 416,268
Kaupthing Bank 144A 7.125 5/19/2016 455,000 482,608
Kaupthing Bank HF 144A (a) 6.070 1/15/2010 510,000 513,505
National Grid PLC 6.300 8/1/2016 465,000 481,594
Nordic Telecommunication Co. Holdings 144A 8.875 5/1/2016 100,000 107,000
Rogers Wireless, Inc. 7.500 3/15/2015 255,000 276,675
Royal KPN NV 8.375 10/1/2030 150,000 171,863
SMFG Preferred Capital 144A (a) 6.078 7/25/2049 420,000 416,470
-------------
Total Yankee Bonds (Cost $2,774,724) 2,865,983
-------------
Foreign Denominated--77.4%
Australia--0.6%
Queensland Treasury Corp. 6.000 6/14/2011 AUD 740,000 578,918
-------------
Brazil--0.8%
Republic of Brazil 12.500 1/5/2016 BRL 1,445,000 768,185
-------------
Canada--6.4%
Canadian Government Bond 5.500 6/1/2010 CAD 1,615,000 1,451,076
Canadian Government Bond 5.000 6/1/2014 3,050,000 2,770,083
Canadian Pacific Railway Ltd. 144A 4.900 6/15/2010 2,000,000 1,744,070
-------------
5,965,229
-------------
Euro--29.4%
Autostrade SpA (a) 4.112 6/9/2011 EUR 500,000 662,058
BES Finance (a) 4.500 12/16/2023 180,000 229,575
Bombardier, Inc. 5.750 2/22/2008 245,000 329,420
Bundesrepublic Deutschland 3.500 1/4/2016 1,000,000 1,274,901
Bundesrepublic Deutschland 3.750 7/4/2013 180,000 234,850
Citigroup, Inc. (a) 3.786 6/3/2011 675,000 892,316
Deutsche Cap Trust IV (a) 5.330 9/29/2049 600,000 818,776
Deutsche Republic 3.250 7/4/2015 705,000 884,200
Deutsche Republic 4.750 7/4/2034 6,925,000 10,101,548
FCE Bank PLC EMTN (a) 4.722 9/30/2009 745,000 961,892
Goldman Sachs Group, Inc. (a) 3.866 2/4/2013 405,000 534,604
Hellenic Republic Government Bond 3.700 7/20/2015 1,845,000 2,352,436
Ineos Group Holdings PLC 144A 7.875 2/15/2016 325,000 408,468
Kingdom of Denmark 3.125 10/15/2010 1,210,000 1,550,455
Linde Finance BV (a) 6.000 7/29/2049 50,000 67,354
MPS Capital Trust I (a) 7.990 2/7/2011 550,000 815,497
MUFG Capital Finance 2 (a) 4.850 3/15/2049 370,000 476,773
Netherlands Government Bond 4.000 1/15/2037 1,425,000 1,848,962
Owens-Brockway Glass Containers 6.750 12/1/2014 520,000 687,855
Resona Bank Ltd. 144A (a) 4.125 1/10/2049 310,000 395,169
Santander Perpetual (a) 4.375 9/10/2023 180,000 231,903
Sogerim 7.000 4/20/2011 195,000 282,881
Sumitomo Mitsui Banking Corp. 144A (a) 4.375 7/15/2049 575,000 727,694
Telefonica Europe BV 5.125 2/14/2013 455,000 613,898
-------------
27,383,485
-------------
Japan--19.4%
Citigroup, Inc. 0.800 10/30/2008 JPY 68,500,000 574,574
Depfa Acs Bank 1.650 12/20/2016 250,000,000 2,086,449
Development Bank of Japan 1.700 9/20/2022 358,000,000 2,827,499
Development Bank of Japan (b) 1.600 6/20/2014 400,000,000 3,387,563
Dexia Municipal Agency 0.800 5/21/2012 285,000,000 2,327,561
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments - December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Japan (continued)
European Investment Bank 1.400% 6/20/2017 JPY 402,700,000 $ 3,305,344
Japan Finance Corp. 1.550 2/21/2012 228,000,000 1,937,646
Volkswagen Financial Services NV 1.150 11/26/2008 200,000,000 1,672,069
-------------
18,118,705
-------------
Mexico--1.5%
Mexican Fixed Rate Bonds 8.000 12/19/2013 MXN 14,700,000 1,408,659
-------------
Poland--2.2%
Poland Government Bond 6.250 10/24/2015 PLN 5,610,000 2,074,816
-------------
Sweden--2.0%
Swedish Government Bond 3.000 7/12/2016 SEK 13,505,000 1,849,816
-------------
Singapore--4.2%
Singapore Government Bond 3.500 7/1/2012 SGD 5,880,000 3,926,501
-------------
United Kingdom--10.9%
Barclays Bank PLC (a) 6.000 9/15/2026 GBP 240,000 458,886
BAT International Finance PLC 6.375 12/12/2019 155,000 316,828
Deutsche Telekom International Finance BV 7.125 9/26/2012 305,000 631,399
HBOS Capital Funding LP (a) 6.461 11/30/2048 155,000 319,692
Transco Holdings PLC 7.000 12/16/2024 140,000 324,249
United Kingdom Gilt 4.750 6/7/2010 1,280,000 2,478,406
United Kingdom Gilt 5.000 3/7/2012 1,200,000 2,352,409
United Kingdom Gilt 8.000 9/27/2013 1,350,000 3,110,473
United Kingdom Gilt 4.250 6/7/2032 75,000 146,057
-------------
10,138,399
-------------
Total Foreign Denominated (Cost $70,314,314) 72,212,713
-------------
Pass Thru Securities--1.7%
Non-Agency Pass Thru Securities--1.7%
Bear Stearns Commercial Mortgage 2006-PW14 AB 5.171 12/1/2038 USD 1,125,000 1,114,004
Crown Castle Towers 2006-1A D 144A 5.772 11/15/2036 210,000 209,679
Morgan Stanley Capital I 2006-IQ12 A1 5.257 12/15/2043 280,000 279,920
-------------
Total Pass Thru (Cost $1,618,168) 1,603,603
-------------
TOTAL BONDS AND NOTES (Cost $87,756,352) 89,988,670
-------------
PURCHASED OPTIONS--0.2% Contract Size
-------------
AUD Put/USD Call, Strike Price .754, 4/23/2007 1,825,000 6,946
CAD Put/USD Call, Strike Price 1.127, 4/10/2007 1,825,000 55,219
JPY Put/USD Call, Strike Price 115, 3/30/2007 2,350,000 64,409
USD Put/AUD Call, Strike Price .754, 4/23/2007 1,825,000 82,525
USD Put/JPY Call, Strike Price 115, 3/30/2007 2,350,000 12,993
-------------
TOTAL PURCHASED OPTIONS (Cost $209,918) 222,092
-------------
Rate Maturity Par Value
SHORT-TERM INVESTMENTS--0.1% ----- ---------- -----------
U.S. Treasury Bill--0.1%
U.S. Treasury Bill (d) (Cost $123,853) 4.850 3/8/2007 125,000 123,922
-------------
INVESTMENT OF CASH COLLATERAL--0.4% Shares
-----------
BlackRock Cash Strategies L.L.C. (e) (Cost $317,300) 5.320 317,300 317,300
-------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $88,407,423) 90,651,984
-------------
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments - December 31, 2006
- --------------------------------------------------------------------------------
Value
Security Description Rate shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
AFFILIATED INVESTMENTS--1.4%
Dreyfus Institutional Preferred Plus
Money Market Fund (e) (f) (Cost $1,270,860) 5.350% 1,270,860 $ 1,270,860
-------------
TOTAL INVESTMENTS--98.5% (Cost $89,678,283) 91,922,844
-------------
OTHER ASSETS, LESS LIABILITIES--1.5% 1,421,646
-------------
NET ASSETS--100% $ 93,344,490
=============
Notes to Schedule of Investments
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
At the period end, the value of these securities amounted to $10,009,631 or
10.7% of net assets.
AUD--Australian Dollar
BRL--Brazilian Real
CAD--Canadian Dollar
EMTN--Euro Medium Term Note
EUR--Euro
GBP--British Pound
JPY--Japanese Yen
MXN--Mexican New Peso
PLN--Polish Zloty
SEK--Swedish Krona
SGD--Singapore Dollar
(a) Variable Rate Security; rate indicated is as of December 31, 2006.
(b) Security, or a portion thereof, was on loan at December 31, 2006.
(c) Illiquid security. At the period end, the value of these securities
amounted to $2,304,693 or 2.5% of net assets.
(d) Rate noted is yield to maturity.
(e) Stated rate is seven-day yield for the fund at year end.
(f) Affiliated money market fund.
At December 31, 2006 the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/Loss
- --------------------------------------------------------------------------------------------
US 10 Year Treasury (7 Contracts) Short 3/21/2007 $ 763,875 $ 11,581
US 5 Year Treasury (54 Contracts) Short 3/30/2007 5,720,940 47,465
Euro-Bobl (5 Contracts) Long 3/8/2007 734,807 (9,699)
Euro-Bund (25 Contracts) Long 3/8/2007 3,888,562 (51,316)
----------
$ (1,969)
----------
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments - December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006 the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2006 to Receive Gain/(Loss)
- --------------------------------------------------------------------------------------------------
Australian Dollar 680,000 3/21/2007 $ 535,432 $ 531,644 $ (3,788)
British Pound Sterling 6,086,000 3/21/2007 11,917,297 11,957,408 40,111
Canadian Dollar 1,110,000 3/21/2007 954,229 968,599 14,370
Canadian Dollar 1,890,000 3/21/2007 1,624,768 1,649,359 24,591
Canadian Dollar 5,290,000 3/21/2007 4,547,632 4,593,011 45,379
Czech Republic Koruna 42,340,000 3/21/2007 2,034,659 2,027,778 (6,881)
Euro 1,055,000 2/28/2007 1,396,021 1,393,972 (2,049)
Euro 1,430,000 2/28/2007 1,892,237 1,877,805 (14,432)
Euro 1,340,000 3/21/2007 1,774,637 1,778,006 3,369
Euro 610,000 3/21/2007 807,857 810,202 2,345
Euro 1,030,000 3/21/2007 1,364,087 1,368,664 4,577
Euro 610,000 3/21/2007 807,857 802,089 (5,768)
Euro 18,990,000 3/21/2007 25,149,520 25,206,377 56,857
Euro 230,000 3/21/2007 304,602 303,566 (1,036)
Japanese Yen 108,000,000 1/16/2007 909,611 913,651 4,040
Japanese Yen 201,490,000 3/20/2007 1,710,924 1,755,139 44,215
Japanese Yen 317,050,000 3/20/2007 2,692,185 2,735,548 43,363
Japanese Yen 808,410,000 3/20/2007 6,864,498 6,977,653 113,155
Japanese Yen 774,830,000 3/20/2007 6,579,359 6,684,179 104,820
Mexican Pesos 10,400,000 3/20/2007 962,831 961,050 (1,781)
Swedish Krona 18,760,000 3/21/2007 2,751,989 2,754,782 2,793
Swiss Franc 1,150,000 3/20/2007 950,638 970,341 19,703
Singapore Dollar 5,445,000 3/21/2007 3,566,921 3,555,454 (11,467)
Thai Baht 17,080,000 3/21/2007 480,878 469,876 (11,002)
------------ ------------ ----------
Total $ 82,580,669 $ 83,046,153 $ 465,484
============ ============ ==========
Local
Principal Contract Value at Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2006 to Deliver Gain/(Loss)
- --------------------------------------------------------------------------------------------------
British Pound Sterling 470,000 3/21/2007 $ 920,330 $ 920,535 $ (205)
Euro 2,485,000 2/28/2007 3,288,259 3,278,212 10,047
Euro 610,000 3/21/2007 807,857 802,089 5,768
Euro 1,540,000 3/21/2007 2,039,508 2,031,971 7,537
Euro 420,000 3/21/2007 556,230 556,668 (438)
Euro 290,000 3/21/2007 384,063 384,366 (303)
Japanese Yen 108,000,000 1/16/2007 909,611 921,510 (11,899)
Japanese Yen 110,810,000 3/20/2007 940,927 974,043 (33,116)
Malaysian Ringgit 1,700,000 3/21/2007 483,939 483,367 572
Norwegian Krone 5,860,000 3/21/2007 943,567 965,852 (22,285)
Philippines Peso 23,810,000 3/21/2007 485,213 484,633 580
South Korean Won 438,750,000 3/21/2007 473,090 481,086 (7,996)
Swedish Krona 6,450,000 3/21/2007 946,180 951,104 (4,924)
Thai Baht 17,080,000 3/21/2007 480,878 480,749 129
------------ ------------ ----------
Total $ 13,659,652 $ 13,716,185 $ (56,533)
============ ============ ==========
The Fund held the following cross currency forward contracts at December 31,
2006:
Value at In Value at Contract Unrealized
Contracts to Deliver December 31, 2006 Exchange for December 31, 2006 Value Date Gain
- ----------------------------------------------------------------------------------------------------------
Euro $ 409,046 Icelandic Krona $ 413,377 3/21/2007 $ 4,331
========== ========= ========
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments - December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006, the Fund held the following open swap agreements:
Credit Unrealized
Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Alcoa, Inc., 6.000% due 1/15/2012 Buy (0.4150%) 6/20/2010 328,000 USD $ (3,329)
Bear Stearns Alcoa, Inc., 6.500% due 6/01/2011 Buy (0.5200%) 6/20/2010 727,000 USD (9,846)
Bear Stearns Conocophillips, 4.750% due 10/15/2012 Buy (0.3100%) 6/20/2010 1,055,000 USD (7,227)
Bear Stearns Nucor Corp., 4.875% due 10/01/2012 Buy (0.4000%) 6/20/2010 494,000 USD (4,726)
Citibank Altria Group Inc., 7.000%, due 11/4/2013 Buy (0.2700%) 12/20/2011 1,390,000 USD (1,958)
Citibank Northern Tobacco, 5.000%, due 6/1/2046 Sell 1.3500% 12/20/2011 695,000 USD 5,360
Citibank Southern California Tobacco, 5.000%, due 6/1/2037 Sell 1.3500% 12/20/2011 695,000 USD 5,360
JPMorgan Asset Backed Index, Home Equity BBB.06-1 Buy (1.5400%) 7/25/2045 1,380,000 USD (1,615)
JPMorgan Asset Backed Index, Home Equity BBB.06-2 Sell 1.3300% 5/25/2046 920,000 USD (4,426)
JPMorgan Basell AF SCA, 8.375% due 8/15/2015 Sell 3.8000% 6/20/2011 950,000 EUR 74,107
JPMorgan British American Tobacco PLC, 4.875% due 2/25/2009 Sell 0.4250% 12/20/2010 600,000 EUR 6,988
JPMorgan Daimlerchrysler AG, 7.200% due 9/1/2009 Sell 0.7000% 12/20/2010 600,000 EUR 8,187
JPMorgan Dow Jones CDX.NA.HY.7 Sell 3.2500% 12/20/2011 1,890,000 USD 18,440
JPMorgan France Telecom, 7.250% due 1/28/2013 Sell 0.6600% 12/20/2015 475,000 EUR 5,634
JPMorgan Glencore International AG, 5.375%, due 9/30/2011 Sell 1.4800% 12/20/2010 600,000 EUR 23,968
JPMorgan ICI Wilmington, 5.625% due 12/1/2013 Sell 0.5100% 12/20/2010 600,000 EUR 8,032
JPMorgan iTraxx Europe HiVol Series 4 Version 1 Buy (0.7000%) 12/20/2010 2,975,000 EUR (52,587)
JPMorgan Kimberly-Clark Corp., 6.875% due 2/15/2014 Buy (0.1900%) 12/20/2011 1,895,000 USD 54
JPMorgan Kimberly-Clark Corp., 6.875% due 2/15/2014 Buy (0.1900%) 12/20/2011 1,895,000 USD 54
JPMorgan Linde Aktiengesellschaft BV, 6.375% due 6/14/2007 Sell 0.4100% 6/20/2011 1,900,000 EUR 14,933
JPMorgan Telecom Italia SPA, 6.250% due 2/1/2012 Sell 0.5200% 12/20/2010 600,000 EUR 1,508
JPMorgan The BOC Group PLC, 5.875% due 4/29/2009 Buy (0.2400%) 6/20/2011 1,900,000 EUR (6,944)
JPMorgan Volkswagen, 4.875% due 5/22/2013 Sell 0.4500% 12/20/2010 600,000 EUR 7,620
Lehman Brothers Directv Holdings, 8.375%, due 3/15/2013 Buy (2.3500%) 12/20/2016 105,000 USD 888
Lehman Brothers Directv Holdings, 8.375%, due 3/15/2013 Buy (2.3500%) 12/20/2016 175,000 USD 1,481
Lehman Brothers Echostar DBS Corp., 6.375%, due 10/1/2011 Sell 2.2500% 12/20/2016 175,000 USD (3,794)
Lehman Brothers Echostar DBS Corp., 6.625%, due 10/1/2014 Sell 2.2000% 12/20/2016 105,000 USD (2,640)
Morgan Stanley V.F. Corp., 8.500% due 10/1/2010 Buy (0.4500%) 6/20/2011 1,200,000 USD (12,246)
UBS AG iTraxx Europe Series 5 Version 1 Sell 0.4000% 6/20/2011 1,400,000 EUR 12,887
UBS AG TelekomAustria Aktiengesellschaft,
5.000% due 7/22/2013 Buy (0.4500%) 9/20/2011 930,000 USD (6,292)
UBS AG Wolters Kluwer NV, 5.125% due 1/27/2014 Buy (0.5500%) 9/20/2011 930,000 USD (8,170)
---------
$ 69,701
=========
Interest Unrealized
Rate Swaps Floating Rate Pay/Receive Fixed Expiration Notional Appreciation/
Counterparty Index Floating Rate Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns USD--LIBOR--BBA Pay 3.9070% 11/19/2009 840,000 USD $ (28,205)
JPMorgan JPY--LIBOR--BBA Pay 1.3150% 10/4/2011 295,000,000 JPY 1,529
JPMorgan JPY--LIBOR--BBA Pay 2.0750% 7/28/2016 304,000,000 JPY 82,750
JPMorgan MYR--ABS--MYR01 Pay 4.1600% 10/31/2011 1,659,613 MYR 3,929
JPMorgan THB-TBHFIX-Reuters Pay 5.1800% 11/2/2011 16,744,000 THB (1,996)
UBS AG JPY--LIBOR--BBA Pay 0.8770% 5/11/2008 1,336,000,000 JPY 14,978
UBS AG JPY--LIBOR--BBA Receive 2.5120% 6/6/2026 326,000,000 JPY 113,104
UBS AG SEK--STIBOR--SIDE Receive 3.0600% 6/27/2007 220,110,000 SEK (440,419)
UBS AG SEK--STIBOR--SIDE Pay 4.2900% 6/27/2016 21,710,000 SEK 87,149
---------
$(167,181)
=========
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Percentage of
Country Allocation Investments
---------------------------------------------------
U.S. 18.2%
Japan 20.9
Germany 16.4
U.K. 13.0
Canada 6.8
Singapore 4.3
Greece 2.6
Egypt 2.5
Poland 2.3
Netherlands 2.0
Sweden 2.0
Denmark 1.7
Mexico 1.6
Iceland 1.5
Italy 1.0
Spain 1.4
Brazil 0.8
Australia 0.6
Argentina 0.5
Peru 0.5
Portugal 0.3
-----
100.0%
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Statement of Assets and Liabilities
December 31, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $299,852) (Note 7):
Unaffiliated issuers, at value (Note 1A) (cost $88,407,423) $ 90,651,984
Affiliated issuers, at value (Note 1A) (cost $1,270,860) 1,270,860
Cash 32,202
Foreign currency, at value (cost $333,712) 328,956
Interest and dividends receivable 1,100,325
Unrealized appreciation on forward currency exchange contracts (Note 6) 552,652
Unrealized appreciation on swap contracts (Note 6) 498,940
Swap premiums paid (Note 6) 24,327
Receivable for variation margin on open futures contracts (Note 6) 2,542
Receivable for Fund shares sold 477
Prepaid expenses 10,710
-------------
Total assets 94,473,975
Liabilities
Collateral for securities on loan (Note 7) $ 317,300
Unrealized depreciation on swap contracts (Note 6) 596,420
Unrealized depreciation on forward currency exchange contracts (Note 6) 139,370
Payable for Fund shares redeemed 19,305
Accrued accounting, custody, administration and transfer agent fees (Note 2) 25,012
Accrued professional fees 17,017
Accrued shareholder reporting fee (Note 2) 5,890
Accrued trustees' fees and expenses (Note 2) 3,393
Accrued chief compliance officer fee (Note 2) 708
Other accrued expenses and liabilities 5,070
-----------
Total liabilities 1,129,485
-------------
Net Assets $ 93,344,490
=============
Net Assets consist of:
Paid-in capital $ 138,973,485
Accumulated net realized loss (47,475,055)
Distributions in excess of net investment income (729,885)
Net unrealized appreciation 2,575,945
-------------
Total Net Assets $ 93,344,490
=============
Shares of beneficial interest outstanding 5,146,520
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 18.14
=============
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Statement of Operations
For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income (Including $3,507 of foreign tax expense) $ 3,863,996
Dividend income from affiliated investments (Note 1H) 59,503
Security lending income (Note 7) 4,571
-----------
3,928,070
Expenses
Investment advisory fee (Note 2) $ 426,955
Accounting, custody, administration and transfer agent fees (Note 2) 118,333
Administrative service fee (Note 2) 28,496
Professional fees 68,856
Registration fees 14,289
Trustees' fees and expenses (Note 2) 14,909
Insurance expense 10,691
Miscellaneous expenses 38,999
-----------
Total expenses 721,528
-----------
Net investment income 3,206,542
-----------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 929,674
Financial futures transactions 213,009
Written options transactions 184,501
Swap transactions 457,032
Foreign currency transactions and forward foreign currency exchange transactions (3,802,969)
-----------
Net realized gain (loss) (2,018,753)
Change in unrealized appreciation (depreciation) on:
Investments 3,825,687
Financial futures contracts 42,417
Written options contracts (118,238)
Swap contracts (85,836)
Foreign currency translation and forward foreign currency exchange contracts (1,027,111)
-----------
Change in net unrealized appreciation (depreciation) 2,636,919
-----------
Net realized and unrealized gain on investments 618,166
-----------
Net Increase in Net Assets from Operations $ 3,824,708
===========
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 3,206,542 $ 7,563,650
Net realized gain (loss) (2,018,753) 21,980,627
Change in net unrealized appreciation (depreciation) 2,636,919 (20,301,404)
------------- -------------
Net increase (decrease) in net assets from investment operations 3,824,708 9,242,873
------------- -------------
Distributions to Shareholders (Note 1C)
From net investment income (1,050,622) (33,162,511)
------------- -------------
Total distributions to shareholders (1,050,622) (33,162,511)
------------- -------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 12,137,236 35,702,518
Value of shares issued to shareholders in reinvestment of distributions 968,978 29,233,578
Cost of shares redeemed (45,257,096) (220,701,289)
------------- -------------
Net increase (decrease) in net assets from Fund share transactions (32,150,882) (155,765,193)
------------- -------------
Total Increase (Decrease) in Net Assets (29,376,796) (179,684,831)
Net Assets
At beginning of year 122,721,286 302,406,117
------------- -------------
At end of year [including distributions in excess of net
investment income of $729,885 and $403,751, respectively] $ 93,344,490 $ 122,721,286
============= =============
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------
2006 2005 2004 2003 2002
--------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of the period $ 17.55 $ 21.35 $ 21.02 $ 20.04 $ 19.43
--------- ---------- ---------- ---------- ----------
From Investment Operations:
From Operations:
Net investment income (a) 0.53 0.75 0.75 0.66 0.75
Net realized and unrealized gain (loss) on investments 0.21 0.23 0.27 0.32 0.46
--------- ---------- ---------- ---------- ----------
Total from investment operations 0.74 0.98 1.02 0.98 1.21
--------- ---------- ---------- ---------- ----------
Less Distributions to Shareholders:
From net investment income (0.15) (4.78) (0.69) -- (0.47)
From tax return of capital -- -- -- -- (0.13)
--------- ---------- ---------- ---------- ----------
Total distributions to shareholders (0.15) (4.78) (0.69) -- (0.60)
--------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 18.14 $ 17.55 $ 21.35 $ 21.02 $ 20.04
========= ========== ========== ========== ==========
Total Return 4.27% 4.72% 4.90% 4.89% 6.44%
Ratios/Supplemental Data:
Expenses (to average daily net assets) 0.68% 0.58% 0.57% 0.59% 0.59%
Net Investment Income (to average daily net assets) 3.01% 3.49% 3.43% 3.20% 3.89%
Portfolio Turnover 89% 168% 170% 185% 159%
Net Assets, End of Period (000's omitted) $ 93,344 $ 122,721 $ 302,406 $ 369,706 $ 364,460
- ----------
(a) Calculated based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income 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 International Fixed Income Fund (the "Fund") is a
separate diversified investment series of the Trust.
The objective of the Fund is to maximize total return while realizing a
market level of income consistent with preserving principal and liquidity.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in fixed income securities, and
at least 65% of net assets in non-U.S. dollar denominated fixed income
securities of foreign governments and companies located in various
countries, including emerging markets.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
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 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,
including counterparties 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 then is valued at amortized cost based upon the
value on such date unless the Trustees determine during such sixty-day
period that amortized cost does not represent fair value.
B. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of coupon interest earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. 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 (loss) on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
C. Distributions to Shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses will be declared and distributed at least annually.
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, losses deferred due to wash
sales, post-October losses, capital loss carryovers, and the timing of
recognition of realized and unrealized gains and losses on futures
contracts.
18
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. Foreign currency transactions
The Fund 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 Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
G. Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated among funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
H. Affiliated issuers
Affiliated issuers are investment companies advised by Standish Mellon
Asset Management Company LLC ("Standish Mellon"), a wholly-owned
subsidiary of Mellon Financial Corporation, or its affiliates.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
19
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
J. Federal Income Taxes
Each year the Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Code. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timely distributions of its income to its shareholders, and the
diversification of its assets, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net
capital gain which are distributed to shareholders.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services, and general office facilities, is
payable monthly at the annual rate of 0.40% of the Fund's average daily
net assets.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
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 $5,680, for the year ended December 31, 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
$112,653 during the year ended December 31, 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 $1,950 for the
year ended December 31, 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 year ended December 31,
2006, the Fund was charged $4,029. 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 $12,900 for the year ended
December 31, 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 December 31, 2006, the Fund was charged $1,491
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 December 31, 2006 were as follows:
Purchases Sales
----------- -----------
U.S. Government Securities $56,919,124 $87,563,032
=========== ===========
Non-U.S. Government Securities $36,599,065 $36,078,246
=========== ===========
20
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Shares sold 686,385 1,676,512
Shares issued to shareholders for
reinvestment of distributions 55,850 1,578,442
Shares redeemed (2,589,759) (10,425,328)
----------------- -----------------
Net increase (decrease) (1,847,524) (7,170,374)
================= =================
At December 31, 2006, two shareholders of record held in the aggregate
approximately 49% of the total outstanding shares of the Fund. Investment
activities of these 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 December 31, 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 December 31, 2006 were as follows:
Cost for federal income tax purposes $ 89,713,661
============
Gross unrealized appreciation 3,435,784
Gross unrealized depreciation (1,226,601)
------------
Net unrealized appreciation (depreciation) $ 2,209,183
============
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ 173,399
Undistributed capital gains --
------------
Total distributable earnings 173,399
------------
Capital loss carry forward $(47,356,671)
============
The tax characters of distributions paid during the fiscal year ended
December 31, 2006 and December 31, 2005, were as follows:
2006 2005
---------- -----------
Ordinary income $1,050,622 $33,162,511
At December 31, 2006 the Fund, for federal income tax purposes, has
capital loss carryover of $47,356,671 which will reduce the Fund's taxable
income arising from net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code and thus will reduce the
amount of distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
Capital Loss
Carry Over Expiration Date
------------ ---------------
$14,026,319 12/31/2007
19,786,516 12/31/2008
6,955,771 12/31/2009
6,588,065 12/31/2010
-----------
$47,356,671
===========
21
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
During 2006, the Fund utilized $445,401 in capital loss carry forwards.
Utilization of the capital loss carryovers above could be subject to
limitations imposed by the Internal Revenue Code related to share
ownership activity.
The Fund elected to defer to its fiscal year ending December 31, 2007,
$23,961 of capital losses and $470,274 of currency losses recognized
during the period November 1, 2006 to December 31, 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:
Options
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at
a specified price. The Fund may use options to seek to hedge against risks
of market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Writing puts and buying calls tend
to increase the Fund's's exposure to the underlying instrument. Buying
puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Assets and Liabilities at market value. The underlying face amount at
value of any open purchased option is shown in the Schedule of
Investments. This amount reflects each contract's exposure to the
underlying instrument at year end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contract, or if the counterparty does not perform under the
contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, as a writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of the
security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers, including counterparties.
For the year ended December 31, 2006, the Fund entered into the following
transactions:
Number of
Written Put Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of period 3 $ 126,669
Options written 6 19,233
Options expired (8) (109,763)
Options closed (1) (36,139)
--------- ---------
Outstanding, end of period -- $ --
========= =========
Number of
Written Call Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of period 1 $ 18,351
Options written 4 52,580
Options expired (4) (64,725)
Options closed (1) (6,206)
--------- ---------
Outstanding, end of period -- $ --
========= =========
At December 31, 2006, the Fund had no written options outstanding.
22
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward currency exchange contracts
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Fund primarily to protect the value of the Fund's foreign securities
from adverse currency movements. Unrealized appreciation and depreciation
of forward currency exchange contracts is included in the Statement of
Assets and Liabilities.
At December 31, 2006, the Fund held forward currency exchange contracts.
See the Schedule of Investments for further details.
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 appreciation or depreciation 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 December 31, 2006, the Fund held open financial futures contracts. See
the Schedule of Investments for further details.
Swap agreements
The Fund may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated
by another instrument. The Fund may enter into interest rate, 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. The 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. The Fund earns interest on cash set aside as
collateral. 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 appreciation or
depreciation 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 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 December 31, 2006, the Fund held open swap agreements. See the Schedule
of Investments for further details.
23
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) Security Lending:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to
the Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment
of the collateral. As with other extensions of credit, the Fund bears the
risk of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears
the risk in the event that the interest and/or dividends received on
invested collateral is not sufficient to meet the Fund's obligations due
on the loans.
The Fund loaned securities during the year ended December 31, 2006 and
earned interest on the invested collateral of $335,062 of which, $330,491
was rebated to borrowers or paid in fees. At December 31, 2006, the Fund
had securities valued at $299,852 on loan. See the 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 December 31, 2006,
the expense allocated to the Fund was $5,310. The commitment fee and
interest expense are aggregated with miscellaneous expenses on the
statement of operations.
For the year ended December 31, 2006, the Fund had average borrowings
outstanding of $2,336,733 for a total of fifteen days and incurred $5,657
of interest expense. At December 31, 2006 the Fund had no borrowing
outstanding.
24
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Standish Mellon International Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon International Fixed
Income Fund (the "Fund") at December 31, 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 December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2007
25
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
(Unaudited)
- --------------------------------------------------------------------------------
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 the related fees on an annual basis. In
their most recent deliberations concerning their decision to approve the
continuation of the investment advisory agreement, the Board of Trustees
conducted the review and made the determinations that are described below.
In conducting this review and in making such determinations, the
Independent Trustees received from the Fund's investment adviser, Standish
Mellon Asset Management Company LLC ("Standish Mellon" or the "Adviser"),
a broad range of information in response to a written request prepared on
their behalf by their own legal counsel. The Independent Trustees met
alone in a private session with their legal counsel on September 28, 2006
to review these materials and to discuss the proposed continuation of the
Fund's advisory agreement. Representatives of the Adviser attended a
portion of the September meeting to provide an overview of its
organization, personnel, resources and strategic plans, and to respond to
questions and comments arising from the Independent Trustees' review of
the materials and their deliberations. The entire Board then met on
October 17, 2006.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: The Adviser's balance sheet and income
statements, as well as a profitability analysis of the Adviser, including
a separate presentation of the Adviser's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: The Adviser's Form ADV, as well as
information concerning the Adviser's executive management, portfolio
management, client service personnel and overall organizational structure,
insurance coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
the Adviser's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: The Adviser's commentary on the
Fund's performance and any material portfolio manager and strategy changes
that may have affected the Fund in the prior year, as well as the Fund's
"fact sheets" prepared by the Adviser providing salient data about the
Fund, including the Fund's holdings, strategies, recent market conditions
and outlook, as well as the Adviser's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
advisory agreement and the compensation to the Adviser provided therein
were fair and reasonable in light of the services performed, expenses
incurred and such other matters as the Trustees considered relevant in the
exercise of their reasonable judgment. The following summary does not
detail all the matters that were considered. Some of the factors that
figured prominently in the Trustees' determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by the Adviser. In their deliberations as to the
continuation of the advisory agreement, the Trustees were also mindful of
the fact that, by choosing to invest in the Fund, the Fund's shareholders
have chosen to entrust the Adviser, under the supervision of the Board, to
manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
the Adviser. The Board determined that the services provided were of high
quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of the Adviser to
receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of the Adviser's investment staff, technological
infrastructure and overall responsiveness to changes in market conditions.
The Board determined that the Adviser had the expertise and resources to
manage the Fund effectively.
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by the Adviser with input from the
Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 28, 2006 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2006 based on the Lipper materials
provided to the Board at the September 28, 2006 meeting. The Board found
that the Fund outperformed its peer group average returns for the one-
year period (2.23% vs. 1.87%), but underperformed its peer group average
returns for the three-year period (3.98% vs. 5.40%) and five-year period
(4.47% vs. 7.24%).
26
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
(Unaudited)
- --------------------------------------------------------------------------------
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to the
Adviser. The Lipper data presenting the Fund's "net management fees"
included fees paid by the Fund, as calculated by Lipper, for
administrative services provided by Mellon Bank, N.A., the Trust's
custodian. Such reporting was necessary, according to Lipper, to allow the
Board to compare the Fund's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Fund's contractual advisory fee was 0.40%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.535%. The Fund's
net management fee was 0.485% (which included 0.084% in administrative
services fees under Lipper's calculation methodology), below the peer
group median net management fee of 0.495%. Based on the Lipper data, as
well as other factors discussed at the September 28, 2006 meeting, the
Board determined that the Fund's advisory fee is reasonable relative to
its peer group averages.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of the Adviser. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by the Adviser with respect to the Fund relative
to these other types of clients, the Board concluded that the fees payable
under the advisory agreement were reasonable relative to the nature and
quality of the services provided.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.581% was lower than the median net expense ratio of the
peer group of 0.73%, notwithstanding the fact that most of the other funds
in the peer group were larger than the Fund.
The Adviser's Profitability
The Board considered the Adviser's profitability in managing the Fund and
the Mellon Institutional Funds as a group, as well as the methodology used
to compute such profitability, and the various direct and indirect
expenses incurred by the Adviser or its affiliated investment adviser, The
Boston Company Asset Management, LLC ("TBCAM") in managing the Fund and
other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that the Adviser, based on the
profitability information submitted to them by the Adviser, incurred
losses in managing all but one of the investment companies in the Mellon
Institutional Funds family of funds. The Trustees observed that Standish
Mellon had experienced a slight profit in operating the Fund in 2004 and
had incurred losses in operating the Fund in 2005.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio and The Boston Company International Core Equity
Portfolio, two of the largest funds in the complex, already had
breakpoints in their fee arrangement that reflected economies resulting
from their size. The Board also noted that at the March 7, 2006 meeting,
management had presented a Breakpoint Discussion Memorandum that had
proposed a framework for future breakpoints. The Board concluded that, at
existing asset levels and considering current assets growth projections,
the implementation of additional fee breakpoints or other fee reductions
was not necessary at this time.
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors.
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 the Adviser provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one- year period.
27
Trustees and Officers (Unaudited)
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended December 31, 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 December 31,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 30 None Fund: $3,628
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 30 None Fund: $3,858
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, 30 None Fund: $3,628
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 House, 30 None Fund: $3,628
P.O. Box 2333 11/3/1986 Inc. (hospice)
New London, NH 03257
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 30 None $0
The Boston Company President Operating Officer of The
Asset Management, LLC and Chief Boston Company Asset
One Boston Place Executive 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
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
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 since Vice President and Mutual Funds Controller, Mellon
Mellon Asset Management and Treasurer 1999; Treasurer since Asset Management; formerly Assistant Vice President and
One Boston Place 2002 Mutual Funds Controller, Standish Mellon Asset
Boston, MA 02108 Management Company, LLC
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 First 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, Standish
Boston, MA 02108 Mellon Asset Management Company, LLC
8/19/51
Mary T. Lomasney Chief Compliance Since 2005 First Vice President, Mellon Asset Management and Chief
Mellon Asset Management Officer Compliance Officer, Mellon Funds Distributor, L.P. and
One Boston Place 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
29
[LOGO] Mellon
----------------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6931AR1206
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
International Fixed Income Fund II
- --------------------------------------------------------------------------------
Year Ended December 31, 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
February 2007
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2006.
Financial markets showed substantial resilience in 2006, shrugging off concerns
that the slowdown in the housing market could drag the rest of the economy into
recession. The U.S. Federal Reserve (Fed) paused in its tightening cycle in
August, after 17 rate hikes since June 2004, as the Fed became convinced that
inflationary forces, and expectations, were under control. Perhaps the most
notable feature of this cycle is that the housing bubble is bursting at a time
when rates are not high. In previous cycles, housing market declines typically
follow a period of Fed 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 hitting new highs and providing a gain of 15.8%, including an 8.8%
advance in the fourth 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 6-month Treasury bill ending the
year at 4.9%, up about 70 basis points. Rates on longer-term bonds increased to
a lesser degree, with the 10-year Treasury note ending about 30 basis points
higher at 4.7%. This produced 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, because rates are already at relatively modest levels. Thus,
the boost provided by lower mortgage rates in the future is likely to be smaller
for housing than in 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 International Fixed Income Fund II
Management Discussion and Analysis
- --------------------------------------------------------------------------------
The first part of 2006 was a challenging environment for global bonds as G3
(U.S., Europe and Japan) 10-year yields rose 40 basis points. During the
remainder of the year, bonds rallied on weak economic data and a slowing housing
market.
The predominant drivers of G3 yields were the continued tightening by the U.S.
Federal Reserve (Fed) until July, as well as the steady diet of rate hikes from
the European Central Bank (ECB) and the Bank of Japan (BoJ). The BoJ tightening
cycle is truly groundbreaking as the zero interest rate policy ended and is a
signal that Japan is finally returning to sustainable economic growth.
This environment was made more challenging by significant reversals in the
direction of bond yields during 2006. The first half of 2006 saw global bond
yields rise, only to peak in June and then reverse direction for the remainder
of the year. Fortunately Standish Mellon International Fixed Income Fund II
(Fund) was well positioned to capture this shift in bond yields. The Fund was
short in duration at the start of 2006, yet after the Fed tightened interest
rates and the U.S. housing market displayed serious signs of weakness, the
Fund's holdings were reallocated to longer duration bonds to take advantage of a
potential drop in interest rates in the U.S. As the Fed held interest rates
steady in July, global bonds started a hesitant rally that carried yields of the
U.S. 10-year Treasury from 5.25% all the way down to 4.4% by November.
The tight correlation between global bond yields in 2006 saw European and
Japanese bond yields rally alongside U.S. yields in the second half of the year,
despite their central banks' rate hikes. U.S. bonds outperformed in the second
half, but for the year as a whole, Japanese bonds were the best performers,
followed by Canadian bonds.
The weak U.S. dollar helped the Fund produce relatively high returns compared to
other fixed income sectors. In November, the U.S. dollar began to slide relative
to the euro as investors reacted to the weaker outlook for the U.S., and the
bond market started to discount interest rate cuts by the Fed expected in 2007.
The dollar fell broadly, but the Japanese yen continues to be the funding
currency of choice, which has kept the currency on the weak and cheap.
The riskiest corners of the global bond markets, such as high yield and emerging
market debt, generated the highest absolute returns in 2006, and the 4th quarter
was no exception. Spread sectors were fair to rich, and as a result we
tactically reduced credit exposure of the Fund. However, if spreads widen, we
will welcome increased volatility and add credit and emerging exposure.
The Fund's 7.43% return outperformed its benchmark, the J.P. Morgan Non-U.S.
Government Bond Index (Unhedged), which returned 6.84% in 2006. Our global short
duration stance and slight extension, as yields peaked later in the year,
contributed to this positive performance during this period. Our country
positioning was also a significant contributor to positive performance as we
positioned the Fund to be overweight in U.S. bonds in the summer and short in
European and U.K. bonds for most of the year. Although we positioned the Fund to
have neutral exposure to Japanese bonds, which were the best performing, we were
2
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Management Discussion and Analysis
- --------------------------------------------------------------------------------
"barbelled" in Japan and benefited as the yield curve flattened. The Fund's
allocation to emerging market bonds and exposure to high yield bonds, which
produced some of the best performance in all of fixed income, contributed
positively to Fund performance during the year. In addition, the Fund's
allocation to Polish local currency bonds performed well in the latter part of
2006 and continues to be a solid contributor.
Globally, bonds rallied early in the fourth quarter but sold off strongly in
December and our long duration exposure detracted from performance. We
anticipate global bonds to perform well in 2007 as economic growth slows and
inflation risks fade away.
During the year David Leduc replaced Charles Dolan as a co-portfolio manager of
the Fund. Thomas Fahey continues as the Fund's other co-portfolio manager.
We appreciate your continued investment in the Fund and look forward to working
on your behalf over the next year.
Thomas F. Fahey David Leduc
Portfolio Manager Portfolio Manager
Standish Mellon Asset Management Standish Mellon Asset Management
Company LLC Company LLC
3
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Comparison of Change in Value of $100,000 Investment in Standish Mellon
International Fixed Income Fund II and J.P. Morgan Non-U.S. Unhedged Index
- --------------------------------------------------------------------------------
[LINE GRAPH]
Standish Mellon JP Morgan Non-US
PERIOD International Fixed Income Fund II Unhedged Index*
6/30/99 100,000 100,000
12/31/99 102,838 103,486
12/31/00 100,034 100,926
12/31/01 94,721 97,309
12/31/02 115,067 118,804
12/31/03 139,817 140,931
12/31/04 154,820 157,906
12/31/05 139,423 143,321
12/31/06 149,783 153,130
Average Annual Total Returns
(for period ended 12/31/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 6/30/1999
- --------------------------------------------------------------------------------
7.43% 2.32% 9.60% 5.53%
* 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 and
assuming a constant rate of performance each year. The $100,000 line graph and
the fund's returns do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. During periods
of reimbursement by the fund's investment adviser (if applicable), the fund's
total return will be greater than it would be had the reimbursement not
occurred. Past performance is not predictive of future performance.
4
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Shareholder Expense Example (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 1, 2006 to December 31, 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=8.6), then multiply the result by the number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value July 1, 2006 to
July 1, 2006 December 31, 2006 December 31, 2006
- ------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,038.50 $ 3.85
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,021.42 $ 3.82
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.75%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Portfolio Information as of December 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Summary of Combined Ratings
- --------------------------------------------------------------------------------
Percentage of
Quality Breakdown Investments
- --------------------------------------------------------------------------------
AAA and higher 71.1%
AA 2.4
A 14.7
BBB 5.9
BB 2.6
B 3.3
-----
Total 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors Services. If a
security receives split (different) ratings from multiple rating organizations,
the Fund treats the security as being rated in the higher rating category.
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
Netherlands Government Bond 4.250 7/15/2013 6.8%
Deutsche Republic 4.750 7/4/2034 6.0
United Kingdom Gilt 4.000 3/7/2009 5.7
Hellenic Republic Government Bond 3.700 7/20/2015 5.0
United Kingdom Gilt 4.750 6/7/2010 4.6
Canadian Government Bond 5.000 6/1/2014 4.5
Development Bank of Japan 1.600 6/20/2014 4.1
Deutsche Republic 4.500 1/4/2013 3.5
Netherlands Government Bond 4.000 1/15/2037 3.4
Swedish Government Bond 3.000 7/12/2016 3.0
----
46.6%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- --------------------------------------------------------------------------------
Government 65.7%
Corporate 20.4
Mortgage 5.1
Emerging Markets 7.2
Cash & equivalents 1.6
-----
100.0%
The Fund is actively managed. Current holdings may be different than those
presented above.
6
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--97.5%
BONDS AND NOTES--97.0%
Asset Backed--0.8%
Capital Auto Receivable Carat 2006-2 B 5.070% 12/15/2011 USD 135,000 $ 134,576
Home Equity Mortgage Trust 2006-5 A1 5.500 1/25/2037 167,669 167,588
----------
Total Asset Backed (Cost $302,546) 302,164
----------
Collateralized Mortgage Obligations--2.5%
Government National Mortgage Association 2004-23 B 2.946 3/16/2019 242,908 233,105
Government National Mortgage Association 2006-67 A 3.947 11/16/2030 390,000 377,325
Government National Mortgage Association 2006-68 A 3.888 7/16/2026 200,000 193,344
JP Morgan Alternative Loan Trust 2006-S4 A6 5.710 12/25/2036 180,000 179,689
----------
Total Collateralized Mortgage Obligations (Cost $987,246) 983,463
----------
Corporate--3.5%
Banking--0.3%
Chevy Chase Bank FSB 6.875 12/1/2013 45,000 45,000
Suntrust Preferred Capital I (a) (b) 5.853 12/15/2036 80,000 80,611
----------
125,611
----------
Basic Materials--0.3%
Georgia-Pacific Corp. 144A (a) 7.000 1/15/2015 100,000 99,750
----------
Communications--0.9%
Qwest Corp. (a) 8.610 6/15/2013 125,000 135,313
Time Warner, Inc. (a) 5.606 11/13/2009 250,000 250,162
----------
385,475
----------
Finance--0.5%
Residential Capital Corp. (a) 6.739 6/29/2007 55,000 55,272
Residential Capital Corp. (a) 6.675 11/21/2008 155,000 156,934
----------
212,206
----------
Industrial--1.0%
SAB Miller PLC 144A (a) 5.663 7/1/2009 240,000 240,218
Windstream Corp. 144A 8.125 8/1/2013 105,000 113,663
Windstream Corp. 144A 8.625 8/1/2016 35,000 38,325
----------
392,206
----------
Utilities--0.5%
Nisource Finance Corp. (a) 5.940 11/23/2009 205,000 205,061
----------
Total Corporate Bonds (Cost $1,394,942) 1,420,309
----------
Sovereign Bonds--2.6%
Argentina Bonos (a) 5.590 8/3/2012 187,500 181,313
Egyptian Treasury Bill 144A (c) 8.400 2/1/2007 500,000 535,975
Republic of Argentina (a) 2.000 9/30/2014 330,000 119,361
Republic of Peru 9.125 2/21/2012 185,000 215,063
----------
Total Sovereign Bonds (Cost $983,244) 1,051,712
----------
Yankee Bonds--2.7%
Glitnir Banki HF 144A (a) 7.451 9/14/2049 200,000 210,768
Kaupthing Bank HF 144A 7.125 5/19/2016 190,000 201,528
Kaupthing Bank HF 144A (a) 6.070 1/15/2010 210,000 211,443
National Grid PLC 6.300 8/1/2016 200,000 207,137
Rogers Wireless, Inc. 7.500 3/15/2015 25,000 27,125
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------
Yankee Bonds (continued)
Royal KPN NV 8.375% 10/1/2030 USD 60,000 $ 68,745
SMFG Preferred Capital 144A (a) 6.078 7/25/2049 165,000 163,613
-----------
Total Yankee Bonds (Cost $1,060,059) 1,090,359
-----------
Foreign Denominated--83.2%
Australia--0.5%
Queensland Treasury Corp. 6.000 6/14/2011 AUD 255,000 199,492
-----------
Brazil--0.8%
Republic of Brazil 12.500 1/5/2016 BRL 600,000 318,970
-----------
Canada--4.5%
Canadian Government Bond 5.000 6/1/2014 CAD 1,905,000 1,730,167
Canadian Pacific Railway Ltd. 144A 4.900 6/15/2010 95,000 82,843
-----------
1,813,010
-----------
Euro--36.8%
ASIF III Jersey, Ltd. 5.125 5/10/2007 EUR 180,000 238,388
Autostrade SpA (a) 4.112 6/9/2011 200,000 264,823
BES Finance Ltd. (a) 4.500 12/16/2023 75,000 95,656
Bombardier, Inc. 5.750 2/22/2008 100,000 134,457
Bundersrepublic Deutschland 3.750 7/4/2013 775,000 1,011,159
Citigroup, Inc. (a) 3.786 6/3/2011 110,000 145,414
Deutsche Bundesrepublik 5.000 7/4/2011 390,000 536,579
Deutsche Cap Trust IV (a) 5.330 9/29/2049 85,000 115,993
Deutsche Republic 4.500 1/4/2013 1,005,000 1,365,085
Deutsche Republic 3.500 1/4/2016 425,000 541,833
Deutsche Republic 3.250 7/4/2015 120,000 150,502
Deutsche Republic 4.750 7/4/2034 1,605,000 2,341,225
FCE Bank PLC EMTN (a) 4.722 9/30/2009 320,000 413,162
Goldman Sachs Group, Inc. (a) 3.866 2/4/2013 150,000 198,001
Hellenic Republic Government Bond 3.700 7/20/2015 1,515,000 1,931,675
Ineos Group Holdings PLC 144A 7.875 2/15/2016 125,000 157,103
Linde Finance BV (a) 6.000 7/29/2049 20,000 26,942
MPS Capital Trust I (a) 7.990 2/7/2011 85,000 126,031
MUFG Capital Finance 2 (a) 4.850 3/15/2049 130,000 167,515
Netherlands Government Bond 4.250 7/15/2013 1,970,000 2,644,099
Netherlands Government Bond 4.000 1/15/2037 1,025,000 1,329,955
Owens-Brockway Glass Containers 6.750 12/1/2014 60,000 79,368
Resona Bank Ltd. 144A (a) 4.125 1/10/2049 70,000 89,232
Santander Perpetual (a) 4.375 9/10/2023 100,000 128,835
Sogerim 7.250 4/20/2011 100,000 145,067
Sumitomo Mitsui Banking Corp. 144A (a) 4.375 7/15/2049 130,000 164,522
Telefonica Europe BV 5.125 2/14/2013 90,000 121,430
Telenet Communications NV 144A 9.000 12/15/2013 37,350 54,088
-----------
14,718,139
-----------
Japan--20.0%
Citigroup, Inc. 0.800 10/30/2008 JPY 21,300,000 178,663
Depfa Acs Bank 1.650 12/20/2016 60,000,000 500,748
Development Bank of Japan 1.400 6/20/2012 84,000,000 709,860
Development Bank of Japan 1.600 6/20/2014 190,000,000 1,609,092
Development Bank of Japan 1.700 9/20/2022 32,000,000 252,737
Dexia Municipal Agency 0.800 5/21/2012 87,000,000 710,519
European Investment Bank 1.900 1/26/2026 96,400,000 783,875
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------
Japan (continued)
European Investment Bank 1.400% 6/20/2017 JPY 130,000,000 $ 1,067,034
Japan Finance Corp. 1.550 2/21/2012 132,000,000 1,121,795
KFW International Finance 1.750 3/23/2010 125,000,000 1,075,165
-----------
8,009,488
-----------
Mexico--1.5%
Mexican Fixed Rate Bonds 8.000 12/19/2013 MXN 6,115,000 585,983
-----------
Poland--2.2%
Poland Government Bond 6.250 10/24/2015 PLN 2,325,000 859,884
-----------
Sweden--2.9%
Swedish Government Bond 3.000 7/12/2016 SEK 8,540,000 1,169,747
-----------
United Kingdom--14.0%
Barclays Bank PLC (a) 6.000 9/15/2026 GBP 90,000 172,082
BAT International Finance PLC 6.375 12/12/2019 60,000 122,643
Deutsche Telekom International Finance BV 7.125 9/26/2012 115,000 238,069
HBOS Capital Funding LP (a) 6.461 11/30/2048 60,000 123,752
Transco Holdings PLC 7.000 12/16/2024 50,000 115,803
United Kingdom Gilt 4.750 6/7/2010 925,000 1,791,035
United Kingdom Gilt 4.000 3/7/2009 1,150,000 2,197,721
United Kingdom Gilt 8.000 9/27/2013 285,000 656,655
United Kingdom Gilt 4.250 6/7/2032 90,000 175,268
-----------
5,593,028
-----------
Total Foreign Denominated (Cost $32,423,586) 33,267,741
-----------
Pass Thru Securities--1.7%
Non-Agency Pass Thru Securities--1.7%
Bear Stearns Commercial BSCMS 2006--PW14 AB 5.171 12/1/2038 USD 470,000 465,406
Crown Castle Towers CCI 2006-1A D 144A 5.772 11/15/2036 85,000 84,870
Morgan Stanley Capital I 2006-IQ12 A1 5.257 12/15/2043 120,000 119,967
-----------
Total Pass Thru (Cost $677,795) 670,243
-----------
TOTAL BONDS AND NOTES (Cost $37,829,418) 38,785,991
-----------
Contract
Size
-----------
PURCHASED OPTIONS--0.2%
AUD Put/USD Call, Strike Price 0.754, 4/23/2007 760,000 2,893
CAD Put USD Call Strike Price 1.127, 4/10/2007 765,000 23,147
JPY Call/USD Put, Strike Price 115, 03/30/2007 980,000 26,860
USD Put/AUD Call, Strike Price 0.754, 4/23/2007 760,000 34,366
USD Put/JPY Call, Strike Price 115, 3/30/2007 980,000 5,418
-----------
TOTAL PURCHASED OPTIONS (Cost $87,578) 92,684
-----------
Rate Maturity Par Value
----- -------- -----------
SHORT-TERM INVESTMENTS--0.1%
U.S. Treasury Bill--0.1%
U.S. Treasury Bill (d) (e) (Cost $49,541) 4.850 3/8/2007 50,000 49,569
-----------
Shares
------
INVESTMENT OF CASH COLLATERAL--0.2%
BlackRock Cash Strategies L.L.C (f) (Cost $82,400) 5.320 82,400 82,400
-----------
TOTAL UNAFFILIATED INVESTMENTS (Cost $38,048,937) 39,010,644
-----------
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Value
Security Description Rate Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------
AFFILIATED INVESTMENTS--1.3%
Dreyfus Institutional Preferred Plus
Money Market Fund (f) (g) (Cost $500,719) 5.350% 500,719 $ 500,719
-----------
Total Investments--98.8% (COST $38,549,656) 39,511,363
-----------
Other Assets Less Liabilities--1.2% 487,067
-----------
NET ASSETS--100% $39,998,430
===========
Notes to Schedule of Investments
144A -- Securities exempt from registration under Rule 144A of the Securities
Act of 1933.These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,447,941 or 6.1% of net
assets.
AUD -- Australian Dollar
BRL--Brazilian Real
CAD--Canadian Dollar
EMTN -- Euro Medium Term Note
EUR--Euro
GBP--British Pound
JPY--Japanese Yen
MYR -- Malaysian Ringgit
MXN--Mexican New Peso
PLN--Polish Zloty
SEK -- Swedish Krona
THB--Thai Baht
(a) Variable Rate Security; rate indicated is as of December 31, 2006.
(b) Security, or a portion thereof, was on loan at December 31, 2006.
(c) Illiquid security. At the period end, the value of these securities
amounted to $535,975 or 1.3% of net assets.
(d) Rate noted is yield to maturity.
(e) Denotes all or part of security segregated as collateral.
(f) Stated rate is seven-day yield for the fund at year end.
(g) Affiliated money market fund.
At December 31, 2006 the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- --------------------------------------------------------------------------------------------------------------
U.S. 5 Year Treasury Note (17 Contracts) Short 3/30/2007 $ 1,801,339 $ 15,244
U.S. 10 Year Treasury Note (2 Contracts) Short 3/21/2007 218,250 3,309
Euro--Bobl (6 Contracts) Short 3/8/2007 881,769 11,616
Euro--Bund (12 Contracts) Long 3/8/2007 1,840,017 (8,293)
--------
$ 21,876
========
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006 the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2006 to Receive Gain/(Loss)
- ---------------------------------------------------------------------------------------------------
British Pound Sterling 1,305,000 3/21/2007 $ 2,555,385 $ 2,563,986 $ 8,601
Canadian Dollar 460,000 3/21/2007 395,446 401,401 5,955
Canadian Dollar 190,000 3/21/2007 163,337 164,967 1,630
Canadian Dollar 730,000 3/21/2007 627,556 637,054 9,498
Czech Republic Koruna 17,770,000 3/21/2007 853,942 851,054 (2,888)
Euro 430,000 2/28/2007 568,994 566,472 (2,522)
Euro 590,000 2/28/2007 780,713 772,582 (8,131)
Japanese Yen 45,000,000 1/16/2007 379,005 380,688 1,683
Japanese Yen 35,690,000 3/20/2007 303,056 304,813 1,757
Mexican Pesos 4,365,000 3/20/2007 404,111 403,363 (748)
Swiss Franc 480,000 3/20/2007 396,788 405,012 8,224
Swedish Krona 4,830,000 3/21/2007 708,535 709,254 719
Thai Baht 7,140,000 3/21/2007 201,023 196,424 (4,599)
----------- ----------- ---------
Total $ 8,337,891 $ 8,357,070 $ 19,179
=========== =========== =========
Local
Principal Contract Value at Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2006 to Deliver Gain/(Loss)
- ---------------------------------------------------------------------------------------------------
Euro 1,020,000 2/28/2007 $ 1,349,708 $ 1,345,584 $ 4,124
Euro 2,610,000 3/21/2007 3,456,569 3,458,694 (2,125)
Euro 770,000 3/21/2007 1,019,754 1,015,961 3,793
Japanese Yen 45,000,000 1/16/2007 379,004 383,962 (4,958)
Japanese Yen 46,330,000 3/20/2007 393,405 407,251 (13,846)
Japanese Yen 763,340,000 3/20/2007 6,481,793 6,585,059 (103,266)
Malaysian Ringgit 710,000 3/21/2007 202,116 201,877 239
Norwegian Krone 2,450,000 3/21/2007 394,495 403,812 (9,317)
Philippines Peso 9,960,000 3/21/2007 202,970 202,727 243
Singapore Dollar 310,000 3/21/2007 203,075 202,548 527
South Korean Won 183,430,000 3/21/2007 197,786 201,129 (3,343)
Thai Baht 7,140,000 3/21/2007 201,022 200,968 54
----------- ----------- ---------
Total $14,481,697 $14,609,572 $(127,875)
=========== =========== =========
The Fund held the following cross currency forward contracts at December 31,
2006:
Value at In Value at Contract Unrealized
Contracts to Deliver December 31, 2006 Exchange for December 31, 2006 Value Date Gain
- --------------------------------------------------------------------------------------------------------------
Euro $ 204,523 Icelandic Krona $ 206,688 3/21/2007 $ 2,165
=========== ========= ========
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006, the Fund held the following open swap agreements:
(Pay)/ Unrealized
Credit Default Reference Buy/Sell Receive Expiration Notional Appreciation/
Swaps Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- -----------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Alcoa, Inc., 6.000% due 1/15/2012 Buy (0.4150%) 6/20/2010 72,000 USD $ (730)
Bear Stearns Alcoa, Inc., 6.500% due 6/01/2011 Buy (0.5200%) 6/20/2010 158,000 USD (2,140)
Bear Stearns Conocophillips, 4.750% due 10/15/2012 Buy (0.3100%) 6/20/2010 230,000 USD (1,576)
Bear Stearns Nucor Corp., 4.875% due 10/01/2012 Buy (0.4000%) 6/20/2010 108,000 USD (1,033)
Citibank Altria Group Inc., 7.000%, due 11/4/2013 Buy (0.2700%) 12/20/2011 570,000 USD (803)
Citibank Northern Tobacco, 5.000%, due 6/1/2046 Sell 1.3500% 12/20/2011 285,000 USD 2,198
Citibank Southern California Tobacco, 5.000%, due 6/1/2037 Sell 1.3500% 12/20/2011 285,000 USD 2,198
JPMorgan Asset Backed Index, Home Equity BBB.06-1 Buy (1.5400%) 7/25/2045 600,000 USD (702)
JPMorgan Asset Backed Index, Home Equity BBB.06-2 Sell 1.3300% 5/25/2046 400,000 USD (1,925)
JPMorgan Basell AF SCA, 8.375% due 8/15/2015 Sell 3.8000% 6/20/2011 325,000 EUR 25,353
JPMorgan British American Tobacco PLC, 4.875% due 2/25/2009 Sell 0.4250% 12/20/2010 225,000 EUR 2,620
JPMorgan Daimlerchrysler AG, 7.200% due 9/1/2009 Sell 0.7000% 12/20/2010 225,000 EUR 3,069
JPMorgan Dow Jones CDX.NA.HY.7 Sell 3.2500% 12/20/2011 800,000 USD 7,805
JPMorgan France Telecom, 7.250% due 1/28/2013 Sell 0.6600% 12/20/2015 100,000 EUR 1,186
JPMorgan Glencore International AG, 5.375%, due 9/30/2011 Sell 1.4800% 12/20/2010 225,000 EUR 8,989
JPMorgan ICI Wilmington, 5.625% due 12/1/2013 Sell 0.5100% 12/20/2010 225,000 EUR 3,012
JPMorgan iTraxx Europe HiVol Series 4 Version 1 Buy (0.7000%) 12/20/2010 1,175,000 EUR (18,102)
JPMorgan Kimberly-Clark Corp., 6.875% due 2/15/2014 Buy (0.1900%) 12/20/2011 785,000 USD 23
JPMorgan Kimberly-Clark Corp., 6.875%, due 2/15/2014 Buy (0.1900%) 12/20/2011 785,000 USD 23
JPMorgan Linde Aktiengesellschaft, 6.375% due 6/14/2007 Sell 0.4100% 6/20/2011 675,000 EUR 5,306
JPMorgan Telecom Italia SPA, 6.250% due 2/1/2012 Sell 0.5200% 12/20/2010 225,000 EUR 565
JPMorgan The BOC Group PLC, 5.875 due 4/29/2009 Buy (0.2400%) 6/20/2011 675,000 EUR (2,402)
JPMorgan Volkswagen, 4.875% due 5/22/2013 Sell 0.4500% 12/20/2010 225,000 EUR 2,857
Lehman Brothers Directv Holdings, 8.375%, due 3/15/2013 Buy (2.3500%) 12/20/2016 40,000 USD 338
Lehman Brothers Directv Holdings, 8.375%, due 3/15/2013 Buy (2.3500%) 12/20/2016 75,000 USD 634
Lehman Brothers Echostar DBS Corp., 6.375%, due 10/1/2011 Sell 2.2500% 12/20/2016 75,000 USD (1,626)
Lehman Brothers Echostar DBS Corp., 6.625%, due 10/1/2014 Sell 2.2000% 12/20/2016 40,000 USD (1,006)
Morgan Stanley V.F. Corp., 8.500% due 10/1/2010 Buy (0.4500%) 6/20/2011 400,000 USD (4,132)
UBS AG iTraxx Europe Series 5 Version I Sell 0.4000% 6/20/2011 625,000 EUR 5,391
UBS AG Telekom Austria Aktiengesellschaft,
5.000%, due 7/22/2013 Buy (0.4500%) 9/20/2011 400,000 USD (2,706)
UBS AG Wolters Kluwer N.V., 5.125%, due 1/27/2014 Buy (0.5500%) 9/20/2011 400,000 USD (3,513)
---------
$ 29,171
=========
Unrealized
Interest Rate Floating Rate Pay/Receive Fixed Expiration Notional Appreciation/
Swaps Counterparty Index Floating Rate Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns USD--LIBOR--BBA Pay 3.9070% 11/19/2009 80,000 USD $ (2,686)
JPMorgan JPY--LIBOR--BBA Pay 2.6910% 7/28/2036 34,000,000 JPY 17,675
JPMorgan JPY--LIBOR--BBA Pay 2.0750% 7/28/2016 109,000,000 JPY 29,670
JPMorgan JPY--LIBOR--BBA Pay 1.3150% 10/4/2011 100,000,000 JPY 519
JPMorgan MYR--ABS--MYR01 Pay 4.1600% 10/31/2011 693,025 MYR 1,641
JPMorgan THB-TBHFIX-Reuters Pay 5.1800% 11/2/2011 6,992,000 THB (834)
UBS AG JPY--LIBOR--BBA Pay 0.8775% 5/11/2008 421,000,000 JPY 4,721
UBS AG JPY--LIBOR--BBA Pay 2.5125% 6/6/2026 129,000,000 JPY 44,756
UBS AG SEK--STIBOR--SIDE Receive 3.0600% 6/27/2007 77,690,000 SEK (155,450)
UBS AG SEK--STIBOR--SIDE Pay 4.2900% 6/27/2016 7,660,000 SEK 30,750
---------
$ (29,238)
=========
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Percentage of
Country Allocation Investments
- --------------------------------------------------------------------------------
Japan 21.5%
U.S. 17.3
U.K. 15.6
Germany 15.4
Netherlands 10.1
Greece 4.8
Canada 4.6
Sweden 3.0
Poland 2.2
Mexico 1.5
Spain 1.4
Brazil 0.8
Italy 0.7
Australia 0.5
Argentina 0.3
Portugal 0.2
Beligum 0.1
------
100.0%
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Statement of Assets and Liabilities
December 31, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities out for loan, valued at $80,611) (Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $38,048,937) $39,010,644
Affiliated issuers, at value (Note 1A) (cost $500,719) (Note 1H) 500,719
Cash 14,000
Foreign Currency (cost $145,836) 150,220
Interest and dividends receivable 520,767
Unrealized appreciation on swap contracts (Note 6) 201,299
Unrealized appreciation on forward currency exchange contracts (Note 6) 49,212
Receivable for Fund shares sold 12,889
Swap premium paid (Note 6) 9,938
Receivable for variation margin on open futures contracts (Note 6) 9,173
Prepaid expenses 10,784
-----------
Total assets 40,489,645
Liabilities
Unrealized depreciation on forward currency exchange contracts (Note 6) $ 155,743
Collateral for securities on loan (Note 7) 82,400
Unrealized depreciation on swap contracts (Note 6) 201,366
Payable for Fund shares redeemed 9,636
Accrued accounting, administration, custody and transfer agent fees (Note 2) 17,545
Accrued professional fees 15,103
Accrued shareholder reporting expense (Note 2) 4,775
Accrued trustees' fees and expenses (Note 2) 1,610
Accrued chief compliance officer fee (Note 2) 708
Accrued administrative service fees (Note 2) 503
Other accrued expenses and liabilities 1,826
----------
Total liabilities 491,215
-----------
Net Assets $39,998,430
===========
Net Assets consist of:
Paid-in capital $39,088,437
Accumulated net realized loss (14,254)
Undistributed net investment income 29,584
Net unrealized appreciation 894,663
-----------
Total Net Assets $39,998,430
===========
Shares of beneficial interest outstanding 1,763,964
===========
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 22.68
===========
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Statement of Operations
For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income (net of foreign withholding tax of $1,070) $ 1,475,198
Dividend income from affiliated investments (Note 1H) 53,461
Security lending income (Note 7) 2,572
-----------
1,531,231
Expenses
Investment advisory fee (Note 2) $ 162,194
Accounting, administration, custody, and transfer agent fees (Note 2) 99,746
Administrative service fee (Note 2) 4,897
Professional fees 67,820
Registration fees 14,469
Trustees' fees and expenses (Note 2) 5,474
Insurance expense 6,146
Miscellaneous expenses 23,588
----------
Total Expenses 384,334
Deduct:
Waiver of investment advisory fee (Note 2) (80,235)
----------
Net expenses 304,099
-----------
Net investment income 1,227,132
-----------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (343,888)
Financial futures transactions 86,257
Written options transactions 50,208
Foreign currency transactions and forward currency exchange transactions (637,155)
Swap transactions 126,559
----------
Net realized gain (loss) (718,019)
Change in unrealized appreciation (depreciation) on:
Investments 2,276,767
Financial futures contracts 30,588
Written options contracts (28,154)
Foreign currency translations and forward currency exchange contracts (26,231)
Swap contracts 5,721
----------
Net change in net unrealized appreciation (depreciation) 2,258,691
-----------
Net realized and unrealized gain (loss) on investments 1,540,672
-----------
Net Increase in Net Assets from Operations $ 2,767,804
===========
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 1,227,132 $ 1,589,495
Net realized gain (loss) (718,019) (1,070,911)
Change in net unrealized appreciation (depreciation) 2,258,691 (5,586,611)
----------------- -----------------
Net increase (decrease) in net assets from investment operations 2,767,804 (5,068,027)
----------------- -----------------
Distributions to Shareholders (Note 1C)
From net investment income -- (1,400,043)
From net realized gains on investments (178,621) --
----------------- -----------------
Total distributions to shareholders (178,621) (1,400,043)
----------------- -----------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 10,621,727 18,026,659
Value of shares issued to shareholders in reinvestment of distributions 162,592 1,334,158
Cost of shares redeemed (Net of redemption fees of $401 and $0, respectively) (19,788,920) (16,193,309)
----------------- -----------------
Net increase (decrease) in net assets from Fund share transactions (9,004,601) 3,167,508
----------------- -----------------
Total Increase (Decrease) in Net Assets (6,415,418) (3,300,562)
Net Assets
At beginning of year 46,413,848 49,714,410
----------------- -----------------
At end of year [including undistributed net investment income of $29,584
and distributions in excess of net investment income of $954,782,
respectively] $ 39,998,430 $ 46,413,848
================= =================
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net Asset Value, Beginning of the period $ 21.20 $ 24.23 $ 22.97 $ 21.66 $ 17.83
-------- -------- -------- -------- --------
From Operations:
Net investment income * (a) 0.66 0.74 0.88 0.77 0.73
Net realized and unrealized gain (loss) on
investments 0.91 (3.12) 1.52 3.81 3.10
-------- -------- -------- -------- --------
Total from investment operations 1.57 (2.38) 2.40 4.58 3.83
-------- -------- -------- -------- --------
Less Distributions to Shareholders:
From net investment income -- (0.65) (1.14) (3.27) --
From net realized gain on investments (0.09) -- -- -- --
-------- -------- -------- -------- --------
Total distributions to shareholders (0.09) (0.65) (1.14) (3.27) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 22.68 $ 21.20 $ 24.23 $ 22.97 $ 21.66
======== ======== ======== ======== ========
Total Return (b) 7.43% (9.95%) 10.73% 21.51% 21.48%
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.75% 0.75% 0.75% 0.55% 0.55%
Net Investment Income (to average daily net assets)* 3.03% 3.31% 3.93% 3.34% 3.87%
Portfolio Turnover 100% 139% 132% 192% 178%
Net Assets, End of Period (000's omitted) $ 39,998 $ 46,414 $ 49,714 $ 23,983 $ 21,202
- ----------
* For the periods indicated, the investment adviser voluntarily agreed not
to impose all or a portion of its investment advisory fee and/or
reimbursed the Fund for a portion of its operating expenses. If this
voluntary action had not been taken, the investment income per share and
the ratios would have been:
Net investment income per share (a) $ 0.62 $ 0.72 $ 0.84 $ 0.60 $ 0.60
Ratios (to average daily net assets):
Expenses 0.95% 0.86% 0.91% 1.30% 1.23%
Net investment income 2.83% 3.20% 3.77% 2.59% 3.19%
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of fee waivers and
expense limitations.
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
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 International Fixed Income II Fund (the "Fund")
is a separate diversified investment series of the Trust.
The objective of the Fund is to maximize total return while realizing a
market level of income consistent with preserving principal and liquidity.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in fixed income securities, and
at least 65% of net assets in non-U.S. dollar denominated fixed income
securities of foreign governments and companies located in various
countries, including emerging markets.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. Investment security valuations
Securities are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or 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 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,
including counterparties, 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 then is valued at amortized cost based
upon the value on such date unless the Trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of coupon interest earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. 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 (loss) on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
C. Distributions to Shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from capital gains, if any, after reduction of
capital losses will be declared and distributed at least annually.
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, losses deferred due to wash
sales, post-October losses, amortization and/or accretion of premiums and
discounts on certain securities, amortization of swap premium and the
timing of recognition of realized and unrealized gains and losses on
futures contracts.
18
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. Foreign currency transactions
The Fund 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 Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
G. Expenses
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated among funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
H. Affiliated issuers
Affiliated issuers are investment companies advised by Standish Mellon
Asset Management Company LLC ("Standish Mellon"), a wholly-owned
subsidiary of Mellon Financial Corporation, or its affiliates.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
19
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
J. Federal Income Taxes
Each year the Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Code. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timely distributions of its income to its shareholders, and the
diversification of its assets, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net
capital gain which are distributed to shareholders.
(2) Investment Advisory Fee and Other Transactions With Affiliates:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services, and general office facilities, is
payable monthly at the annual rate of 0.40% of the Fund's average daily
net assets. Standish Mellon voluntarily agreed to limit total Fund
operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.75% of the Fund's average daily net assets
for year ended December 31, 2006. Pursuant to this agreement, for the year
ended December 31, 2006, Standish Mellon voluntarily waived a portion of
its investment advisory fee in the amount of $80,235. This agreement is
voluntary and temporary and may be discontinued or revised by Standish
Mellon at any time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
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 $7,106, for the year ended December 31, 2006.
The Trust has 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
$92,640 during the year ended December 31, 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 $1,096 for the
year ended December 31, 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 year ended December 31,
2006, the Fund was charged $4,029. 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 $6,185 for the year ended
December 31, 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 December 31, 2006, the Fund was charged $4,873
for fees payable to Mellon Private Wealth Management.
20
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2006 were as follows:
Purchases Sales
----------- -----------
U.S. Government Securities $25,556,087 $36,757,052
=========== ===========
Non-U.S. Government Securities $13,445,484 $ 9,794,701
=========== ===========
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Shares sold 481,319 796,615
Shares issued to shareholders for
reinvestment of distributions 7,591 59,347
Shares redeemed (914,029) (719,016)
-------- --------
Net increase (decrease) (425,119) 136,946
======== ========
At December 31, 2006, one shareholder of record held approximately 60% of
the total outstanding shares of the Fund. Investment activity of this
shareholder could have a material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
30 days from the day of their purchase. The redemption fee is paid
directly to the Fund, and is designed to offset brokerage commissions,
market impact, and 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 December 31, 2006, the
Fund received $401 in redemption fees.
(5) Federal Taxes:
The tax basis components of distributable earnings and the federal tax
cost as of December 31, 2006 were as follows:
Cost for federal income tax purposes $38,550,480
===========
Gross unrealized appreciation 1,297,824
Gross unrealized depreciation (336,941)
-----------
Net unrealized appreciation (depreciation) $ 960,883
===========
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ --
Undistributed capital gains 5,124
-----------
Total distributable earnings 5,124
===========
The tax character of distributions paid during the fiscal year ended
December 31, 2006, were as follows:
2006 2005
------------ ------------
Ordinary income $ 178,621 $ 1,400,043
The Fund elected to defer to its fiscal year ending December 31, 2007,
$74,140 of currency losses recognized during the period November 1, 2006
to December 31, 2006.
21
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
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 instruments with off-balance sheet risk:
Options
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at
a specified price. The Fund may use options to seek to hedge against risks
of market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Writing puts and buying calls tend
to increase the Fund's exposure to the underlying instrument. Buying puts
and writing calls tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments. Options, both held and
written by the Fund, are reflected in the accompanying Statement of Assets
and Liabilities at market value. The underlying face amount at value of
any open purchased option is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
year end. Losses may arise from changes in the value of the underlying
instruments, if there is an illiquid secondary market for the contract, or
if the counterparty does not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, as a writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of the
security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers including counterparties.
For the year ended December 31, 2006, the Fund entered into the following
transactions:
Number of
Written Put Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of period 3 $ 30,176
Options written 6 6,334
Options expired (8) (27,294)
Options closed (1) (9,216)
--------- --------
Outstanding, end of period -- $ --
========= ========
Number of
Written Call Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of period 1 $ 4,680
Options written 3 15,872
Options expired (3) (17,854)
Options closed (1) (2,698)
--------- --------
Outstanding, end of period -- $ --
========= ========
At December 31, 2006, the Fund had no written options outstanding.
22
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward currency exchange contracts
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Fund primarily to protect the value of the Fund's foreign securities
from adverse currency movements. Unrealized appreciation and depreciation
of forward currency exchange contracts is included in the Statement of
Assets and Liabilities.
At December 31, 2006, the Fund held forward currency exchange contracts.
See the Schedule of Investments for further details.
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 appreciation/depreciation 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 December 31, 2006, the Fund held open financial futures contracts. See
the Schedule of Investments for further details.
Swap agreements
The Fund may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated
by another instrument. The Fund may enter into interest rate, 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, the 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. The Fund earns interest on cash set aside as
collateral. 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.
23
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
Payments received or made from credit default swaps at the end of the
measurement period are recorded as realized appreciation/depreciation 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 December 31, 2006, the Fund held open swap agreements. See the Schedule
of Investments for further details.
(7) Security Lending:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to
the Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment
of the collateral. As with other extensions of credit, the Fund bears the
risk of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears
the risk in the event that the interest and/or dividends received on
invested collateral is not sufficient to meet the Fund's obligations due
on the loans.
The Fund loaned securities during the year ended December 31, 2006 and
earned interest on the invested collateral of $109,554 of which, $106,982
was rebated to borrowers or paid in fees. At December 31, 2006, the Fund
had securities valued at $80,611 on loan. See the 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 December 31, 2006,
the expense allocated to the Fund was $1,832. The facility fee and
interest expense are included in miscellaneous expenses on the statement
of operations.
For the year ended December 31, 2006, the Fund had average borrowings
outstanding of $1,040,444 for a total of nine days and incurred $1,369 of
interest expense. At December 31, 2006 the Fund had no borrowings
outstanding.
24
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of the Mellon Institutional Funds Investment Trust and
Shareholders of Standish Mellon International Fixed Income Fund II:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon International Fixed
Income Fund II (the "Fund") at December 31, 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 December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2007
25
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Factors Considered by Board of Trustees in Approving Advisory Agreement
(Unaudited)
- --------------------------------------------------------------------------------
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 the related fees on an annual basis. In
their most recent deliberations concerning their decision to approve the
continuation of the investment advisory agreement, the Board of Trustees
conducted the review and made the determinations that are described below.
In conducting this review and in making such determinations, the
Independent Trustees received from the Fund's investment adviser, Standish
Mellon Asset Management Company LLC ("Standish Mellon" or the "Adviser"),
a broad range of information in response to a written request prepared on
their behalf by their own legal counsel. The Independent Trustees met
alone in a private session with their legal counsel on September 28, 2006
to review these materials and to discuss the proposed continuation of the
Fund's advisory agreement. Representatives of the Adviser attended a
portion of the September meeting to provide an overview of its
organization, personnel, resources and strategic plans, and to respond to
questions and comments arising from the Independent Trustees' review of
the materials and their deliberations. The entire Board then met on
October 17, 2006.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: The Adviser's balance sheet and income
statements, as well as a profitability analysis of the Adviser, including
a separate presentation of the Adviser's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: The Adviser's Form ADV, as well as
information concerning the Adviser's executive management, portfolio
management, client service personnel and overall organizational structure,
insurance coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
the Adviser's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: The Adviser's commentary on the
Fund's performance and any material portfolio manager and strategy changes
that may have affected the Fund in the prior year, as well as the Fund's
"fact sheets" prepared by the Adviser providing salient data about the
Fund, including the Fund's holdings, strategies, recent market conditions
and outlook, as well as the Adviser's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
advisory agreement and the compensation to the Adviser provided therein
were fair and reasonable in light of the services performed, expenses
incurred and such other matters as the Trustees considered relevant in the
exercise of their reasonable judgment. The following summary does not
detail all the matters that were considered. Some of the factors that
figured prominently in the Trustees' determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by the Adviser. In their deliberations as to the
continuation of the advisory agreement, the Trustees were also mindful of
the fact that, by choosing to invest in the Fund, the Fund's shareholders
have chosen to entrust the Adviser, under the supervision of the Board, to
manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
the Adviser. The Board determined that the services provided were of high
quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of the Adviser to
receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of the Adviser's investment staff, technological
infrastructure and overall responsiveness to changes in market conditions.
The Board determined that the Adviser had the expertise and resources to
manage the Fund effectively.
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by the Adviser with input from the
Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 28, 2006 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2006 based on the Lipper materials
provided to the Board at the September 28, 2006 meeting. The Board found
that the Fund outperformed its peer group average returns for the one-year
period (1.55% vs. 0.80%), but underperformed its peer group average
returns for the three-year period (5.81% vs. 5.93%) and five-year period
(8.99% vs. 9.53%).
26
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Factors Considered by Board of Trustees in Approving Advisory Agreement
(Unaudited)
- --------------------------------------------------------------------------------
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to the
Adviser. The Lipper data presenting the Fund's "net management fees"
included fees paid by the Fund, as calculated by Lipper, for
administrative services provided by Mellon Bank, N.A., the Trust's
custodian. Such reporting was necessary, according to Lipper, to allow the
Board to compare the Fund's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Fund's contractual advisory fee was 0.40%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.62%. The Fund's
net management fee, after giving effect to expense limitations, was 0.293%
(which included no administrative services fees under Lipper's calculation
methodology), well below the peer group median net management fee of
0.471%. Based on the Lipper data, as well as other factors discussed at
the September 28, 2006 meeting, the Board determined that the Fund's
advisory fee is reasonable relative to its peer group averages, both with
and without giving effect to expense limitations.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of the Adviser. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by the Adviser with respect to the Fund relative
to these other types of clients, the Board concluded that the fees payable
under the advisory agreement were reasonable relative to the nature and
quality of the services provided.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.75% (after giving effect to expense limitations) was
lower than the median net expense ratio of the peer group of 0.80%
notwithstanding the fact that all of the other funds in the peer group
were larger than the Fund.
The Adviser's Profitability
The Board considered the Adviser's profitability in managing the Fund and
the Mellon Institutional Funds as a group, as well as the methodology used
to compute such profitability, and the various direct and indirect
expenses incurred by the Adviser or its affiliated investment adviser, The
Boston Company Asset Management, LLC ("TBCAM") in managing the Fund and
other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that the Adviser, based on the
profitability information submitted to them by the Adviser, incurred
losses in managing all but one of the investment companies in the Mellon
Institutional Funds family of funds. The Trustees observed that Standish
Mellon had incurred losses in operating the Fund in both 2004 and 2005.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio and The Boston Company International Core Equity
Portfolio, two of the largest funds in the complex, already had
breakpoints in their fee arrangements that reflected economies resulting
from their size. The Board also noted that at the March 7, 2006 meeting,
management had presented a Breakpoint Discussion Memorandum that had
proposed a framework for future breakpoints. The Board concluded that, at
existing asset levels and considering current assets growth projections,
the implementation of additional fee breakpoints or other fee reductions
was not necessary at this time.
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors.
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 the Adviser provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one-year period.
27
Trustees and Officers (Unaudited)
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended December 31, 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 December 31,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 30 None Fund: $833
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 30 None Fund: $903
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, 30 None Fund: $833
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 30 None Fund: $833
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 30 None $0
The Boston Company President and Operating Officer of
Asset Management, LLC Chief Executive The Boston Company
One Boston Place Officer Asset Management, LLC;
Boston, MA 02108 formerly Senior Vice
7/24/65 President and Chief
Operating Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
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 First 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
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
29
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6945AR1206
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Global Fixed Income Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 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
February 2007
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2006.
Financial markets showed substantial resilience in 2006, shrugging off concerns
that the slowdown in the housing market could drag the rest of the economy into
recession. The U.S. Federal Reserve (Fed) paused in its tightening cycle in
August, after 17 rate hikes since June 2004, as the Fed became convinced that
inflationary forces, and expectations, were under control. Perhaps the most
notable feature of this cycle is that the housing bubble is bursting at a time
when rates are not high. In previous cycles, housing market declines typically
follow a period of Fed 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 hitting new highs and providing a gain of 15.8%, including an 8.8%
advance in the fourth 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 6-month Treasury bill ending the
year at 4.9%, up about 70 basis points. Rates on longer-term bonds increased to
a lesser degree, with the 10-year Treasury note ending about 30 basis points
higher at 4.7%. This produced 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, because rates are already at relatively modest levels. Thus,
the boost provided by lower mortgage rates in the future is likely to be smaller
for housing than in 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 Global Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
The first part of 2006 was a challenging environment for global bonds as G3
(U.S., Europe and Japan) 10-year yields rose 40 basis points. During the
remainder of the year, bonds rallied on weak economic data and a slowing housing
market.
The predominant drivers of G3 yields were the continued tightening by the U.S.
Federal Reserve (Fed) until July, as well as the steady diet of rate hikes from
the European Central Bank (ECB) and the Bank of Japan (BoJ). The BoJ tightening
cycle is truly groundbreaking as the zero interest rate policy ended and is a
signal that Japan is finally returning to sustainable economic growth.
This environment was made more challenging by significant reversals in the
direction of bond yields during 2006. The first half of 2006 saw global bond
yields rise, only to peak in June and then reverse direction for the remainder
of the year. Fortunately, the Standish Mellon Global Fixed Income Fund (Fund)
was well positioned to capture this shift in bond yields. The Fund was short in
duration at the start of 2006, yet after the Fed tightened interest rates and
the U.S. housing market displayed serious signs of weakness, the Fund's holdings
were reallocated to longer duration bonds to take advantage of a potential drop
in interest rates in the U.S. As the Fed held interest rates steady in July,
global bonds started a hesitant rally that carried yields of the U.S. 10-year
Treasury from 5.25% all the way down to 4.4% by November.
The tight correlation between global bond yields in 2006 saw European and
Japanese bond yields rally alongside U.S. yields in the second half of the year,
despite their central banks' rate hikes. U.S. bonds outperformed in the second
half, but for the year as a whole, Japanese bonds were the best performers,
followed by Canadian bonds.
In November, the U.S. dollar began to slide relative to the euro as investors
reacted to the weaker outlook for the U.S., and the bond market started to
discount interest rate cuts expected by the Fed in 2007. The dollar fell
broadly, but the Japanese yen continues to be the funding currency of choice,
which kept the currency on the weak and cheap.
The riskiest corners of the global bond markets, such as high yield and emerging
market debt, generated the highest absolute returns in 2006, and the 4th quarter
was no exception. Spread sectors were fair to rich, and as a result we
tactically reduced credit exposure of the Fund. However, if spreads widen, we
will welcome increased volatility and add credit and emerging exposure.
The Fund's 5.09% return outperformed its benchmark, the Lehman Brothers Global
Aggregate U.S. Hedged Index, which returned 3.64% in 2006. Our global short
duration stance and slight extension, as yields peaked later in the year,
contributed to this positive performance during this period. Our country
positioning was also a significant contributor to positive performance as we
positioned the Fund to be overweight in U.S. bonds in the summer and short in
European and U.K. bonds for most of the year. Although we positioned the Fund to
have neutral exposure to Japanese bonds, which were the best performing, we were
"barbelled" in
2
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Japan and benefited as the yield curve flattened. The Fund's allocation to
emerging market bonds and exposure to high yield bonds, which produced some of
the best performance in all of fixed income, contributed positively to Fund
performance during the year. In addition, the Fund's allocation to Polish local
currency bonds performed well in the latter part of 2006 and continues to be a
solid contributor.
Globally, bonds rallied early in the fourth quarter but sold off strongly in
December and our long duration exposure detracted from performance. However, we
anticipate global bonds to perform well in 2007 as economic growth slows and
inflation risks fade away.
During the year David Leduc replaced Charles Dolan as a co-portfolio manager of
the Fund. Thomas Fahey continues as the Fund's other co-portfolio manager.
We appreciate your continued investment in the Fund and look forward to working
on your behalf over the next year.
Thomas F. Fahey David Leduc
Portfolio Manager Portfolio Manager
Standish Mellon Asset Standish Mellon Asset
Management Company LLC Management Company LLC
3
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Comparison of Change in Value of $100,000 Investment in
Standish Mellon Global Fixed Income Fund and the Lehman Brothers Global
Aggregate Index
- --------------------------------------------------------------------------------
[LINE GRAPH]
Standish Mellon Lehman Brothers
PERIOD Global Fixed Income Fund Global Aggregate Index *
12/31/96 100,000 100,000
12/31/97 111,685 110,166
12/31/98 119,478 120,930
12/31/99 118,717 121,881
12/31/00 130,339 134,482
12/31/01 136,216 144,220
12/31/02 145,676 156,412
12/31/03 154,973 161,275
12/31/04 162,692 169,171
12/31/05 168,608 176,412
12/31/06 177,187 182,823
Average Annual Total Returns
(for period ended 12/31/2006)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/1/1994
- --------------------------------------------------------------------------------
5.09% 4.57% 5.40% 5.89% 6.25%
* Source: Lehman
Average annual total returns reflect the change in the value of an investment,
assuming reinvestment of the fund's dividend income and capital gains. The
$100,000 line graph and the fund's returns do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. During periods of reimbursement by the fund's investment adviser (if
applicable), the fund's total return will be greater than it would be had the
reimbursement not occurred. Past performance is not predictive of future
performance.
4
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Shareholder Expense Example (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 1, 2006 to December 31, 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=8.6), then multiply the result by the number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value July 1, 2006 to
July 1, 2006 December 31, 2006 December 31, 2006
- ------------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,052.70 $ 3.36
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,021.93 $ 3.31
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.65%,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period). The example reflects the combined
expenses of the Fund and the master portfolio in which it invests all its
assets.
5
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Portfolio Information as of December 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The Standish Mellon Global Fixed Income Fund invests all of its investable
assets in an interest of the Standish Mellon Global Fixed Income Portfolio (See
Note 1 of the Fund's Notes to Financial Statements). The Portfolio is actively
managed. Current holdings may be different than those presented below.
Summary of Combined Ratings
- --------------------------------------------------------
Percentage of
Quality Breakdown Investments
- --------------------------------------------------------
AAA and higher 54.5%
AA 4.0
A 16.7
BBB 11.8
BB 3.8
B 9.2
-----
Total 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors Services. If a
security receives split (different) ratings from multiple rating organizations,
the Portfolio treats the security as being rated in the higher rating category.
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
Deutsche Republic 3.250% 7/4/2015 4.8%
Canadian Government Bond 5.000 6/1/2014 3.9
FNMA 5.000 1/1/2021 3.5
FHLMC 5.250 7/18/2011 2.9
Bundesobl Repub 13 3.750 7/4/2013 2.2
Deutsche Republic 4.750 7/4/2034 2.2
Poland Government Bond 6.250 10/24/2015 2.1
Egyptian Treasury Bill 144A 8.400 2/1/2007 1.6
Netherlands Government Bond 4.000 1/15/2037 1.6
Swedish Government Bond 3.000 7/12/2016 1.5
----
26.3%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- --------------------------------------------------------
Government/Agency 18.3%
Corporate 39.0
Mortgage Pass Thru 8.8
ABS/CMBS/CMO 14.1
Emerging Markets 6.8
Cash & Equivalents 13.0
-----
100.0%
6
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Statement of Assets and Liabilities
December 31, 2006
- --------------------------------------------------------------------------------
Assets
Investment in Standish Mellon Global Fixed Income Portfolio (Portfolio), at value $ 48,209,834
(Note 1A)
Prepaid expenses 5,066
-------------
Total assets 48,214,900
Liabilities
Payable for Fund shares redeemed $ 6,279,689
Distributions payable 252,169
Accrued professional fees 15,026
Accrued transfer agent fees (Note 2) 3,248
Accrued shareholder reporting expense (Note 2) 2,470
Accrued chief compliance officer fees (Note 2) 709
Accrued trustees' fees (Note 2) 500
Accrued shareholder services fees (Note 2) 19
Other accrued expenses and liabilities 1,145
-----------
Total liabilities 6,554,975
-------------
Net Assets $ 41,659,925
=============
Net Assets consist of:
Paid-in capital $ 63,046,597
Accumulated net realized loss (21,883,970)
Distributions in excess of net investment income (315,926)
Net unrealized appreciation 813,224
-------------
Total Net Assets $ 41,659,925
=============
Shares of beneficial interest outstanding 2,240,262
=============
(Net Assets/Shares outstanding) $ 18.60
=============
7
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Statement of Operations
For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest and security lending income allocated from Portfolio $ 2,514,060
Dividend income allocated from Portfolio
(net of foreign withholding taxes of $1,606) 164,833
Expenses allocated from Portfolio (391,298)
-------------
Net investment income allocated from Portfolio 2,287,595
Expenses
Transfer agent fees (Note 2) $ 6,551
Registration fees 15,105
Professional fees 35,849
Chief compliance officer fee (Note 2) 4,030
Administrative service fee (Note 2) 816
Trustees' fees (Note 2) 2,000
Insurance expense 894
Miscellaneous expenses 8,075
-----------
Total expenses 73,320
Deduct:
Reimbursement of Fund operating expenses (Note 2) (73,320)
-----------
Net expenses --
-------------
Net investment income 2,287,595
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments 286,425
Financial futures transactions 63,472
Written options transactions 82,922
Foreign currency transactions and forward currency exchange transactions (452,724)
Swap transactions (927,110)
-----------
(947,015)
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments 1,785,744
Financial futures contracts (13,123)
Written options contracts (42,400)
Foreign currency translation and forward currency exchange contracts (534,585)
Swap contracts (54,109)
-----------
1,141,527
-------------
Net realized and unrealized gain (loss) allocated from Portfolio 194,512
-------------
Net Increase in Net Assets from Operations $ 2,482,107
=============
8
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 2,287,595 $ 2,715,428
Net realized gain (loss) (947,015) 6,183,847
Change in net unrealized appreciation (depreciation) 1,141,527 (6,327,067)
------------ ------------
Net increase (decrease) in net assets from investment operations 2,482,107 2,572,208
------------ ------------
Distributions to Shareholders (Note 1C)
From net investment income (1,680,731) (7,240,447)
------------ ------------
Total distributions to shareholders (1,680,731) (7,240,447)
------------ ------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 2,087,125 568,992
Value of shares issued to shareholders in reinvestment of distributions 1,379,153 6,373,483
Cost of shares redeemed (net of redemption fees of $0 and $10,
respectively) (32,775,521) (4,347,558)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions (29,309,243) 2,594,917
------------ ------------
Total Increase (Decrease) in Net Assets (28,507,867) (2,073,322)
Net Assets
At beginning of year 70,167,792 72,241,114
------------ ------------
At end of year (including distributions in excess of
net investment income of $315,926 and $151,654, respectively) $ 41,659,925 $ 70,167,792
============ ============
9
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------
2006 2005 2004 2003 2002
-------- --------- -------- --------- ---------
Net Asset Value, Beginning of Year $ 18.28 $ 19.64 $ 20.67 $ 19.43 $ 18.45
-------- --------- -------- --------- ---------
From Operations:
Net investment income* (a) 0.70 0.75 0.83 0.75 0.82
Net realized and unrealized gain (loss) on
investments 0.22 (0.04) 0.20 0.49 0.44
-------- --------- -------- --------- ---------
Total from investment operations 0.92 0.71 1.03 1.24 1.26
-------- --------- -------- --------- ---------
Less Distributions to Shareholders:
From net investment income (0.60) (2.07) (2.06) -- (0.27)
From tax return of capital -- -- -- -- (0.01)
-------- --------- -------- --------- ---------
Total distributions to shareholders (0.60) (2.07) (2.06) -- (0.28)
-------- --------- -------- --------- ---------
Net Asset Value, End of Year $ 18.60 $ 18.28 $ 19.64 $ 20.67 $ 19.43
======== ========= ======== ========= =========
Total Return 5.09%(b) 3.64%(b) 4.98%(b) 6.38%(b) 6.94%(b)
Ratios/Supplemental Data:
Expenses (to average daily net assets)*(c) 0.65% 0.65% 0.65% 0.65% 0.60%
Net Investment Income (to average daily net assets)* 3.79% 3.75% 3.86% 3.74% 4.43%
Net Assets, End of Year (000's omitted) $ 41,660 $ 70,168 $ 72,241 $ 146,186 $ 164,582
- ----------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose a portion of its investment advisory fee payable to the Portfolio and/
or reimbursed the Fund for a portion of its operating expenses. If this
voluntary action had not been taken, the investment income per share and the
ratios would have been:
Net investment income per share (a) $ 0.67 $ 0.73 $ 0.83 $ 0.74 N/A
Ratios (to average daily net assets):
Expenses (c) 0.81% 0.77% 0.68% 0.70% N/A
Net investment income 3.64% 3.63% 3.83% 3.69% N/A
(a) Calculated based on average shares outstanding,
(b) Total return would have been lower in the absence of expense waivers.
(c) Includes the Fund's share of the Portfolio's allocated expenses.
10
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income 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 Global Fixed Income Fund (the "Fund") is a
separate non-diversified investment series of the Trust.
The object of the Fund is to maximize total return while realizing a
market level of income consistent with preserving principal and liquidity.
The Fund invests all its investable assets in an interest of Standish
Mellon Global Fixed Income Portfolio (the "Portfolio"), a subtrust of
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which
is organized as a New York trust and has the same investment objective as
the Fund. The Portfolio seeks to achieve its objective by investing, under
normal circumstances, at least 80% of its net assets in U.S. dollar and
non-U.S. dollar denominated fixed income securities of governments and
companies located in various countries, including emerging markets. The
value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (100% at
December 31, 2006). 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 investment in the Portfolio at value. The
Portfolio values its securities at value as discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. Securities transactions and income
The Fund's investment in the Portfolio is recorded on settlement date. The
Portfolio's securities transactions are recorded as of the trade date as
discussed in Note 1B of the Portfolio's Notes to Financial Statements,
which are included elsewhere in the report. 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 wash sales,
foreign currency gains and losses, post-October losses, capital loss
carryovers, and the timing of recognition of realized and unrealized gains
and losses on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income(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
Standish Mellon Global Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. Federal Income Taxes
Each year, the Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Code. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timely distributions of its income to its shareholders, and the
diversification of its assets, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net
capital gain which are distributed to shareholders.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
(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 Standish Mellon Asset Management Company LLC ("Standish
Mellon"), a wholly-owned subsidiary of Mellon Financial Corporation, for
such services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. Standish Mellon voluntarily
agreed to limit the total operating expenses of the Fund and its pro rata
share of the Portfolio expenses (excluding brokerage commissions, taxes
and extraordinary expenses) to 0.65% of the Fund's average daily net
assets. Pursuant to this agreement, for the year ended December 31, 2006,
Standish Mellon voluntarily reimbursed the Fund for $73,320 of its
operating expenses. This agreement is voluntary and temporary and may be
discontinued or revised by Standish Mellon at any time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
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 $6,551, for the year ended December 31, 2006.
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 $3,330 for the year ended
December 31, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary
of the Trust's Chief Compliance Officer. For the year ended December 31,
2006, the Fund was charged $4,030. No other director, officer or employee
of Standish Mellon 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 Standish Mellon or its affiliates an annual fee.
12
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to Fund shares that are held
in accounts serviced by such Plan Administrator. 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 December 31, 2006, the Fund was charged $515
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 December 31, 2006, aggregated $3,466,361 and $28,847,433,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules.
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Shares sold 112,735 28,662
Shares issued to shareholders for
reinvestment of distributions 74,640 348,849
Shares redeemed (1,786,209) (216,159)
---------- --------
Net increase (decrease) (1,598,834) 161,352
========== ========
At December 31, 2006, one shareholder of record held approximately 77% of
the total outstanding shares of the Fund. Investment activity of this
shareholder could have a material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
30 days from the day of their purchase. The redemption fee is paid
directly to the Fund, and is designed to offset brokerage commissions,
market impact, and 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 December 31, 2006, the
Fund did not assess any redemption fees.
(5) Federal Taxes:
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ --
Undistributed capital gains --
Total distributable earnings --
Capital loss carry forward $ 22,178,766
Tax character of distributions paid during the fiscal year ended December
31, 2006, were as follows:
2006 2005
------------ ------------
Ordinary income $ 1,680,731 $ 7,240,447
13
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 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 investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
Capital Loss
Carry Over Expiration Date
------------ ---------------
$ 2,498,111 12/31/2007
15,100,842 12/31/2008
408,689 12/31/2009
3,621,061 12/31/2010
550,063 12/31/2014
------------
$ 22,178,766
============
Utilization of the capital loss carryovers above could be subject to
limitations imposed by the Internal Revenue Code related to share
ownership activity.
The Fund elected to defer to its fiscal year ending December 31, 2007
$345,037 of capital losses and $250,757 of currency losses recognized
during the period November 1, 2006 to December 31, 2006.
See the corresponding master portfolio for tax basis unrealized
appreciation (depreciation) information.
14
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of the Mellon Institutional Funds Investment Trust and
Shareholders of Standish Mellon Global Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Standish Mellon Global Fixed Income Fund (the "Fund") at December 31, 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 Standish
Mellon Global Fixed Income Portfolio (the "Portfolio") at December 31, 2006 to
the Portfolio's records, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2007
15
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--103.3%
BONDS AND NOTES--90.2%
Asset Backed--1.2%
Capital Auto Receivables Asset Trust 2006-2 B 121 5.070% 12/15/2011 USD 160,000 $ 159,498
CSAB Mortgage Backed Trust 2006-3 A1B2 (a) 5.661 11/25/2036 230,038 230,037
Home Equity Mortgage Trust 2006-5 A1 5.500 1/25/2037 204,928 204,830
-------------
Total Asset Backed (Cost $594,816) 594,365
-------------
Collaterilized Mortgage Obligation--7.4%
Government National Mortgage Association 2005-76 A 3.963 5/16/2030 278,060 270,522
Government National Mortgage Association 2005-79 A 3.998 10/16/2033 275,632 268,652
Government National Mortgage Association 2006-5 A 4.241 7/16/2029 268,843 262,752
Government National Mortgage Association 2006-9 A 4.201 8/16/2026 654,852 639,107
Government National Mortgage Association 2006-15 A 3.727 3/16/2027 343,561 332,660
Government National Mortgage Association 2006-19 A 3.387 6/16/2030 236,538 227,623
Government National Mortgage Association 2006-39 A 3.772 6/16/2025 350,772 338,948
Government National Mortgage Association 2006-67 A 3.947 11/16/2030 490,000 474,075
Government National Mortgage Association 2006-68 A 3.888 7/16/2026 240,000 232,013
Government National Mortgage Association 2004-23 B 2.946 3/16/2019 291,490 279,726
JP Morgan Alternative Loan Trust 2006-S4 A6 5.710 12/25/2036 225,000 224,609
-------------
Total Collateralized Mortgage Obligation (Cost $3,543,497) 3,550,687
-------------
Corporate--14.8%
Bank--2.2%
Chevy Chase Bank FSB 6.875 12/1/2013 295,000 295,000
Suntrust Preferred Capital I (a) (b) 5.853 12/15/2036 40,000 40,305
Washington Mutual Bank (a) 5.461 5/1/2009 245,000 245,030
Washington Mutual, Inc. 4.625 4/1/2014 200,000 187,230
USB Capital IX (a) (b) 6.189 4/15/2042 300,000 306,386
-------------
1,073,951
-------------
Basic Materials--0.6%
Georgia-Pacific Corp. 144A (a) 7.000 1/15/2015 135,000 134,663
Reliance Steel & Aluminum 144A 6.200 11/15/2016 170,000 168,752
-------------
303,415
-------------
Communications--1.2%
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 70,000 72,713
Qwest Corp. (a) 8.610 6/15/2013 85,000 92,013
Salem Communications Corp. 7.750 12/15/2010 90,000 91,350
Time Warner, Inc. (a) 5.606 11/13/2009 305,000 305,198
561,274
Energy--0.8%
Oncor Electric Delivery Co. 6.375 5/1/2012 135,000 138,970
Salomon Brothers AF for Tyumen Oil Co. 11.000 11/6/2007 125,000 130,125
Southern Natural Gas Co. 8.875 3/15/2010 100,000 104,909
-------------
374,004
-------------
Finance--5.0%
American Express 144A (a) 6.800 9/1/2066 70,000 74,644
Ameriprise Financial, Inc. (a) 7.518 6/1/2066 150,000 164,726
Boston Properties, Inc. 6.250 1/15/2013 85,000 88,462
CIT Group, Inc. (a) 5.526 1/30/2009 245,000 245,577
Countrywide Financial Corp. (a) 5.585 3/24/2009 245,000 245,531
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Finance (continued)
Duke Realty Corp REIT 5.250 1/15/2010 USD 175,000 $ 174,136
International Lease Finance Corp. 5.000 4/15/2010 180,000 178,016
Lehman Brothers Holdings (a) 5.475 8/21/2009 255,000 255,126
Lehman Brothers Holdings E-Capital Trust I (a) 6.155 8/19/2065 100,000 100,911
Lincoln National Corp. (a) 7.000 5/17/2066 170,000 180,181
Merrill Lynch & Co. (a) 5.450 12/4/2009 470,000 469,931
Residential Capital Corp. (a) 6.738 6/29/2007 70,000 70,347
Simon Property Group LP REIT 5.750 5/1/2012 165,000 166,691
-------------
2,414,279
-------------
Industrial--2.3%
Crown Americas, Inc. 7.625 11/15/2013 130,000 133,900
Crown Americas, Inc. 7.750 11/15/2015 75,000 77,813
Jefferson Smurfit Corp. US 8.250 10/1/2012 15,000 14,625
Mohawk Industries, Inc. 6.125 1/15/2016 170,000 168,777
SAB Miller 144A (a) 5.660 7/1/2009 200,000 200,182
Telefonica Emisiones 6.421 6/20/2016 150,000 154,743
Waste Management, Inc. 6.875 5/15/2009 100,000 103,375
Windstream Corp. 144A 8.125 8/1/2013 180,000 194,850
Windstream Corp. 144A 8.625 8/1/2016 60,000 65,700
-------------
1,113,965
-------------
Services--0.2%
Federated Retail Holding 5.900 12/1/2016 115,000 114,821
-------------
Technology & Electronics--0.2%
Quest Diagnostics, Inc. 5.125 11/1/2010 90,000 88,630
-------------
Utilities--2.3%
Consumers Energy Co. 5.375 4/15/2013 140,000 138,645
Dominion Resources, Inc. (a) 5.663 9/28/2007 150,000 150,060
DTE Energy Co. 6.350 6/1/2016 135,000 140,236
Jersey Central Power and Light 144A 6.400 5/15/2036 242,000 251,332
Mirant North America LLC 144A 7.375 12/31/2013 95,000 96,425
Niagara Mohawk Power Corp. 7.750 10/1/2008 175,000 181,352
Pepco Holdings, Inc. 5.500 8/15/2007 140,000 139,888
-------------
1,097,938
-------------
Total Corporate Bonds (Cost $7,035,705) 7,142,277
-------------
Municipal--0.4%
Tobacco Settlement Authority Michigan (Cost $194,988) 7.309 6/1/2034 195,000 203,574
-------------
Sovereign Bonds--2.8%
Argentina Bonos (a) 5.590 8/3/2012 300,000 290,100
Egyptian Treasury Bill 144A (c) 8.400 2/1/2007 750,000 803,963
Republic of Peru 9.125 2/21/2012 200,000 232,500
-------------
Total Sovereign Bonds (Cost $1,237,871) 1,326,563
-------------
Yankee Bonds--5.7%
Chuo Mitsui Trust & Banking Co. Ltd. 144A (a) 5.506 2/15/2049 245,000 234,009
Falconbridge Ltd. 6.000 10/15/2015 155,000 158,075
Glitnir Bank 144A (a) 7.451 9/14/2049 210,000 221,307
Glitnir Bank 144A (a) 6.693 6/15/2016 150,000 154,856
Kaupthing Bank 144A 7.125 5/19/2016 225,000 238,652
Kaupthing Bank HF 144A (a) 6.070 1/15/2010 250,000 251,718
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds (continued)
MUFG Capital Financial 1 Ltd. (a) 6.346 3/15/2049 USD 250,000 $ 253,722
National Grid PLC 6.300 8/1/2016 150,000 155,353
Nordea Bank 144A (a) 7.500 1/30/2007 445,000 445,619
Nordic Telecommunication Co. Holdings 144A 8.875 5/1/2016 90,000 96,300
Rogers Wireless, Inc. 7.500 3/15/2015 45,000 48,825
Royal KPN NV 8.375 10/1/2030 80,000 91,660
Shinsei Finance Cayman Ltd 144A (a) 6.418 7/20/2048 200,000 199,769
SMFG Preferred Capital 144A (a) 6.078 7/25/2049 200,000 198,319
-------------
Total Yankee Bonds (Cost $2,683,565) 2,748,184
-------------
U.S. Government Agency--15.2%
Agency Pass Thru Securities--9.2%
FHLMC 5.250 7/18/2011 1,415,000 1,431,935
FNMA 5.500 1/1/2034 403,041 398,933
FNMA 5.000 1/1/2021 1,800,000 1,737,562
FNMA 2.375 2/15/2007 275,000 274,089
FNMA(TBA) 5.500 1/1/2036 595,000 587,934
-------------
4,430,453
-------------
Non-Agency Pass Thru--6.0%
Bear Stearns Commercial Mortgage 2006-PW14 AB 5.171 12/1/2038 565,000 559,478
Bear Stearns Commercial Mortgage Securities 2006-T24 AB 5.533 10/12/2041 525,000 531,563
Crown Castle Towers LLC, 2005-1A D 144A 5.612 6/15/2035 320,000 318,324
Crown Castle Towers LLC, 2006-1A 144A 5.772 11/15/2036 175,000 174,732
Global Signal Trust 2006-1 C 5.707 2/15/2036 150,000 150,949
Global Signal Trust 2006-1 E 144A 6.495 2/15/2036 150,000 152,047
Global Signal Trust 2006-1 F 144A 7.036 2/15/2036 80,000 80,602
IMSA 2006-2 2A1 (a) 5.700 8/25/2036 336,013 335,961
Morgan Stanley Capital I 2006-HQ9 A3 5.712 7/12/2044 215,000 219,594
Morgan Stanley Capital I 2006-HQ9 AAB 5.685 7/12/2044 215,000 219,693
Morgan Stanley Capital I 2006-IQ12 A1 5.257 12/15/2043 145,000 144,960
-------------
2,887,903
-------------
Total U.S. Government Agency (Cost $7,366,745) 7,318,356
-------------
U.S. Treasury Obligations--2.2%
U.S. Treasury Bond (b) 4.500 2/15/2036 160,000 152,150
U.S. Treasury Note 6.625 5/15/2007 325,000 326,815
U.S. Treasury Note 4.875 5/31/2011 595,000 599,091
-------------
Total U.S. Treasury Obligations (Cost $1,067,842) 1,078,056
-------------
Foreign Denominated--40.5%
Argentina--0.4%
Republic of Argentina (a) 2.000 9/30/2014 ARS 520,000 188,084
-------------
Brazil--0.8%
Republic of Brazil 12.500 1/5/2016 BRL 735,000 390,738
-------------
Canada--4.1%
Canadian Government Bond 5.000 6/1/2014 CAD 2,175,000 1,975,387
-------------
Euro--23.1%
Allied Irish Bank UK (a) 4.781 12/10/2049 EUR 160,000 201,557
Autostrade SpA (a) 4.112 6/9/2011 300,000 397,235
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Euro (continued)
Barclays Bank PLC (a) 4.875 12/15/2014 EUR 150,000 $ 191,116
BES Finance Ltd. (a) 4.500 12/16/2023 95,000 121,164
Bombardier, Inc. 5.750 2/22/2008 150,000 201,686
Bundersrepublic Deutschland 3.500 1/4/2016 550,000 701,196
Bundesobl Republic 13 3.750 7/4/2013 855,000 1,115,537
Daimlerchrysler International Finance 7.000 3/21/2011 125,000 179,943
Deutsche Republic 4.500 1/4/2013 170,000 230,910
Deutsche Republic 3.250 7/4/2015 1,925,000 2,414,306
Deutsche Republic 4.750 7/4/2034 750,000 1,094,030
Deutsche Telekom International Finance BV 6.625 7/11/2011 165,000 237,100
FCE Bank PLC EMTN (a) 4.722 9/30/2009 505,000 652,021
Finmeccanica SpA 4.875 3/24/2025 175,000 224,652
GE Capital European Funding (a) 3.691 5/4/2011 370,000 488,045
Holcim Finance Lux SA 4.375 6/23/2010 130,000 171,882
Household Finance Corp. 6.500 5/5/2009 100,000 138,751
Linde Finance BV (a) 6.000 7/29/2049 30,000 40,412
MPS Capital Trust I (a) 7.990 2/7/2011 60,000 88,963
National Westminster Bank PLC (a) 6.625 10/5/2009 70,000 97,766
Netherlands Government Bond 4.000 1/15/2037 605,000 784,998
Owens-Brockway Glass Containers 6.750 12/1/2014 95,000 125,666
Resona Bank Ltd. 144A (a) 4.125 1/10/2049 110,000 140,221
Santander Perpetual (a) 4.375 9/10/2023 100,000 128,835
Sogerim 7.000 4/20/2011 185,000 268,375
Sumitomo Mitsui Banking Corp. 144A (a) 4.375 7/15/2049 195,000 246,783
Telefonica Europe BV 5.125 2/14/2013 135,000 182,146
Telenet Communications NV 144A 9.000 12/15/2013 56,025 81,133
Veolia Environnement 4.875 5/28/2013 135,000 181,226
-------------
11,127,655
-------------
United Kingdom--3.9%
Barclays Bank PLC (a) 6.000 9/15/2026 GBP 130,000 248,563
Bat International Finance PLC 6.375 12/12/2019 90,000 183,965
HBOS Capital Funding LP (a) 6.461 11/30/2048 85,000 175,315
United Kingdom Gilt 8.000 9/27/2013 225,000 518,412
United Kingdom Gilt 4.250 6/7/2032 100,000 194,742
United Kingdom Gilt 5.000 9/7/2014 300,000 593,094
-------------
1,914,091
-------------
Japan--3.5%
Citigroup, Inc. 0.800 10/30/2008 JPY 40,800,000 342,228
Depfa Acs Bank 1.650 12/20/2016 80,000,000 667,664
KFW International Finance 1.750 3/23/2010 80,000,000 688,106
-------------
1,697,998
-------------
Mexico--0.9%
Mexican Fixed Rate Bonds 8.000 12/19/2013 MXN 4,410,000 422,598
-------------
The accompanying notes are an integral part of the financial statements.
19
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Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Poland--2.2%
Poland Government Bond 6.250 10/24/2015 PLN 2,875,000 $ 1,063,297
-------------
Sweden--1.6%
Swedish Government Bond 3.000 7/12/2016 SEK 5,600,000 767,037
-------------
Total Foreign Denominated (Cost $18,946,066) 19,546,885
-------------
Total Bonds and Notes (Cost $42,671,095) 43,508,947
-------------
Shares
-----------
CONVERTIBLE PREFERRED STOCKS--0.2%
Fannie Mae 5.375% CVT Pfd (Cost $100,000) 1 99,765
-------------
Contract Size
--------------
PURCHASED OPTIONS--0.2%
AUD Put/USD Call, Strike Price .754, 4/23/2007 925,000 3,521
CAD Put/USD Call, Strike Price 1.127, 4/10/2007 920,000 27,836
JPY Put/USD Call, Strike Price 115, 3/30/2007 1,155,000 31,656
USD Put/AUD Call, Strike Price .754, 4/23/2007 925,000 41,828
USD Put/JPY Call, Strike Price 115, 3/30/2007 1,155,000 6,386
-------------
TOTAL PURCHASED OPTIONS (Cost $104,810) 111,227
-------------
Rate Maturity Par Value
----- ---------- -----------
SHORT-TERM INVESTMENTS--11.8%
Federal Agency Bonds--8.0%
FNMA Discount Note (d) 5.150 1/10/2007 USD 2,400,000 2,396,223
FNMA Discount Note (d) 5.140 2/20/2007 1,450,000 1,440,081
-------------
Total Federal Agency Bonds (Cost $3,835,457) 3,836,304
-------------
U.S. Treasury Bill--3.8%
U.S. Treasury Bill (d) (e) 4.850 3/8/2007 150,000 148,707
U.S. Treasury Bill (d) 4.810 3/22/2007 1,685,000 1,667,220
-------------
Total U.S. Treasury Bill (Cost $1,815,163) 1,815,927
-------------
Total Short Term Investments--(Cost $5,650,620) 5,652,231
-------------
Shares
-----------
INVESTMENT OF CASH COLLATERAL--0.9%
BlackRock Cash Strategies L.L.C (f) (Cost $411,500) 5.320 411,500 411,500
-------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $48,938,025) 49,783,670
-------------
AFFILIATED INVESTMENTS--0.9%
Dreyfus Institutional Preferred Plus Money Market Fund (f) (g) (Cost $455,490)5.350 455,490 455,490
-------------
TOTAL INVESTMENTS--104.2% (COST $49,393,515) 50,239,160
-------------
LIABILITIES IN EXCESS OF OTHER ASSETS (4.2%) (2,029,326)
-------------
NET ASSETS--100% $ 48,209,834
=============
The accompanying notes are an integral part of the financial statements.
20
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
Notes to Schedule of Investments:
144A--Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $5,224,902 or 10.8% of net
assets.
ARS--Argentine Peso
BRL--Brazilian Real
CAD--Canadian Dollar
CVT--Convertible
EMTN--Euro Medium Term Note
EUR--Euro
FHLMC--Federal Home Loan Mortgage Company
FNMA--Federal National Mortgage Association
GBP--British Pound
JPY--Japanese Yen
MXN--Mexican New Peso
MYR--Malaysian Ringgit
PLN--Polish Zloty
REIT--Real Estate Investment Trust
SEK--Swedish Krona
TBA--To be announced
THB--Thai Baht
(a) Variable Rate Security; rate indicated is as of December 31, 2006.
(b) Security, or a portion thereof, was on loan at December 31, 2006.
(c) Illiquid security. At the period end, the value of these securities
amounted to $803,963 or 1.7% of net assets.
(d) Rate noted is yield to maturity.
(e) Denotes all or part of security segregated as collateral.
(f) Stated rate is seven-day yield for the fund at December 31, 2006.
(g) Affiliated money market fund.
At December 31, 2006 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- -------------------------------------------------------------------------------------------------------
U.S. 5 Year Treasury Note (6 Contracts) Short 3/30/2007 $ 635,011 $ 4,624
U.S. 10 Year Treasury Note (9 Contracts) Long 3/21/2007 975,938 (8,736)
Euro--Bobl (5 Contracts) Long 3/8/2007 734,807 (9,699)
Euro--Bund (8 Contracts) Long 3/8/2007 1,265,982 (28,782)
-----------
$ (42,593)
===========
The accompanying notes are an integral part of the financial statements.
21
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006 the Portfolio held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2006 to Receive Gain/(Loss)
- -------------------------------------------------------------------------------------------------
British Pound Sterling 975,000 3/21/2007 1,909,196 1,915,622 $ 6,426
Canadian Dollar 560,000 3/21/2007 481,413 488,663 7,250
Canadian Dollar 810,000 3/21/2007 696,329 706,868 10,539
Canadian Dollar 1,520,000 3/21/2007 1,306,692 1,319,852 13,160
Czech Republic Koruna 21,410,000 3/21/2007 1,028,863 1,025,383 (3,480)
Euro 540,000 2/28/2007 714,551 713,502 (1,049)
Euro 570,000 3/21/2007 754,883 757,416 2,533
Euro 2,750,000 3/21/2007 3,641,979 3,652,550 10,571
Euro 4,658,000 3/21/2007 6,168,850 6,182,796 13,946
Euro 2,750,000 3/21/2007 3,641,979 3,615,212 (26,767)
Euro 730,000 2/28/2007 965,968 958,600 (7,368)
Japanese Yen 54,000,000 1/16/2007 454,806 456,827 2,021
Japanese Yen 80,600,000 3/20/2007 684,404 702,091 17,687
Japanese Yen 122,790,000 3/20/2007 1,042,654 1,059,448 16,794
Japanese Yen 20,720,000 3/20/2007 175,941 178,744 2,803
Mexican New Peso 2,110,000 3/20/2007 195,343 194,982 (361)
Swedish Krona 11,700,000 3/21/2007 1,716,326 1,718,067 1,741
Swiss Franc 580,000 3/20/2007 479,453 489,390 9,937
Thai Baht 8,650,000 3/21/2007 243,536 237,964 (5,572)
----------- ----------- -----------
Total $26,303,166 $26,373,977 $ 70,811
=========== =========== ===========
Local
Principal Contract Value at Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2006 to Deliver Gain/(Loss)
- -------------------------------------------------------------------------------------------------
Euro 1,270,000 2/28/2007 $ 1,680,519 $ 1,675,384 $ 5,135
Euro 2,610,000 3/21/2007 3,456,569 3,431,889 24,680
Japanese Yen 54,000,000 1/16/2007 454,806 460,755 (5,949)
Japanese Yen 56,120,000 3/20/2007 476,535 493,306 (16,771)
Malaysian Ringit 860,000 3/21/2007 244,817 244,527 290
Norwegian Krone 2,970,000 3/21/2007 478,224 489,519 (11,295)
Philippines Peso 12,060,000 3/21/2007 245,765 245,471 294
Singapore Dollar 370,000 3/21/2007 242,380 241,751 629
South Korean Won 222,180,000 3/21/2007 239,569 243,618 (4,049)
Swedish Krona 7,010,000 3/21/2007 1,028,330 1,033,208 (4,878)
Thai Baht 8,650,000 3/21/2007 243,536 243,470 66
----------- ----------- -----------
Total $ 8,791,050 $ 8,802,898 $ (11,848)
=========== =========== ===========
The Fund held the following cross currency forward contracts at December 31,
2006:
Value at In Value at Contract Unrealized
Contracts to Deliver December 31, 2006 Exchange For December 31, 2006 Value Date Gain
- ------------------------------------------------------------------------------------------------------
Euro $272,698 Icelandic Krona $275,585 3/21/2007 $2,887
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
At December 31, 2006, the Fund held the following open swap agreements:
(Pay)/ Unrealized
Credit Default Reference Buy/Sell Receive Expiration Notional Appreciation/
Swaps Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Alcoa, Inc., 6.000% due 1/15/2012 Buy (0.415%) 6/20/2010 107,000 USD $ (1,086)
Bear Stearns Alcoa, Inc., 6.500% due 6/1/2011 Buy (0.520%) 6/20/2010 238,000 USD (3,223)
Bear Stearns Conocophillips, 4.750% due 10/15/2012 Buy (0.310%) 6/20/2010 345,000 USD (2,363)
Bear Stearns Nucor Corp., 4.875% due 10/01/2012 Buy (0.400%) 6/20/2010 162,000 USD (1,550)
Citibank Altria Group Inc., 7.000%, due 11/4/2013 Buy (0.270%) 12/20/2011 720,000 USD (1,015)
Citibank Northern Tobacco, 5.000%, due 6/1/2046 Sell 1.350% 12/20/2011 360,000 USD 2,776
Citibank Southern California Tobacco, 5.000%, due 6/1/2037 Sell 1.350% 12/20/2011 360,000 USD 2,776
JPMorgan Asset Backed Index, Home Equity BBB.06-1 Buy (1.540%) 7/25/2045 720,000 USD (842)
JPMorgan Asset Backed Index, Home Equity BBB.06-2 Sell 1.330% 5/25/2046 480,000 USD (2,310)
JPMorgan Basell AF S.C.A., 8.375% due 8/15/2015 Sell 3.800% 6/20/2011 575,000 USD 44,855
JPMorgan British American Tobacco PLC, 4.875% due 2/25/2009 Sell 0.425% 12/20/2010 350,000 EUR 4,075
JPMorgan Daimlerchrysler AG, 7.200% due 9/1/2009 Sell 0.700% 12/20/2010 350,000 EUR 4,776
JPMorgan Dow Jones CDX.NA.HY.7 Sell 3.250% 12/20/2011 970,000 USD 9,464
JPMorgan France Telecom, 7.250% due 1/28/2013 Sell 0.660% 12/20/2015 175,000 EUR 2,075
JPMorgan Glencore International AG, 5.375%, due 9/30/2011 Sell 1.480% 12/20/2010 350,000 EUR 13,981
JPMorgan ICI Wilmington, 5.625% due 12/1/2013 Sell 0.510% 12/20/2010 350,000 EUR 4,685
JPMorgan iTraxx Europe HiVol Series 4 Version 1 Buy (0.700%) 12/20/2010 1,725,000 EUR (26,593)
JPMorgan Kimberly-Clark Corp., 6.875% due 2/15/2014 Buy (0.190%) 12/20/2011 925,000 USD 26
JPMorgan Kimberly-Clark Corp., 6.875%, due 2/15/2014 Buy (0.190%) 12/20/2011 925,000 USD 26
JPMorgan Linde Aktiengesellschaft BV, 6.375% due 6/14/2007 Sell 0.410% 6/20/2011 1,125,000 EUR 8,841
JPMorgan Telecom Italia SPA, 6.250% due 2/1/2012 Sell 0.520% 12/20/2010 350,000 EUR 879
JPMorgan The BOC Group PLC, 5.875% due 4/29/2009 Buy (0.240%) 6/20/2011 1,125,000 EUR (4,002)
JPMorgan Volkswagen, 4.875% due 5/22/2013 Sell 0.450% 12/20/2010 350,000 EUR 4,444
Lehman Brothers Directv Holdings, 8.375%, due 3/15/2013 Buy (2.350%) 12/20/2016 55,000 USD 465
Lehman Brothers Directv Holdings, 8.375%, due 3/15/2013 Buy (2.350%) 12/20/2016 90,000 USD 761
Lehman Brothers Echostar DBS Corp., 6.375%, due 10/1/2011 Sell 2.250% 12/20/2016 90,000 USD (1,951)
Lehman Brothers Echostar DBS Corp., 6.625%, due 10/1/2014 Sell 2.200% 12/20/2016 55,000 USD (1,382)
Morgan Stanley V.F. Corporation, 8.500%, due 10/1/2010 Buy (0.450%) 6/20/2011 700,000 USD (7,232)
UBS AG iTraxx Europe Series 5 Version I Sell 0.400% 6/20/2011 1,050,000 EUR 9,062
UBS AG Telekom Austria
Aktiengesellschaft, 5.000%, due 7/22/2013 Buy (0.450%) 9/20/2011 690,000 USD (4,668)
UBS AG Wolters Kluwer N.V., 5.125%, due 1/27/2014 Buy (0.550%) 9/20/2011 690,000 USD (6,060)
-------
$49,690
=======
The accompanying notes are an integral part of the financial statements.
23
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2006
- --------------------------------------------------------------------------------
If the portfolio is a seller of protection and a credit event occurs, as defined
under terms of that particular swap agreement, the portfolio will pay the buyer
of protection an amount up to the national value of the swap and in certain
instances, take delivery of the security.
Unrealized
Interest Rate Floating Rate Pay/Receive Fixed Expiration Notional Appreciation/
Swaps Counterparty Index Floating Rate Rate Date Amount (Depreciation)
- -----------------------------------------------------------------------------------------------------------------
Bear Stearns USD--LIBOR--BBA Pay 3.9070% 11/19/2009 150,000 USD $ (5,037)
JPMorgan JPY--LIBOR--BBA Pay 2.5300% 7/28/2026 101,000,000 JPY 43,721
JPMorgan JPY--LIBOR--BBA Pay 1.3150% 10/4/2011 235,000,000 JPY 1,217
JPMorgan MYR--ABS--MYR01 Pay 4.1600% 10/31/2011 838,925 MYR 1,986
JPMorgan THB-TBHFIX-Reuters Pay 5.1800% 11/2/2011 8,464,000 THB (1,009)
UBS AG JPY--LIBOR--BBA Pay 0.8775% 5/11/2008 798,000,000 JPY 8,947
UBS AG JPY--LIBOR--BBA Pay 2.5125% 6/6/2026 159,000,000 JPY 55,163
UBS AG SEK--STIBOR--SIDE Pay 4.2900% 6/27/2016 13,160,000 SEK 52,829
UBS AG SEK--STIBOR--SIDE Receive 3.0600% 6/27/2007 133,390,000 SEK (266,898)
---------
$(109,081)
=========
Percentage of
Country Allocation Investments
---------------------------------------------
U.S. 54.4%
Germany 12.0
U.K. 6.0
Japan 6.0
Canada 4.3
Poland 3.0
Netherlands 1.8
Sweden 1.7
Iceland 1.7
Egypt 1.6
Italy 1.2
Spain 1.0
Argentina 1.0
France 0.9
Mexico 0.8
Brazil 0.8
Switzerland 0.6
Ireland 0.4
Peru 0.4
Belgium 0.2
Portugal 0.2
-----
100.0%
The accompanying notes are an integral part of the financial statements.
24
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 2006
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $396,713
(Note 6))
Unaffiliated issuers, at value (Note 1A) (cost $48,938,025) $49,783,670
Affiliated issuers, at value (Note 1A) (cost $455,490) (Note 1H) 455,490
Cash 15,004
Foreign currency (cost $186,275) 185,915
Unrealized appreciation on forward foreign currency exchange contracts,
at value (Note 5) 149,389
Interest receivable 617,950
Receivable from brokers (Note 6) 15,327
Swap premium paid 14,505
Unrealized appreciation on swap contracts, at value (Note 5) 227,830
Prepaid expenses 933
-----------
Total assets 51,466,013
Liabilities
Payable for investments purchased $ 2,355,669
Collateral for securities on loan (Note 6) 411,500
Unrealized depreciation on forward foreign currency exchange contracts,
at value (Note 5) 87,539
Unrealized depreciation on swap contracts, at value (Note 5) 337,221
Payable for variation margin on open futures contracts (Note 5) 1,326
Accrued professional fees 15,626
Accrued accounting, administration, and custody fees (Note 2) 18,051
Accrued trustees' fees and expenses (Note 2) 1,917
Other accrued expenses and liabilities 27,330
-----------
Total liabilities 3,256,179
-----------
Net Assets (applicable to investors' beneficial interest) $48,209,834
===========
25
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Statement of Operations
For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 2,506,043
Dividend income from affiliated investments (Note 1H) 160,064
Security lending income 8,017
Dividend income (net of foreign withholding tax of $1,606) 4,769
-----------
2,678,893
Expenses
Investment advisory fee (Note 2) $ 241,877
Accounting, administration and custody fees (Note 2) 104,056
Professional fees 49,638
Trustees' fees and expenses (Note 2) 7,229
Insurance expense 6,483
Miscellaneous expenses 5,318
-----------
Total expenses 414,601
Deduct:
Waiver of investment advisory fee (Note 2) (23,303)
-----------
Net expenses 391,298
-----------
Net investment income 2,287,595
-----------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 286,425
Financial futures transactions 63,472
Written options transactions 82,922
Foreign currency transactions and forward foreign currency exchange
transactions (452,724)
Swap transactions (927,110)
-----------
Net realized gain (loss) (947,015)
Change in unrealized appreciation (depreciation)
Investments 1,785,744
Financial futures contracts (13,123)
Written options contracts (42,400)
Foreign currency translation and forward foreign currency exchange
contracts (534,585)
Swap contracts (54,109)
-----------
Change in net unrealized appreciation (depreciation) 1,141,527
-----------
Net realized and unrealized gain (loss) 194,512
-----------
Net (Decrease) in Net Assets from Operations $ 2,482,107
===========
26
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
Increase (Decrease) in Net Assets
From Operations
Net investment income $ 2,287,595 $ 2,716,028
Net realized gain (loss) (947,015) 6,183,847
Change in net unrealized appreciation (depreciation) 1,141,527 (6,327,067)
------------ ------------
Net increase (decrease) in net assets from investment operations 2,482,107 2,572,808
------------ ------------
Capital Transactions
Contributions 3,466,361 7,042,475
Withdrawals (28,847,433) (11,579,112)
------------ ------------
Net increase (decrease) in net assets from capital transactions (25,381,072) (4,536,637)
------------ ------------
Total Increase (Decrease) in Net Assets (22,898,965) (1,963,829)
Net Assets
At beginning of year 71,108,799 73,072,628
------------ ------------
At end of year $ 48,209,834 $ 71,108,799
============ ============
27
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- -------- --------
Total Return (a) 5.09% 3.64% 5.00% 6.40% 6.98%
Ratios/Supplemental data:
Expenses (to average daily net assets) 0.65% 0.65% 0.63% 0.63% 0.56%
Net Investment Income (to average daily net assets) 3.79% 3.75% 3.89% 3.75% 4.47%
Portfolio Turnover: (b)
Inclusive 152% 181% 166% 222% 205%
Exclusive 122% 167% 130% -- --
Net Assets, End of Period (000's omitted) $48,210 $71,109 $73,073 $153,572 $164,590
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not
to impose a portion of its investment advisory fee and/or reimbursed the
Fund for all or a portion of its operating expenses. If this voluntary
action had not been taken, the investment income per share and the ratios
would have been:
Ratios (to average daily net assets):
Expenses (to average daily net assets) 0.69% 0.65% NA NA NA
Net investment income 3.75% 3.74% NA NA NA
(a) Total return for the Portfolio has been calculated based on the total
return for the invested Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements.
(b) Beginning in 2004, the portfolio turnover ratio is presented inclusive and
exclusive of the effect of rolling forward purchase commitments.
28
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income 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. Standish
Mellon Global Fixed Income Portfolio (the "Portfolio") is a separate
non-diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to maximize total return while realizing
a market level of income consistent with preserving principal and
liquidity. The Portfolio seeks to achieve its objective by investing,
under normal circumstances, at least 80% of its net assets in U.S. dollar
and non-U.S. dollar denominated fixed income securities of governments and
companies located in various countries, including emerging markets.
At December 31, 2006 there was one fund, Standish Mellon Global Fixed
Income Fund (the "Fund"), invested in the Portfolio. The value of the
Fund's investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. The Fund's proportionate
interest at December 31, 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 quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which 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,
including counterparties, 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 then is valued at amortized cost based
upon the value on such date unless the Trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of coupon interest earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments. Net realized gains and losses on foreign
currency transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Portfolio's books and the
U.S. dollar equivalent amounts actually received or paid.
C. Income taxes
The Portfolio is treated as a disregarded entity for federal tax purposes.
No provision is made by the Portfolio for federal or state income taxes on
any taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since the
Portfolio's investor is a regulated investment company that invests all or
substantially all of its assets in the Portfolio, the Portfolio normally
must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them.
Section 988 of the Internal Revenue Code provides that gains or losses on
certain transactions attributable to fluctuations in foreign currency
exchange rates must be treated as ordinary income or loss. For financial
statement purposes, such amounts are included in net realized gains or
losses.
29
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
H. Affiliated issuers
Affiliated issuers are investment companies advised by Standish Mellon
Asset Management Company LLC ("Standish Mellon"), a wholly-owned
subsidiary of Mellon Financial Corporation, or its affiliates.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
30
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Investment Advisory Fee and Other Transactions with Affiliates:
The investment advisory fee paid to Standish Mellon for overall investment
advisory, administrative services, and general office facilities is paid
monthly at the annual rate of 0.40% of the Portfolio's average daily net
assets. Standish Mellon voluntarily agreed to limit the total operating
expenses of the Fund and it's pro rata share of the Portfolio expenses
(excluding commissions, taxes and extraordinary expenses) to 0.65% of the
Fund's average daily net assets. Pursuant to this agreement, for the year
ended December 31, 2006, Standish Mellon voluntarily waived a portion of
its investment advisory fee in the amount of $23,303. This agreement is
voluntary and temporary and may be discontinued or revised by Standish
Mellon at any time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction
to be completed in the third quarter of 2007.
The Portfolio Trust has 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 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 $104,056 during the year ended December 31, 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 $3,437 for the year ended December 31, 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 Standish Mellon or its affiliates
received any compensation from the Trust or the Portfolio Trust for
serving as an officer or Trustee of the Trust or the Portfolio Trust. The
Fund and Portfolio Trust pays each Trustee who is not a director, officer
or employee of Standish Mellon 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 December 31, 2006 were as follows:
Purchases Sales
------------ ------------
U.S. Government Securities $ 61,017,005 $ 78,731,902
============ ============
Non-U.S. Government Securities $ 21,808,895 $ 28,829,267
============ ============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2006, as computed on a federal
income tax basis, were as follows:
Aggregate cost $ 49,452,390
============
Gross unrealized appreciation 1,109,363
Gross unrealized depreciation (322,593)
------------
Net unrealized appreciation
(depreciation) $ 786,770
============
31
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
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(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The Portfolio may trade the following financial instruments with
off-balance sheet risk:
Options
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at
a specified price. The Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Portfolio's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the Portfolio's
exposure to the underlying instrument, or hedge other Portfolio
investments. Options, both held and written by the Portfolio, are
reflected in the accompanying Statement of Assets and Liabilities at
market value. The underlying face amount at value of any open purchased
option is shown in the Schedule of Investments. This amount reflects each
contract's exposure to the underlying instrument at year end. Losses may
arise from changes in the value of the underlying instruments, if there is
an illiquid secondary market for the contract, or if the counterparty does
not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers, including counterparties.
For the year ended December 31, 2006, the Portfolio transactions in
options were as follows:
Number of
Written Put Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of period 3 $ 45,440
Options written 6 11,629
Options expired (8) (43,366)
Options closed (1) (13,703)
--------- --------
Outstanding, end of period -- $ --
========= ========
Number of
Written Call Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of period 1 $ 6,958
Options written 3 29,084
Options expired (3) (31,418)
Options closed (1) (4,624)
--------- --------
Outstanding, end of period -- $ --
========= ========
At December 31, 2006, the Portfolio had no written options outstanding.
32
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward currency exchange contracts
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At December 31, 2006, the Portfolio held forward currency exchange
contracts. See the Schedule of Investments for further details.
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 appreciation or depreciation 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 December 31, 2006, the Portfolio held open financial futures contracts.
See the Schedule of Investments for further details.
Swap agreements
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated
by another instrument. The Portfolio may enter into interest rate, 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 Portfolio with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. In a credit default swap, one party makes a stream of payments
to another party in exchange for the right to receive a specified return
in the event of a default by a third party on its obligation. The
Portfolio may use credit default swaps to provide a measure of protection
against defaults of issuers (i.e., to reduce risk where the Portfolio owns
or has exposure to the corporate or sovereign issuer) or to take an active
long or short position with respect to the likelihood of a particular
corporate or sovereign issuer's default. 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, the portfolio 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. The Portfolio earns
interest on cash set aside as collateral. 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 appreciation or depreciation 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 December 31, 2006, the Portfolio held open swap agreements. See the
Schedule of Investments for further details.
33
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Security Lending:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights
in its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event
of borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in
the event it was delayed or prevented from exercising its rights to
dispose of the collateral. The Portfolio also bears the risk in the event
that the interest and/or dividends received on invested collateral is not
sufficient to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended December 31, 2006
and earned interest on the invested collateral of $458,351 of which,
$450,334 was rebated to borrowers or paid in fees. At December 31, 2006,
the Portfolio had securities valued at $396,713 on loan. See the Schedule
of Investments for further detail on the security positions on loan and
collateral held.
(7) Delayed Delivery Transactions:
The Portfolio may purchase securities on a when-issued, delayed delivery
or forward commitment basis. Payment and delivery may take place a month
or more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Portfolio
instructs its custodian to segregate securities having value at least
equal to the amount of the purchase commitment.
The Portfolio may enter into to be announced (TBA) purchase commitments to
purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Portfolio holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the Portfolio may enter into offsetting contracts for the
forward sale of other securities it owns. Income on the securities will
not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date. Unsettled TBA purchase commitments are valued at the current market
value of the underlying securities, according to the procedures described
under "Investment security valuations" above.
The Portfolio may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
At December 31, 2006, the Portfolio held delayed delivery securities. See
the Schedule of Investments for further details.
(8) Line of Credit:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in the
Trust are parties to a committed line of credit facility, which enables
each portfolio/fund to borrow, in the aggregate, up to $35 million.
Interest is charged to each participating portfolio/fund based on its
borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of
1%. In addition, a facility fee, computed at an annual rate of 0.060 of 1%
on the committed amount, is allocated ratably among the participating
portfolios/funds at the end of each quarter. 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 December 31, 2006, the expense allocated to the Portfolio
was $613. The facility fee and interest expense are included in
miscellaneous expenses on the statement of operations.
For the year ended December 31, 2006, the Portfolio had average borrowings
outstanding of $1,577,250 for a total of four days and incurred $1,030 of
interest expense. At December 31, 2006 the Fund had no borrowings
outstanding.
34
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of the Mellon Institutional Funds Master Portfolio and Investors
of Standish Mellon Global Fixed Income Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon Global Fixed Income
Portfolio (the "Portfolio") at December 31, 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 December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2007
35
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Factors Considered by Mellon Trustees in Approving Advisory Agreements
(Unaudited)
- --------------------------------------------------------------------------------
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 the related fees on an annual basis. The
Fund is not a party to an investment advisory agreement directly with any
investment adviser and does not invest directly in portfolio securities.
Instead, the Fund invests all of its investable assets in the Standish
Mellon Global Fixed Income Portfolio (the "Portfolio"), which is managed
by Standish Mellon Asset Management Company LLC ("Standish Mellon"). The
Fund's Board of Trustees determines annually whether the Fund should
continue to invest in the Portfolio. The members of the Fund's Board of
Trustees also serve as the Board of Trustees of the Portfolio. In that
capacity, they consider annually whether to continue the investment
advisory agreement between the Portfolio and Standish Mellon. In their
most recent deliberations concerning their decision to approve the
continuation of the investment advisory agreement, the Board of Trustees
conducted the review and made the determinations that are described below.
In conducting this review and in making such determinations, the
Independent Trustees received from the Portfolio's investment adviser,
Standish Mellon (the "Adviser") a broad range of information in response
to a written request prepared on their behalf by their own legal counsel.
The Independent Trustees met alone in a private session with their legal
counsel on September 28, 2006 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
the Adviser attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 17, 2006.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: The Adviser's balance sheet and income
statements, as well as a profitability analysis of the Adviser, including
a separate presentation of the Adviser's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: The Adviser's Form ADV, as well as
information concerning the Adviser's executive management, portfolio
management, client service personnel and overall organizational structure,
insurance coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
the Adviser's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: The Adviser's commentary on the
Fund's performance (rather than the Portfolio alone), and any material
portfolio manager and strategy changes that may have affected the Fund in
the prior year, as well as the Fund's "fact sheets" prepared by the
Adviser providing salient data about the Fund and Portfolio, including the
Portfolio's holdings, strategies, recent market conditions and outlook, as
well as the Adviser's views concerning the issues of breakpoints in the
management fee schedule of the Portfolio and potential economies of scale;
and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
advisory agreement and the compensation to the Adviser provided therein
were fair and reasonable in light of the services performed, expenses
incurred and such other matters as the Trustees considered relevant in the
exercise of their reasonable judgment. The following summary does not
detail all the matters that were considered. Some of the factors that
figured prominently in the Trustees' determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by the Adviser. In their deliberations as to the
continuation of the advisory agreement, the Trustees were also mindful of
the fact that, by choosing to invest in the Fund, the Fund's shareholders
have chosen to entrust the Adviser, under the supervision of the Board, to
manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
the Adviser. The Board determined that the services provided were of high
quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of the Adviser to
receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of the Adviser's investment staff, technological
infrastructure and overall responsiveness to changes in market conditions.
The Board determined that the Adviser had the expertise and resources to
manage the Portfolio effectively.
36
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Factors Considered by Mellon Trustees in Approving Advisory Agreements
(Unaudited)
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund (rather than
the Portfolio alone) against a peer group of investment companies selected
by the Adviser with input from the Trustees. The Board also compared the
Fund's investment performance against the average performance of a larger
universe of funds regarded by Lipper as having similar investment
objectives and considered the Fund's performance rankings against that
universe. In addition to the information received by the Board at the
September 28, 2006 Board meeting, the Trustees received similar detailed
comparative performance information for the Fund at each regular Board
meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2006 based on the Lipper materials
provided to the Board at the September 28, 2006 meeting. The Board found
that the Fund outperformed its peer group average returns for the one-year
period (2.43% vs. 2.08%), but underperformed its peer group average
returns for the three-year period (4.24% vs. 5.36%) and five-year period
(4.87% vs. 7.06%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Portfolio to the
Adviser. The Lipper data presenting the Portfolio's "net management fees"
included fees paid by the Portfolio, as calculated by Lipper, for
administrative services provided by Mellon Bank, N.A., the Portfolio's
custodian. Such reporting was necessary, according to Lipper, to allow the
Board to compare the Portfolio's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Portfolio's contractual advisory fee was 0.40%, in the 1st (best)
quintile of its peer group of funds, the median fee of which was 0.57%.
The Portfolio's net management fee, after giving effect to expense
limitations, was 0.455% (which included 0.175% in administrative services
fees under Lipper's calculation methodology), below the peer group median
net advisory fee of 0.497%. Based on the Lipper data, as well as other
factors discussed at the September 28, 2006 meeting, the Board determined
that the Portfolio's advisory fee is reasonable relative with and without
giving effect to expense limitations.
The Board also compared the fees payable by the Portfolio relative to
those payable by separate account clients of the Adviser. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by the Adviser with respect to the Portfolio
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable relative to the
nature and quality of the services provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds.
The Board found that the actual net expense ratio of 0.651% (after giving
effect to expense limitations) was lower than the median net expense ratio
of the peer group of 0.932% notwithstanding the fact that most of the
other funds in the peer group were larger than the Fund.
The Adviser's Profitability
The Board considered the Adviser's profitability in managing the Portfolio
and Fund and the Mellon Institutional Funds as a group, as well as the
methodology used to compute such profitability, and the various direct and
indirect expenses incurred by the Adviser or its affiliated investment
adviser, The Boston Company Asset Management, LLC ("TBCAM") in managing
the Portfolio and other funds in the Mellon Institutional Funds family of
funds. The Independent Trustees had observed that the Adviser, based on
the profitability information submitted to them by the Adviser, incurred
losses in managing all but one of the investment companies in the Mellon
Institutional Funds family of funds, including the Portfolio and Fund. The
Trustees observed that the Adviser had incurred losses in operating the
Portfolio and Fund in both 2004 and 2005.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Portfolio and Fund grow. They observed that the Standish
Mellon Fixed Income Portfolio and The Boston Company International Core
Equity Portfolio, two of the largest funds in the complex, already had
breakpoints in their fee arrangements that reflected economies resulting
from their size. The Board also noted that at the March 7, 2006 meeting,
management had presented a Breakpoint Discussion Memorandum that had
proposed a framework for future breakpoints. The Board concluded that, at
existing asset levels and considering current assets growth projections,
the implementation of additional fee breakpoints or other fee reductions
was not necessary at this time.
37
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Factors Considered by Mellon Trustees in Approving Advisory Agreements
(Unaudited)
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Portfolio's advisory
agreement and the compensation to the Adviser provided therein are fair
and reasonable and, thus, in approving the continuation of the agreement
for a one-year period.
38
Trustees and Officers (Unaudited)
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended December 31, 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
Term of Principal Portfolios in Other Remuneration
Name Office Occupation(s) Fund Complex Directorships (period ended
Address, and Position(s) and Length of During Past Overseen by Held by December 31,
Date of Birth Held with Trust Time Served 5 Years Trustee Trustee 2006)
- -------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee Chairman Emeritus, 30 None Fund: $ 500
c/o Decision Resources, since Decision Resources, Portfolio: $1,523
Inc. 11/3/1986 Inc. ("DRI")
260 Charles Street (biotechnology
Waltham, MA 02453 research and
9/30/40 consulting firm);
formerly Chairman of
the Board and Chief
Executive Officer,
DRI
Caleb Loring III Trustee Trustee Trustee, Essex 30 None Fund: $ 500
c/o Essex Street since Street Associates Portfolio: $1,633
Associates 11/3/1986 (family investment
P.O. Box 5600 trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee William Joseph 30 None Fund: $ 500
c/o Harvard University since Maier, Professor of Portfolio: $1,523
Littauer Center 127 9/13/1989 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee Trustee, Mertens 30 None Fund: $ 500
P.O. Box 2333 since House, Inc. (hospice) Portfolio: $1,523
New London, NH 03257 11/3/1986
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 30 None $ 0
The Boston Company President and Operating Officer of
Asset Management, LLC Chief Executive The Boston Company
One Boston Place Officer Asset Management,
Boston, MA 02108 LLC; formerly Senior
7/24/65 Vice President and
Chief Operating
Officer, Mellon
Asset Management
("MAM") and Vice
President and Chief
Financial Officer,
MAM
39
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- -------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of
Mellon Asset Management and Secretary Operations, Mellon Asset Management
One Boston Place ("MAM"); formerly First Vice President,
Boston, MA 02108 MAM and Mellon Global Investments
2/20/61
Steven M. Anderson Vice President Vice Vice President and Mutual Funds
Mellon Asset Management and Treasurer President Controller, Mellon Asset Management;
One Boston Place since 1999; formerly Assistant Vice President and
Boston, MA 02108 Treasurer Mutual Funds Controller, Standish Mellon
7/14/65 since 2002 Asset Management Company, LLC
Denise B. Kneeland Assistant Vice Since 1996 First Vice President and Manager, Mutual
Mellon Asset Management President Funds Operations, Mellon Asset
One Boston Place Management; formerly Vice President and
Boston, MA 02108 Manager, Mutual Fund Operations, Standish
8/19/51 Mellon Asset Management Company, LLC
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset
Mellon Asset Management Compliance Management and Chief Compliance Officer,
One Boston Place Officer Mellon Funds Distributor, L.P. and Mellon
Boston, MA 02108 Optima L/S Strategy Fund, LLC; formerly
4/8/57 Director, Blackrock, Inc., Senior Vice
President, State Street Research &
Management Company ("SSRM"), and Vice
President, SSRM
40
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6934AR1206
[MELLON LOGO]
MELLON INSTITUTIONAL FUNDS
ANNUAL REPORT STANDISH MELLON
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 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.
[MELLON LOGO]
MELLON INSTITUTIONAL FUNDS
February 2007
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2006.
Financial markets showed substantial resilience in 2006, shrugging off concerns
that the slowdown in the housing market could drag the rest of the economy into
recession. The U.S. Federal Reserve (Fed) paused in its tightening cycle in
August, after 17 rate hikes since June 2004, as the Fed became convinced that
inflationary forces, and expectations, were under control. Perhaps the most
notable feature of this cycle is that the housing bubble is bursting at a time
when rates are not high. In previous cycles, housing market declines typically
follow a period of Fed 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 hitting new highs and providing a gain of 15.8%, including an 8.8%
advance in the fourth 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 6-month Treasury bill ending the
year at 4.9%, up about 70 basis points. Rates on longerterm bonds increased to a
lesser degree, with the 10-year Treasury note ending about 30 basis points
higher at 4.7%. This produced 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, because rates are already at relatively modest levels. Thus,
the boost provided by lower mortgage rates in the future is likely to be smaller
for housing than in 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 - Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
For 2006, the Standish Mellon High Yield Bond Fund (Fund) returned 8.22% as
compared to the 10.76% return of its benchmark, the Merrill Lynch High Yield
Master II Constrained Index. Equity markets were up solidly for the year both in
the U.S. and around the world. Liquidity was extremely strong and riskier assets
prevailed in 2006.
In 2006, the top performing industries included two of last year's laggards. The
automotive industry was up 39.80% in the Constrained benchmark index for the
year. The "fallen angel" automakers, which underperformed in 2005, rallied as
the companies secured financing, enhancing liquidity. Although market shares and
fundamentals stayed weak, the lower probability of near-term defaults led to
strong price performance in industry bonds. The fixed-line telecommunications
industry was a top performer in the benchmark, up 25.19% for the year, as Qwest
and other companies got their financial houses in order. Airlines had the third
best return on an industry basis at 22.85%, as the industry recovered with
rationalized capacity and additional pricing power. The airline industry had the
second lowest return of the benchmark index in 2005. Liquidity was strong and
performance was positive for the benchmark across all industries, except for
beverage, which was down 1.04%. Non-electric utilities and health services were
the second and third laggard industries, but still posted returns of 4.49% and
4.79%, respectively.
From a quality perspective, lower rated/higher risk securities had the best
performance over the year period. The distressed segment of the high yield
market (defined as issuers trading at greater than 10% over Treasury rates), was
the clear outperformer for the year, generating a 42.80% rate of return. CCC's
had a total return of 16.97% in the benchmark Constrained Index, B's returned
10.86% and BB's, the highest rated portion of the high yield market, returned
7.82%. Liquidity was strong in 2006, with an abundant supply of capital chasing
return. A combination of this liquidity and relatively strong balance sheets
kept defaults at an all-time low, as defaults in the U.S. debt markets ended the
year below 2%. However, the availability of capital led to continued increases
in leveraged buyouts, which typically hurt bondholders' returns.
PORTFOLIO STRATEGY REVIEW AND RESULTS
Performance of the Fund in 2006 was hurt by its underweight position relative to
its benchmark index in the automotive industry, cable industry, and the higher
quality bias of the benchmark's holdings. Our industry positioning of the Fund
was defensive in the face of an environment where risk taking was better
rewarded. As default risks were lessened due to strong liquidity, distressed and
lower-rated securities had strong performance. We misjudged the timing of the
turn of the credit cycle in high yield bonds.
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
INVESTMENT OUTLOOK
We enter 2007 with spreads at historical tight levels. In our view, new issuance
credit quality has been weak. With more private leveraged buyout deals in the
pipeline, we believe issuance patterns will likely continue to be skewed to the
negative. In our view, at some point in the cycle, less liquidity in the market,
an event typically driven by weaker fundamentals and then higher defaults, will
drive spreads wider. The key is timing. We believe we have seen the peak in
credit improvement in 2006, but current liquidity and the thirst for yield could
keep demand strong for high yield bonds. Our strategy for 2007 includes the need
to focus on security selection opportunities to allow incremental yield in the
portfolio, while continuing to maintain a higher quality bias.
David Bowser Kent J. Wosepka
Portfolio Manager Senior Portfolio Manager
Standish Mellon Asset Standish Mellon Asset
Management Company LLC Management Company LLC
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON HIGH
YIELD BOND FUND AND THE MERRILL LYNCH HIGH YIELD MASTER II CONSTRAINED INDEX
[LINE GRAPH]
Merrill Lynch U.S. High
Standish Mellon Yield Master II Constrained
PERIOD High Yield Bond Fund Index *
6/2/97 100,000 100,000
12/31/97 106,200 108,318
12/31/98 107,121 111,508
12/31/99 109,477 114,219
12/31/00 112,586 108,286
12/31/01 114,294 113,140
12/31/02 119,665 112,541
12/31/03 145,706 144,018
12/31/04 159,733 159,675
12/31/05 165,637 164,111
12/31/06 179,255 181,756
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 12/31/2006)
SINCE
INCEPTION
1 Year 3 Years 5 Years 6/2/1997
- ------ ------- ------- ---------
8.22% 7.13% 9.42% 6.28%
* Source: Bloomberg Inc.
Average annual total returns reflect the change in the value of an investment,
assuming reinvestment of the fund' 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 funds total return will be will be greater than it would be had
the reimbursement not occurred. Past performance is not predictive of future
performance.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD 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 (July 1, 2006 to December 31, 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=8.6), then multiply the result by the number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD+
ACCOUNT VALUE ACCOUNT VALUE JULY 1, 2006 TO
JULY 1, 2006 DECEMBER 31, 2006 DECEMBER 31, 2006
------------- ----------------- -----------------
Actual $ 1,000.00 $ 1,069.30 $ 2.61
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,022.68 $ 2.55
- ------------------
+ Expenses are equal to the Fund's annualized expense ratio of 0.50%,
multiplied by the account value over the period, multiplied by 184/365 (to
reflect the one-half year period). The example reflects the combined
expenses of the Fund and the master portfolio in which it invests all its
assets.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2006 (UNAUDITED)
The Standish Mellon High Yield Bond Fund invests all of its investable assets in
an interest of the Standish Mellon High Yield Bond 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 below.
SUMMARY OF COMBINED RATINGS
Percentage of
Quality Breakdown Investments
- ----------------- ------------
AAA and higher 3.1%
AA 0.2
A 0.6
BBB 9.0
BB 49.1
B 35.7
CCC and lower 2.3
-----
TOTAL 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors services. If a
security receives split (different) ratings from multiple rating organizations,
the Portfolio treats the security as being rated in the higher rating category.
PERCENTAGE OF
TOP TEN HOLDINGS* RATE MATURITY INVESTMENTS
- ----------------- ----- ---------- -------------
Chevy Chase Bank FSB 6.875% 12/1/2013 1.6%
Windstream Corp. 144A 8.125 8/1/2013 1.4
FCE Bank PLC EMTN 4.722 9/30/2009 1.3
Allied Waste North America 6.375 4/15/2011 1.3
AES Corp. 144A 8.750 5/15/2013 1.1
Crown Americas Inc. 7.625 11/15/2013 1.1
Ball Corp. 6.875 12/15/2012 1.0
Terex Corp. 7.375 1/15/2014 1.0
Sierra Pacific Resources 8.625 3/15/2014 0.9
INVISTA 144A 9.250 5/1/2012 0.9
----
11.6%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
- -------------------------- -------------
Banking 3.4%
Basic industry 10.7
Brokerage 0.6
Capital goods 11.6
Consumer cyclical 5.8
Consumer non-cyclical 4.7
Energy 7.2
Finance 0.3
Insurance 0.4
Media 5.6
Municipals 0.9
Real estate 0.4
Services cyclical 15.2
Services non-cyclical 4.8
Technology 1.3
Telecommunications 8.2
Utility 9.6
Emerging markets 1.1
Agency 1.2
Cash & equivalents 7.0
-----
100.0%
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS
Investment in Standish Mellon High Yield Bond Portfolio
(Portfolio), at value (Note 1A) $ 27,112,314
Receivable for Fund shares sold 6,994
Prepaid expenses 6,144
-----------------
Total assets 27,125,452
LIABILITIES
Distributions payable $ 28,455
Payable for Fund shares redeemed 9,964
Accrued professional fees 14,447
Accrued shareholder reporting expense (Note 2) 3,190
Accrued transfer agent fees (Note 2) 2,849
Accrued chief compliance officer fee (Note 2) 708
Accrued trustees' fees and expenses (Note 2) 495
Other accrued expenses and liabilities 1,388
--------------
Total liabilities 61,496
-----------------
NET ASSETS $ 27,063,956
=================
NET ASSETS CONSIST OF:
Paid-in capital $ 36,642,384
Accumulated net realized loss (10,151,700)
Distributions in excess of net investment income (13,360)
Net unrealized appreciation 586,632
-----------------
TOTAL NET ASSETS $ 27,063,956
=================
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,685,518
=================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 16.06
=================
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME (NOTE 1B)
Interest and security lending income allocated from Portfolio $ 1,238,100
Dividend income allocated from Portfolio 61,981
Expenses allocated from Portfolio (87,436)
-----------------
Net investment income allocated from Portfolio 1,212,645
EXPENSES
Professional fees $ 32,797
Registration fees 16,844
Transfer agent fees (Note 2) 6,671
Chief compliance officer fees (Note 2) 4,041
Shareholder reporting fee (Note 2) 3,810
Trustees' fees (Note 2) 2,000
Administrative service fee (Note 2) 1,361
Insurance expense 577
Miscellaneous 6,410
---------
Total expenses 74,511
DEDUCT:
Reimbursement of Fund operating expenses (Note 2) (74,358)
---------
Net expenses 153
-----------------
Net investment income 1,212,492
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investments 89,273
Swap transactions 757
Foreign currency transactions and forward foreign
currency exchange transactions (41,985)
---------
Net realized gain (loss) 48,045
Change in unrealized appreciation (depreciation) allocated
from Portfolio on:
Investments 321,073
Swap contracts 3,191
Foreign currency translations and forward foreign
currency exchange contracts (5,293)
---------
Change in net unrealized appreciation (depreciation) 318,971
-----------------
Net realized and unrealized gain (loss) on investments 367,016
-----------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,579,508
=================
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,212,492 $ 1,807,357
Net realized gain (loss) 48,045 1,267,557
Change in net unrealized appreciation (depreciation) 318,971 (2,829,217)
-------------- -----------------
Net increase (decrease) in net assets from investment operations 1,579,508 245,697
-------------- -----------------
Distributions to Shareholders (Note 1C)
From net investment income (1,183,071) (1,881,356)
-------------- -----------------
Total distributions to shareholders (1,183,071) (1,881,356)
-------------- -----------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 16,483,564 4,184,283
Value of shares issued to shareholders in reinvestment
of distributions 1,025,942 1,683,595
Cost of shares redeemed (net of redemption fees of
$593 and $602, respectively) (8,410,796) (43,336,720)
-------------- -----------------
Net increase (decrease) in net assets from Fund
share transactions 9,098,710 (37,468,842)
-------------- -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,495,147 (39,104,501)
NET ASSETS
At beginning of year 17,568,809 56,673,310
-------------- -----------------
At end of year [including distributions in excess of net investment
income of $13,360 and undistributed net investment income
of $2,537] $ 27,063,956 $ 17,568,809
============== =================
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- -------- -------- ---------- ----------
NET ASSET VALUE, BEGINNING OF THE YEAR $ 15.81 $ 16.52 $ 16.19 $ 14.34 $ 14.88
---------- -------- -------- ---------- ----------
FROM OPERATIONS:
Net investment income * (a) 1.11 1.13 1.18 1.21 1.26
Net realized and unrealized gains (loss) on investments 0.14 (0.54) 0.31 1.85 (0.59)
---------- -------- -------- ---------- ----------
Total from investment operations 1.25 0.59 1.49 3.06 0.67
---------- -------- -------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.00) (1.30) (1.16) (1.21) (1.21)
---------- -------- -------- ---------- ----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1.00) (1.30) (1.16) (1.21) (1.21)
---------- -------- -------- ---------- ----------
Net Asset Value, End of Year $ 16.06 $ 15.81 $ 16.52 $ 16.19 $ 14.34
========== ======== ======== ========== ==========
TOTAL RETURN (b) 8.22% 3.70% 9.56% 21.76% 4.70%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) * (c) 0.50% 0.50% 0.50% 0.50% 0.50%
Net Investment Income (to average daily net assets) * 6.94% 6.84% 7.28% 7.79% 8.68%
Net Assets, End of Year (000's omitted) $ 27,064 $ 17,569 $ 56,673 $ 57,036 $ 44,059
- -----------------
* 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) $ 0.93 $ 0.97 $ 1.12 $ 1.13 $ 1.21
Ratios (to average daily net assets):
Expenses 1.58% 1.45% 0.87% 1.00% 1.01%
Net investment income 5.86% 5.89% 6.91% 7.29% 8.17%
(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
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
NOTES TO FINANCIAL STATEMENTS
(1) 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 High Yield Bond Fund (the "Fund") is a separate diversified
investment series of the Trust.
The object of the Fund is to maximize total return, consisting of a high
level of income. The Fund invests all of its investable assets in an
interest in Standish Mellon High Yield Bond 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 below
investment grade fixed income securities issued by U.S. and foreign
governments, companies and banks, as well as tax-exempt securities,
preferred stocks and warrants. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of
the Portfolio (100% at December 31, 2006). 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 investment in the Portfolio at value. The
Portfolio values its securities at value as discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
The Fund's investment in the Portfolio is recorded on settlement date. The
Portfolio's securities transactions are recorded as of the trade date as
discussed in Note 1B of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report. 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, foreign currency gains and losses,
post-October losses, capital loss carryovers, and the timing of recognition
of realized and unrealized gains and losses on futures contracts.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income(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
STANDISH MELLON HIGH YIELD BOND FUND
NOTES TO FINANCIAL STATEMENTS
E. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that may
be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
F. FEDERAL INCOME TAXES
Each year, the Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Code. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timely distributions of its income to its shareholders, and the
diversification of its assets, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gain
which are distributed to shareholders.
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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
(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
Standish Mellon Asset Management Company LLC ("Standish Mellon"), a
wholly-owned subsidiary of Mellon Financial Corporation, for such services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. Standish Mellon voluntarily agreed to
limit the total operating expenses of the Fund and its pro rata share of
the Portfolio expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.50% of the Fund's average daily net assets.
Pursuant to this agreement, for the year ended December 31, 2006, Standish
Mellon voluntarily reimbursed the Fund for $74,358 of its operating
expenses. This agreement is voluntary and temporary and may be discontinued
or revised by Standish Mellon at any time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction to
be completed in the third quarter of 2007.
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, well as, out-of-pocket expenses. Pursuant to this agreement the Fund
was charged $6,671, for the year ended December 31, 2006.
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 $3,300 for the year ended December
31, 2006.
The Trust reimburses Mellon Asset Management for a portion of the salary of
the Trust's Chief Compliance Officer. For the year ended December 31, 2006,
the Fund was charged $4,041. No other director, officer or employee of
Standish Mellon 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 officer or employee of Standish
Mellon or its affiliates an annual fee.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD 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 December 31, 2006, the Fund was charged $1,344
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 December 31, 2006, aggregated $17,582,918 and $9,647,661,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules.
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
Shares sold 1,034,865 257,259
Shares issued to shareholders for
reinvestment of distributions 64,914 104,233
Shares redeemed (525,494) (2,681,089)
------------ ------------
Net increase (decrease) 574,285 (2,319,597)
============ ============
At December 31, 2006, three shareholders of record held in the aggregate
approximately 83% 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 December 31, 2006, the Fund received $593
in redemption fees.
(5) FEDERAL TAXES:
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ 12,133
Undistributed capital gains --
-----------
Total distributable earnings 12,133
===========
Capital loss carry forward $10,110,712
Tax character of distributions paid during the fiscal year ended December
31, 2006 and December 31, 2005, were as follows:
2006 2005
---- ----
Ordinary income $1,183,071 $1,881,356
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
NOTES TO FINANCIAL STATEMENTS
At December 31, 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 investments, if any, to the extent permitted by the Internal
Revenue Code and thus will reduce the amount of distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal income tax. Such capital loss carryovers are as follows:
CAPITAL LOSS
CARRY OVER EXPIRATION DATE
- ------------ ---------------
$ 1,413,219 12/31/2008
4,484,343 12/31/2009
4,197,096 12/31/2010
16,054 12/31/2013
- -----------
$10,110,712
===========
During 2006, the Fund utilized $60,270 in capital loss carry forwards.
Utilization of the capital loss carryovers above could be subject to limitations
imposed by the Internal Revenue Code related to share ownership activity.
The Fund elected to defer to its fiscal year ending December 31, 2007, $9,987 of
capital losses and $24,788 of currency losses recognized during the period
November 1, 2006 to December 31, 2006.
See the corresponding master portfolio for tax basis unrealized appreciation
(depreciation) information.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON HIGH YIELD BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the Mellon Institutional Funds Investment Trust and
Shareholders of Standish Mellon High Yield Bond Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Standish Mellon High Yield Bond Fund (the "Fund") at December 31, 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 Standish
Mellon High Yield Bond Portfolio (the "Portfolio") at December 31, 2006 to the
Portfolio's records, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2007
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- ---------
BONDS AND NOTES--97.4%
CONVERTIBLE CORPORATE BONDS--0.3%
Centerpoint Energy, Inc. 144A CVT 2.875% 1/15/2024 USD 30,000 $ 39,712
Sinclair Broadcast Group, Inc. CVT 4.875 7/15/2018 45,000 41,119
---------
Total Convertible Corporate Bonds (Cost $75,534) 80,831
---------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.2%
Global Signal Trust 2006-1 F 144A (Cost $ 55,328) 7.036 2/15/2036 55,000 55,414
---------
CORPORATE--82.7%
BANKING--1.9%
Chevy Chase Bank FSB 6.875 12/1/2013 470,000 470,000
Colonial Bank 9.375 6/1/2011 35,000 39,499
---------
509,499
---------
BASIC INDUSTRY--9.1%
Airgas, Inc. 6.250 7/15/2014 130,000 125,450
Arch Western Finance 6.750 7/1/2013 40,000 39,700
BCP Crystal Holding Corp. 9.625 6/15/2014 202,000 223,210
Crystal US Holdings Corp. (10% beginning 10/1/2014) (a) 0.000 10/1/2014 92,000 78,660
Equistar Chemicals LP/ Equistar Funding Corp. 10.125 9/1/2008 160,000 170,000
Equistar Chemicals LP/Equistar Funding Corp. 10.625 5/1/2011 60,000 63,900
Freeport-McMoRan Copper & Gold, Inc. 10.125 2/1/2010 70,000 73,587
Freeport-McMoRan Copper & Gold, Inc. (b) 6.875 2/1/2014 85,000 86,700
Georgia-Pacific Corp. 8.125 5/15/2011 75,000 78,750
Georgia-Pacific Corp. 144A 7.000 1/15/2015 110,000 109,725
Georgia-Pacific Corp. 8.000 1/15/2024 95,000 96,425
INVISTA 144A 9.250 5/1/2012 255,000 273,488
Jefferson Smurfit Corp. US 8.250 10/1/2012 10,000 9,750
Lyondell Chemical Co. 8.000 9/15/2014 85,000 88,187
Nalco Co. 7.750 11/15/2011 60,000 61,350
Nalco Co. 8.875 11/15/2013 50,000 52,937
Peabody Energy Corp. 6.875 3/15/2013 195,000 199,875
Southern Copper Corp. 6.375 7/27/2015 100,000 101,755
Steel Dynamics, Inc. 9.500 3/15/2009 140,000 144,200
Stone Container Corp. 8.375 7/1/2012 185,000 181,300
Temple-Inland 6.625 1/15/2018 95,000 98,511
United States Steel Corp. 9.750 5/15/2010 34,000 36,167
Westlake Chemical Corp. 6.625 1/15/2016 84,000 81,270
---------
2,474,897
---------
BROKERAGE--0.1%
E*Trade Financial Corp. 8.000 6/15/2011 20,000 20,900
---------
CAPITAL GOODS--12.0%
Alliant Techsystems, Inc. 6.750 4/1/2016 70,000 70,000
Alliant Techsystems, Inc. 144A 2.750 2/15/2024 25,000 27,469
Ball Corp. 6.875 12/15/2012 270,000 275,400
Berry Plastics 144A 8.875 9/15/2014 35,000 35,525
Berry Plastics 144A (c) 9.235 9/15/2014 15,000 15,187
Columbus McKinnon Corp. 8.875 11/1/2013 40,000 42,200
CPG International I Inc. 10.500 7/1/2013 25,000 25,469
Crown Americas Inc. 7.625 11/15/2013 300,000 309,000
Crown Americas Inc. 7.750 11/15/2015 105,000 108,937
Crown Cork & Seal Co, Inc. 8.000 4/15/2023 45,000 43,875
Crown Cork & Seal Co, Inc. 7.375 12/15/2026 140,000 130,900
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- ---------
CAPITAL GOODS (CONTINUED)
Douglas Dynamics LLC 144A 7.750% 1/15/2012 USD 185,000 $ 173,900
DRS Technologies, Inc. 6.625 2/1/2016 15,000 15,113
Esterline Technologies Corp. 7.750 6/15/2013 60,000 61,200
Gibraltar Industries, Inc. 8.000 12/1/2015 45,000 44,381
Goodman Global Holdings (c) 8.360 6/15/2012 115,000 116,725
Goodman Global Holdings 7.875 12/15/2012 25,000 24,562
L-3 Communications Corp. 7.625 6/15/2012 95,000 98,325
L-3 Communications Corp. 6.125 7/15/2013 170,000 166,600
L-3 Communications Corp. 6.375 10/15/2015 25,000 24,750
L-3 Communications Corp. 144A 3.000 8/1/2035 30,000 31,500
Leucadia National Corp. 7.000 8/15/2013 110,000 111,650
Norcraft Finance Co. 9.000 11/1/2011 25,000 25,875
Owens-Brockway 7.750 5/15/2011 95,000 97,612
Owens-Brockway 8.250 5/15/2013 120,000 124,050
Owens-Illinois, Inc. 7.500 5/15/2010 230,000 230,862
Owens-Illinois, Inc. 7.800 5/15/2018 120,000 119,550
Plastipak Holdings, Inc. 144A 8.500 12/15/2015 85,000 88,400
RBS Global & Rexnord Corp. 144A (b) 11.750 8/1/2016 100,000 104,500
Silgan Holdings, Inc. 6.750 11/15/2013 130,000 127,400
Solo Cup Co. (b) 8.500 2/15/2014 40,000 34,600
Terex Corp. 7.375 1/15/2014 270,000 274,050
Texas Industries Inc. 7.250 7/15/2013 15,000 15,225
Trinity Industries LE 6.500 3/15/2014 55,000 54,037
---------
3,248,829
---------
CONSUMER CYCLICAL--4.5%
Cooper Standard Auto (b) 8.375 12/15/2014 10,000 7,875
Couche-Tard 7.500 12/15/2013 25,000 25,562
Domino's, Inc. 8.250 7/1/2011 49,000 50,776
Ford Motor Co. (b) 7.450 7/16/2031 85,000 66,725
Ford Motor Co. (b) 6.500 8/1/2018 105,000 79,275
Ford Motor Credit Co. 8.000 12/15/2016 100,000 98,815
Ford Motor Credit Co. (c) 6.193 9/28/2007 110,000 109,851
Ford Motor Credit Corp. 5.625 10/1/2008 55,000 54,010
General Motors Acceptance Corp. 7.750 1/19/2010 155,000 162,233
General Motors Acceptance Corp. (b) 6.125 1/22/2008 75,000 74,836
Goodyear Tire & Rubber Co. 144A 8.625 12/1/2011 85,000 87,762
Goodyear Tire & Rubber Co. 9.000 7/1/2015 55,000 57,612
Keystone Automotive Operation, Inc. 9.750 11/1/2013 45,000 44,550
Leslie's Poolmart 7.750 2/1/2013 60,000 59,700
Neiman Marcus Group, Inc. 9.000 10/15/2015 35,000 38,194
Tenneco Inc (b) 8.625 11/15/2014 90,000 91,800
United Components, Inc. 9.375 6/15/2013 100,000 103,500
---------
1,213,076
---------
CONSUMER NONCYCLICAL--4.8%
Alliance One International 11.000 5/15/2012 40,000 42,600
Altria Group, Inc. 7.000 11/4/2013 15,000 16,298
Chattem, Inc. 7.000 3/1/2014 90,000 88,650
Church & Dwight Co., Inc. 6.000 12/15/2012 30,000 29,325
Dean Foods Co. 7.000 6/1/2016 145,000 146,450
Del Monte Corp. 8.625 12/15/2012 95,000 100,225
Dole Foods Co. 8.625 5/1/2009 55,000 54,656
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- ---------
CONSUMER NONCYCLICAL (CONTINUED)
Elizabeth Arden, Inc. 7.750% 1/15/2014 USD 30,000 $ 30,225
Ingles Markets, Inc. 8.875 12/1/2011 45,000 46,912
Rite Aid Corp. 8.125 5/1/2010 70,000 71,487
Rite Aid Corp. 9.500 2/15/2011 20,000 20,925
Scotts Co. 6.625 11/15/2013 190,000 199,025
Smithfield Foods, Inc. 7.000 8/1/2011 5,000 5,050
Smithfield Foods, Inc. (b) 7.750 5/15/2013 150,000 155,250
Stater Brothers Holdings (c) 8.860 6/15/2010 100,000 101,250
Stater Brothers Holdings 8.125 6/15/2012 130,000 131,950
True Temper Sports, Inc. 8.375 9/15/2011 55,000 47,850
---------
1,288,128
---------
ENERGY--7.6%
Amerigas Partners LP 7.250 5/20/2015 15,000 15,187
Amerigas Partners LP/Amerigas Eagle Finance Corp. 7.125 5/20/2016 70,000 70,000
ANR Pipeline Co. 7.375 2/15/2024 20,000 22,421
ANR Pipeline Co. 7.000 6/1/2025 10,000 10,682
Chesapeake Energy Corp. 7.500 6/15/2014 125,000 129,844
Chesapeake Energy Corp. 7.625 7/15/2013 20,000 21,075
Colorado Interstate Gas 5.950 3/15/2015 100,000 98,666
Colorado Interstate Gas 6.800 11/15/2015 115,000 119,575
El Paso Natural Gas Co. 8.625 1/15/2022 105,000 127,164
El Paso Natural Gas Co. 7.500 11/15/2026 85,000 95,264
El Paso Natural Gas Co. 8.375 6/15/2032 45,000 54,492
El Paso Production Holding Co. 7.750 6/1/2013 70,000 73,237
Frontier Oil Corp. 6.625 10/1/2011 5,000 4,987
Houston Exploration Co. 7.000 6/15/2013 60,000 58,500
Newfield Exploration Corp. 7.625 3/1/2011 145,000 151,887
Pacific Energy Part/Finance 6.250 9/15/2015 10,000 9,776
Pogo Producing Co. 6.625 3/15/2015 90,000 85,725
Southern Natural Gas Co. 8.875 3/15/2010 20,000 20,982
Southern Natural Gas Co. 7.350 2/15/2031 45,000 49,534
Tennessee Gas Pipeline Co. 8.375 6/15/2032 105,000 127,596
Transcontinental Gas Pipeline Corp. 7.000 8/15/2011 75,000 77,063
Transcontinental Gas Pipeline Corp. 8.875 7/15/2012 170,000 192,100
Whiting Petroleum Corp. 7.250 5/1/2013 95,000 95,237
Williams Cos., Inc. 7.875 9/1/2021 140,000 150,150
Williams Cos., Inc. (b) 8.125 3/15/2012 150,000 162,375
Williams Cos., Inc. (b) 7.750 6/15/2031 40,000 42,000
---------
2,065,519
---------
FINANCIAL--0.3%
Residential Capital Corp. 6.375 6/30/2010 70,000 70,815
---------
INSURANCE--0.4%
Hanover Insurance Group 7.625 10/15/2025 110,000 117,884
---------
MEDIA--4.7%
Cablevision Systems Corp. (c) 9.870 4/1/2009 150,000 158,250
CBD Media, Inc. 8.625 6/1/2011 25,000 25,625
CSC Holdings, Inc. 8.125 7/15/2009 55,000 56,994
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 50,000 51,938
Dex Media West LLC/Dex Media Finance Co. 9.875 8/15/2013 28,000 30,520
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- ---------
MEDIA (CONTINUED)
Dex Media, Inc. 8.000% 11/15/2013 USD 30,000 $ 30,900
Echostar DBS Corp. 5.750 10/1/2008 20,000 19,925
Echostar DBS Corp. 6.375 10/1/2011 105,000 104,344
Entercom Radio LLC/Entercom Capital, Inc. 7.625 3/1/2014 15,000 15,000
Idear, Inc. 144A 8.000 11/15/2016 200,000 203,000
Lamar Media Corp. 7.250 1/1/2013 5,000 5,094
Lamar Media Corp. 6.625 8/15/2015 20,000 19,825
Lamar Media Corp. 6.625 8/15/2015 200,000 198,250
Radio One, Inc. 8.875 7/1/2011 65,000 67,113
RH Donnelley Corp. 8.875 1/15/2016 20,000 21,000
RH Donnelley Finance Corp. 144A 10.875 12/15/2012 145,000 158,050
Salem Communications Corp. 7.750 12/15/2010 110,000 111,650
---------
1,277,478
---------
REAL ESTATE--0.4%
BF Saul Reit 7.500 3/1/2014 105,000 106,706
---------
SERVICES: CYCLICAL--15.2%
AMC Entertainment, Inc. 8.000 3/1/2014 15,000 14,888
Beazer Homes USA 6.875 7/15/2015 55,000 53,900
Caesars Entertainment 7.875 3/15/2010 140,000 145,950
Caesars Entertainment 8.125 5/15/2011 195,000 204,019
CCM Merger, Inc. 144A 8.000 8/1/2013 75,000 73,312
Cinemark, Inc. (9.75% beginning 3/15/2014) (a) 0 3/15/2014 65,000 55,819
Cinemark USA, Inc. 9.000 2/1/2013 154,000 163,240
Corrections Corp Of America 7.500 5/1/2011 70,000 72,100
Corrections Corp. of America 6.250 3/15/2013 85,000 84,256
Education Management LLC 144A 8.750 6/1/2014 40,000 41,400
Education Management LLC 144A (b) 10.250 6/1/2016 45,000 47,588
Felcor Lodging LP 144A (c) 7.275 12/1/2011 150,000 150,750
Gaylord Entertainment Co. 8.000 11/15/2013 140,000 145,250
Gaylord Entertainment Co. 6.750 11/15/2014 40,000 39,700
Hertz Corp. 144A 8.875 1/1/2014 55,000 57,613
Hertz Corp. 144A (b) 10.500 1/1/2016 25,000 27,500
Host Marriott 7.125 11/1/2013 150,000 153,375
Host Marriott LP 7.000 8/15/2012 30,000 30,450
Isle of Capri Casinos, Inc. 7.000 3/1/2014 75,000 74,625
Isle of Capri Casinos, Inc. (b) 9.000 3/15/2012 80,000 83,600
Kansas City Southern Mexico 144A 7.625 12/1/2013 50,000 50,000
Kansas City Southern Railway 7.500 6/15/2009 50,000 50,438
Marquee Holdings (12.00% beginning 8/15/2014) (a) 0 8/15/2014 50,000 41,938
Meristar Hospitality Corp. 9.500 4/1/2010 60,000 61,590
MGM Mirage, Inc. 6.000 10/1/2009 225,000 224,438
MGM Mirage, Inc. (b) 6.750 4/1/2013 210,000 205,275
Mohegan Tribal Gaming Authority 6.125 2/15/2013 250,000 248,125
Mohegan Tribal Gaming Authority 8.000 4/1/2012 115,000 119,744
Mohegan Tribal Gaming Authority (b) 7.125 8/15/2014 120,000 121,650
Penn National Gaming, Inc. 6.875 12/1/2011 55,000 55,412
Penn National Gaming, Inc. 6.750 3/1/2015 75,000 73,500
Pinnacle Entertainment, Inc. 8.750 10/1/2013 55,000 58,300
Pokagon Gaming 144A 10.375 6/15/2014 130,000 142,350
Scientific Games 6.250 12/15/2012 145,000 141,738
Seneca Gaming Corp. 7.250 5/1/2012 20,000 20,350
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- ---------
SERVICES: CYCLICAL (CONTINUED)
Seneca Gaming Corp. 7.250% 5/1/2012 USD 55,000 $ 55,962
Speedway Motorsports, Inc. 6.750 6/1/2013 220,000 220,000
Standard Pacific Corp. 6.500 8/15/2010 60,000 58,650
Station Casinos, Inc. 6.000 4/1/2012 75,000 71,156
Tropicana Entertainment 144A 9.625 12/15/2014 225,000 222,750
Vail Resorts, Inc. 6.750 2/15/2014 105,000 105,000
Williams Scotsman, Inc. 8.500 10/1/2015 55,000 57,406
---------
4,125,107
---------
SERVICES: NON-CYCLICAL--5.1%
Allied Waste North America 6.375 4/15/2011 370,000 365,375
Davita, Inc. 6.625 3/15/2013 160,000 160,400
Davita, Inc. 7.250 3/15/2015 15,000 15,300
HCA, Inc. 144A 9.125 11/15/2014 25,000 26,719
HCA, Inc. 144A 9.250 11/15/2016 105,000 112,481
HCA, Inc. 8.750 9/1/2010 40,000 41,700
HCA, Inc. 7.875 2/1/2011 125,000 125,313
HCA, Inc. 6.950 5/1/2012 40,000 37,900
Kinetic Concepts, Inc. 7.375 5/15/2013 29,000 29,435
Psychiatric Solutions, Inc. 7.750 7/15/2015 100,000 99,750
Service Corp Intl 7.000 6/15/2017 120,000 121,500
Tenet Healthcare Corp 9.875 7/1/2014 70,000 71,225
Tenet Healthcare Corp. 9.250 2/1/2015 140,000 140,000
WCA Waste Corp 9.250 6/15/2014 35,000 36,575
---------
1,383,673
---------
TECHNOLOGY & ELECTRONICS--1.6%
Communications & Power Industries, Inc. 8.000 2/1/2012 15,000 15,225
Fisher Scientific International 6.750 8/15/2014 130,000 132,550
Freescale Semiconductor 144A 8.875 12/15/2014 220,000 219,175
Freescale Semiconductor 144A 10.125 12/15/2016 60,000 60,075
Sunguard Data Systems, Inc. (c) 9.973 8/15/2013 25,000 25,969
---------
452,994
---------
TELECOMMUNICATIONS--5.7%
Consolidated Communication Holdings, Inc. 9.750 4/1/2012 71,000 75,970
Level 3 Finance, Inc. 144A 9.250 11/1/2014 175,000 178,500
Nextel Communications, Inc. 6.875 10/31/2013 10,000 10,103
Panamsat Corp. 144A 9.000 6/15/2016 90,000 95,288
Qwest Communications International, Inc. (c) 8.874 2/15/2009 65,000 65,813
Qwest Communications International, Inc. (b) 7.500 2/15/2014 185,000 190,550
Qwest Corp. 7.875 9/1/2011 175,000 186,375
Qwest Corp. 7.200 11/10/2026 35,000 35,263
Rural Cellular Corp. 8.250 3/15/2012 45,000 46,856
Rural Cellular Corp. (b) 9.875 2/1/2010 25,000 26,594
Ubiquitel Operating Co. 9.875 3/1/2011 80,000 86,400
Windstream Corp. 144A 8.125 8/1/2013 365,000 395,113
Windstream Corp. 144A 8.625 8/1/2016 135,000 147,825
---------
1,540,650
---------
UTILITIES--9.3%
AES Corp. 9.375 9/15/2010 20,000 21,725
AES Corp. 8.875 2/15/2011 135,000 144,788
AES Corp. 144A 8.750 5/15/2013 305,000 326,731
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- -----------
UTILITIES (CONTINUED)
Allegheny Energy Supply 144A 8.250% 4/15/2012 USD 45,000 $ 49,388
CMS Energy Corp. 8.900 7/15/2008 30,000 31,350
CMS Energy Corp. 7.750 8/1/2010 50,000 52,750
CMS Energy Corp. 8.500 4/15/2011 30,000 32,625
Dynegy Holdings, Inc. 8.375 5/1/2016 200,000 210,000
Edison Mission Energy 7.500 6/15/2013 130,000 135,850
FPL Energy National Wind 144A 6.125 3/25/2019 91,187 88,312
FPL Energy Wind Funding LLC 9.500 7/15/2013 170,000 182,325
FPL Energy Wind Funding LLC 144A 6.876 6/27/2017 79,200 79,893
Mirant Americas General, Inc. 8.300 5/1/2011 100,000 102,500
Mirant North America LLC (b) 7.375 12/31/2013 225,000 228,375
Monongahela Power 6.700 6/15/2014 35,000 37,189
MSW Energy Holdings 7.375 9/1/2010 140,000 142,800
MSW Energy Holdings 8.500 9/1/2010 15,000 15,600
Nevada Power Co. 6.500 4/15/2012 135,000 138,588
NorthWestern Corp. 5.875 11/1/2014 35,000 34,389
NRG Energy Inc 7.375 1/15/2017 45,000 45,113
NRG Energy, Inc. 7.250 2/1/2014 75,000 75,563
Reliant Energy, Inc. (b) 9.250 7/15/2010 25,000 26,250
Sierra Pacific Resources (b) 8.625 3/15/2014 255,000 273,783
Teco Energy, Inc. 7.500 6/15/2010 40,000 42,600
Teco Energy, Inc. 6.750 5/1/2015 5,000 5,225
----------
2,523,712
----------
Total Corporate (Cost $22,049,284) 22,419,867
----------
MUNICIPAL BONDS--0.9%
Erie County NY Tob Asset Securitization Corp. 6.000 6/1/2028 50,000 50,262
Tobacco Settlement Authority Iowa 6.500 6/1/2023 140,000 139,255
Tobacco Settlement Authority Michigan 7.309 6/1/2034 65,000 67,858
----------
Total Municipal Bonds (Cost $254,392) 257,375
----------
SOVEREIGN BONDS--1.1%
Argentina Bonos (c) 5.590 8/3/2012 168,750 163,181
Republic of Argentina (c) 2.000 1/3/2010 25,000 12,569
Republic of Argentina 8.280 12/31/2033 14,736 16,026
Republic of Brazil 8.750 2/4/2025 5,000 6,175
Republic of Brazil 10.125 5/15/2027 5,000 7,025
Republic of Colombia 10.000 1/23/2012 5,000 5,875
Republic of Colombia 10.750 1/15/2013 5,000 6,188
Republic of Colombia (b) 8.125 5/21/2024 5,000 5,775
Republic of Peru (c) 5.000 3/7/2017 15,200 15,078
Republic of Venezuela (c) 6.374 4/20/2011 15,000 14,850
Russian Federation (7.50% beginning 3/31/2007) (a) 5.000 3/31/2030 30,000 33,900
Russian Ministry of Finance 3.000 5/14/2008 25,000 24,113
----------
Total Sovereign Bonds (Cost $283,635) 310,755
----------
YANKEE BONDS--8.2%
Bombardier, Inc. 144A 6.300 5/1/2014 100,000 94,000
Ineos Group Holdings PLC 144A 8.500 2/15/2016 110,000 105,050
Intelsat Bermuda International 144A 11.250 6/15/2016 180,000 197,550
Intelsat Sub Holding Co., Ltd. (c) 10.484 1/15/2012 115,000 116,006
Jean Coutu Group, Inc. (b) 7.625 8/1/2012 40,000 42,100
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ------ ---------- ------- -----------
YANKEE BONDS (CONTINUED)
JSG Funding PLC 9.625% 10/1/2012 USD 65,000 $ 68,900
Kabel Deutschland GMBH 10.625 7/1/2014 100,000 110,875
Kaupthing Bank 144A 7.125 5/19/2016 145,000 153,798
Nell AF Sarl 144A 8.375 8/15/2015 75,000 77,063
Norampac, Inc. (b) 6.750 6/1/2013 160,000 155,600
Nordic Telecommunication Co. Holdings 144A 8.875 5/1/2016 75,000 80,250
Nova Chemicals Corp. (c) 8.502 11/15/2013 45,000 45,000
NXP Funding LLC 144A 7.875 10/15/2014 75,000 77,531
Rhodia SA 10.250 6/1/2010 90,000 102,600
Rogers Wireless Inc. 8.000 12/15/2012 70,000 74,725
Rogers Wireless, Inc. (c) 8.485 12/15/2010 75,000 76,500
Rogers Wireless, Inc. 7.250 12/15/2012 65,000 68,900
Royal Caribbean Cruises Ltd. 8.750 2/2/2011 135,000 147,548
Russel Metals, Inc. 6.375 3/1/2014 40,000 38,150
Shinsei Finance Cayman Ltd 144A 6.418 7/20/2048 100,000 99,885
Stena AB 9.625 12/1/2012 25,000 26,625
Stena AB 7.500 11/1/2013 120,000 118,500
Telenet Group Holding NV 144A (11.50% beginning 6/15/2014) (a) 1.000 6/15/2014 46,000 41,458
UCI Hold Co, Inc. 144A (c) 12.365 12/15/2013 50,000 48,875
Wind Acquisition Finance SA 144A 10.750 12/1/2015 45,000 51,188
----------
Total Yankee Bonds (Cost $2,160,325) 2,218,677
----------
FOREIGN DENOMINATED--4.0%
EURO--4.0%
Central European Distribution Corp. 144A 8.000 7/25/2012 EUR 50,000 71,253
Culligan Finance Corp., BV 144A 8.000 10/1/2014 40,000 56,211
FCE Bank PLC EMTN (c) 4.722 9/30/2009 285,000 367,972
Fresenius Finance BV 144A 5.000 1/31/2013 15,000 19,941
General Motors Acceptance Corp. 5.375 6/6/2011 45,000 59,848
GMAC International Finance BV 4.375 10/31/2007 105,000 138,137
Hornbach Baumarkt AG 144A 6.125 11/15/2014 5,000 6,845
Nordic Tel Co. Holdings 144A 8.250 5/1/2016 50,000 72,573
NTL Cable PLC 8.750 4/15/2014 70,000 99,177
Remy Cointreau S.A. 144A 6.500 7/1/2010 30,000 41,069
Sensata Technologies BV 144A 9.250 5/1/2016 50,000 66,552
Telenet Communications NV 144A 9.000 12/15/2013 48,555 70,315
----------
Total Foreign Denominated (Cost $974,315) 1,069,893
----------
TOTAL BONDS AND NOTES (Cost $25,852,813) 26,412,812
----------
SHARES
------
COMMON STOCK--0.1%
HONG KONG DOLLAR--0.0%
Guangdong Alliance (f) 9,590 --
HK Property (f) 9,590 --
----------
--
----------
US DOLLAR--0.1%
Idearc, Inc. (d) 27 774
Verizon Communications, Inc. (d) 545 20,296
----------
TOTAL COMMON STOCKS (Cost $ 0) 21,070
----------
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -------------------- ----- -------- --------- -----------
CONVERTIBLE PREFERRED STOCK--0.7%
Fannie Mae 7.00% CVT Pfd 400 $ 21,325
Sovereign Capital Trust IV 4.375% CVT Pfd 3,500 173,250
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $192,950) 194,575
-----------
WARRANTS--0.0%
Republic of Argentina Warrant, 12/15/2035 (Cost $ 0) (d) 39,306 5,365
-----------
SHORT-TERM INVESTMENTS--7.4%
INVESTMENT OF CASH COLLATERAL--7.4%
BlackRock Cash Strategies L.L.C. (e) (Cost $ 1,919,690) 5.320% 1,919,690 1,919,690
-----------
TOTAL UNAFFILIATED INVESTMENTS (Cost $27,965,453) 28,553,512
-----------
TOTAL INVESTMENTS--105.6% (COST $27,965,453) 28,553,512
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS--(5.6%) (1,441,198)
-----------
NET ASSETS--100.0% $27,112,314
===========
NOTES TO SCHEDULE OF INVESTMENTS
144A--Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end, the
value of these securities amounted to $5,502,521 or 20.3% of net assets.
CVT--Convertible
REIT--Real Estate Investment Trust
EMTN--Euro Medium Term Note
EUR--Euro
Pfd--Preferred
(a) Step up security; rate indicated is as of December 31, 2006.
(b) Security, or a portion thereof, was on loan at December 31, 2006.
(c) Variable Rate Security; rate indicated is as of December 31, 2006.
(d) Non-income producing.
(e) Stated rate is the seven-day yield for the fund at December 31, 2006.
(f) Security valued at fair value using methods determined in good faith by or
under the direction of the Board of Trustees.
At December 31, 2006, the Portfolio held the following open swap contracts:
UNREALIZED
CREDIT DEFAULT REFERENCE BUY/SELL (PAY)/RECEIVE EXPIRATION NOTIONAL APPRECIATION/
SWAPS COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT (DEPRECIATION)
- ------------------ --------- ---------- ------------- ----------- ----------- --------------
JPMorgan Kimberly-Clark Corp. 6.875% due 2/15/2014 Buy (0.190%) 12/20/2011 178,000 USD $ 5
JPMorgan Kimberly-Clark Corp. 6.875% due 2/15/2014 Buy (0.370%) 12/20/2016 50,000 USD 88
JPMorgan Kimberly-Clark Corp. 6.875% due 2/15/2014 Buy (0.370%) 12/20/2016 90,000 USD 158
JPMorgan Kimberly-Clark Corp. 6.875% due 2/15/2014 Buy (0.370%) 12/20/2016 140,000 USD 246
Merrill Lynch Dow Jones CDX.NA.IG.4 7-10% Tranche Buy (0.305%) 6/20/2010 188,900 USD (1,561)
Morgan Stanley Dow Jones CDX.NA.IG.4 7-10% Tranche Buy (0.350%) 6/20/2010 300,100 USD (2,917)
UBS AG Itraxx Europe Series 5 Version 1 Sell 0.400% 6/20/2011 100,000 EUR 630
UBS AG Telekom Austria Aktiengesellschaft,
5.000% due 7/22/2013 Buy (0.450%) 9/20/2011 65,000 USD (439)
UBS AG Wolters Kluwer NV, 5.125% due 1/27/2014 Buy (0.550%) 9/20/2011 65,000 USD (571)
UBS AG Multiple Reference Entity Global Tranch, 0-3% Sell 0.000% 9/20/2013 500,000 USD 2,667
----------
$(1,694)
==========
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006
INTEREST RATE REFERENCE BUY/SELL (PAY)/RECEIVE EXPIRATION NOTIONAL UNREALIZED
SWAPS COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT DEPRECIATION
- ------------------ ---------------- ---------- ------------- ---------- ---------- -------------
Bear Stearns USD--LIBOR-- BBA Pay 3.907% 11/19/2009 25,000 USD $ (840)
At December 31, 2006 the Portfolio held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE DECEMBER 31, 2006 TO RECEIVE GAIN/(LOSS)
- -------------------- -------- ---------- ----------------- ---------- -----------
Euro 524,000 3/21/2007 $ 693,963 $ 695,977 $ 2,013
Euro 150,000 3/21/2007 198,653 199,103 450
Euro 710,000 3/21/2007 940,293 933,579 (6,713)
---------- ---------- ----------
$1,832,909 $1,828,659 $ (4,250)
========== ========== ==========
LOCAL
PRINCIPAL CONTRACT VALUE AT AMOUNT UNREALIZED
CONTRACTS TO RECEIVE AMOUNT VALUE DATE DECEMBER 31, 2006 TO DELIVER GAIN
- -------------------- --------- ---------- ----------------- ---------- -----------
Euro 524,000 3/21/2007 $ 693,963 $ 689,008 $ 4,955
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS
Investments in securities (including securities on loan, valued at $1,912,621 (Note 6))
Unaffiliated issuers, at value (Note 1A) (cost $27,965,453) $ 28,553,512
Cash 48,625
Foreign currency, at value (cost $55,018) 55,127
Receivable for investments sold 516,032
Interest and dividends receivable 483,639
Swap premium paid 111,477
Unrealized appreciation on forward foreign currency exchange contracts, at value (Note 5) 7,418
Unrealized appreciation on swap contracts (Note 5) 3,794
Prepaid expenses 463
-----------
Total assets 29,780,087
LIABILITIES
Collateral for securities on loan (Note 6) $ 1,919,690
Bank loan payable (Note 7) 714,000
Unrealized depreciation on forward foreign currency exchange contracts (Note 5) 6,713
Unrealized depreciation on swap contracts (Note 5) 6,328
Accrued accounting, administration and custody fees (Note 2) 12,386
Accrued professional fees 7,257
Accrued trustees' fees and expenses (Note 2) 866
Other accrued expenses and liabilities 533
-----------
Total liabilities 2,667,773
-----------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $27,112,314
===========
The accompanying notes are an integral part of the financial statements.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME (NOTE 1B)
Interest income $ 1,235,841
Dividend income from affiliated investments (Note 1H) 50,095
Security lending income (Note 6) 2,259
Dividend income 11,886
------------
Total investment Income 1,300,081
EXPENSES
Investment advisory fee (Note 2) $ 87,385
Accounting, administration and custody fees (Note 2) 67,376
Professional fees 36,942
Trustees' fees and expenses (Note 2) 669
Insurance expense 4,420
Miscellaneous expenses 4,686
-----------
Total expenses 201,478
DEDUCT:
Waiver of investment advisory fee (Note 2) (87,385)
Reimbursement of Fund operating expenses (Note 2) (26,657)
-----------
Total expense deductions (114,042)
Net expenses 87,436
------------
Net investment income 1,212,645
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investments 89,273
Swap transactions 757
Foreign currency transactions and forward foreign currency exchange transactions (41,985)
-----------
Net realized gain (loss) 48,045
Change in unrealized appreciation (depreciation)
Investments 321,073
Swap contracts 3,191
Foreign currency translations and forward foreign currency exchange contracts (5,293)
-----------
Change in net unrealized appreciation (depreciation) 318,971
------------
Net realized and unrealized gain (loss) 367,016
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,579,661
============
The accompanying notes are an integral part of the financial statements.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,212,645 $ 1,807,357
Net realized gain (loss) 48,045 1,267,557
Change in net unrealized appreciation (depreciation) 318,971 (2,829,217)
------------ ------------
Net increase(decrease) in net assets from investment operations 1,579,661 245,697
------------ ------------
CAPITAL TRANSACTIONS
Contributions 17,582,918 5,802,546
Withdrawals (9,647,661) (45,178,933)
------------ ------------
Net increase (decrease) in net assets from capital transactions 7,935,257 (39,376,387)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,514,918 (39,130,690)
NET ASSETS
At beginning of year 17,597,396 56,728,086
------------ ------------
At end of year $ 27,112,314 $ 17,597,396
============ ============
The accompanying notes are an integral part of the financial statements.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2006 2005 2004 2003 2002
----------- -------- --------- --------- ---------
TOTAL RETURN (a) 8.22% 3.70% 9.56% 21.76% 4.71%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 0.50% 0.50% 0.50% 0.50% 0.50%
Net Investment Income (to average daily net assets)* 6.93% 6.84% 7.28% 7.79% 8.66%
Portfolio Turnover 53% 25% 51% 80% 130%
Net Assets, End of Period (000's omitted) $ 27,112 $17,597 $ 56,728 $ 57,079 $ 44,144
- -----------------------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed
the Fund for a portion of its operating expenses. If this voluntary action
had not been taken, the investment income per share and the ratios would
have been:
Ratios (to average daily net assets):
Expenses 1.15% 1.12% 0.76% 0.85% 0.82%
Net investment income 6.28% 6.22% 7.02% 7.44% 8.34%
(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.
28
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND 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. Standish
Mellon High Yield Bond Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to maximize total return, consisting
primarily of a high level of income. The Portfolio seeks to achieve its
objective by investing, under normal circumstances, at least 80% of net
assets in below investment grade fixed income securities issued by U.S. and
foreign governments, companies and banks, as well as tax-exempt securities,
preferred stocks and warrants.
At December 31, 2006 there was one fund, Standish Mellon High Yield Bond
Fund (the "Fund"), invested in the Portfolio. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. The Fund's proportionate interest at
December 31, 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 quoted bid price.
Securities that are fixed income securities, other than short-term
instruments with less than sixty days remaining to maturity, for which
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,
including counterparties, 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 then is valued at amortized cost based upon the value on
such date unless the Trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of coupon interest earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Portfolio's books and the
U.S. dollar equivalent amounts actually received or paid.
C. INCOME TAXES
The Portfolio is treated as a disregarded entity for federal tax purposes.
No provision is made by the Portfolio for federal or state income taxes on
any taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since the
Portfolio's investor is a regulated investment company that invests all or
substantially all of its assets in the Portfolio, the Portfolio normally
must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them.
29
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
Section 988 of the Internal Revenue Code provides that gains or losses on
certain transactions attributable to fluctuations in foreign currency
exchange rates must be treated as ordinary income or loss. For financial
statement purposes, such amounts are included in net realized gains or
losses.
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 Standish Mellon
Asset Management Company LLC ("Standish Mellon"), 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.
In addition, on September 20, 2006, the FASB released Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" ("FAS
157"). FAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of FAS 157 is
required for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. At this time, management is evaluating
the implications of FAS 157 and its impact, if any, in the financial
statements has not yet been determined.
30
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services, and general office facilities is paid
monthly at the annual rate of 0.50% of the Portfolio's average daily net
assets. Standish Mellon voluntarily agreed to limit the Portfolio's total
annual operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.50% of the Portfolio's average daily net
assets for the year ended December 31, 2006. Pursuant to this agreement,
for the year ended December 31, 2006, Standish Mellon voluntarily waived
all of its investment advisory fee in the amount of $87,385 and reimbursed
the Portfolio for operating expense in the amount of $26,657. This
agreement is voluntary and temporary and may be discontinued or revised by
Standish Mellon at any time.
On December 4, 2006, Mellon Financial Corporation ("MFC") and The Bank of
New York Company, Inc. ("BNY") announced that they had entered into a
definitive agreement to merge. The new company will be called The Bank of
New York Mellon Corporation. As part of this transaction, Standish Mellon
would become an indirect wholly-owned subsidiary of The Bank of New York
Mellon Corporation. The transaction is subject to certain regulatory
approvals and the approval of BNY's and MFC's shareholders, as well as
other customary conditions to closing. Subject to such approvals and the
satisfaction of the other conditions, MFC and BNY expect the transaction to
be completed in the third quarter of 2007.
The Portfolio Trust has 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 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 $67,376 during the year ended December 31, 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 $964 for
the year ended December 31, 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 Standish Mellon or its affiliates received
any compensation from the Trust or the Portfolio Trust for serving as an
officer or Trustee of the Trust or the Portfolio Trust. The Fund and
Portfolio Trust pays each Trustee who is not a director, officer or
employee of Standish Mellon 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 December 31, 2006 were as follows:
PURCHASES SALES
----------- -----------
U.S. Government Securities $ 157,361 $ 24,142
=========== ===========
Non-U.S. Government Securities $19,173,616 $ 8,998,039
=========== ===========
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2006, as computed on a federal
income tax basis, were as follows:
Cost for federal income tax purposes $ 27,996,454
============
Gross unrealized appreciation 690,959
Gross unrealized depreciation (133,901)
------------
Net unrealized appreciation (depreciation) $ 557,058
============
(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:
31
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
FORWARD CURRENCY EXCHANGE CONTRACTS
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any appreciation or depreciation are recorded for financial
statement purposes as unrealized until the contract settlement date or upon
the closing of the contract. Forward currency exchange contracts are used
by the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At December 31, 2006, the Portfolio held forward currency exchange
contracts. See the Schedule of Investments for further details.
SWAP AGREEMENTS
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated by
another instrument. The Portfolio may enter into interest rate, 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 Portfolio with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal. In a credit
default swap, one party makes a stream of payments to another party in
exchange for the right to receive a specified return in the event of a
default by a third party on its obligation. The Portfolio may use credit
default swaps to provide a measure of protection against defaults of
issuers (i.e., to reduce risk where the Portfolio owns or has exposure to
the corporate or sovereign issuer) or to take an active long or short
position with respect to the likelihood of a particular corporate or
sovereign issuer's default. 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, the portfolio 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. The Portfolio earns interest on cash
set aside as collateral. 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
appreciation or depreciation 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 December 31, 2006, the Portfolio held open swap agreements. See the
Schedule of Investments for further details.
(6) SECURITY LENDING:
The Portfolio may lend its securities to financial institutions which the
Portfolio deems to be creditworthy. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the Portfolio on the next business day. For the duration of a
loan, the Portfolio receives the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives compensation
from the investment of the collateral. As with other extensions of credit,
the Portfolio bears the risk of delay in recovery or even loss of rights in
its securities on loan should the borrower of the securities fail
financially or default on its obligations to the Portfolio. In the event of
borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in the
event it was delayed or prevented from exercising its rights to dispose of
the collateral. The Portfolio also bears the risk in the event that the
interest and/or dividends received on invested collateral is not sufficient
to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended December 31, 2006 and
earned interest on the invested collateral of $64,717 of which, $62,458 was
rebated to borrowers or paid in fees. At December 31, 2006, the Portfolio
had securities valued at $1,912,621 on loan of which, $1,919,690 was
collateralized with cash and $91,800 was collateralized with U.S. treasury
securities with maturities ranging from November 2007 to February 2031. See
the Schedule of Investments for further detail on the security positions on
loan and investment of cash collateral held.
32
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND 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 December 31, 2006, the expense allocated to the Portfolio was
$1,011. The facility fee and interest expense are included in miscellaneous
expenses on the statement of operations.
For the year ended December 31, 2006, the Portfolio had average borrowings
outstanding of $375,182 for a total of twenty-two days and incurred $1,389
of interest expense. At December 31, 2006 the Fund had a $714,000 loan
balance outstanding.
33
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the Mellon Institutional Funds Master Portfolio and Investors
of Standish Mellon High Yield Bond Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Standish Mellon High Yield Bond
Portfolio (the "Portfolio") at December 31, 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 our audits of these financial these financial statements based on
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2007
34
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
FACTORS CONSIDERED BY MELLON TRUSTEES IN APPROVING ADVISORY AGREEMENT
(UNAUDITED)
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 the related fees on an annual basis. The Fund is not a
party to an investment advisory agreement directly with any investment adviser
and does not invest directly in portfolio securities. Instead, the Fund invests
all of its investable assets in the Standish Mellon High Yield Bond Portfolio
(the "Portfolio"), which is managed by Standish Mellon Asset Management Company
LLC ("Standish Mellon"). The Fund's Board of Trustees determines annually
whether the Fund should continue to invest in the Portfolio. The members of the
Fund's Board of Trustees also serve as the Board of Trustees of the Portfolio.
In that capacity, they consider annually whether to continue the investment
advisory agreement between the Portfolio and Standish Mellon. In their most
recent deliberations concerning their decision to approve the continuation of
the investment advisory agreement, the Board of Trustees conducted the review
and made the determinations that are described below. In conducting this review
and in making such determinations, the Independent Trustees received from the
Portfolio's investment adviser, Standish Mellon (the "Adviser") a broad range of
information in response to a written request prepared on their behalf by their
own legal counsel. The Independent Trustees met alone in a private session with
their legal counsel on September 28, 2006 to review these materials and to
discuss the proposed continuation of the Fund's advisory agreement.
Representatives of the Adviser attended a portion of the September meeting to
provide an overview of its organization, personnel, resources and strategic
plans, and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire Board then
met on October 17, 2006.
The information requested by the Independent Trustees and reviewed by the entire
Board included:
(i) Financial and Economic Data: The Adviser's balance sheet and income
statements, as well as a profitability analysis of the Adviser, including a
separate presentation of the Adviser's profitability relative to that of several
publicly traded investment advisers;
(ii) Management Teams and Operations: The Adviser's Form ADV, as well as
information concerning the Adviser's executive management, portfolio management,
client service personnel and overall organizational structure, insurance
coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper Analytical
Services ("Lipper") regarding the Fund's historical performance, management fee
and expense ratio compared to other funds, and the Adviser's separate account
advisory fee schedules;
(iv) Specific Facts Relating to the Fund: The Adviser's commentary on the Fund's
performance (rather than the Portfolio alone) and any material portfolio manager
and strategy changes that may have affected the Fund in the prior year, as well
as the Fund's "fact sheets" prepared by the Adviser providing salient data about
the Fund and Portfolio, including Portfolio's holdings, strategies, recent
market conditions and outlook, as well as the Adviser's views concerning the
issues of breakpoints in the management fee schedule of the Portfolio and
potential economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency, custody,
administration and securities lending services provided to the Funds by
affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the Board
of Trustees, including the Independent Trustees, did not identify any single
factor as all-important or controlling, and individual Trustees did not
necessarily attribute the same weight or importance to each factor. The Trustees
determined that the terms and conditions of the advisory agreement and the
compensation to the Adviser provided therein were fair and reasonable in light
of the services performed, expenses incurred and such other matters as the
Trustees considered relevant in the exercise of their reasonable judgment. The
following summary does not detail all the matters that were considered. Some of
the factors that figured prominently in the Trustees' determination are
described below.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by the Adviser. In their deliberations as to the
continuation of the advisory agreement, the Trustees were also mindful of the
fact that, by choosing to invest in the Fund, the Fund's shareholders have
chosen to entrust the Adviser, under the supervision of the Board, to manage the
portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment management,
administrative, compliance and related services provided by the Adviser. The
Board determined that the services provided were of high quality and at least
commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of the Adviser to receive
an overview of its organization, personnel, resources and strategic plans. Among
other things, the Trustees considered the size, education and experience of the
Adviser's investment staff, technological infrastructure and overall
responsiveness to changes in market conditions.
The Board determined that the Adviser had the expertise and resources to manage
the Portfolio effectively.
35
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
FACTORS CONSIDERED BY BOARD OF TRUSTEES IN APPROVING ADVISORY AGREEMENT
(UNAUDITED)
INVESTMENT PERFORMANCE
The Board considered the investment performance of the Fund (rather than the
Portfolio alone) against a peer group of investment companies selected by the
Adviser with input from the Trustees. The Board also compared the Fund's
investment performance against the average performance of a larger universe of
funds regarded by Lipper as having similar investment objectives and considered
the Fund's performance rankings against that universe. In addition to the
information received by the Board at the September 28, 2006 Board meeting, the
Trustees received similar detailed comparative performance information for the
Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and five-year
periods ended July 31, 2006 based on the Lipper materials provided to the Board
at the September 28, 2006 meeting. The Board found that the Fund underperformed
its peer group average returns for the one-year period (3.03% vs. 4.29%),
three-year period (7.95% vs. 9.35%) and five-year period (8.14% vs. 8.59%). The
Board noted that Standish Mellon had discussed possible changes within the
Fund's portfolio management team and further noted the Fund's improved recent
performance, which was reported in the October 17, 2006 meeting's materials.
ADVISORY FEE AND OTHER EXPENSES
The Board considered the advisory fee rate paid by the Portfolio to the Adviser.
The Lipper data presenting the Portfolio's "net management fees" included fees
paid by the Portfolio, as calculated by Lipper, for administrative services
provided by Mellon Bank, N.A., the Portfolio's custodian. Such reporting was
necessary, according to Lipper, to allow the Board to compare the Portfolio's
advisory fees to those peers that include administrative fees within a blended
advisory fee.
The Portfolio's contractual advisory fee was 0.50%, in the 2nd quintile (1st
being the best) of its peer group of funds, the median fee of which was 0.60%.
The Portfolio's entire management fee (including certain administrative services
fees allocated under Lipper's calculation methodology) was reimbursed pursuant
to an expense limitation agreement. By comparison, the peer group median net
management fee was 0.552%. Based on the Lipper data, as well as other factors
discussed at the September 28, 2006 meeting, the Board determined that the
Portfolio's advisory fee is reasonable relative to its peer group averages, both
with and without giving effect to expense limitations.
The Board also compared the fees payable by the Portfolio relative to those
payable by separate account clients of the Adviser. Based on the additional
scope and complexity of the services provided and responsibilities assumed by
the Adviser with respect to the Portfolio relative to these other types of
clients, the Board concluded that the fees payable under the advisory agreement
were reasonable relative to the nature and quality of the services provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds. The
Board found that the actual net expense ratio of 0.50% (after giving effect to
expense limitations) was lower than the median net expense ratio of the peer
group of 0.757% notwithstanding the fact that most of the other funds in the
peer group were larger than the Fund.
THE ADVISER'S PROFITABILITY
The Board considered the Adviser's profitability in managing the Portfolio and
Fund and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect expenses
incurred by the Adviser or its affiliated investment adviser, The Boston Company
Asset Management, LLC ("TBCAM") in managing the Portfolio and other funds in the
Mellon Institutional Funds family of funds. The Independent Trustees had
observed that the Adviser, based on the profitability information submitted to
them by the Adviser, incurred losses in managing all but one of the investment
companies in the Mellon Institutional Funds family of funds, including the
Portfolio and Fund. The Trustees observed that the Adviser had incurred losses
in operating the Portfolio and Fund in both 2004 and 2005.
ECONOMIES OF SCALE
The Board also considered the extent to which economies of scale might be
realized as the Portfolio and Fund grow. They observed that the Standish Mellon
Fixed Income Portfolio and The Boston Company International Core Equity
Portfolio, two of the largest funds in the complex, already had breakpoints in
their fee arrangements that reflected economies resulting from their size. The
Board also noted that at the March 7, 2006 meeting, management had presented a
Breakpoint Discussion Memorandum that had proposed a framework for future
breakpoints. The Board concluded that, at existing asset levels and considering
current assets growth projections, the implementation of additional fee
breakpoints or other fee reductions was not necessary at this time.
36
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
FACTORS CONSIDERED BY BOARD OF TRUSTEES IN APPROVING ADVISORY AGREEMENT
(UNAUDITED)
OTHER BENEFITS
The Board also considered the additional benefits flowing to Mellon as a result
of its relationship with the Mellon Institutional Funds as a group, including
revenues received by Mellon affiliates in consideration of custodial,
administrative, transfer agency and securities lending services provided by such
affiliates to the Funds. In each case, such affiliates were selected by the
Board on the basis of a comparative analysis of their capabilities and fees
relative to those of unaffiliated competitors.
The Board considered the fact that Mellon operates businesses other than the
Mellon Institutional Funds, some of which businesses share personnel, office
space and other resources and that these were a component of the profitability
analysis provided. The Board also considered the intangible benefits that accrue
to Mellon and its affiliates by virtue of its relationship with the Funds and
the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in determining
that the terms and conditions of the Portfolio's advisory agreement and the
compensation to the Adviser provided therein are fair and reasonable and, thus,
in approving the continuation of the agreement for a one-year period.
37
TRUSTEES AND OFFICERS (UNAUDITED)
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies; and total remuneration paid
as of the period ended December 31, 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 DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2006)
- ------------- --------------- ------------- ------------------------- ------------- ------------- ---------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 30 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Decision Resources, Inc. Portfolio: $616
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 30 None Fund: $500
c/o Essex Street Associates 11/3/1986 Associates (family Portfolio: $641
P.O. Box 5600 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None Fund: $500
c/o Harvard University 9/13/1989 Professor of Political Portfolio: $616
Littauer Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $616
New London, NH 03257
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 30 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 President
7/24/65 and Chief Operating
Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
38
Principal Officers who are Not Trustees
NAME TERM OF OFFICE
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS
- ------------- --------------- -------------- -------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon 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 First 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
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
39
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[MELLON LOGO]
MELLON INSTITUTIONAL FUNDS
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
Item 2. Code of Ethics.
As of December 31, 2006, the Registrant has adopted a Code of Ethics,
as defined in Item 2(b) of Form N-CSR, that applies to the Principal
Executive Officer and Principal Financial Officer. For the fiscal year
ended December 31, 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.
The Registrant's Board of Trustees has determined that the Registrant
has more than one audit committee financial expert, as defined in Item
3 of Form N-CSR, serving on its audit committee. The audit committee
financial experts serving on the Registrant's audit committee are John
H. Hewitt and Caleb Loring III, both of whom are "independent" pursuant
to paragraph (a)(2) of Item 3 of Form N-CSR. Mr. Hewitt served at
Morgan Stanley as a securities analyst and also in a supervisory role
regarding analysis. He has held a chartered financial analyst
designation, as well as a master's degree in business administration
from Harvard University. He has been a member of the Registrant's audit
committee since its inception. Mr. Loring served as an executive in the
commercial lending division of the Bank of Boston, N.A., performing and
supervising credit analyses and reviewing financial statements of
potential and existing borrowers. Also, Mr. Loring has served as a
private trustee in the Ayer Family Office, where his duties involve
financial statement analysis. He has been a member of the Registrant's
audit committee since its inception, and has served on the audit
committees of several privately held companies.
Item 4. Principal Accountant Fees and Services.
(a) AUDIT FEES: The aggregate fees billed for professional services
rendered by the principal accountant, PricewaterhouseCoopers LLP,
for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in
connection with statutory and regulatory filings for the fiscal
years ended December 31, 2006 and 2005 were $139,000 and
$236,703, respectively.
(b) AUDIT RELATED FEES: The aggregate fees billed for the fiscal
years ended December 31, 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 included: the examination of compliance with
requirements of Rule 17f-2 of the Investment Company Act of 1940.
(c) TAX FEES: The aggregate fees billed for the fiscal years ended
December 31, 2006 and 2005 for professional services rendered by
PricewaterhouseCoopers LLP for tax compliance, tax advice, and
tax planning were $4,300 and $103,250, respectively. Services
rendered in both years included asset diversification testing,
the preparation of tax returns and extensions, the review of
periodic distributions.
(d) ALL OTHER FEES: No such fees were billed to the Registrant by
PricewaterhouseCoopers LLP for 2006 or 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 December
31, 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 December
31, 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) Because all of the non-audit services rendered to the
Registrant's investment adviser or any entity controlling,
controlled by, or under common control with the investment
adviser that provides ongoing services to the registrant were
pre-approved by the Registrant's Audit Committee of the Board of
Trustees and no such non-audit services were not pre-approved,
the Audit Committee was not asked to consider whether the
provision of non-audit services rendered to the Registrant's
investment adviser or any entity controlling, controlled by, or
under common control with the investment adviser that provides
ongoing services to the registrant which were not pre-approved by
the Registrant's Audit Committee is compatible with maintaining
the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable to the Registrant.
Item 6. Schedule of Investments
Included as part of the report to shareholders filed under Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable to the Registrant.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable to the Registrant.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable to the Registrant.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes.
Item 11. Controls and Procedures.
(a) The Registrant's Principal Executive Officer and Principal
Financial Officer concluded that the Registrant's disclosure controls
and procedures are effective based on their evaluation of the
Registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this report (the "Evaluation Date" as
defined in Rule 30a-3(c) under the Investment Company Act of 1940).
(b) Not applicable to the Registrant.
Item 12. Exhibits.
(a)(1) Code of Ethics required by Item 2 is attached hereto as an
exhibit.
(a)(2) Certifications of the Principal Executive Officer and Principal
Financial Officer of the Registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940 are attached hereto as Exhibit
99CERT.302
(b) Certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940 and pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 are attached hereto as Exhibit 99CERT.906.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Mellon Institutional Funds Investment Trust
By (Signature and Title): /s/ BARBARA A. MCCANN
-----------------------------------------------
Barbara A. McCann, Vice President and Secretary
Date: March 9, 2007
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: March 9, 2007
By (Signature and Title): /s/ STEVEN M. ANDERSON
--------------------------------------------
Steven M. Anderson, Vice President and Treasurer
Date: March 9, 2007