N-CSR 1 d15815.txt 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 -------------------------------------------- MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST ------------------------------------------------------------- (Exact name of registrant as specified in charter) Mellon Financial Center, One Boston Place, Boston, Massachusetts 02108 --------------------------------------------------------------- (Address of principal executive offices) (Zip code) Barbara A. McCann Vice President and Secretary One Boston Place, Boston, MA 02108 --------------------------------------------------------------- (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 ----------------------------------------------------------- Date of fiscal year end: September 30 ------------------------------------------ Date of reporting period: September 30, 2004 -------------------------------------- Item 1. Reports to Stockholders. [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 The Boston Company International Core Equity Fund (the "International Core Equity Fund") return for the twelve months ended September 30, 2004 was 27.04% versus 22.08% for its benchmark, the MSCI EAFE index. This was the second consecutive year of better than 27% returns for the Fund. The Fund's 1 Year, 3 Year and 5 Year average annual total returns have exceeded the benchmark by solid margins since the change of strategy to actively manage individual stock holdings in 1996. All but one EAFE market (Finland) posted double-digit annual returns, as measured in US dollars. Norway proved to be the highest performing market with a return of 65%. Finland's market lagged with a return of 5%. Energy stocks rose the most with a 38.8% return, while Information Technology stocks rose the least with a 4.5% return. Not surprisingly, Norway's market is heavily weighted toward energy, and Finland's is dominated by technology, primarily Nokia. Energy stocks were buoyed by oil prices that remained much higher than anticipated. Very strong demand, especially from developing markets, and supply concerns due to unrest in Iraq and elsewhere combined to keep oil prices high. Technology stocks were depressed by very intense price competition, industry overcapacity, reluctance of buyers to invest in new products, and valuation levels that still appear to be too high relative to other sectors. The International Core Equity Fund outperformed its index during the period, largely due to our process of disciplined stock selection. Contribution to the positive relative performance was broad based. The Fund outperformed the benchmark in every region and in 17 of 21 countries. In addition the Fund outperformed the benchmark in nine of 10 economic sectors. The Fund trailed its benchmark only in the Health Care sector, and that by only a very modest amount The portfolio continues to reflect our approach of investing in stocks of companies that are attractively valued and exhibit improving business momentum. The global economy is growing. Policy makers have begun the process of removing the massive stimulus pumped into the system following the last recession and the September 11 terrorist attacks. While policy has not yet moved into restrictive territory, the combination of higher rates and higher oil prices may undermine the strength of the economic expansion. Corporate profits are expected to grow, but at a slower pace. It remains unclear whether investors will be encouraged by the growth, or discouraged by the slowdown in the rate of growth. Overall, valuation levels seem reasonable. /s/ Remi J. Browne /s/ Peter Carpenter ------------------ ------------------- Remi J. Browne Peter Carpenter 2 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND AND MSCI EAFE INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC International MSCI EAFE Core Equity Fund Index ----------------- --------- Beginning $100,000 $100,000 1994 Quarter3 $102,835 $100,096 Quarter4 $98,851 $99,075 1995 Quarter1 $93,848 $100,920 Quarter2 $96,253 $101,653 Quarter3 $98,569 $105,890 Quarter4 $100,971 $110,178 1996 Quarter1 $103,373 $113,362 Quarter2 $108,424 $115,156 Quarter3 $107,181 $115,012 Quarter4 $108,485 $116,842 1997 Quarter1 $106,619 $115,012 Quarter2 $119,256 $129,938 Quarter3 $116,779 $129,024 Quarter4 $105,805 $118,921 1998 Quarter1 $128,562 $136,414 Quarter2 $133,092 $137,863 Quarter3 $113,364 $118,267 Quarter4 $131,757 $142,702 1999 Quarter1 $129,008 $144,687 Quarter2 $133,360 $148,363 Quarter3 $137,464 $154,875 Quarter4 $155,276 $181,180 2000 Quarter1 $153,904 $180,990 Quarter2 $154,531 $173,820 Quarter3 $147,188 $159,798 Quarter4 $147,876 $155,511 2001 Quarter1 $135,625 $134,194 Quarter2 $141,985 $132,792 Quarter3 $124,514 $114,201 Quarter4 $130,028 $122,165 2002 Quarter1 $134,148 $122,786 Quarter2 $139,027 $120,183 Quarter3 $116,082 $96,467 Quarter4 $121,607 $102,691 2003 Quarter1 $115,852 $94,257 Quarter2 $136,274 $112,419 Quarter3 $148,891 $121,556 Quarter4 $173,520 $142,316 2004 Quarter1 $185,001 $148,491 Quarter2 $185,748 $148,810 Quarter3 $189,040 $148,396
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 10 Year 12/08/1988 -------------------------------------------------------------------------------- 27.04% 14.93% 6.58% 6.28% 6.40%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,021.80 $5.66 Hypothetical (5% return per year before expenses) $1,000.00 $1,019.40 $5.65
----------------- + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.12%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).THE EXAMPLE REFLECTS THE COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS ALL ITS ASSETS. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in The Boston Company International Core Equity Portfolio ("Portfolio"), at value (Note 1A) $124,401,585 Receivable for Fund shares sold 290,355 Prepaid expenses 9,636 ------------ Total assets 124,701,576 LIABILITIES Accrued transfer agent fees $ 3,992 Accrued trustees' fees and expenses 1,000 Other liabilities 21,892 ------------ Total liabilities 26,884 ------------ NET ASSETS $124,674,692 ------------ NET ASSETS CONSIST OF: Paid-in capital $104,299,708 Accumulated net realized gain 2,093,960 Undistributed net investment income 366,203 Net unrealized appreciation 17,914,821 ------------ TOTAL NET ASSETS $124,674,692 ============ Shares of beneficial interest outstanding 4,612,866 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 27.03 ============
The accompanying notes are an integral part of the financial statements. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income allocated from Portfolio (net of foreign withholding taxes of $272,321) $ 2,153,396 Interest income allocated from Portfolio 96,538 Expenses allocated from Portfolio (999,966) ----------- Net investment income allocated from Portfolio 1,249,968 EXPENSES Transfer agent fees (Note 2) $ 7,691 Legal and audit services 30,741 Registration fees 21,976 Shareholders reports 7,600 Trustees' fees and expenses (Note 2) 1,889 Miscellaneous 7,955 ---------- Total expenses 77,852 ----------- Net investment income 1,172,116 ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) allocated from Portfolio on: Investment security transactions and financial futures contracts 15,537,985 Change in unrealized appreciation (depreciation) on investments allocated from Portfolio 5,250,294 ----------- Net realized and unrealized gain on investments 20,788,279 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS $21,960,395 ===========
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income $ 1,172,116 $ 747,952 Net realized gain (loss) 15,537,985 (763,919) Change in net unrealized appreciation 5,250,294 16,226,851 ------------ ------------ Net increase (decrease) in net assets from operations 21,960,395 16,210,884 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1D) From net investment income (1,441,503) (847,624) ------------ ------------ Total distributions to shareholders (1,441,503) (847,624) ------------ ------------ FUND SHARE TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 47,227,583 18,786,883 Value of shares issued to shareholders in payment of distributions declared 939,636 513,688 Cost of shares redeemed (21,738,718) (8,023,768) ------------ ------------ Net increase (decrease) in net assets from Fund share transactions 26,428,501 11,276,803 ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 46,947,393 26,640,063 NET ASSETS At beginning of period 77,727,299 51,087,236 ------------ ------------ At end of period (including undistributed net investment income of $366,203 and $608,298) $124,674,692 $ 77,727,299 ============ ============
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, ----------------------------------------------------------- 2004 2003 2002 2001 2000 -------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 21.62 $ 17.10 $ 18.53 $ 23.45 $ 23.77 -------- ------- ------- ------- ------- FROM INVESTMENT OPERATIONS: Net investment income(* (1)) 0.31 0.23 0.25 0.24 0.24 Net realized and unrealized gains (loss) on investments 5.49 4.55 (1.48) (3.63) 1.42 -------- ------- ------- ------- ------- Total from investment operations 5.80 4.78 (1.23) (3.39) 1.66 -------- ------- ------- ------- ------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.39) (0.26) (0.20) (0.20) (0.43) From net realized gains on investments -- -- -- (1.33) (1.55) -------- ------- ------- ------- ------- Total distributions to shareholders (0.39) (0.26) (0.20) (1.53) (1.98) -------- ------- ------- ------- ------- NET ASSET VALUE, END OF YEAR $ 27.03 $ 21.62 $ 17.10 $ 18.53 $ 23.45 ======== ======= ======= ======= ======= TOTAL RETURN 27.04% 28.23%+ (6.77)%+ (15.40)%+ 7.07%+ RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets) * 1.12% 1.16% 1.00% 1.00% 1.00% Net Investment Income (to average daily net assets) * 1.22% 1.21% 1.29% 1.13% 0.98% Portfolio Turnover (2) N/A 17% 87% 74% 112% Net Assets, End of Period (000's omitted) $124,675 $77,727 $51,087 $48,227 $39,230
-------------- * For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Net investment income per share(1) N/A $ 0.19 $ 0.18 $ 0.16 $ 0.15 Ratios (to average daily net assets): Expenses N/A 1.34% 1.33% 1.37% 1.36% Net investment income N/A 1.03% 0.96% 0.76% 0.62%
(1) Calculated based on average shares outstanding. (2) Portfolio turnover represents activity while the Fund was investing directly in securities until January 27, 2003. The portfolio turnover for the period since the Fund transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. (+) Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company International Core Equity Fund (the "Fund") is a separate diversified investment series of the Trust. The Fund invests all of its investable assets in an interest of The Boston Company International Core Equity Portfolio (the "Portfolio"), a subtrust of Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which is organized as a New York trust, and has the same investment objective as the Fund. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of companies located in the foreign countries represented in the MSCI Europe, Australia, Far East Index and Canada. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio (approximately 98.5% at September 30, 2004) . The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS The Fund records its investment in the Portfolio at value. The method by which the Portfolio values its securities is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. Currently, the Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with accounting principles generally accepted in the United States of America. All realized and unrealized gains and losses of the Portfolio are allocated pro rata among the investors in the Portfolio. C. INVESTMENT RISK The Fund's investment in the Portfolio involves certain additional risks due to the fact that the Portfolio may invest in foreign securities that were not inherent in investments in domestic securities. These risks may involve adverse political and economic developments, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. D. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on ex-dividend date. The Fund's dividends from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. In determining the amounts of its dividends, the Fund will take into account its share of the income, gains or losses, expenses, and any other tax items of the Portfolio. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless a shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for foreign currency transactions, passive foreign investment companies (PFICs), post-October loss deferrals, wash sales and capital loss carryovers and redemptions in-kind. In 2004, the fund incurred a redemption in-kind which resulted in a realized gain of $4,426,312, which will be deferred indefinitely for tax purposes. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications among undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. E. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. F. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The Fund does not directly pay any investment advisory fees, but indirectly bears its pro rata share of the compensation paid by the Portfolio to The Boston Company Asset Management, LLC ("TBCAM") a wholly owned subsidiary of Mellon Institutional Asset Management, for such services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Portfolio for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Portfolio Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 30, 2004. The fund also bears its pro rata share of the renumeration paid to the Trustees by the Portfolio. See Note 2 of the Portfolio's notes to financial statements which are included elsewhere in this report.
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $500 Benjamin M. Friedman $500 John H. Hewitt $500 Caleb Loring, III $500 Patrick J. Sheppard 0 Richard S. Wood (*) 0
* Mr. Wood resigned from the Board of Trustees on October 7, 2003. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (3) INVESTMENT TRANSACTIONS: Increases and decreases in the Fund's investment in the Portfolio for the year ended September 30, 2004 aggregated $48,077,039 and $23,245,417, respectively. (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 1,806,181 1,014,405 Shares issued to shareholders in payment of distributions declared 38,181 27,860 Shares redeemed (826,070) (434,512) ---------- ---------- Net increase 1,018,292 607,753 ========== ==========
At September 30, 2004, one shareholder of record held approximately 34% of the total outstanding shares of the Fund. Investment activities of this shareholder could have a material impact on the Fund. The Fund imposes a redemption fee of 2% of the net asset value of the shares, with certain exceptions, which are redeemed or exchanged less than 90 days from the day of their purchase. The redemption fee is paid directly to the Fund, and is designed to offset brokerage commissions, market impact, and other costs associated with short-term trading. The fee does not apply to shares that were acquired through reinvestment of distributions. For the year ended September 30, 2004, the Fund received no redemption fees. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income $3,098,536 Tax character of distributions paid during the fiscal year ended ended September 30, 2004 was as follows: Ordinary income 1,441,503 See corresponding master portfolio for tax basis unrealized appreciation/(depreciation) information. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company International Core Equity Fund: In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company International Core Equity Fund (the "Fund") at September 30, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investment in the Portfolio at September 30, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 The accompanying notes are an integral part of the financial statements. 12 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Percentage of Top Ten Holdings* Country Sector Net Assets ---------------------------------------------------------------------------------------------------------- Vodafone Group United Kingdom Telecomm. Svcs. 2.3 BP PLC United Kingdom Energy 1.7 Barclays PLC United Kingdom Financials 1.6 Toyota Motor Corp. Japan Consumer Discret. 1.6 Total SA France Energy 1.5 Societe Generale France Financials 1.3 ING Groep NV CVA Netherlands Financials 1.3 BNP Paribas France Financials 1.3 Royal Bank of Scotland Group United Kingdom Financials 1.3 Continental AG Germany Consumer Discret. 1.2 ----- 15.1
* Excluding short-term investments and investment of cash collateral.
Percentage of Economic Sector Allocation Net Assets --------------------------------------------- Consumer Discretionary 13.5 Consumer Staples 6.9 Energy 8.1 Financials 23.4 Health Care 7.0 Industrials 10.5 Information Technology 6.6 Materials 7.3 Telecommunication Services 7.2 Utilities 3.9 Short-term and Net Other Assets 5.6 ----- 100.0
Percentage of Geographic Region Allocation* Net Assets --------------------------------------------- Europe ex U.K. 42.3 U.K. 22.8 Asia ex Japan 8.7 Japan 20.6 ----- 94.4
* Excluding short-term investments and investment of cash collateral. The Portfolio is actively managed. Current holdings and allocation may be different than those presented above. 13 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- EQUITIES--94.4% AUSTRALIA--5.2% Boral Ltd. 259,000 $ 1,298,40 Caltex Australia Ltd. 83,000 559,823 Insurance Australia Group Ltd. 338,000 1,278,830 Oil Search Ltd. 501,300 543,471 QBE Insurance Group Ltd. 109,400 1,042,753 West Australian Newspaper Holdings (a) 106,000 585,383 Westpac Banking Corp. 56,000 722,419 WMC Resources Ltd. 136,100 530,781 ----------- Total Cost (Cost $5,269,756) 6,561,869 ----------- AUSTRIA--1.7% Boehler-Uddeholm 8,000 739,475 OMV AG 6,300 1,453,099 ------------ Total Cost (Cost $1,406,926) 2,192,574 ------------ BELGIUM--1.7% Colruyt NV Right * 3,500 4,787 Colruyt SA (a) 3,500 491,765 KBC Bankverzekeringshold 12,200 794,881 Mobistar SA * 11,200 800,750 ----------- Total Cost (Cost $1,959,027) 2,092,183 ----------- DENMARK--0.7% Novo Nordisk A/S 16,200 888,161 ----------- Total Cost (Cost $887,523) FINLAND--1.7% Fortum Oyj 69,000 965,189 Kesko Oyj (a) 34,800 762,423 Rautaruukki Oyj 39,200 382,619 ----------- Total Cost (Cost $1,584,816) 2,110,231 ----------- FRANCE--8.2% Arcelor 28,800 532,852 BNP-Paribas 25,600 1,655,214 Bouygues SA * 28,000 1,051,419 Essilor International SA 9,300 598,417 Renault SA 17,500 1,432,863 Sanofi-Synthelabo SA (a) 9,400 682,577 Societe Generale 19,200 1,700,971 Total SA 9,455 1,928,041 Vinci SA 6,200 714,246 ----------- Total Cost (Cost $8,641,033) 10,296,600 ----------- GERMANY--6.2% Continental AG 28,800 1,567,400
The accompanying notes are an integral part of the financial statements. 14 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- GERMANY (CONTINUED) Deutsche Telekom AG 27,700 $ 514,566 E.ON AG 17,700 1,307,286 Hannover Rueckversicherung AG 16,700 541,961 Merck KGaA 11,800 675,504 Metro AG 17,000 759,481 Puma AG 3,210 861,006 SAP AG 4,500 699,972 Thyssenkrupp AG 44,800 874,001 ----------- Total Cost (Cost $5,546,917) 7,801,177 ----------- GREECE--1.6% Alpha Bank A.E 46,900 1,196,633 Cosmote Mobile Tele S.A 50,900 840,479 ----------- Total Cost (Cost $1,480,509) 2,037,112 ----------- HONG KONG--2.0% Esprit Holdings Ltd. 82,000 416,484 Global Biochem Tech 482,000 367,835 Kerry Properties Ltd. 202,000 380,853 Orient Overseas International Ltd. 112,000 448,190 Smartone Telecommunication 482,000 519,297 The Wharf(Holdings) Ltd. 114,000 383,816 ----------- Total Cost (Cost $2,340,848) 2,516,475 ----------- IRELAND--1.3% Anglo Irish Bank Corp. PLC 47,500 871,157 CRH PLC 33,000 787,669 ----------- Total Cost (Cost $1,138,748) 1,658,826 ----------- ITALY--2.0% Banca Intesa Spa 217,933 829,193 Eni Spa 43,500 975,746 Mediaset Spa 40,900 464,815 Unipol Spa 122,100 311,988 ----------- Total Cost (Cost $2,249,391) 2,581,742 ----------- JAPAN--20.6% Asahi Breweries Ltd. 50,000 510,000 Bridgestone Corp. 39,000 725,045 Canon, Inc 16,000 753,455 Casio Computer Co., Ltd. (a) 54,000 637,691 Central Glass Co., Ltd. 50,000 367,273 Citizen Electronics Co. Ltd. 20,000 1,054,545 Daiwa Securities Group 83,000 526,673 Diamond Lease Co., Ltd. 9,700 342,145
The accompanying notes are an integral part of the financial statements. 15 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- JAPAN (CONTINUED) Eisai Co. Ltd. (a) 24,500 $ 668,18 Fujitsu Ltd. (a) 121,000 700,700 Hisamitsu Pharamaceutical 21,000 377,045 Ito-Yokado Co Ltd. 10,000 343,636 Kawasaki Kisen Kaisha Ltd. (a) 114,000 781,418 KDDI Corp. (a) 188 914,364 Kikkoman Corp. 65,000 573,773 Kirin Beverage Corp. 32,900 702,864 Kobe Steel Ltd. 502,000 730,182 Komatsu Ltd. (a) 62,000 399,055 Kyocera Corp. 14,500 1,021,591 Kyushu Electric Power Co., Inc. (a) 19,700 369,823 Mitsubishi Corp. 65,000 703,773 Mitsubishi Tokyo Financial Group, Inc 112 935,709 Mitsui O.S.K. Lines, Ltd. 154,000 925,400 Nissan Motor Co., Ltd. 120,000 1,309,091 Nisshin Seifun Group, Inc. (a) 54,000 522,327 NSK Ltd. 107,000 460,100 NTT Corp. 172 686,436 Ono Pharmaceutical Co., Ltd. 14,000 622,364 Promise Co., Ltd. (a) 5,100 334,282 Sanyo Shinpan Finance Co., Ltd. 8,000 429,091 Seino Transportation Co., Ltd. 63,000 564,136 Sompo Japan Insurance 71,000 602,855 Sumitomo Rubber Industries, Inc. (a) 88,000 852,800 Takeda Pharmaceutical Co., Ltd. (a) 16,700 759,091 TDK Corp. 11,000 734,000 Terumo Corp. (a) 14,600 333,145 Tokyo Gas Corp., Ltd. (a) 201,600 716,596 Toyota Motor Corp. (a) 53,400 2,048,618 ----------- Total Cost (Cost $23,473,462) 26,039,274 ----------- NETHERLANDS--4.6% ABN Amro Holding NV 53,000 1,205,315 ASM Lithography Holding NV * 29,200 376,143 Hunter Douglas NV 7,500 344,950 ING Groep NV CVA 67,300 1,700,394 Koninklijke Philips Electronics NV 38,900 891,911 Koninklijke Wessanen NV 31,000 413,592 Royal KPN NV 120,400 902,723 ----------- Total Cost (Cost $5,736,179) 5,835,028 -----------
The accompanying notes are an integral part of the financial statements. 16 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- NEW ZEALAND--0.6% Fletcher Building Ltd. (Cost $470,013) 189,500 $ 766,24 ----------- NORWAY--1.1% Norsk Hydro ASA 12,800 935,170 Orkla Asa 18,400 510,288 ----------- Total Cost (Cost $1,221,732) 1,445,458 ----------- SINGAPORE--0.9% Fraser and Neave Ltd. 64,630 533,403 Keppel Co., Ltd. 119,900 562,409 ----------- Total Cost (Cost $671,083) 1,095,812 ----------- SPAIN--2.6% ACS Actividades 43,500 793,469 Corp. Mapfre SA 55,100 647,432 Gamesa Corp Tecnological 52,500 770,939 Repsol YPF SA 50,900 1,118,951 ----------- Total Cost (Cost $2,405,095) 3,330,791 ----------- SWEDEN--2.6% Ericsson LM 437,500 1,358,640 Skandinaviska Enskilda Banken AB 72,500 1,120,749 Volvo AB, Class B 23,100 815,761 ----------- Total Cost (Cost $2,814,343) 3,295,150 ----------- SWITZERLAND--6.3% Baloise Holdings 7,200 279,059 Credit Suisse Group 33,600 1,075,556 Geberit AG 1,170 911,639 Kudelski SA * 14,500 413,487 Logitech International SA * 11,700 568,600 Micronas Semiconductor Holdings * 14,600 621,576 Novartis AG 19,370 905,562 Saurer AG 12,200 666,399 Serono SA B 850 526,428 Sulzer AG 2,500 751,064 UBS AG Registered Shares 10,600 748,446 Zurich Financial Services AG 3,200 457,547 ----------- Total Cost (Cost $7,079,167) 7,925,363 ----------- UNITED KINGDOM--22.8% Aggregate Industries PLC 530,500 917,857 Alliance Unichem PLC 45,300 546,997 Anglo American PLC 23,900 573,720 AstraZeneca PLC 11,500 471,903
The accompanying notes are an integral part of the financial statements. 17 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- UNITED KINGDOM (CONTINUED) Aviva PLC 115,800 $1,148,627 BAA PLC 47,400 475,316 BAE Systems PLC 133,400 543,178 Balfour Beatty PLC 126,700 639,276 Barclays PLC 214,700 2,061,552 Barratt Developments PLC 66,200 678,830 Boots Group PLC 28,600 332,650 BP PLC 223,900 2,139,749 Cookson Group PLC 524,100 284,854 Dixons Group PLC 227,200 702,838 Friends Provident PLC 332,200 838,072 George Wimpey PLC 122,500 892,172 HBOS PLC 54,100 731,177 Inchcape PLC 33,500 946,188 Johnston Press PLC 39,900 402,276 Kelda Group PLC 81,500 790,685 Man Group PLC 15,300 329,579 Old Mutual PLC 309,800 641,245 Reckitt Benckiser PLC 19,800 485,702 Royal Bank of Scotland Group PLC 56,585 1,636,140 SABMiller PLC 80,200 1,059,951 Scottish Power PLC 98,700 755,492 Shell Transport & Trading Company PLC 82,900 609,020 Shire Pharmaceuticals Group PLC 88,400 837,207 Tesco PLC 133,200 688,361 United Business Media PLC 83,400 705,240 Vodafone Group PLC 1,208,400 2,895,294 Whitbread PLC 38,800 579,222 Wolseley PLC 41,500 709,376 Xstrata PLC 48,200 793,334 ----------- Total Cost (Cost $25,018,322) 28,843,080 ----------- TOTAL EQUITIES (Cost $101,394,890) 119,313,146 -----------
The accompanying notes are an integral part of the financial statements. 18 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Rate Maturity Par Value (Note 1A) ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--1.1% U.S. GOVERNMENT--0.4% U.S. Treasury Bill+ 1.640% 12/16/2004 $ 470,000 $ 468,383 INVESTMENT COMPANIES--0.7% Shares ----------- Dreyfus Institutional Preferred Plus Money Market Fund++ 887,387 887,387 ------------ Total Short Term Investments (Cost $1,355,770) 1,355,770 ------------ INVESTMENT OF CASH COLLATERAL--8.2% Dreyfus Cash Management Plus Money Market Fund++ (Cost $10,352,104) 10,352,104 10,352,104 ------------ TOTAL INVESTMENTS--103.7% (Cost $113,102,764) 131,021,020 LIABILITIES IN EXCESS OF OTHER ASSETS--(3.7)% (4,724,770) ------------ NET ASSETS--100% $126,296,250 ============
NOTES TO SCHEDULE OF INVESTMENTS: (a) Security, or a portion thereof, was on loan at 9/30/04. * Non-income producing security. + Denotes all or part of security segregated as collateral. ++ Affiliated institutional money market fund. At September 30, 2004 the Portfolio held the following futures contracts.
Underlying Face Unrealized Contract Position Expiration Date Amount At Value Gain (Loss) ------------------------------------------------------------------------------------------------------------------------------ MSCI Pan-Euro (252 contracts) Long 12/17/2004 $5,108,449 $ (31,235) Topix Futures (17 contracts) Long 12/9/2004 1,711,661 (11,254) --------- $ (42,489) =========
The accompanying notes are an integral part of the financial statements. 19 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 -------------------------------------------------------------------------------- ASSETS Investment in securities (Note 1A) (including securities on loan, valued at $9,806,048) (Note 6): Unaffiliated issuers, at value (identified cost $101,863,273) $119,781,529 Affiliated issuers, at value (identified cost $11,239,491) (Note 1G) 11,239,491 Foreign currency, at value (identified cost, $5,336,593) 5,403,974 Receivable for investments sold 984,286 Interest and dividends receivable 324,152 Prepaid expenses 5,076 ------------ Total assets 137,738,508 LIABILITIES Liability for securities on loan (Note 6) $ 10,352,104 Payable for investments purchased 1,023,985 Payable for variation margin on open financial futures contracts (Note 5) 9,945 Accrued accounting and custody fees 22,593 Accrued trustees' fees and expenses 2,223 Accrued expenses and other liabilities 31,408 ------------ Total liabilities 11,442,258 ------------ NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $126,296,250 ============
The accompanying notes are an integral part of the financial statements. 20 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 -------------------------------------------------------------------------------- INVESTMENT INCOME (NOTE 1B) Dividend income (net of foreign withholding taxes of $275,643) $ 2,177,737 Interest income (including securities lending income of $64,099) (Note 6) 97,721 ----------- Total investment income 2,275,458 EXPENSES Investment advisory fee (Note 2) $ 778,145 Accounting and custody fees (Note 2) 156,587 Legal and audit services 40,819 Trustees' fees and expenses (Note 2) 18,553 Insurance expense 9,712 Miscellaneous expenses 5,780 ----------- Total expenses 1,009,596 ----------- Net investment income 1,265,862 ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Investment security transactions 15,501,687 Financial futures contracts 348,274 Foreign currency and forward foreign currency exchange contracts (200,841) ----------- Net realized gain 15,649,120 Investment securities 5,207,303 Financial futures contracts 56,569 Foreign currency and forward foreign currency exchange contracts 3,056 ----------- Net change in unrealized appreciation (depreciation) 5,266,928 ----------- Net realized and unrealized gain 20,916,048 ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $22,181,910 ===========
The accompanying notes are an integral part of the financial statements. 21 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the period January 28, 2003 For the (Commencement of Year Ended Operations) to September 30, 2004 September 30, 2003 ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income $ 1,265,862 $ 797,821 Net realized gain 15,649,120 1,041,685 Change in net unrealized appreciation (depreciation) 5,266,928 13,981,959 ------------ ----------- Net increase in net assets from operations 22,181,910 15,821,465 ------------ ----------- CAPITAL TRANSACTIONS Assets contributed by The Boston Company International Core Equity Fund (including unrealized appreciation of $0 and $1,307,052) -- 55,577,761 Contributions 50,826,021 10,906,317 Withdrawals (24,372,009) (4,645,215) ------------ ----------- Net increase in net assets from capital transactions 26,454,012 61,838,863 ------------ ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 48,635,922 77,660,328 NET ASSETS At beginning of period 77,660,328 -- ------------ ----------- At end of period $126,296,250 $77,660,328 ============ ===========
The accompanying notes are an integral part of the financial statements. 22 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the Period January 28, 2003 For the (commencement of Year Ended operations) to September 30, 2004 September 30, 2003 ------------------- ------------------- TOTAL RETURN+ 27.12%++ 22.46%(1)++ RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 1.04% 1.17%(2) Net Investment Income (to average daily net assets)* 1.30% 1.81%(2) Portfolio Turnover 80% 63%(1) Net Assets, End of Period (000's omitted) $126,296 $77,660
----------------- * For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Portfolio for all or a portion of its operating expenses. If this voluntary action had not been taken, the per share ratios would have been: Ratios (to average daily net assets): Expenses N/A 1.20%(2) Net investment income N/A 1.78%(2)
+ Total return for the Portfolio has been calculated based on the total return for the investor Fund, assuming all distributions were reinvested, and adjusted for the difference in expenses as set out in the notes to the financial statements. ++ Total return would have been lower in the absence of expense waivers (1) Not annualized (2) Computed on an annualized basis. The accompanying notes are an integral part of the financial statements. 23 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was organized as a master trust fund under the laws of the State of New York on January 18, 1996 and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company International Core Equity Portfolio (the "Portfolio"), a separate diversified investment series of the Portfolio Trust, commenced operations on January 28, 2003. The objective of the Portfolio is to achieve long-term growth of capital. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of companies that are located in the foreign countries represented in the MSCI Europe, Australia, Far East Index and Canada. At September 30, 2004, there were two funds, The Boston Company International Core Equity Fund and Dreyfus Premier International Equity Fund, invested in the Portfolio. The value of the funds' investment in the Portfolio reflects the funds' proportionate interests in the net assets of the Portfolio. At September 30, 2004, The Boston Company International Core Equity Fund and the Dreyfus Premier International Equity Fund held approximately 98.5% and 1.5% interests in the Portfolio, respectively. The following is a summary of significant accounting policies followed by the Portfolio in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the Portolio's shares may change on days when shareholders are not able to buy or sell them. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect the events that occur after such close but before the close of the New York Stock Exchange. If market quotations are not readily available or do not accurately reflect fair value, or the value of a security has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), the Portfolio may value its assets by a method the Trustees believe accurately reflects the fair value. The Trustees have adopted fair value pricing procedures, which, among other things, require the Portfolio to fair value such secutities if there has been a movement in the U.S. market that exceeds a specified threshold. Although the threshold may be revised from time to time and the number of days on which fair value prices will be used will depend on market activity, it is possible that fair value prices for foreign securities will be used by each fund to a significant extent. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which approximates market value. If the Portfolio acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. The Portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized gains and losses on foreign currency transactions represent gains and losses on disposition of foreign currencies and forward foreign currency exchange contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts usually received or paid. 24 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- C. INCOME TAXES The Portfolio is treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the source of income and diversification requirements applicable to regulated investment companies (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio allocates at least annually among its investors each investor's distributive share of the Portfolio's net investment income, net realized capital gains, and any other items of income, gain, loss deduction or credit. D. FOREIGN CURRENCY TRANSACTIONS Investment security valuations, other assets, and liabilities initially expressed in foreign currencies are converted into U.S. dollars based upon current currency exchange rates. Purchases and sales of foreign investment securities and income and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Section 988 of the Internal Revenue Code provides that gains or losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. For financial statement purposes, such amounts are included in net realized gains or losses. E. INVESTMENT RISK There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. F. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Portfolio may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Portfolio under these arrangements is unknown, as this would involve future claims that may be made against the Portfolio that have not yet occurred. However, based on experience, the Portfolio expects the risks of loss to be remote. G. AFFILIATED ISSUERS Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to TBCAM for overall investment advisory, administrative services, and general office facilities, is paid monthly at the annual rate of 0.80% of the Portfolio's average daily net assets. For the year ended September 30 2004, the Portfolio paid $778,145 in investment advisory fees to TBCAM. The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a whollly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide a custody, fund administration and fund accounting services for the Portfolio. For these services the Portfolio pays Mellon Bank a fixed fee plus fees that are asset and transaction based, as well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio was charged $150,179 during the year ended September 30, 2004. 25 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Portfolio for serving as an officer or Trustee of the Trust. The Portfolio Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Portfolio Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Portfolio for the fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $2,443 Benjamin M. Friedman $2,443 John H. Hewitt $2,443 Caleb Loring, III $2,639 Patrick J. Sheppard 0 Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations, for the year ended September 30, 2004 were $97,530,191 and $74,266,266, respectively. For the year ended September 30, 2004, the Portfolio did not purchase or sell any long-term U.S. Government securities. (4) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The cost and unrealized appreciation (depreciation) in value of the investment securities owned at September 30, 2004, as computed on a federal income tax basis, were as follows: Aggregate Cost $113,561,881 ============ Gross unrealized appreciation $ 19,122,466 Gross unrealized depreciation (1,663,323) ------------ Net unrealized appreciation $ 17,459,143 ============
(5) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Portfolio Trust's registration statement. The Portfolio may trade the following financial instruments with off-balance sheet risk: OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Portfolio may use options to seek to hedge against risks of market exposure and changes in security prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tend to increase the Portfolio's exposure to 26 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- the underlying instrument. Buying puts and writing calls tend to decrease the Portfolio's exposure to the underlying instrument, or hedge other Portfolio investments. Options, both held and written by the Portfolio, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at year end. Losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Portfolio is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Portfolio did not enter into option transactions during the year ended September 30, 2004. FORWARD CURRENCY EXCHANGE CONTRACTS The Portfolio may enter into forward foreign currency and cross currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar and other foreign currencies. The forward foreign currency and cross currency exchange contracts are marked to market using the forward foreign currency rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the contract settlement date or upon the closing of the contract. Forward currency exchange contracts are used by the Portfolio primarily to protect the value of the Portfolio's foreign securities from adverse currency movements. Unrealized appreciation and depreciation of forward currency exchange contracts is included in the Statement of Assets and Liabilities. At September 30, 2004, the Portfolio held forward foreign currency exchange contracts. See Schedule of Investments for further detail. FUTURES CONTRACTS The Portfolio may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to margin requirements the Portfolio deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Portfolio. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Portfolio's exposure to the underlying instrument, while selling futures tends to decrease the Portfolio's exposure to the underlying instrument or hedge other investments. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparty does not perform under the contract's terms. The Portfolio enters into financial futures transactions primarily to seek to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Portfolio held futures contracts. See Schedule of Investments for further detail. 27 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (6) SECURITY LENDING: The Portfolio entered into an agreement with Mellon Bank to perform certain securities lending activities and to act as the Portfolio's lending agent. Pursuant to this agreement Mellon Bank receives an agreed upon percentage of the net lending revenues. This compensation is a standard form of compensation received by securities lending agents with respect to non-affiliated entities. The Portfolio may lend its securities to financial institutions which the Portfolio deems to be creditworthy. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The market value of securities loaned is determined daily and any additional required collateral is allocated to the Portfolio on the next business day. For the duration of a loan, the Portfolio receives the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation from the investment of the collateral. As with other extensions of credit, the Portfolio bears the risk of delay in recovery or even loss of rights in its securities on loan should the borrower of the securities fail financially or default on its obligations to the Portfolio. In the event of borrower default, the Portfolio generally has the right to use the collateral to offset losses incurred. The Portfolio may incur a loss in the event it was delayed or prevented from exercising its rights to dispose of the collateral. The Portfolio also bears the risk in the event that the interest and/or dividends received on invested collateral is not sufficient to meet the Portfolio's obligations due on the loans. The Portfolio loaned securities during the year ended September 30, 2004 resulting in $64,099 worth of security lending income. At September 30, 2004 the Portfolio had securities valued at $9,806,048 on loan. (7) LINE OF CREDIT: The Portfolio, and other subtrusts in the Portfolio Trust and funds in the Mellon Institutional Funds Investment Trust (the "Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% on the daily unused portion of the facility, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the facility fee was $1,805. During the year ended September 30, 2004, the Portfolio had no borrowings under the credit facility. 28 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of The Boston Company International Core Equity Portfolio: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company International Core Equity Portfolio (the "Portfolio") at September 30, 2004, and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 29 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
30 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
31 THIS PAGE INTENTIONALLY LEFT BLANK 32 THIS PAGE INTENTIONALLY LEFT BLANK 33 [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0924AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 The level of uncertainty in the equity markets has diverted investor attention from investment fundamentals (e.g., earnings and earnings growth), to investment behavior that is more emotionally driven. The current unsettled climate is fostered by terrorist threats, the election puzzle, oil price uncertainty, inflation fears and interest rate concerns. The economy continues to perform relatively well and concerns about slowing economic growth and the resultant slowing corporate profit growth seem to be somewhat overblown. For the twelve months ended September 30, 2004 The Boston Company Small Capitalization Equity Fund had a total return of 18.78%. This was well ahead of the Russell 2000 Growth Index at 11.92% for the period. The Fund has had strong relative performance in recent months as our holdings have been somewhat more risk averse but, at the same time, it has participated fully in the recent positive move. Within the markets, smaller stocks again performed better than large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up 13.87%), and value has outpaced growth, especially in smaller stocks where the Russell 2000 Value Index was up more than twice that of the Russell 2000 Growth index. Our risk averse approach continues to be a rewarding strategy in this very volatile market environment. We are finding many companies we believe are truly undervalued, not just cheap for an obvious reason. These potentially rewarding opportunities seem to be a by-product of the prevailing market caution, bordering on pessimism. The US economy slowed a bit in the summer as higher energy prices and interest rates, along with the uncertainty surrounding the election and its potential market impact, reduced consumer and investor confidence and put a modest damper on the stock market. We continue to view the economic landscape positively and expect corporate capital spending to remain relatively strong. Our best performing sectors relative to the index have been health care, industrials and consumer discretionary. We expect strong earnings in these sectors and continue to emphasize them in our portfolio allocation decisions. Our energy holdings have been reduced at the margin as these stocks have done well. We continue carry a market weight in this sector because of our long-term positive outlook for energy prices. Our emphasis here continues to be on energy services and exploration companies. 2 We continue to deemphasize financials as most of these stocks are fully valued in our view. Business momentum is neutral at best and rising interest rates will further narrow spreads and put more pressure on earnings in coming quarters. Stocks in the industrials sector are attractive because of the positive outlook for corporate capital spending. We look for several more quarters of relatively strong earnings from this group and remain significantly overweight here. Our general outlook remains positive. We continue to find many companies in our research universe we believe are undervalued with strong fundamentals and good earnings prospects. With a good chance for continued economic growth and modest inflation, capital spending should be robust for several quarters. The major concerns were highlighted earlier but we believe our fundamental approach, emphasizing strong business momentum and undervaluation, will yield good returns even in this more volatile equity environment. /s/ B. Randall Watts /s/ P. Hans Von Der Loft -------------------- ------------------------ B. Randall Watts P. Hans Von Der Loft 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND AND THE RUSSELL 2000 GROWTH INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000 Equity Fund Growth Index ------------- ------------ Beginning $100,000 $100,000 1994 Quarter3 $105,894 $109,324 Quarter4 $104,400 $108,515 1995 Quarter1 $110,692 $114,466 Quarter2 $113,499 $125,821 Quarter3 $131,854 $140,128 Quarter4 $135,546 $142,199 1996 Quarter1 $144,496 $150,367 Quarter2 $159,330 $159,153 Quarter3 $154,580 $157,796 Quarter4 $159,082 $158,214 1997 Quarter1 $139,467 $141,620 Quarter2 $168,573 $166,481 Quarter3 $203,500 $194,649 Quarter4 $183,191 $178,696 1998 Quarter1 $207,647 $199,928 Quarter2 $193,094 $188,447 Quarter3 $148,157 $146,312 Quarter4 $186,330 $180,895 1999 Quarter1 $198,990 $177,857 Quarter2 $218,038 $204,082 Quarter3 $213,374 $194,048 Quarter4 $333,726 $258,847 2000 Quarter1 $410,733 $282,871 Quarter2 $373,021 $262,018 Quarter3 $357,703 $251,609 Quarter4 $269,394 $200,787 2001 Quarter1 $212,186 $170,259 Quarter2 $252,513 $200,862 Quarter3 $191,084 $144,460 Quarter4 $227,660 $182,257 2002 Quarter1 $226,253 $178,686 Quarter2 $201,166 $150,639 Quarter3 $166,701 $118,224 Quarter4 $174,684 $127,102 2003 Quarter1 $166,946 $122,174 Quarter2 $199,069 $151,675 Quarter3 $222,502 $167,552 Quarter4 $255,322 $188,802 2004 Quarter1 $275,745 $199,340 Quarter2 $275,040 $199,525 Quarter3 $264,023 $187,532
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 10 Year 01/01/1988 ------------------------------------------------------------------------------ 18.78% 11.38% 4.35% 9.57% 13.03%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $957.50 $4.80 Hypothetical (5% return per year before expenses) $1,000.00 $1,020.10 $4.95
-------------- + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.98%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Percentage of Top Ten Equity Holdings* Sector Net Assets ---------------------------------------------------------------------------------------- MSC Indl Direct Inc. Industrials 2.4 Cooper Cos Inc. Health Care 2.2 Fisher Scientific Intl Inc. Health Care 2.0 Lions Gate Entertainment Corp. Consumer Discretionary 1.9 UTI Worldwide Inc. Industrials 1.9 Matria Healthcare Inc. Health Care 1.6 Laureate Education Inc. Industrials 1.6 Anteon Intl Corep Technology 1.6 Zoran Corp. Technology 1.5 McAfee Inc. Technology 1.4 ---- 18.1
* Excluding short-term investments and investment of cash collateral.
Percentage of Economic Sector Allocation Net Assets -------------------------------------------- Consumer Discretionary 14.2 Consumer Staples 5.9 Energy 8.2 Financials 7.1 Health Care 23.2 Industrials 14.3 Materials 1.6 Technology 19.6 Short-term and Net Other Assets 5.9 ----- 100.0
The Portfolio is actively managed. Current holdings may be different than those presented above. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- EQUITIES--94.1% CONSUMER DISCRETIONARY--14.2% A.C. Moore Arts & Crafts, Inc. * 5,910 $ 146,154 American Woodmark Corp. * 1,600 59,240 Books-A-Million, Inc. * 21,100 169,011 California Pizza Kitchen, Inc. * 12,600 275,310 Christopher & Banks Corp. * 5,800 92,858 Citadel Broadcasting Co. * 5,800 74,356 Entravision Communications Corp. * 22,800 173,508 Fairmount Hotels & Resorts * 3,700 101,084 JAKKS Pacific, Inc. * 5,100 117,300 Lions Gate Entertainment Corp. * 42,600 370,620 Nautilus Group, Inc. (a) 8,580 193,822 Nu Skin Enterprises, Inc. 4,400 103,444 Pacific Sunware of California * 8,800 185,240 Panera Bread Co. * (a) 6,300 236,502 Peet's Coffee & Tea, Inc. * 6,600 154,374 Quicksilver, Inc. * 3,200 81,344 Rare Hospitality International, Inc. * 3,700 98,605 Speedway Motorsports, Inc. * 2,800 93,324 ---------- 2,726,096 ---------- CONSUMER STAPLES--5.9% Arden Group, Inc. * 967 82,195 Church & Dwight Co., Inc. * 3,150 88,389 Delta & Pine Land Co. * 2,400 64,200 Hain Celestial Group, Inc. * 12,000 212,160 Jarden Corp. * 4,150 151,434 Provide Commerce, Inc. * 9,000 188,010 The Yankee Candle Co. * 7,850 227,336 United Natural Foods, Inc. * 4,600 122,360 ---------- 1,136,084 ---------- ENERGY--8.2% Brigham Exploration Co. * 20,100 188,940 Consol Energy, Inc. 5,400 188,406 Dril-Quip, Inc. * 2,600 57,980 FMC Technologies, Inc. * 7,900 263,860 Grey Wolf, Inc. * 43,500 212,715 Oil States International, Inc. * 11,100 207,570 Penn Virginia Corp. * 2,930 115,999 RPC, Inc. * 13,200 236,016 Vintage Petroleum, Inc. * 5,330 106,973 ---------- 1,578,459 ----------
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- FINANCIAL--7.1% Affiliated Managers Group * 1,850 $ 99,04 Bristol West Holdings, Inc. 3,800 65,132 Cathay General Bancorp * 2,600 96,694 Center Financial Corp. * 2,752 52,343 Commercial Capital Bancorp, Inc. 4,900 111,181 Cullen/Frost Bankers, Inc. * 2,800 130,116 First Community Bancorp, Inc., Class A 2,400 98,400 First Midwest Bancorp, Inc. * 4,750 164,160 Investors Financial Services Corp. * 2,350 106,056 Mercantile Bank Corp. * 4,305 149,986 Southwest Bancorporation of Texas 7,200 145,008 Triad Guaranty, Inc. * 2,500 138,700 ---------- 1,356,825 ---------- HEALTH CARE--23.2% Able Laboratories, Inc. * 5,900 113,044 American Medical Systems Holdings, Inc. * 3,600 130,572 Bone Care International, Inc. * 3,200 77,760 Connetics Corp. * 4,300 116,186 Cooper Cos, Inc. * 6,250 428,438 Covance, Inc. * 6,600 263,802 Coventry Health Care, Inc. * 2,400 128,088 Discovery Laboratories, Inc. * 13,800 92,460 Fisher Scientific International * (a) 6,500 379,145 Flamel Technologies SA ADR * 5,000 73,350 Harvard Bioscience, Inc. * 25,200 110,880 Inveresk Research Group, Inc. * 4,700 173,383 Inverness Medical Innovation * (a) 9,400 195,520 Matria Healthcare, Inc. * 11,200 317,072 Medicines Co. * 5,400 130,356 Merit Medical Systems, Inc. * 8,700 131,457 Nabi Biopharmaceuticals * 6,500 86,970 PSS World Medical, Inc. * 17,200 172,688 Resmed, Inc. * 2,700 128,547 Respironics, Inc. * 4,100 219,104 Select Medical Corp. * 7,600 102,068 Steris Corp. * 8,500 186,490 Sybron Dental Specialties, Inc. * 4,700 139,543 Telik, Inc. * 4,100 91,430 Triad Hospitals * 3,100 106,764 VCA Antech, Inc. * 6,900 142,347 VISX, Inc. * 3,800 78,280 Zoll Medical Corp. * 4,400 146,916 ---------- 4,462,660 ----------
The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- INDUSTRIAL--14.3% Applied Industrial Technologies 3,050 $ 109,007 Celadon Group, Inc. * 5,500 104,775 Charles River Associates, Inc. * 4,200 160,818 Educate, Inc. * (a) 6,400 75,456 Forward Air Corp. * 3,880 155,278 Hudson Highland Group * 3,200 93,408 Laureate Education, Inc. * 8,500 316,370 LECG Corp. * 11,000 186,010 MSC Industrial Direct Co., Inc. * 13,300 453,264 Navigant Consulting, Inc. * 8,900 195,444 Old Dominion Freight Line * 3,500 100,835 SCS Transportation, Inc. * 4,900 92,806 The Princeton Review, Inc. * 9,897 74,228 US Home Systems, Inc. * 10,400 72,176 UTI Worldwide, Inc. 6,200 364,622 Waste Connections * 5,850 185,328 ---------- 2,739,825 ---------- MATERIALS--1.6% Spartech Corp. 1,000 25,100 Agrium, Inc. * 10,100 179,376 Glamis Gold Ltd. * 6,000 112,380 ---------- 316,856 ---------- TECHNOLOGY--19.6% Advanced Power Technology, Inc. * 10,900 92,759 Anteon International Corp. * 8,600 315,190 Avocent Corp. * 4,300 111,929 BearingPoint, Inc. * 9,600 85,824 Borland Software Corp. * 11,200 93,520 Cymer, Inc. * 6,700 192,022 Formfactor, Inc. * 8,500 164,645 Forrester Research, Inc. * 10,400 158,496 Foundry Networks, Inc. * 7,050 66,905 Helix Technology Corp. * 6,400 87,008 Infocrossing, Inc. * (a) 7,200 113,868 Ingram Micro, Inc., Class A * 11,400 183,540 Internet Security Systems * 12,800 217,600 Lam Research Corp. * (a) 5,900 129,092 Macromedia, Inc. * 9,400 188,752 ManTech International Corp., Class A * 5,050 94,536 McAfee, Inc. * 13,800 277,380 Online Resources Corp. * 13,600 96,560 Paxar Corp. * 4,290 97,297 Power Integrations, Inc. * 12,000 245,160
The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) ----------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY (CONTINUED) Progress Software Corp. * 12,600 $ 250,740 Verisign, Inc. * 11,400 226,632 Zoran Corp. * 17,900 281,386 ----------- 3,770,841 ----------- TOTAL EQUITIES (Cost $15,952,273) 18,087,646 ----------- SHORT-TERM INVESTMENTS--5.8% Rate Maturity Par Value ----- -------- ---------- U.S. GOVERNMENT--0.1% U.S. Treasury Bill+ 1.64% 12/16/04 $ 30,000 29,897 Shares ---------- INVESTMENT COMPANIES--5.7% Dreyfus Institutional Preferred Plus++ 1,093,472 1,093,472 ----------- TOTAL SHORT TERM INVESTMENTS (Cost $1,123,369) 1,123,369 ----------- INVESTMENT OF CASH COLLATERAL--7.4% Dreyfus Cash Management Plus Money Market Fund++ (Cost $1,420,594) 1,420,594 1,420,594 ----------- TOTAL INVESTMENTS--107.3% (COST $18,496,236) 20,631,609 LIABILITIES IN EXCESS OF OTHER ASSETS--(7.3)% (1,409,927) ----------- NET ASSETS--100% $19,221,682 ===========
NOTES TO SCHEDULE OF INVESTMENTS: ADR--American Depository Receipt (a) Security, or a portion thereof, was on loan at 9/30/04. * Non-income producing security. + Denotes all or part of security pledged as collateral. ++ Affiliated institutional money market fund. At September 30, 2004, the Fund held the following outstanding futures contracts:
Underlying Face Unrealized Contract Position Expiration Date Amount At Value Gain ------------------------------------------------------------------------------------------------------------------------------ Russell 2000 Index (4 Contracts) Long 12/17/2004 $ 566,625 $ 7,366
The accompanying notes are an integral part of the financial statements. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 -------------------------------------------------------------------------------- ASSETS Investments in securities (including securities on loan, valued at $1,372,944) (Note 7) Unaffiliated issuers, at value (Note 1A) (cost $15,982,170) $18,117,543 Affiliated issuers, at value (Note 1A and Note 7) (cost $2,514,066) (Note 1F) 2,514,066 Receivable for investments sold 237,818 Interest and dividends receivable 3,646 Variation margin receivable for futures contracts (Note 6) 2,500 Prepaid expenses 10,026 ----------- Total assets 20,885,599 LIABILITIES Liability for securities on loan $1,420,594 Payable for investments purchased 185,626 Accrued accounting, custody and transfer agent fees 13,917 Accrued trustees' fees and expenses 755 Accrued expenses and other liabilities 43,025 ----------- Total liabilities 1,663,917 ----------- NET ASSETS $19,221,682 =========== NET ASSETS CONSIST OF: Paid-in capital $22,552,082 Accumulated net realized loss on investments (5,472,756) Undistributed net investment loss (383) Net unrealized appreciation on investments 2,142,739 ---------- TOTAL NET ASSETS $19,221,682 =========== SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,706,432 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 11.26 ===========
The accompanying notes are an integral part of the financial statements. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 -------------------------------------------------------------------------------- INVESTMENT INCOME Dividend income (net of foreign withholding tax of $22) $ 53,862 Interest income (including securities lending income of $2,130) (Note7) 8,138 ---------- Total investment income 62,000 EXPENSES Investment advisory fee (Note 2) $ 127,265 Accounting, custody, and transfer agent fees (Note 2) 78,114 Professional fees 38,873 Registration fees 18,888 Trustees' fees and expenses (Note 2) 5,197 Insurance expense 5,840 Miscellaneous 7,366 ---------- Total expenses 281,543 DEDUCT: Waiver of investment advisory fee (Note 2) (74,380) ---------- Net expenses 207,163 ---------- Net investment income (loss) (145,163) ---------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment security transactions 4,787,782 Futures contracts (2,430) ---------- Net realized gain 4,785,352 Change in unrealized appreciation (depreciation) of: Investment securities (522,986) Futures contracts 7,366 ---------- Change in net unrealized appreciation (depreciation) (515,620) ---------- Net realized and unrealized gain (loss) on investments 4,269,732 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $4,124,569 ==========
The accompanying notes are an integral part of the financial statements. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income (loss) $ (145,163) $ (32,308) Net realized gains 4,785,352 2,411,138 Change in net unrealized appreciation (depreciation) (515,620) 3,436,310 ----------- ----------- Net increase (decrease) in net assets from operations 4,124,569 5,815,140 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C) From net investment income -- (1,316) ----------- ----------- Total distributions to shareholders -- (1,316) ----------- ----------- FUND SHARE TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 302,435 180,799 Value of shares issued to shareholders in payment of distributions declared -- 1,007 Cost of shares redeemed (7,057,508) (3,004,570) ----------- ----------- Net decrease in net assets from Fund share transactions (6,755,073) (2,822,764) ----------- ----------- TOTAL DECREASE IN NET ASSETS (2,630,504) 2,991,060 NET ASSETS At beginning of year 21,852,186 18,861,126 ----------- ----------- At end of year (including undistributed net investment income (loss) of ($383) and $21) $19,221,682 $21,852,186 =========== ===========
The accompanying notes are an integral part of the financial statements. 13 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, -------------------------------------------------------------------- 2004 2003 2002 2001(5) 2000(5) ------- ------- ------- ------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 9.48 $ 7.10 $ 8.15 $230.48 $ 163.38 ------- ------- ------- ------- -------- From Operations: Net investment income (loss)*(1) (0.08) (0.01) (0.02) (0.07) (1.29) Net realized and unrealized gains (loss) on investments 1.86(6) 2.39(6) (1.03)(6) (54.83)(6) 101.69 ------- ------- ------- ------- -------- Total from operations 1.78 2.38 (1.05) (54.90) 100.40 ------- ------- ------- ------- -------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (0.00)(2) -- -- -- From net realized gains on investments -- -- -- (167.43) (33.30) ------- ------- ------- ------- -------- Total distributions to shareholders -- 0.00 -- (167.43) (33.30) ------- ------- ------- ------- -------- NET ASSET VALUE, END OF PERIOD $ 11.26 $ 9.48 $ 7.10 $ 8.15 $ 230.48 ======= ======= ======= ======= ======== TOTAL RETURN+ 18.78% 33.54% (12.88)% (46.58)% 67.64% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 0.98% 0.74% 0.74% 0.74% 0.74%(3) Net Investment Income (to average daily net assets)* (0.69)% (0.17)% (0.24)% (0.33)% (0.57)% Portfolio Turnover 157% 252%(4) 248%(4) 136%(4) 153%(4) Net Assets, End of Year (000's omitted) $19,222 $21,852 $18,861 $17,073 $151,063
------- * For the years indicated, the investment advisor voluntarily agreed not to impose all or a portion of its investment advisory fee and/or reimbursed the Fund for a portion of its operating expenses. If this voluntary action had not been taken the investment loss per share and the ratios would have been: Net investment income (loss) per share (1) $ (0.12) $ (0.07) $ (0.08) $ (0.14) $ (0.45) Ratios (to average daily net assets): Expenses 1.33% 1.40% 1.46% 1.08% 0.77%(3) Net investment loss (1.04)% (0.83)% (0.96)% (0.67)% (0.6)%
(1) Calculated using the average shares outstanding. (2) Calculates to less than $0.01 per share. (3) Includes the Fund's share of The Boston Company Small Capitalization Equity Portfolio's allocated expenses for the periods from May 3, 1996 to January 27, 2000. (4) Represents portfolio turnover of The Boston Company Small Capitalization Equity Fund while the Fund was investing directly in securities. (5) Amounts were adjusted to reflect a 1:3 reverse share split effective December 14, 2000. (6) Amounts include litigation proceeds received by the Fund of $.03 for the year ended September 30, 2004 and $0.01 for the year ended September 30, 2003 relating to securities litigation, $0.15 for the year ended September 30, 2002 relating to the settlement of multiple class action lawsuits and $0.14 for the year ended September 30, 2001 relating to NASDAQ recovery. + Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 14 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Small Capitalization Equity Fund (the "Fund") is a separate diversified investment series of the Trust. The objective of the Fund is to achieve long-term growth of capital. The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of small cap U.S. companies with total market capitalizations equal to or less than 75% of the average total market capitalization of the largest companies included in the Russell 2000 Growth Index measured at the end of each of the previous twelve months. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Securities (including illiquid securities) for which quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Trustees. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Fund are valued at amortized cost, which approximates market value. If the Fund acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method on long-term debt securities. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividends representing a return of capital are reflected as a reduction of cost. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on the ex-dividend date. The Fund's dividends from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless the shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for losses deferred due to wash sales, excise tax regulations and capital loss carryovers. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications among undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. E. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. 15 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- F. AFFILIATED ISSUERS Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to TBCAM for overall investment advisory, administrative services, and general office facilities, is paid monthly at the annual rate of 0.60% of the Fund's average daily net assets. Effective November 30, 2003, TBCAM voluntarily agreed to limit total Fund operating expenses (excluding brokerage commissions, taxes and extraordinary expenses) to 1.00% of the Fund's average daily net assets for the year ended September 30, 2004. Prior to that date the voluntary rate was 0.74%. Pursuant to this agreement, for the year ended September 30, 2004, TBCAM collectively and voluntarily waived a portion of its investment advisory fee in the amount of $74,380. This agreement is voluntary and temporary and may be discontinued or revised by TBCAM at any time. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide custody, fund administration and fund accounting services for the Fund. For these services the Fund pays Mellon Bank a fixed fee plus asset and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $67,883 during the year ended September 30, 2004. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees for the Fund's fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $746 Benjamin M. Friedman $746 John H. Hewitt $746 Caleb Loring, III $796 Patrick J. Sheppard 0 Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations for the year ended September 30, 2004, were $32,067,708 and $39,223,319, respectively. For the year ended September 30, 2004, the Fund did not purchase or sell any long-term U.S. Government securities. 16 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 26,941 23,955 Shares issued to shareholders in payment of distributions declared -- 130 Shares redeemed (624,714) (374,824) -------- -------- Net increase (decrease) (597,773) (350,739) ======== ========
At September 30, 2004, two shareholders of record held approximately 39% and 37% of the total outstanding shares of the Fund. Investment activity of these shareholders could have a material impact on the Fund. A significant portion of the Fund's shares represent investments by fiduciary accounts over which Standish Mellon and its affiliates have either sole or joint investment discretion. The Fund imposes a redemption fee of 2% of the net asset value of the shares, with certain exceptions, which are redeemed or exchanged less than 90 days from the day of their purchase. The redemption fee is paid directly to the Fund, and is designed to offset brokerage commissions, market impact, and other costs associated with short-term trading. The fee does not apply to shares that were acquired through reinvestment of distributions. For the year ended September 30, 2004, the Fund received no redemption fees. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes all of its taxable income for its fiscal year. The tax basis components of distributable earnings and the federal tax cost as of September 30, 2004, was as follows: Unrealized appreciation $ 2,704,372 Unrealized depreciation (578,423) ---------- Net unrealized appreciation/depreciation 2,125,949 Undistributed ordinary income (383) Capital loss carry-forward (5,455,967) ---------- Total distributable earnings $(3,330,401) =========== Cost for federal income tax purposes $18,505,660
At September 30, 2004, the Fund, for federal income tax purposes, has capital loss carryovers which will reduce the Fund's taxable income arising from net realized gain on investments, if any, to the extent permitted by the Internal Revenue Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Such capital loss carryovers are as follows:
Capital Loss Carry Over Expiration Date ------------- --------------- $4,714,881 9/30/2010 $ 741,086 9/30/2011
17 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (6) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Fund's Prospectus and Statement of Additional Information. The Fund may trade the following instruments with off-balance sheet risk: OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Fund may use options to seek to hedge against risks of market exposure and changes in securities prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tend to increase the Fund's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. Options, both held and written by the Fund, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Fund is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Fund did not enter into option transactions during the year ended September 30, 2004. FUTURES CONTRACTS The Fund may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to the margin requirements, the Fund deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Fund's exposure to the underlying instrument, while selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund investments. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparties do not perform under the contract's terms. The Fund enters into financial futures transactions primarily to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Fund held futures contracts. See Schedule of Investments for further details. 18 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (7) SECURITY LENDING: The Fund entered into an agreement with Mellon Bank to perform certain securities lending activities and to act as the Fund's lending agent. Pursuant to this agreement the Mellon Bank receives an agreed upon percentage of the net lending revenues. This compensation is a standard form of compensation received by securities lending agents with respect to non-affiliated entities. The Fund may lend its securities to financial institutions which the Fund deems to be creditworthy. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The market value of securities loaned is determined daily and any additional required collateral is allocated to the Fund on the next business day. For the duration of a loan, the Fund receives the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation from the investment of the collateral. As with other extensions of credit, the Fund bears the risk of delay in recovery or even loss of rights in its securities on loan should the borrower of the securities fail financially or default on its obligations to the Fund. In the event of borrower default, the Fund generally has the right to use the collateral to offset losses incurred. The Fund may incur a loss in the event it was delayed or prevented from exercising its rights to dispose of the collateral. The Fund also bears the risk in the event that the interest and/or dividends received on invested collateral is not sufficient to meet the Fund's obligations due on the loans. The Fund loaned securities during the year ended September 30, 2004 resulting in security lending income of $2,130. At September 30, 2004, the Fund had $1,372,944 worth of securities on loan. See Schedule of Investments for further detail on the security positions on loan. (8) LINE OF CREDIT: The Fund, and other funds in the Trust and subtrusts in the Mellon Institutional Funds Master Portfolio Trust (the "Portfolio Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% comitted amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the facility fee was $490 for the Fund. During the year ended September 30, 2004, the Fund borrowed under the credit facility, and incurred $149 of interest expense. 19 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company Small Capitalization Equity Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Small Capitalization Equity Fund (the "Fund") at September 30, 2004 and the results of its operations, the changes in its net assets, and financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 20 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
21
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED) Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
22 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0928AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY LARGE CAP CORE FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 Investor focus has clearly shifted to the prevailing economic conditions over the past year. Nudged along by steadily escalating oil prices and a close US presidential race, a conservatism has emerged that has manifest itself in weakening consumption, rising interest rates and corporate America's reluctance to be excessively leveraged. Equity markets have languished as year-over-year trading volumes have declined over 10%, and the Lehman Brothers Aggregate bond index has more than doubled the return of the S&P 500 thus far in 2004. For the 12 months ended September 30, 2004, The Boston Company Large Cap Core Fund (formerly known as Standish Select Value Fund) had a total return of 13.23%. This put the Large Cap Core Fund slightly behind both the S&P 500 at 13.87% and the Russell 1000 Value Index, which returned 20.5%. The bulk of this annual return is imbedded in the fourth quarter of 2003, as the broad market rose only 1.5% through the first nine months of 2004. Within the markets, results have been a mixed bag as well, with return leadership still centered in mid and smaller capitalization ranges (below $10b), while value has outperformed growth. From an absolute return perspective, energy has been the best performing sector, and from a contribution to portfolio return standpoint, it was the consumer staples sector. Over the course of the past year the US markets have transitioned from a drastic rebound to a more cautious advance, as the memories of the recent downturn are still fresh in investors' minds. Interest rates bottomed out at 40-year lows, global tension escalated in the Middle East, and oil prices soared beyond $50/barrel. GDP has slowed its hasty rate of growth in 2003 to a more moderate level. Increasing corporate expenditures, sinking jobless claims, and improving fundamentals underpinned an increasingly cautious, albeit sustainable, advance by US equities. Regardless of the direction of the economy or the markets, the disciplined investment approach used to manage the Large Cap Core Fund does not vary. Our unwavering focus is on finding undervalued companies with improving business momentum. The process begins with a computerized ranking of approximately 1000 large and liquid stocks. The computer modeling identifies those companies that have the most attractive combination of low valuations and business strength. Using this list of ranked candidates the analysts conduct further research to identify those companies in the best position to maintain their business momentum. The process ensures that the Large Cap Core Fund's holdings have an attractive combination of better than average business strength and better than average valuations. The strategy does not guarantee superior performance, but we believe that over time it will prove to be successful. 2 Although less robust than 2003, we expect the economy to continue to grow at a more modest 3-4% annual rate as measured by GDP. Stock valuations have tightened up in various segments of the equity markets, highlighting our fundamental research and stock selection. Our portfolio team is focusing on the most severely discounted stocks across all sectors. On a broader level there has been a distinct shift away from a consumer driven economic expansion as the credit tightening cycle is underway and energy prices have commanded a greater portion of household income. Outlooks have admittedly shifted to 2005 and the expectations that equity markets will rise moderately in an earnings driven environment. Thank you for your continued support. /s/ David Cameron /s/ Sean Fitzgibbon ----------------- ------------------- David Cameron Sean Fitzgibbon 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY LARGE CAP CORE FUND, THE S&P 500, AND THE RUSSELL 1000 VALUE INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Large Cap S&P 500 Russell 1000 Core Equity Fund Index Value Index ---------------- ------- ------------ Beginning $100,000 $100,000 $100,000 1994 Quarter3 $103,221 $104,889 $102,553 Quarter4 $101,674 $104,873 $100,931 1995 Quarter1 $110,579 $115,084 $110,524 Quarter2 $122,863 $126,070 $120,426 Quarter3 $134,608 $136,088 $130,948 Quarter4 $139,856 $144,281 $139,638 1996 Quarter1 $149,418 $152,025 $147,544 Quarter2 $153,431 $158,848 $150,085 Quarter3 $161,040 $163,759 $154,448 Quarter4 $177,397 $177,409 $169,855 1997 Quarter1 $179,479 $182,164 $174,208 Quarter2 $211,103 $213,967 $199,889 Quarter3 $239,712 $229,993 $219,796 Quarter4 $241,738 $236,598 $229,613 1998 Quarter1 $272,295 $269,602 $256,379 Quarter2 $267,216 $278,505 $257,526 Quarter3 $217,353 $250,802 $227,692 Quarter4 $259,159 $304,214 $265,500 1999 Quarter1 $241,062 $319,372 $269,304 Quarter2 $260,398 $341,882 $299,675 Quarter3 $244,063 $320,534 $270,315 Quarter4 $258,706 $368,226 $285,009 2000 Quarter1 $272,716 $376,671 $286,367 Quarter2 $268,222 $366,664 $272,946 Quarter3 $284,381 $363,113 $294,412 Quarter4 $307,243 $334,701 $304,997 2001 Quarter1 $290,679 $295,021 $287,138 Quarter2 $296,012 $312,287 $301,153 Quarter3 $263,950 $266,449 $268,171 Quarter4 $282,263 $294,919 $287,944 2002 Quarter1 $288,644 $295,730 $299,726 Quarter2 $262,718 $256,110 $274,192 Quarter3 $217,241 $211,865 $222,719 Quarter4 $232,802 $229,741 $243,246 2003 Quarter1 $223,758 $222,505 $231,413 Quarter2 $259,021 $256,756 $271,387 Quarter3 $264,507 $263,550 $276,991 Quarter4 $296,119 $295,641 $316,294 2004 Quarter1 $302,297 $300,647 $325,877 Quarter2 $303,631 $305,821 $328,743 Quarter3 $299,297 $300,112 $333,817
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 10 Year 1/03/1991 ------------------------------------------------------------------------------------- 13.23% 4.28% 4.16% 11.23% 12.41%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $990.10 $4.13 Hypothetical (5% return per year before expenses) $1,000.00 $1020.85 $4.19
--------------- + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.83%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). THE EXAMPLE REFLECTS THE COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS ALL ITS ASSETS. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in The Boston Company Large Cap Core Portfolio ("Portfolio"), at value (Note 1A) $56,034,183 Receivable for Fund shares sold 49,887 Prepaid expenses 5,290 ----------- Total assets 56,089,360 LIABILITIES Accrued transfer agent fees $ 3,103 Accrued trustees' fees 999 Accrued expenses and other liabilities 18,695 ----------- Total liabilities 22,797 ----------- NET ASSETS $56,066,563 ----------- NET ASSETS CONSIST OF: Paid-in capital $53,292,470 Accumulated net realized loss on investments (1,495,032) Undistributed net investment income 138,723 Net unrealized appreciation on investments 4,130,402 ----------- TOTAL NET ASSETS $56,066,563 =========== SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,590,902 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 35.24 ===========
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME Dividend income allocated from Portfolio (net of foreign withholding taxes of $1,174) $ 876,713 Interest income allocated from Portfolio 9,993 Expenses allocated from Portfolio (429,075) ----------- Net investment income allocated from Portfolio 457,631 EXPENSES Transfer agent fees (Note 2) $ 8,057 Professional fees 19,476 Registration fees 23,535 Trustees' fees and expenses (Note 2) 2,000 Shareholder reports 7,500 Insurance expense 1,007 Miscellaneous 5,746 ---------- Total expenses 67,321 DEDUCT: Reimbursement of Fund operating expenses (Note 2) (7,419) ---------- Net expenses 59,902 ----------- Net investment income 397,729 ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) allocated from Portfolio on Investments: Investment securities 4,929,409 Futures contracts 107,512 ---------- Net realized gain 5,036,921 Change in unrealized appreciation (depreciation) allocated from Portfolio 2,262,590 ----------- Net realized and unrealized gain on investments 7,299,511 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS $ 7,697,240 ===========
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income $ 397,729 $ 679,484 Net realized gains (loss) allocated from Portfolio 5,036,921 (3,244,390) Change in net unrealized appreciation allocated from Portfolio 2,262,590 12,889,324 ------------- ------------ Net increase in net assets from operations 7,697,240 10,324,418 ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C) From net investment income (568,427) (675,158) ------------- ------------ Total distributions to shareholders (568,427) (675,158) ------------- ------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 6,450,338 11,259,233 Value of shares issued to shareholders in payment of distributions declared 401,721 566,287 Cost of shares redeemed (22,063,953) (12,354,505) ------------- ------------ Net decrease in net assets from Fund share transactions (15,211,894) (528,985) ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (8,083,081) 9,120,275 NET ASSETS At beginning of year 64,149,644 55,029,369 ------------- ------------ At end of year (including undistributed net investment income of $138,723 and $309,103) $ 56,066,563 $ 64,149,644 ============= ============
The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, ------------------------------------------------------------ 2004 2003 2002 2001 2000 ------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF YEAR $ 31.43 $ 26.13 $ 34.00 $ 41.71 $ 37.79 ------- ------- ------- ------- ------- FROM OPERATIONS: Net investment income*(1) 0.23 0.36 0.32 0.39 0.29 Net realized and unrealized gains (loss) on investments 3.92(3) 5.30 (5.77)(2) (2.77) 5.73 ------- ------- ------- ------- ------- Total from operations 4.15 5.66 (5.45) (2.38) 6.02 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.34) (0.36) (0.21) (0.29) (0.23) From net realized gains on investments -- -- (2.21) (5.04) (1.87) ------- ------- ------- ------- ------- Total distributions to shareholders (0.34) (0.36) (2.42) (5.33) (2.10) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF YEAR $ 35.24 $ 31.43 $ 26.13 $ 34.00 $ 41.71 ======= ======= ======= ======= ======= TOTAL RETURN+ 13.23% 21.76% (17.70)% (7.18)% 16.52% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)(4) 0.83% 0.71% 0.71% 0.71% 0.71% Net Investment Income (to average daily net assets) 0.67% 1.23% 0.96% 1.00% 0.76% Net Assets, End of Year (000's omitted) $56,067 $64,150 $55,029 $75,489 $93,315
----------- * For the years indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Net investment income per share(1) $ 0.23 $ 0.29 $ 0.27 $ 0.38 $ 0.28 Ratios (to average daily net assets): Expenses(4) 0.84% 0.93% 0.83% 0.73% 0.73% Net investment income 0.66% 1.01% 0.84% 0.98% 0.74%
(1) Calculated based on average shares outstanding. (2) Amount includes litigation proceeds received by the Fund of $0.02. (3) Amount includes litigation proceeds received by the Fund of $0.06. (4) Includes the Fund's share of The Boston Company Large Cap Core Portfolio's allocated expenses. + Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Large Cap Core Fund (the "Fund") is a separate diversified investment series of the Trust. The objective of the Fund is to achieve long-term growth of capital. The Fund invests all of its investable assets in an interest of The Boston Company Large Cap Core Portfolio (the "Portfolio"), a subtrust of Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which is organized as a New York trust, and which has the same investment objective as the Fund. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities in companies that appear to be undervalued relative to underlying business fundamentals. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. As of September 30, 2004 the Fund owned approximately 100% of the Portfolio's net assets. The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS The Fund records its investment in the Portfolio at value based on the net asset value of the Portfolio. The method by which the Portfolio values its securities is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. SECURITIES TRANSACTIONS AND INCOME Investment transactions are recorded as of the trade date. Currently, the Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with accounting principles generally accepted in the United States of America. All realized and unrealized gains and losses of the Portfolio are allocated pro rata among the investors in the Portfolio. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on ex-dividend date. The Fund's dividends from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. In determining the amounts of its dividends, the Fund will take into account its share of the income, gains or losses, expenses, and any other tax items of the Portfolio. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless a shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for wash sales, post-October losses and realized and unrealized gains or losses on futures. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- E. COMMITMENT AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. (2) INVESTMENT ADVISORY FEE: The Fund does not directly pay any investment advisory fees, but indirectly bears its pro rata share of the compensation paid by the Portfolio to The Boston Company Asset Management, LLC ("TBCAM") a wholly-owned subsidiary of Mellon Financial Corporation, for such services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Effective November 1, 2003 TBCAM voluntarily agreed to limit the total operating expenses of the Fund and its pro rata share of the Portfolio expenses (excluding commissions, taxes and extraordinary expenses) to 0.90% of the Fund's average daily net assets for the year ended September 30, 2004. Prior to that date the voluntary expense limitation rate was 0.71%. Pursuant to this agreement, for the year ended September 30, 2004, TBCAM voluntarily reimbursed the Fund for $7,419 of its operating expenses. This agreement is temporary and voluntary and may be discontinued or revised by TBCAM at any time. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 30, 2004. The fund also bears its pro rata share of the renumeration paid to the Trustees by the Portfolio. See Note 2 of the Portfolio's notes to financial statements which are included elsewhere in this report.
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $500 Benjamin M. Friedman $500 John H. Hewitt $500 Caleb Loring, III $500 Patrick J. Sheppard 0 Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003. (3) INVESTMENT TRANSACTIONS: Increases and decreases in the Fund's investment in the Portfolio for the year ended aggregated $6,813,122 and $22,706,053, respectively. The Fund receives a proportionate share of the Portfolio's income, expenses, and realized and unrealized gains and losses based on applicable tax allocation rules. Book/tax differences arise when changes in proportionate interest for funds investing in the Portfolio occur. At September 30, 2004, unrealized appreciation (depreciation) on the Portfolio was allocated in the amount of $4,130,402 to the Fund and $1,219,888 to other entities previously invested in the Portfolio but since ceased operations. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 185,329 358,946 Shares issued to shareholders in payment of distributions declared 11,699 19,336 Shares redeemed (647,475) (443,179) -------- -------- Net decrease (450,447) (64,897) ======== ========
At September 30, 2004, two shareholders of record held approximately 12% and 11% of the total outstanding shares of the Fund, respectively. Investment activities of these shareholders could have a material impact on the Fund. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income $ 136,255 Capital loss carry-forward (1,315,495) At September 30, 2004, the Fund, for federal income tax purposes, has capital loss carryovers which will reduce the Fund's taxable income arising from net realized gain on investments, if any, to the extent permitted by the Internal Revenue Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Such capital loss carryovers are as follows:
Capital Loss Carry Over Expiration Date ------------- --------------- $1,315,495 9/30/2011
Tax character of distributions paid during the fiscal year ended September 30, 2004, was as follows: Distributions paid from: Ordinary income $568,427 See corresponding master portfolio for tax basis unrealized appreciation/(depreciation) information. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY LARGE CAP CORE FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company Large Cap Core Fund: In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Large Cap Core Fund (the "Fund") at September 30, 2004 and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investment in the Portfolio at September 30, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 13 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
PERCENTAGE OF TOP TEN HOLDINGS SECTOR NET ASSETS ----------------------------------------------------------------------------------- Microsoft Corp. Technology 3.2 Citigroup Inc. Financials 3.2 Bank of America Financials 2.6 Exxon Mobil Corp. Energy 2.6 General Electric Co. Industrials 2.6 Cisco Systems, Inc. Technology 2.5 Pfizer, Inc. Health Care 2.5 Goldman Sachs Group Financials 1.9 Wal-Mart Stores Inc. Consumer Staples 1.8 Procter & Gamble Co. Consumer Staples 1.7 ---- 24.6
PERCENTAGE OF ECONOMIC SECTOR ALLOCATION NET ASSETS -------------------------------------------------- Consumer Discretionary 11.6 Consumer Staples 9.5 Energy 8.6 Financials 19.9 Health Care 13.4 Industrials 11.4 Materials 2.8 Technology 15.6 Telecommunication Services 2.4 Utilities 2.9 Short-term and Net Other Assets 1.9 ----- 100.0
The Portfolio is actively managed. Current holdings may be different than those presented above. 14 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- EQUITIES--98.1% CONSUMER DISCRETIONARY--11.6% Black & Decker Corp. 5,600 $ 433,664 Carnival Corp. 12,400 586,396 Coach, Inc. 14,400 610,848 Comcast Corp. * 13,406 378,585 Marriott International, Class A 12,400 644,304 McDonalds Corp. 25,100 703,553 Petco Animal Supplies, Inc. 9,000 293,940 Staples, Inc. 21,200 632,184 Target Corp. 10,500 475,125 Time Warner, Inc. 33,400 539,076 Viacom, Inc., Class B 14,000 469,840 Walt Disney Co. 33,300 750,915 ---------- 6,518,430 ---------- CONSUMER STAPLES--9.5% Archer-Daniels-Midland Co. 26,600 451,668 Constellation Brands Inc., Class A * 13,500 513,810 Costco Wholesale Corp. 15,200 631,712 Dean Foods Corp. 11,700 351,234 Estee Lauder Companies, Class A 9,200 384,560 Kellogg Co. 13,700 584,442 Kimberly-Clark Corp. 6,700 432,753 Procter & Gamble Co. 18,000 974,160 Wal-Mart Stores, Inc. 18,500 984,200 ---------- 5,308,539 ---------- ENERGY--8.6% Anadarko Petroleum Corp. 4,900 325,164 BP PLC ADR 4,990 287,075 Chesapeake Energy Corp. 26,400 417,912 ChevronTexaco Corp. 5,732 307,464 ConocoPhillips 7,100 588,235 Devon Energy Corp. 5,600 397,656 Exxon Mobil Corp. 30,004 1,450,093 Newfield Exploration Co. 9,900 606,276 Weatherford Intl Ltd. * 9,000 459,180 ---------- 4,839,055 ---------- FINANCIAL--19.9% Ace Ltd. 13,500 540,810 American International Group 14,149 961,991 Bank of America Corp. 34,200 1,481,886 Boston Properties, Inc. REIT 5,400 299,106
The accompanying notes are an integral part of the financial statements. 15 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- FINANCIAL (CONTINUED) Capital One Financial Corp. 9,200 $ 679,880 Chubb Corp. 8,200 576,296 Citigroup, Inc. 40,466 1,785,360 Franklin Resources, Inc. 16,500 920,040 Goldman Sachs Group, Inc. 11,500 1,072,260 JPMorgan Chase & Co. 18,000 715,140 Legg Mason, Inc. 6,450 343,592 Merrill Lynch & Co., Inc. 4,900 243,628 Morgan Stanley 5,400 266,220 Radian Group, Inc. 12,200 564,006 Wachovia Corp. 15,500 727,725 ---------- 11,177,940 ---------- HEALTH CARE--13.4% Amgen, Inc. 9,000 510,120 Boston Scientific Corp. 10,600 421,138 Charles River Laboratories 6,400 293,120 Davita, Inc. * 14,500 451,675 Fisher Scientific International 13,300 775,789 IVAX Corp. 16,900 323,635 Johnson & Johnson 7,900 445,007 Laboratory Corp. of America Holdings * 7,100 310,412 Manor Care, Inc. 8,200 245,672 Merck & Co., Inc. 5,800 191,400 Millipore Corp. 10,300 492,855 Pfizer, Inc. 45,520 1,392,912 Waters Corp. 9,300 410,130 Wellpoint Health Networks, Inc. 3,900 409,851 Wyeth 6,400 239,360 Zimmer Holdings, Inc. * 7,300 576,992 ---------- 7,490,068 ---------- INDUSTRIAL--11.4% Caterpillar, Inc. 6,900 555,105 Cendant Corp. 16,100 347,760 Deere & Co. 6,900 445,395 Eaton Corp. 11,200 710,192 FedEx Corp. 3,400 291,346 General Electric Corp. 43,000 1,443,940 Ingersoll-Rand Co., Class A 8,200 557,354
The accompanying notes are an integral part of the financial statements. 16 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- INDUSTRIAL (CONTINUED) Norfolk Southern Corp. 19,100 $ 568,034 Paccar, Inc. 9,300 642,816 Textron, Inc. 4,700 302,069 United Technologies Corp. 5,800 541,604 ---------- 6,405,615 ---------- MATERIALS--2.8% Alcoa, Inc. 18,000 604,620 Dow Chemical Co. 13,500 609,930 El Du Pont de Nemours & Co. 7,700 329,560 ---------- 1,544,110 ---------- TECHNOLOGY--15.6% Accenture Ltd., Class A * 16,500 446,325 Alliance Data Systems Corp. 17,400 705,744 Altera Corp. 11,500 225,055 Analog Devices, Inc. 7,500 290,850 Autodesk, Inc. 6,000 291,780 Cisco Systems, Inc. * 78,100 1,413,610 Cognizant Technology Solutions Corp. 16,700 509,517 Corning, Inc. 31,800 352,344 Dell, Inc. * 7,700 274,120 Intel Corp. 35,600 714,136 International Business Machines Corp. 6,400 548,736 Microsoft Corp. 65,200 1,802,780 Qualcomm, Inc. 15,900 620,736 Symantec Corp. 9,900 543,312 ---------- 8,739,045 ---------- TELECOMMUNICATION SERVICES--2.4% SBC Communications, Inc. 18,000 467,100 Verizon Communications, Inc. 21,900 862,422 ---------- 1,329,522 ---------- UTILITIES--2.9% Constellation Energy Group, Inc. 14,400 573,696 Entergy Corp. 7,700 466,697 P G & E Corp. * 19,700 598,880 ---------- 1,639,273 ---------- TOTAL EQUITIES (Cost $49,640,105) 54,991,597 ----------
The accompanying notes are an integral part of the financial statements. 17 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Rate Maturity Par Value (Note 1A) ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--0.9% U.S. GOVERNMENT--0.2% U.S. Treasury Bill+ 1.640% 12/16/2004 75,000 $ 74,742 Investment Companies--0.7% Shares --------- Dreyfus Institutional Preferred Plus++ 402,553 402,553 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $477,295) 477,295 ----------- TOTAL INVESTMENTS--99.0% (COST $50,117,400) 55,468,892 OTHER ASSETS LESS LIABILITIES--1.0% 565,291 ----------- NET ASSETS--100% $56,034,183 ===========
NOTES TO SCHEDULE OF INVESTMENTS: ADR-American Depository Receipt REIT--Real Estate Investment Trust * Non-income producing security. + Denotes all or part of security pledged as collateral. ++ Affiliated institutional money market fund. At September 30, 2004, the Portfolio held the following futures contract:
Underlying Face Unrealized Contract Position Expiration Date Amount at Value Loss ----------------------------------------------------------------------------------------------------------------- S&P 500 (1 Contract) Long 12/16/2004 $279,913 $(1,192)
The accompanying notes are an integral part of the financial statements. 18 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 -------------------------------------------------------------------------------- ASSETS Investment in securities Unaffiliated issuers, at value (Note 1A) (cost $49,714,847) $55,066,339 Affiliated issuers, at value (Note 1E) (cost $402,553) 402,553 Receivable for investments sold 865,334 Interest and dividends receivable 43,035 Prepaid expenses 6,459 ----------- Total assets 56,383,720 LIABILITIES Payable for investments purchased $ 280,750 Payable to investment advisor 3,826 Payable for variation margin on open futures contracts (Note 5) 75 Accrued accounting and custody fees 12,200 Accrued trustees' fees and expenses 2,390 Accrued expenses and other liabilities 50,296 --------- Total liabilities 349,537 ----------- NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $56,034,183 ===========
The accompanying notes are an integral part of the financial statements. 19 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO STATEMENT OF OPERATIONS SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income (net of foreign withholding taxes of $1,174) $876,713 Interest income 9,993 ---------- Total investment income 886,706 EXPENSES Investment advisory fee (Note 2) $298,188 Accounting and custody fees (Note 2) 78,285 Professional fees 29,090 Trustees' fees and expenses (Note 2) 11,779 Insurance expense 9,128 Miscellaneous 2,605 ---------- Total expenses 429,075 ---------- Net investment income 457,631 ---------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 4,929,409 Futures contracts 107,512 ---------- Net realized gain on investments 5,036,921 Change in unrealized appreciation (depreciation) of: Investment securities 2,234,053 Futures contracts 28,537 ---------- Change in net unrealized appreciation (depreciation) 2,262,590 ---------- Net realized and unrealized gain on investments 7,299,511 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $7,757,142 ==========
The accompanying notes are an integral part of the financial statements. 20 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income $ 457,631 $ 679,488 Net realized gains (losses) on investments 5,036,921 (3,244,400) Change in net unrealized appreciation (depreciation) of investments 2,262,590 12,889,366 ----------- ----------- Net increase in net assets from operations 7,757,142 10,324,454 ----------- ----------- CAPITAL TRANSACTIONS Contributions 6,813,122 11,278,147 Withdrawals (22,706,053) (12,440,045) ----------- ----------- Net increase (decrease) in net assets from capital transactions (15,892,931) (1,161,898) ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (8,135,789) 9,162,556 NET ASSETS At beginning of year 64,169,972 55,007,416 ----------- ----------- At end of year $56,034,183 $64,169,972 =========== ===========
The accompanying notes are an integral part of the financial statements. 21 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, ----------------------------------------------------------- 2004 2003 2002 2001 2000 -------- ------- -------- -------- -------- TOTAL RETURN+ 13.34%++ 21.76%++ 17.69%++ (7.11)% 16.59% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 0.72% 0.71% 0.70% 0.64% 0.64% Net Investment Income (to average daily net assets)* 0.77% 1.23% 0.97% 1.06% 0.83% Portfolio Turnover 66% 104% 80% 62% 92% Net Assets, End of Period (000's omitted) $56,034 $64,170 $55,007 $124,213 $146,105
---------- * For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Portfolio for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Ratios (to average daily net assets): Expenses N/A 0.77% 0.72% N/A N/A Net investment income N/A 1.17% 0.95% N/A N/A
+ Total return for the Portfolio has been calculated based on the total return for the investor Fund, assuming all distributions were reinvested, and adjusted for the difference in expenses as set out in the notes to the financial statements. ++ Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 22 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was organized as a master trust fund under the laws of the state of New York on January 18, 1996 and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Large Cap Core Portfolio (the "Portfolio") is a separate diversified investment series of the Portfolio Trust. At September 30, 2004, there was one fund, The Boston Company Large Cap Core Fund (the "Fund"), invested in the Portfolio. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. The Fund's proportionate interest at September 30, 2004 was approximately 100%. The objective of the Portfolio is long-term growth of capital. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity and equity-related securities of companies which appear to be undervalued relative to current earnings growth. The following is a summary of significant accounting policies followed by the Portfolio in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Securities (including illiquid securities) for which quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Trustees. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which approximates market value. If the Portfolio acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTION AND INCOME Securities transactions are recorded as of the trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method on long-term debt securities. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividends representing a return of capital are reflected as a reduction of cost. C. INCOME TAXES The Portfolio is treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the source of income and diversification requirements applicable to regulated investment companies (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio allocates at least annually among its investors each investor's distributive share of the Portfolio's net investment income, net realized capital gains, and any other items of income, gain, loss deduction or credit. D. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Portfolio may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Portfolio under these arrangements is unknown, as this would involve future claims that may be made against the Portfolio that have not yet occurred. However, based on experience, the Portfolio expects the risks of loss to be remote. E. AFFILIATED ISSUERS Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. 23 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (2) INVESTMENT ADVISORY FEE: The investment advisory fee paid to TBCAM for overall investment advisory and administrative services is paid monthly at the annual rate of 0.50% of the Portfolio's average daily net assets. For the year ended September 30, 2004, the Portfolio paid $298,188 in investment advisory fees to TBCAM. The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide custody, fund administration and fund accounting services for the Portfolio. For these services the Portfolio pays Mellon Bank a fixed fee plus fees that are asset and transaction based, as well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio was charged $75,579 during the year ended September 30, 2004. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Portfolio for serving as an officer or Trustee of the Trust. The Portfolio Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Portfolio Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Portfolio for the Portfolio's fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $1,689 Benjamin M. Friedman $1,689 John H. Hewitt $1,689 Caleb Loring, III $1,825 Patrick J. Sheppard 0 Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations, for the year ended September 30, 2004, were $38,837,349 and $53,126,917, respectively. For the year ended September 30, 2004, the Portfolio did not purchase or sell any long-term U.S. Government securities. (4) FEDERAL TAXES: The cost and unrealized appreciation (depreciation) in value of the investment securities owned at September 30, 2004, as computed on a federal income tax basis, were as follows: Aggregate Cost $ 50,295,661 ============ Gross unrealized appreciation $ 6,544,162 Gross unrealized depreciation (1,370,931) ------------ Net unrealized appreciation $ 5,173,231 ============ (5) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Portfolio Trust's registration statement. The Portfolio may trade the following financial instruments with off-balance sheet risk: 24 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Portfolio may use options to seek to hedge against risks of market exposure and changes in security prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tends to increase the Portfolio's exposure to the underlying instrument. Buying puts and writing calls tends to decrease the Portfolio's exposure to the underlying instrument, or hedge other Portfolio investments. Options, both held and written by the Portfolio, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Portfolio is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Portfolio entered into no such transactions during the year ended September 31, 2004. FUTURES CONTRACTS The Portfolio may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to margin requirements the Portfolio deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Portfolio. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Portfolio's exposure to the underlying instrument, while selling futures tends to decrease the Portfolio's exposure to the underlying instrument or hedge other investments. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparty does not perform under the contract's terms. The Portfolio enters into financial futures transactions primarily to seek to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Portfolio held futures contracts. See Schedule of Investments for further detail. (6) LINE OF CREDIT: The Portfolio, and other subtrusts in the Portfolio Trust, as well as funds in the Mellon Institutional Funds Investment Trust (the "Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of 0.060 of 1% on the committed amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the facility fee was $1,368 for the Portfolio. During the September 30, 2004, the Portfolio had borrowed under the credit facility incurring $34 of interest expense. 25 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of The Boston Company Large Cap Core Portfolio: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Large Cap Core Portfolio (the "Portfolio") at September 30, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 26 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
27 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
28 THIS PAGE INTENTIONALLY LEFT BLANK 30 [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0930AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 Coupon income once again pushed municipal bond investment returns into positive territory, more than offsetting the negative price impact of a modest increase in interest rates. For the year ended September 30, 2004, the Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund produced a total return after expenses of 2.64%. This result trailed the benchmark performance index (Lehman Muni 3,5,7 and 10 Year Index) return of 2.87%. Please note that the Massachusetts Fund invests only in bonds the interest of which is exempt from Massachusetts and federal income taxes, while the benchmark index is national in scope. Throughout the past year, bond market participants focused on how quickly the Federal Reserve would hike short-term interest rates, and by how much. A steady stream of strong employment and consumption data in early 2004 convinced investors that the Fed would need to act aggressively to choke off any nascent inflation. Consequently, all rates were pushed up in anticipation of the pressures of a possibly overheating economy. The spike in yields was temporary, and quickly reversed course as jobs and spending numbers weakened through the summer months. By the end of the period, the Fed had abandoned its accommodative policy, raising short rates by a total of three-quarters of a point. Yields on longer maturities, however, were mostly unchanged from one year earlier, reflecting the perceived deceleration in the U.S. economy. Income-oriented sectors of the tax-free bond market were bid up in the competition for excess income, and the Fund's holdings in hospital bonds, which typically carry a significant yield premium, outperformed. In addition, underweighting lower-yielding pre-refunded securities proved a successful strategy. Although surging tax receipts caused city and state credit quality to improve markedly in fiscal 2004, Massachusetts bonds lagged under the weight of heavy potential supply to finance school construction. Recent economic indicators remain positive. The state's non-farm employment increased 2.0% since January 2004, slightly trailing the nation's 2.3% growth rate. The Commonwealth's revenue collections reflect these positive economic trends, with collections from all major taxes above budget as well as last year's results. The gap between short- and long-term interest rates should shrink somewhat as short rates rise, but will likely remain wider than average. We are gradually moving toward a mix of shorter and longer bonds, known as a barbell structure, but only when we can establish it without sacrificing income. The Fund's sensitivity to interest rate changes closely tracks the benchmark index. We remain focused on sectors and securities that produce excess yield as the primary sources of long-term outperformance. It has been our privilege to manage the Fund, and we thank you for your continued support. Sincerely, /s/ Steven W. Harvey /s/ Christine L. Todd -------------------- --------------------- Steven W. Harvey Christine L. Todd 2 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND AND THE LEHMAN BROTHERS 3-5-7-10 YEAR MINI INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
Standish Mellon Mass Lehman Brothers Intermediate Tax 3-5-7-10 Year Exempt Bond Fund Muni Index -------------------- --------------- Beginning $90,000 $90,000 1994 Quarter3 $90,453 $90,805 Quarter4 $89,427 $90,127 1995 Quarter1 $93,777 $94,411 Quarter2 $95,666 $96,837 Quarter3 $98,242 $99,473 Quarter4 $100,733 $101,773 1996 Quarter1 $100,101 $101,663 Quarter2 $100,870 $102,198 Quarter3 $102,447 $103,923 Quarter4 $104,829 $106,255 1997 Quarter1 $104,615 $106,320 Quarter2 $107,497 $109,066 Quarter3 $110,183 $111,694 Quarter4 $112,580 $113,896 1998 Quarter1 $113,773 $115,139 Quarter2 $115,179 $116,557 Quarter3 $118,386 $119,816 Quarter4 $119,085 $120,738 1999 Quarter1 $119,824 $121,814 Quarter2 $117,714 $120,088 Quarter3 $118,171 $121,108 Quarter4 $117,919 $121,128 2000 Quarter1 $119,706 $122,981 Quarter2 $121,115 $124,883 Quarter3 $123,753 $127,483 Quarter4 $127,671 $131,349 2001 Quarter1 $130,650 $134,755 Quarter2 $131,423 $135,889 Quarter3 $135,285 $139,566 Quarter4 $133,791 $138,769 2002 Quarter1 $134,407 $139,902 Quarter2 $139,529 $145,292 Quarter3 $144,874 $150,846 Quarter4 $144,775 $151,435 2003 Quarter1 $146,110 $153,084 Quarter2 $149,372 $156,332 Quarter3 $149,511 $157,333 Quarter4 $150,569 $158,247 2004 Quarter1 $152,443 $160,272 Quarter2 $149,042 $157,046 Quarter3 $153,459 $161,853
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 10 Year 11/02/1992 -------------------------------------------------------------------------------- 2.64% 4.29% 5.36% 5.43% 5.35%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ---------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,006.70 $3.26 Hypothetical (5% return per year before expenses) $1,000.00 $1,021.75 $3.29
--------------- + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.65%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
SUMMARY OF COMBINED RATINGS ---------------------------------------------------------------- QUALITY BREAKDOWN VALUE (%) ---------------------------------------------------------------- AAA 36.4% AA 38.0% A 8.3% BBB 15.9% BB 1.4% TOTAL 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors Services. If a security receives split (different) ratings from multiple rating organizations, the Fund treats the security as being rated in the higer rating category.
Percentage of Top Ten Holdings* Rate Maturity Net Assets ---------------------------------------------------------------------------------------------------------- Commonwealth of Massachusetts NCL 5.500% 12/01/2011 5.8 Mass Bay Transportation Authority FGIC 7.000% 03/01/2011 2.9 Mass HEFA Tufts University NCL 5.500% 08/15/2015 2.8 Mass Bay Transportation Authority FGIC 7.000% 03/01/2011 2.8 Foxborough MA Stadium 5.750% 06/01/2011 2.7 Mass Water Resource Authority NCL 6.500% 07/15/2009 2.6 Mass Port Authority MBIA NCL 5.750% 07/01/2012 2.6 Mass Special Obligation NCL 5.500% 06/01/2013 2.6 Commonwealth of Massachusetts AMBAC NCL AMT 5.750% 08/01/2010 2.6 Commonwealth of Massachusetts Prerefunded 5.625% 06/01/2018 2.6 ----- 30.0
* Excluding short-term investments and investment of cash collateral.
Percentage of Economic Sector Allocation Net Assets -------------------------------------------- General obligation 19.4 Gov't. backed 10.8 Insured 24.7 Letter of credit/GIC 1.3 Revenue Housing 0.0 Industrial 3.0 Other revenue 39.4 Short-term and Other Net Assets 1.4 ----- 100.0
The Portfolio is actively managed. Current holdings may be different than those presented above. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Par Value Security Rate Maturity Value Note (1A) ------------------------------------------------------------------------------------------------------------------------------------ BONDS--98.6% GENERAL OBLIGATIONS--19.4% Commonwealth of Massachusetts NCL 5.500% 12/1/2011 2,250,000 $ 2,561,828 Commonwealth of Massachusetts NCL 6.000 11/1/2011 850,000 993,786 Mass Bay Transportation Authority FGIC 7.000 3/1/2014 900,000 1,116,531 Mass College Building Authority 7.500 5/1/2007 450,000 510,890 Mass College Building Authority 7.500 5/1/2008 250,000 293,673 Puerto Rico Commonwealth Fuel Sales Tax Revenue 5.000 7/1/2018 750,000 807,053 Puerto Rico Commonwealth NCL 6.500 7/1/2013 500,000 597,695 Puerto Rico Public Building Authority Revenue 5.000 7/1/2028 250,000 269,973 Puerto Rico Public Financial Corp. LOC: Government Development Bank For Puerto Rico 5.750 8/1/2027 250,000 281,430 University of Mass Building Authority State Guarantee 6.625 5/1/2007 1,000,000 1,113,510 ----------- 8,546,369 ----------- GOVERNMENT BACKED--10.8% Commonwealth of Massachusetts--Series C 5.250 8/1/2009 835,000 922,550 Commonwealth of Massachusetts NCL--Series B 6.500 8/1/2008 550,000 628,931 Commonwealth of Massachusetts Prerefunded 6.000 6/1/2014 565,000 649,055 Commonwealth of Massachusetts Prerefunded 5.625 6/1/2018 1,000,000 1,135,010 Mass HEFA Dana Farber Cancer Institute 6.500 12/1/2006 650,000 697,340 Mass Revenue Rail Connections, Inc. 0.000 7/1/2022 500,000 191,515 Massachusetts State Water Pollution Abatement Trust Prerefunded 5.250 8/1/2013 245,000 275,890 Puerto Rico Commonwealth & Aqueduct & Sewer Authority FSA Prerefunded--Series A 9.000 7/1/2009 230,000 242,496 ----------- 4,742,787 ----------- HOUSING REVENUE--0.0% Mass HFA Multi-Family Unit FNMA 6.300 10/1/2013 15,000 15,067 ----------- INDUSTRIAL DEVELOPMENT--3.0% Boston MA Industrial Development Financing Authority AMT 7.375 5/15/2015 750,000 753,210 Mass DFA Waste Management Resource Recovery AMT 6.900 12/1/2029 500,000 569,665 ----------- 1,322,875 ----------- INSURED BOND--24.7% Commonwealth of Massachusetts 5.000 12/1/2009 $250,000 276,293 Commonwealth of Massachusetts 5.000 12/1/2007 500,000 543,235 Commonwealth of Massachusetts AMBAC NCL AMT 5.750 8/1/2010 1,000,000 1,145,180 Commonwealth of Massachusetts MBIA NCL 5.500 11/1/2012 685,000 787,538 Mass Bay Transportation Authority FGIC 7.000 3/1/2011 1,055,000 1,285,539 Mass Bay Transportation Authority FGIC 7.000 3/1/2011 1,000,000 1,213,350 Mass DFA May Institute Asset Guaranty 5.500 9/1/2005 175,000 180,387 Mass HEFA Mass Eye and Ear ACA 5.000 7/1/2005 660,000 672,811 Mass HEFA Partners FSA 5.500 7/1/2007 635,000 690,029 Mass Port Authority MBIA NCL AMT 5.750 7/1/2007 500,000 541,080 Mass Port Authority MBIA NCL 5.750 7/1/2012 1,000,000 1,153,000 Mass Special Obligation NCL 5.000 12/15/2013 500,000 552,490 Mass Special Obligation Revenue Refunding Notes NCL 5.000 12/15/2011 500,000 550,025 Puerto Rico Commonwealth Highway & Transportation Authority MBIA 5.500 7/1/2013 640,000 744,774 Commonwealth of Massachusetts 5.250 8/1/2020 500,000 567,050 ----------- 10,902,781 -----------
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Par Value Security Rate Maturity Value Note (1A) ------------------------------------------------------------------------------------------------------------------------------------ LEASE REVENUE--1.8% Puerto Rico Housing Bank Appropriation 5.125% 12/1/2005 750,000 $ 774,698 ----------- LOC--1.3% Boston MA Industrial Development Financing Authority Loc: Bank of New York AMT 5.875 4/1/2030 435,000 449,864 Mass IFA Amesbury LOC: Citizens Bank AMT 5.910 9/1/2005 140,000 143,532 ----------- 593,396 ----------- REVENUE BONDS--26.4% Mass DFA Biomedical Research 6.000 8/1/2011 550,000 616,061 Mass DFA Deerfield Academy 5.000 10/1/2013 400,000 443,856 Mass DFA Hampshire College 5.150 10/1/2014 450,000 469,080 Mass DFA Massachusetts College of Pharmacy 5.750 7/1/2006 280,000 293,278 Mass DFA Massachusetts College of Pharmacy and Allied Health Sciences NCL 5.000 7/1/2009 425,000 449,395 Mass DFA Williston School 6.000 10/1/2013 415,000 430,857 Mass HEFA Baystate Medical Center NCL 5.000 7/1/2010 250,000 266,873 Mass HEFA Boston College NCL 5.000 6/1/2009 750,000 823,335 Mass HEFA Caritas Christi NCL 5.500 7/1/2005 500,000 505,665 Mass HEFA Milford Hospital NCL 5.250 7/15/2007 600,000 623,016 Mass HEFA No. Adams Regional Hospital 6.750 7/1/2009 600,000 613,992 Mass HEFA Tufts University NCL 5.500 8/15/2015 1,050,000 1,220,510 Mass IFA Berkshire Retirement Development (b) 6.000 7/1/2018 530,000 533,238 Mass IFA Wentworth Institute 5.050 10/1/2005 290,000 297,236 Mass Port Authority 6.000 7/1/2011 1,000,000 1,127,800 Mass Port Authority 5.750 7/1/2012 700,000 799,442 Mass Water Resource Authority NCL 6.500 7/15/2009 1,000,000 1,166,010 Massachusetts Commonwealth Water Pollution Abatement Trust 5.250 8/1/2013 5,000 5,595 Puerto Rico Electric Power Authority Revenue (a) 5.500 7/1/2016 250,000 284,085 Puerto Rico Industrial Tour Ed Anamendez University 5.000 2/1/2006 650,000 670,813 ----------- 11,640,137 ----------- SPECIAL REVENUES--11.2% Foxborough MA Stadium 5.750 6/1/2011 1,050,000 1,197,851 Mass Bay Transportation Authority Sales Tax Revenue 5.250 7/1/2010 100,000 111,931 Mass Bay Transportation Authority Sales Tax Revenue 5.250 7/1/2021 750,000 847,853 Mass Bay Transportation Authority Sales Tax Revenue NCL 5.250 7/1/2013 500,000 565,540 Mass Special Obligation NCL 5.500 6/1/2013 1,000,000 1,148,550 Virgin Islands Public Finance Authority 5.625 10/1/2010 1,000,000 1,076,795 ----------- 4,948,520 ----------- TOTAL BONDS (Cost $41,429,156) 43,486,630 -----------
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Par Value Security Rate Maturity Value Note (1A) ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--0.7% SHORT-TERM BONDS--0.7% Mass DFA Boston University (b) 0.990 10/1/2042 300,000 $ 300,000 INVESTMENT COMPANIES--0.0% Shares ------- Federated Massachusetts Municipal Cash Trust Fund 5,695 5,695 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $305,695) 305,695 ----------- TOTAL INVESTMENTS--99.3% (COST $41,734,851) 43,792,325 ----------- OTHER ASSETS, LESS LIABILITIES--0.7% 287,236 ----------- NET ASSETS--100% $44,079,561 ===========
NOTES TO SCHEDULE OF INVESTMENTS: ACA--American Capital Access Holdings, Inc. AMBAC--American Municipal Bond Assurance Corp. AMT--Alternative Minimum Tax DFA--Development Finance Agency FGIC--Financial Guaranty Insurance Co. FNMA--Federal National Mortgage Association FSA--Financial Security Assurance HEFA--Health & Educational Facilities Authority HFA--Housing Finance Authority IFA--Industrial Finance Authority LOC--Letter of Credit MBIA--Municipal Bond Insurance Association NCL--Non-callable (a) Delayed delivery security. (b) Variable Rate Security; rate indicated is as of 9/30/04. Variable rate securities that reset monthly or more frequently are considered short term securities for reporting purposes. The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investments, at value (Note 1A) (cost $41,734,851) $43,792,325 Receivable for Fund shares sold 30,140 Interest receivable 617,784 Prepaid expenses 9,630 ----------- Total assets 44,449,879 LIABILITIES Payable for investments purchased $ 278,628 Distributions payable 44,284 Accrued accounting, custody and transfer agent fees 14,186 Accrued trustees' fees and expenses 1,090 Accrued expenses and other liabilities 32,130 --------- Total liabilities 370,318 ----------- NET ASSETS $44,079,561 =========== NET ASSETS CONSIST OF: Paid-in capital $41,769,053 Accumulated net realized gain 233,270 Undistributed net investment income 19,764 Net unrealized appreciation 2,057,474 ----------- TOTAL NET ASSETS $44,079,561 =========== SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,042,592 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 21.58 ===========
The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Interest income $1,979,442 EXPENSES Investment advisory fee (Note 2) $ 185,887 Accounting, custody, and transfer agent fees (Note 2) 85,859 Professional fees 41,974 Registration fees 5,650 Trustees' fees and expenses (Note 2) 9,646 Insurance expense 10,152 Miscellaneous 10,214 --------- Total expenses 349,382 DEDUCT: Waiver of investment advisory fee (Note 2) (47,482) --------- Net expenses 301,900 ---------- Net investment income 1,677,542 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Investment securities 270,520 Change in unrealized appreciation (depreciation) Investment securities (706,976) ---------- Net realized and unrealized loss on investments (436,456) ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $1,241,086 ==========
The accompanying notes are an integral part of the financial statements. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IAN NET ASSETS: FROM OPERATIONS Net investment income $ 1,677,542 $ 2,244,466 Net realized gains 270,520 1,266,092 Change in net unrealized appreciation (depreciation) on investments (706,976) (1,638,036) ------------ ------------ Net increase in net assets from operations 1,241,086 1,872,522 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C) From net investment income (1,670,668) (2,244,466) From net realized gain on investments (1,266,678) (113,195) ------------ ------------ Total distributions to shareholders (2,937,346) (2,357,661) ------------ ------------ FUND SHARE TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 2,234,159 5,014,924 Value of shares issued to shareholders in payment of distributions declared 2,294,786 1,421,720 Cost of shares redeemed (10,485,190) (19,945,194) ------------ ------------ Net (decrease) in net assets from Fund share transactions (5,956,245) (13,508,550) ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (7,652,505) (13,993,689) NET ASSETS At beginning of year 51,732,066 65,725,755 ------------ ------------ At end of year (including undistributed net investment income of $19,764 and $10,322) $ 44,079,561 $ 51,732,066 ============ ============
The accompanying notes are an integral part of the financial statements. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, ----------------------------------------------------------------- 2004 2003 2002 2001 2000 --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF YEAR $ 22.36 $ 22.52 $ 21.89 $ 20.89 $ 20.85 --------- --------- --------- --------- --------- FROM OPERATIONS: Net investment income(* (1)) 0.79 0.82 0.88 0.91 0.92 Net realized and unrealized gains (loss) on investments (0.21) (0.12) 0.63 1.00 0.04 --------- --------- --------- --------- --------- Total from investment operations 0.58 0.70 1.51 1.91 0.96 --------- --------- --------- --------- --------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.79) (0.82) (0.88) (0.91) (0.92) From net realized gains on investments (0.57) (0.04) -- -- -- --------- --------- --------- --------- --------- Total distributions to shareholders (1.36) (0.86) (0.88) (0.91) (0.92) --------- --------- --------- --------- --------- NET ASSET VALUE, END OF YEAR $ 21.58 $ 22.36 $ 22.52 $ 21.89 $ 20.89 ========= ========= ========= ========= ========= TOTAL RETURN+ 2.64% 3.20% 7.09% 9.32% 4.72% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 0.65% 0.65% 0.65% 0.65% 0.65% Net Investment Income (to average daily net assets)* 3.62% 3.68% 4.01% 4.23% 4.43% Portfolio Turnover 16% 25% 13% 22% 23% Net Assets, End of Year (000's omitted) $ 44,080 $ 51,732 $ 65,726 $ 64,246 $ 64,340
----------- * For the years indicated, the investment advisor voluntarily agreed not to impose a portion of its its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Net investment income per share(1) $ 0.77 $ 0.81 $ 0.87 $ 0.91 N/A Ratios (to average daily net assets): Expenses 0.75% 0.70% 0.68% 0.65% N/A Net investment income 3.52% 3.63% 3.98% 4.23% N/A
(1) Calculated based on average shares outstanding. + Total return would have been lower in the absense of expense waivers. The accompanying notes are an integral part of the financial statements. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund (the "Fund") is a separate non-diversified investment series of the Trust. The objective of the Fund is to provide a high level of interest income exempt from Massachusetts and federal income taxes, while seeking preservation of capital. The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in tax exempt municipal securities of Massachusetts issuers and other qualifying issuers (such as Puerto Rico, the U.S. Virgin Islands, and Guam). The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Tax-exempt bonds and notes are priced at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Fund are valued at amortized cost. If the Fund acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method on long-term debt securities. Realized gains and losses from securities sold are recorded on the identified cost basis. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions on shares of the Fund are declared daily from net investment income and distributed monthly. Distributions from capital gains, if any, will be distributed annually by the Fund. Distributions from net investment income and capital gains, if any, are automatically reinvested in additional shares of the applicable Fund unless the shareholder elects to receive them in cash. Distributions are recorded on the ex-dividend date. Income and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for adjustments under the AICPA audit guide and distributions payable. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications among undistributed net investment income (loss), accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 13 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- E. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to Standish Mellon Asset Management Company LLC ("Standish Mellon"), a wholly-owned subsidiary of Mellon Financial Corporation, for overall investment advisory, administrative services, and general office facilities, is paid at an annual rate of 0.40% of the Fund's average daily net assets. Standish Mellon voluntarily agreed to limit the total Fund operating expenses (excluding litigation, indemnification and other extraordinary expenses) to 0.65% of the Fund's average daily net assets for the year ended September 30, 2004. Pursuant to this agreement, for the year ended September 30, 2004, Standish Mellon voluntarily waived a portion of its advisory fee in the amount of $47,482. This agreement is voluntary and temporary and may be discontinued or revised by Standish Mellon at any time. Effective February 23, 2004, the Fund compensates Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, an affiliate of Standish Mellon, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the Fund. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. The Fund compensates Mellon Bank, N.A., an affiliate of Standish Mellon, under a custody, administration and accounting services agreement for providing custody, fund administration and fund accounting services for the Fund. Pursuant to this agreement the Fund was charged $75,400 during the year ended September 30, 2004. No director, officer or employee of Standish Mellon or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of Standish Mellon or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $1,307 Benjamin M. Friedman $1,307 John H. Hewitt $1,307 Caleb Loring, III $1,422 Patrick J. Sheppard 0 Richard S. Wood * 0
* Mr. Wood resigned from the Board of Trustees on October 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term investments, for the year ended September 30, 2004 were $7,068,374 and $12,982,063, respectively. For the year ended September 30, 2004, the Fund did not purchase or sell any long-term U.S. Government securities. 14 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 103,349 226,054 Shares issued to shareholders in payment of distributions declared 106,046 64,015 Shares redeemed (480,604) (895,193) -------- -------- Net increase (decrease) (271,209) (605,124) -------- --------
At September 30, 2004, the Fund had two shareholders of record owning approximately 29% and 10% of the Fund's outstanding shares. Investment activity of these shareholders could have a material impact on the Fund. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes all of its taxable income for its fiscal year. Dividends paid by the Fund from net interest earned on tax-exempt municipal bonds are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Internal Revenue Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The tax basis components of distributable earnings and the federal tax cost as of September 30, 2004, was as follows: Unrealized appreciation $ 2,104,692 Unrealized depreciation (44,650) ----------- Net unrealized appreciation/depreciation 2,060,042 Undistributed ordinary income 61,480 Undistributed capital gains 223,270 ----------- Total distributable earnings $ 2,344,792 =========== Cost for federal income tax purposes $41,732,283
Tax character of distributions paid during the fiscal year ended September 30, 2004, was as follows: Distributions paid from: Amount ---------- Tax-exempt income $1,670,668 Capital gains 1,266,678
(6) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these investments are set forth more fully in the Fund's Prospectus and Statement of Additional Information. 15 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Since the Fund may invest a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable general tax-exempt mutual fund. The Fund may trade the following financial instruments with off-balance sheet risk: FUTURES CONTRACTS The Fund may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to the margin requirements, the Fund deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Fund's exposure to the underlying instrument, while selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund investments. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparties do not perform under the contract's terms. The Fund enters into financial futures transactions primarily to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Fund held no outstanding futures contracts. (7) DELAYED DELIVERY TRANSACTIONS: The Fund may purchase securities on a "when-issued", "delayed delivery" or "forward commitment" basis. Delivery and payment for such securities typically take longer than the customary settlement periods. The payment obligation and interest rates on the securities are fixed at the time the Fund enters into such commitments, but interest will not accrue to the Fund until delivery of and payment for the securities. The Fund may receive compensation for such forgone interest. Although the Fund will only make commitments to purchase when-issued, delayed delivery or forward commitment securities with the intention of actually acquiring the securities, the Fund may sell the securities before the settlement date if deemed advisable by the investment adviser. The Fund offsets in its Statement of Assets and Liabilities the payables and receivables associated with the purchases and sales of when-issued, delayed delivery or forward commitment securities that have the same coupon, settlement date and broker. When-issued, delayed delivery or forward commitment securities that are purchased from or sold to different brokers are reflected as both payables and receivables in the Fund's Statement of Assets and Liabilities. Unless the Fund has entered into an offsetting agreement to sell the securities, cash or liquid obligations with a market value at least equal to the amount of the Fund's commitment will be segregated with the Fund's custodian bank. If the market value of these securities declines, additional cash or securities will be segregated daily so that the aggregate market value of the segregated securities equals the amount of the Fund's commitment. Securities purchased on a when-issued, delayed delivery or forward commitment basis may have a market value on delivery that is less than the amount paid by the Fund. The Fund may also sell portfolio securities on a delayed delivery basis. The market value of the securities when they are delivered may be more than the amount to be received by the Fund. At September 30, 2004 the Fund held a delayed delivery security. See Schedule of Investments for further detail. (8) LINE OF CREDIT: The Fund, other funds in the Trust and subtrusts in the Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% on the committed amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the expense related to the facility fee was $1,334 for the Fund. During the year ended September 30, 2004, the Fund borrowed under the credit facility and incurred $140 of interest expense. 16 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund (the "Fund") at September 30, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 17 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
18 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
19 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0932AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 Coupon income once again pushed municipal bond investment returns into positive territory, more than offsetting the negative price impact of a modest increase in shorter interest rates. For the year ended September 30, 2004, the Standish Intermediate Tax Exempt Bond Fund produced a total return after expenses of 2.76%. This result trailed the benchmark performance index (Lehman Muni 3,5,7 and 10 Year Index) return of 2.87%. Throughout the past year, bond market participants focused on how quickly the Federal Reserve would hike short-term interest rates, and by how much. A steady stream of strong employment and consumption data in early 2004 convinced investors that the Fed would need to act aggressively to choke off any nascent inflation. Consequently, all rates were pushed up in anticipation of the pressures of a possibly overheating economy. The spike in yields was temporary, and quickly reversed course as jobs and spending numbers weakened through the summer months. By the end of the period, the Fed had abandoned its accommodative policy, raising short rates by a total of three-quarters of a point. Yields on longer maturities, however, were mostly unchanged from one year earlier, reflecting the perceived deceleration in the U.S. economy. Income-oriented sectors of the tax-free bond market were bid up in the competition for excess income, and the Fund's holdings in hospital bonds, which typically carry a significant yield premium, outperformed. In addition, underweighting lower-yielding pre-refunded securities proved a successful strategy. Security selection in the housing bonds also generated favorable relative returns for the 12-month period. The Fund continues to hold a large strategic weighting in this more defensive sector. City and state credit quality improved markedly in fiscal 2004, driven primarily by surging tax receipts. Ratings upgrades and favorable budget news proved positive for California general obligation bond valuations in the third quarter. And New York City's creditworthiness showed steady gains as the City's economy rebounded, causing its bonds to outperform as well. We expect both California and New York City will see further economic and fiscal gains, and are holding large positions in each of these prominent credits in the Fund. The gap between short- and long-term interest rates should shrink somewhat as short rates rise, but will likely remain wider than average. We are gradually moving toward a mix of shorter and longer bonds, known as a barbell structure, but only when we can establish it without sacrificing income. The Fund's sensitivity to interest rate changes closely tracks the benchmark index. We remain focused on sectors and securities that produce excess yield as the primary sources of long-term outperformance. It has been our privilege to manage the Fund, and we thank you for your continued support. Sincerely, /s/ Steven W. Harvey /s/ Christine L. Todd -------------------- --------------------- Steven W. Harvey Christine L. Todd 2 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND AND THE LEHMAN BROTHERS 3-5-7-10 YEAR MINI INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
Standish Mellon Lehman Brothers Intermediate Tax 3-5-7-10 Year Exempt Bond Fund Muni Index ---------------- --------------- Beginning $100,000 $100,000 1994 Quarter3 $100,970 $100,894 Quarter4 $99,671 $100,141 1995 Quarter1 $104,272 $104,901 Quarter2 $106,312 $107,597 Quarter3 $109,248 $110,526 Quarter4 $112,277 $113,081 1996 Quarter1 $111,803 $112,959 Quarter2 $112,822 $113,554 Quarter3 $115,004 $115,470 Quarter4 $117,626 $118,061 1997 Quarter1 $117,610 $118,133 Quarter2 $121,104 $121,185 Quarter3 $124,516 $124,105 Quarter4 $127,119 $126,551 1998 Quarter1 $128,316 $127,932 Quarter2 $129,964 $129,508 Quarter3 $133,532 $133,129 Quarter4 $133,992 $134,154 1999 Quarter1 $134,900 $135,349 Quarter2 $132,586 $133,431 Quarter3 $133,089 $134,565 Quarter4 $132,838 $134,587 2000 Quarter1 $135,271 $136,645 Quarter2 $136,911 $138,759 Quarter3 $139,623 $141,648 Quarter4 $144,049 $145,943 2001 Quarter1 $147,233 $149,728 Quarter2 $148,261 $150,988 Quarter3 $152,195 $155,073 Quarter4 $151,136 $154,188 2002 Quarter1 $152,214 $155,447 Quarter2 $157,491 $161,435 Quarter3 $163,830 $167,607 Quarter4 $164,210 $168,261 2003 Quarter1 $165,945 $170,093 Quarter2 $169,607 $173,702 Quarter3 $170,194 $174,814 Quarter4 $171,328 $175,830 2004 Quarter1 $173,223 $178,080 Quarter2 $169,686 $174,495 Quarter3 $174,888 $179,837
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 10 Year 11/02/1992 ------------------------------------------------------------------------------------------ 2.76% 4.74% 5.61% 5.65% 5.74%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ---------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,009.60 $2.51 Hypothetical (5% return per year before expenses $1,000.00 $1,022.50 $2.53
--------------- + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.50%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Summary of Combined Ratings ---------------------------------------------------------------- Quality Breakdown Value (%) ---------------------------------------------------------------- AAA 53.9% AA 24.4% A 13.7% BBB 8.0% TOTAL 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors Services. If a security receives split (different) ratings from multiple rating organizations, the Fund treats the security as being rated in the higer rating category.
Percentage of Top Ten Holdings* Rate Maturity Net Assets ---------------------------------------------------------------------------------------------------------- Texas United Independent School District NCL 5.00% 08/15/2012 3.8 Jea FL St. Johns River Power Park AMBAC NCL 5.00% 10/01/2009 3.4 Northeast TX Independent School District NCL 5.00% 08/01/2010 3.0 Puerto Rico Commonwealth Fuel Sales Tax Revenue (a) 5.00% 07/01/2018 2.9 Puerto Rico Public Financial Corp. LOC: Government Development Bank For Puerto Rico 5.75% 08/01/2027 2.2 Colorado HFA Single Family Project AMT (a) 6.80% 02/01/2031 2.1 New York Dormitory Authority State University Educational Facilities MBIA IBC 5.25% 05/15/2015 2.0 Commonwealth of Massachusetts NCL 5.25% 08/01/2014 2.0 Miami-Dade County FL School District NCL 5.20% 08/01/2007 2.0 Lubbock TX 5.00% 07/01/2008 1.9 ---- 25.3
* Excluding short-term investments and investment of cash collateral.
Percentage of Economic Sector Allocation Net Assets --------------------------------------------------------------------------- General obligation 26.5 Gov't. backed 1.3 Insured 29.2 Revenue Housing 6.4 Industrial 4.3 Other revenue 27.3 Short-term and Net Other Assets 5.0 ----- 100.0
The Portfolio is actively managed. Current holdings may be different than those presented above. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Par Value Security Rate Maturity Value Note (1A) ------------------------------------------------------------------------------------------------------------------------------------ BONDS--95.0% GENERAL OBLIGATIONS--26.5% ABAG CA Odd Fellows Homes 5.700% 8/15/2014 1,000,000 $ 1,081,780 California State 5.000 10/1/2011 300,000 325,773 California State NCL 5.000 2/1/2009 1,000,000 1,085,560 California State NCL 6.600 2/1/2009 1,000,000 1,145,800 California State NCL 5.750 11/1/2011 300,000 344,010 College Station Texas Independent School District NCL 5.000 2/15/2013 1,000,000 1,107,390 Commonwealth of Massachusetts NCL 6.000 11/1/2010 1,350,000 1,563,449 Commonwealth of Massachusetts NCL 5.250 8/1/2014 2,000,000 2,259,540 Goose Creek TX Independent School District 7.000 8/15/2009 600,000 712,110 Lake County IL First Preserve District (b) 0.000 12/1/2007 1,250,000 1,149,275 New York NY NCL 5.250 11/1/2009 1,000,000 1,100,900 New York NY NCL 5.500 8/1/2010 1,000,000 1,116,620 Northeast TX Independent School District NCL 7.000 2/1/2009 1,000,000 1,171,670 Northeast TX Independent School District NCL 5.000 8/1/2010 3,000,000 3,307,710 Plano TX Independent School District NCL 5.000 2/15/2010 1,000,000 1,100,200 Puerto Rico Commonwealth Fuel Sales Tax Revenue (a) 5.000 7/1/2018 3,000,000 3,228,210 Puerto Rico Public Building Authority Revenue 5.000 7/1/2028 1,000,000 1,079,890 Puerto Rico Public Financial Corp. LOC: Government Development Bank For Puerto Rico 5.750 8/1/2027 2,250,000 2,532,870 Texas United Independent School District NCL 5.000 8/15/2012 3,835,000 4,250,215 ------------ 29,662,972 ------------ GOVERNMENT BACKED--1.3% Alpine UT School District 5.00 3/15/2011 25,000 27,482 District of Columbia Prerefunded MBIA NCL 5.750 6/1/2010 10,000 11,471 Long Beach CA Aquarium of the Pacific Revenue 5.750 7/1/2005 70,000 72,139 Met Govt Nashville & Davidson TN Industrial Development Board Revenue Prerefunded 7.500 11/15/2010 1,000,000 1,227,280 Palm Beach County FL Solid Waste AMBAC 6.000 10/1/2009 60,000 69,457 Texas Municipal Power Agency MBIA (b) 0.000 9/1/2016 5,000 3,048 ------------ 1,410,877 ------------ HOUSING REVENUE--6.4% California HSG SFM 5.050 2/1/2017 180,000 181,111 Colorado HFA Single Family Project AMT (a) 6.800 2/1/2031 2,305,000 2,383,255 Colorado HFA Single Family Project AMT (a) 6.600 8/1/2032 1,965,000 2,032,498 Florida Housing Finance Corp. FSA 5.750 1/1/2017 95,000 96,033 Hawaii Housing Finance and Development SFM FNMA 7.000 7/1/2031 460,000 466,077 Nebraska Investment Finance Authority SFM FHA VA AMT 6.700 9/1/2026 415,000 428,322 Ohio HFA Mortgage Revenue AMT GNMA 5.350 9/1/2018 760,000 785,034 Pennsylvania HFA SFM 5.350 10/1/2008 115,000 117,424 Rhode Island Housing & Mortgage Finance Corp. 4.950 10/1/2016 160,000 160,128 Utah HFA SFM AMT (a) 5.400 7/1/2020 455,000 466,421 ------------ 7,116,303 ------------ INDUSTRIAL DEVELOPMENT--4.3% Connecticut Gaming Authority Mohegan Tribe 5.375 1/1/2011 1,000,000 1,054,590 Gloucester NJ Resource Recovery (a) 6.850 12/1/2029 500,000 566,255 Golden State Tobacco Securitization Corp. 5.000 6/1/2021 1,835,000 1,836,908 Hendersonville TN Kroger 5.950 12/15/2008 265,000 274,853
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Par Value Security Rate Maturity Value Note (1A) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL DEVELOPMENT (CONTINUED) Mass DFA Waste Management Resource Recovery AMT 6.900% 12/1/2029 500,000 $ 569,665 Michigan State Strategic Funding AMT NCL 3.750 8/1/2027 500,000 508,565 ------------ 4,810,836 ------------ INSURED BOND--29.2% California State 6.000 4/1/2016 1,000,000 1,202,840 Charleston SC COP MBIA 6.000 12/1/2008 1,000,000 1,134,770 Cook County IL High School FGIC NCL 7.875 12/1/2014 750,000 1,015,133 Cook County IL School District FSA NCL 6.750 5/1/2010 1,750,000 2,080,225 Corpus Christi TX Business & Job Development Corp. Sales Tax Revenue AMBAC NCL 5.000 9/1/2011 1,215,000 1,347,982 Denver CO Airport MBIA AMT 7.500 11/15/2006 500,000 513,210 District of Columbia FSA NCL 5.500 6/1/2011 1,500,000 1,700,505 District of Columbia MBIA NCL 5.750 6/1/2010 15,000 17,070 Douglas County CO School District MBIA 7.000 12/15/2012 625,000 785,956 Georgia Municipal Electric Authority (a) 5.000 1/1/2026 1,000,000 1,086,480 Georgia Municipal Electric Authority Power FGIC NCL 6.250 1/1/2012 1,150,000 1,361,290 Harris County TX Toll Revenue FGIC NCL 6.000 8/1/2012 1,000,000 1,175,960 Intermountain Power Agency UT NCL 6.500 7/1/2010 1,000,000 1,177,340 Jea FL St. Johns River Power Park AMBAC NCL 5.000 10/1/2009 3,500,000 3,846,675 Jefferson County CO School District FSA NCL 5.000 12/15/2010 1,350,000 1,495,017 Jefferson County OH Asset Guaranty 6.625 12/1/2005 95,000 97,566 Miami-Dade County FL School District NCL 5.200 8/1/2007 2,070,000 2,243,114 Nassau County NY FGIC 6.000 7/1/2010 25,000 28,866 New Jersey Health Care Facilities Financing Authority Revenue AMBAC 4.800 8/1/2021 1,000,000 1,051,170 New York Dormitory Authority Presbyterian Hospital AMBAC 4.400 8/1/2013 90,000 92,499 New York Dormitory Authority State University Educational Facilities MBIA 6.000 5/15/2015 1,000,000 1,151,520 New York Dormitory Authority State University Educational Facilities MBIA IBC 5.250 5/15/2015 2,000,000 2,282,540 NJ Transportation Corp. COP AMBAC NCL 5.500 9/15/2007 1,000,000 1,090,580 Orange County CA COP MBIA 5.800 7/1/2016 400,000 436,396 Pasco County FL Solid Waste AMBAC AMT NCL 6.000 4/1/2010 1,000,000 1,110,480 Richland-Beanblossom IN School Building Corp. 5.000 7/15/2013 1,765,000 1,954,261 Stafford TX Economic Development FGIC 6.000 9/1/2015 525,000 628,740 Teton County WY St. John Hospital ACA 5.000 12/1/2004 535,000 537,274 ------------ 32,645,459 ------------ LEASE REVENUE--5.1% Golden State Tobacco Securitization Corp. 5.250 6/1/2016 1,000,000 1,017,700 New Jersey Economic Development Authority Revenue School Facilities Construction NCL 5.000 9/1/2012 1,000,000 1,099,350 New York Dormitory Authority Revenue 5.250 11/15/2023 1,000,000 1,107,010 New York Dormitory Authority Roswell Park 6.000 7/1/2006 400,000 427,124 New York Urban Development Corp. Correctional and Youth Facilities Service 5.250 1/1/2021 500,000 546,320 Tobacco Settlement Funding Corp. NY 5.500 6/1/2009 1,500,000 1,539,555 ------------ 5,737,059 ------------ REVENUE BONDS--20.3% Arizona State Transit Highway Revenue NCL 5.000 7/1/2014 1,500,000 1,681,065 Broward County FL Resource Recovery 5.000 12/1/2007 1,000,000 1,070,970 California State Department of Water Resources Power Supply NCL 5.500 5/1/2010 250,000 279,493 California State Department Transportation Revenue NCL 5.000 2/1/2015 1,000,000 1,112,120
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Par Value Security Rate Maturity Value Note (1A) ------------------------------------------------------------------------------------------------------------------------------------ REVENUE BONDS (CONTINUED) Camden NJ Cooper Hospitals NCL 5.600% 2/15/2007 175,000 $ 180,443 Illinois HEFA Condell Medical Center 6.000 5/15/2010 500,000 541,065 Illinois HEFA Northwestern University (a) 5.050 11/1/2032 725,000 795,463 Illinois DFA Depaul University NCL 5.500 10/1/2011 1,000,000 1,113,920 Jicarilla NM Apache Nation Revenue 5.000 9/1/2013 500,000 539,230 Lubbock TX Health Facilities Development St. Joseph Healthcare System 5.000 7/1/2008 2,000,000 2,151,400 Mass DFA Williston School 6.000 10/1/2013 240,000 249,170 Mass HEFA Partners NCL 5.000 7/1/2012 1,250,000 1,369,200 Mass IFA Berkshire Retirement Development (a) 6.000 7/1/2018 500,000 503,055 Mesa AZ Utility System Revenue NCL 6.000 7/1/2020 1,250,000 1,534,938 Miami-Dade County Florida Special Obligation Capital Asset Acquisition MBIA NCL 5.000 4/1/2014 1,755,000 1,950,314 Michigan State Hospital Finance Authority 5.250 11/15/2010 1,000,000 1,084,500 New Hampshire HEFA Monadnock Hospital 5.250 10/1/2007 280,000 280,764 New Jersey State Transportation NCL (c) 5.250 12/15/2014 500,000 556,135 New Mexico State Hospital Equipment Loan Revenue Presbyterian Healthcare Services 5.750 8/1/2012 1,000,000 1,119,440 New York Medical Center St. Luke's FHA 5.600 8/15/2013 230,000 242,494 Puerto Rico Electric Power Authority Revenue (c) 5.500 7/1/2016 500,000 568,170 Reedy Creek FL Improvements District NCL 5.250 10/1/2011 1,000,000 1,126,890 Scranton PA Allied Rehabilitation 7.125 7/15/2005 245,000 246,754 South Carolina Transit Infrastructure Bank Revenue AMBAC NCL 5.250 10/1/2015 1,000,000 1,146,430 Texas Municipal Power Agency MBIA (b) 0.000 9/1/2016 1,995,000 1,192,691 Wisconsin State Transportation 5.500 7/1/2010 15,000 16,863 ------------ 22,652,977 ------------ SPECIAL REVENUE--1.9% California State Economic Recovery 3.500 7/1/2023 1,000,000 1,034,010 California State Economic Recovery NCL 5.250 7/1/2014 1,000,000 1,128,840 ------------ 2,162,850 ------------ TOTAL BONDS (Cost$103,682,334) 106,199,333 ------------ SHORT-TERM INVESTMENTS--3.6% SHORT-TERM BONDS--3.6% Grand Forks ND Hospital Facilties Revenue LOC: LaSalle National Bank (a) 1.610% 12/1/2016 1,400,000 1,400,000 Idaho HFA St. Luke's Medical Center FSA (a) 1.700 7/1/2030 100,000 100,000 Kansas State Department of Transit Highway Revenue (a) 1.660 9/1/2020 1,900,000 1,900,000 University of North Carolina Hospital Chapel Hill Revenue SPA (a) 1.660 2/15/2031 600,000 600,000 ------------ 4,000,000 ------------ INVESTMENT COMPANIES--0.0% Shares -------- Wells Fargo National Tax-Free Money Market Fund (Cost $70,482) 70,482 70,482 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $4,070,482) 4,070,482 ------------ TOTAL INVESTMENTS--98.6% (COST $107,752,816) 110,269,815 ------------ OTHER ASSETS, LESS LIABILITIES--1.4% 1,616,769 ------------ NET ASSETS--100% $111,886,584 ============
The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004 -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS: ACA--American Capital Access Holdings, Inc. AMBAC--American Municipal Bond Assurance Corp. AMT--Alternative Minimum Tax COP--Certification of Participation DFA--Development Finance Agency FGIC--Financial Guaranty Insurance Co. FNMA--Federal National Mortgage Association FSA--Financial Security Assurance GNMA--Government National Mortgage Association HEFA--Health & Educational Facilities Authority HFA--Housing Finance Authority IBC--Insured Bond Certificate LOC--Letter of Credit MBIA--Municipal Bond Insurance Association NCL--Non-callable SFM--Single Family Mortgage (a) Variable Rate Security; rate indicated is as of 9/30/04. Variable rate securities that reset monthly or more are considered short term securities for reporting purposes. (b) Zero coupon security. (c) Delayed delivery security. At September 30, 2004, the Fund held the following open swap agreement:
Net Unrealized Notional Amount Appreciation Portfolio/counterparty Expiration Date Description (Depreciation) --------------------------------------------------------------------------------------------------------------------------------- 1,900,000 USD 11/27/14 Agreement with JP Morgan Chase, dated 8/27/04 $(19,684) to pay the notional amount multiplied by Fixed 10 Year TBMA-Muni Swap Index Rate of 3.672% and receive the notional amount multiplied by quarterly average of the weekly floating TBMA-Muni Swap Index.
The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investments, at value (Note 1A) (cost $107,752,816) $110,269,815 Receivable for Fund shares sold 1,249,901 Interest receivable 1,298,592 Receivable for investments sold 665,146 Prepaid expenses 14,891 ------------ Total assets 113,498,345 LIABILITIES Payable for investments purchased $ 1,118,765 Payable for Fund shares redeemed 330,333 Distributions payable 79,622 Unrealized depreciation on open swap contract 19,684 Accrued accounting, custody and transfer agent fees 19,188 Accrued trustees' fees and expenses 3,865 Accrued expenses and other liabilities 40,304 ------------ Total liabilities 1,611,761 ------------ NET ASSETS $111,886,584 ============ NET ASSETS CONSIST OF: Paid-in capital $109,147,122 Accumulated net realized gain 224,040 Undistributed net investment income 18,107 Net unrealized appreciation 2,497,315 ------------ TOTAL NET ASSETS $111,886,584 ============ SHARES OF BENEFICIAL INTEREST OUTSTANDING 5,074,340 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 22.05 ============
The accompanying notes are an integral part of the financial statements. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME Interest income (Note 1B) $ 3,587,636 EXPENSES Investment advisory fee (Note 2) $ 393,554 Accounting, custody, and transfer agent fees (Note 2) 114,015 Professional fees 52,434 Registration fees 63,053 Trustees' fees and expenses (Note 2) 20,615 Insurance expense 10,715 Miscellaneous 14,521 ---------- Total expenses 668,907 DEDUCT: Waiver of investment advisory fee (Note 2) (180,781) ---------- Net expenses 488,126 ------------ Net investment income 3,099,510 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on: Investments 340,187 Change in unrealized appreciation (depreciation) on: Investments (1,162,442) Swap contract (19,684) ---------- Change in unrealized appreciation (depreciation) (1,182,126) ------------ Net realized and unrealized loss on investments (841,939) ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $2,257,571 ============
The accompanying notes are an integral part of the financial statements. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income $ 3,099,510 $ 2,793,453 Net realized gain on investments 340,187 1,871,706 Net change in net unrealized appreciation (depreciation) on investments and swap contract (1,182,126) (1,679,548) ------------- ------------- Net increase in net assets from operations 2,257,571 2,985,611 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C) From net investment income (3,101,811) (2,788,661) From net realized gains on investments (1,895,222) (195,884) ------------- ------------- Total distributions to shareholders (4,997,033) (2,984,545) ------------- ------------- FUND SHARE TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 69,591,991 23,850,640 Value of shares issued to shareholders in payment of distributions declared 3,848,008 1,576,355 Cost of shares redeemed (29,319,017) (37,084,670) ------------- ------------- Net increase (decrease) in net assets from Fund share transactions 44,120,982 (11,657,675) ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 41,381,520 (11,656,609) NET ASSETS At beginning of year 70,505,064 82,161,673 ------------- ------------- At end of year (including undistributed net investment income of $18,107 and $15,530) $ 111,886,584 $ 70,505,064 ============= =============
The accompanying notes are an integral part of the financial statements. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, -------------------------------------------------------- 2004 2003 2002 2001 2000 -------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF YEAR $ 22.78 $ 22.78 $ 22.04 $ 21.11 $ 21.11 -------- ------- ------- ------- ------- FROM OPERATIONS: Net investment income*(1) 0.69 0.81 0.90 0.93 0.95 Net realized and unrealized gains (loss) on investments (0.08) 0.07 0.74 0.93 0.06 -------- ------- ------- ------- ------- Total from operations 0.61 0.88 1.64 1.86 1.01 -------- ------- ------- ------- ------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.71) (0.81) (0.90) (0.93) (0.95) From net realized gains on investments (0.63) (0.07) -- -- (0.06) -------- ------- ------- ------- ------- Total distributions to shareholders (1.34) (0.88) (0.90) (0.93) (1.01) -------- ------- ------- ------- ------- NET ASSET VALUE, END OF YEAR $ 22.05 $ 22.78 $ 22.78 $ 22.04 $ 21.11 ======== ======= ======= ======= ======= TOTAL RETURN((+)) 2.76% 3.88% 7.65% 9.00% 4.91% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 0.50% 0.65% 0.65% 0.62% 0.64% Net Investment Income (to average daily net assets)* 3.16% 3.58% 4.09% 4.30% 4.54% Portfolio Turnover 72% 42% 17% 43% 28% Net Assets, End of Year (000's omitted) $111,887 $70,505 $82,162 $82,358 $79,329
----------- * For the years indicated , the investment advisor voluntarily agreed not to impose all or a portion of its investment advisory fee and/or reimbursed the Fund for a portion of it's operating expenses. If this voluntary action had not been taken, the investment income per share and ratios would have been: Net investment income per share (1) $ 0.65 $ 0.80 $ 0.90 N/A N/A Ratios (to average daily net assets): Expenses 0.68% 0.68% 0.66% N/A N/A Net investment income 2.97% 3.55% 4.08% N/A N/A
(1) Calculated based on average shares outstanding. + Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 13 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. Standish Mellon Intermediate Tax Exempt Bond Fund (the "Fund") is a separate non-diversified investment series of the Trust. The objective of the Fund is to provide a high level of interest income exempt from federal income taxes, while seeking preservation of capital. The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in tax exempt municipal securities issued by states, territories, and possessions of the United States, the District of Columbia and their political subdivisions, agencies and instrumentalities. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Tax-exempt bonds and notes are priced at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Fund are valued at amortized cost. If the Fund acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method on long-term debt securities. Realized gains and losses from securities sold are recorded on the identified cost basis. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions on shares of the Fund are declared daily from net investment income and distributed monthly. Distributions from capital gains, if any, will be distributed annually by the Fund. Distributions from net investment income and capital gains, if any, are automatically reinvested in additional shares of the applicable Fund unless the shareholder elects to receive them in cash. Distributions are recorded on the ex-dividend date. Income and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments adjustments under the AICPA audit guide and distributions payable. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications among undistributed net investment income (loss), accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 14 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- E. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to Standish Mellon Asset Management Company LLC ("Standish Mellon"), a wholly-owned subsidiary of Mellon Financial Corporation, for overall investment advisory, administrative services, and general office facilities, is paid at an annual rate of 0.40% of the Fund's average daily net assets. Effective January 28, 2004, Standish Mellon voluntarily agreed to limit the total Fund operating expenses (excluding litigation, indemnification and other extraordinary expenses) to 0.45% of the Fund's average daily net assets for the year ended September 30, 2004. Prior to that date the rate was 0.65%. Pursuant to this agreement, for the year ended September 30, 2004, Standish Mellon voluntarily waived a portion of its advisory fee in the amount of $180,781. This agreement is voluntary and temporary and may be discontinued or revised by Standish Mellon at any time. Effective February 23, 2004, the Fund compensates Dreyfus Transfer, Inc., a wholly owned subsidiary of Dreyfus, an affiliate of Standish Mellon, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the Fund. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. The Fund compensates Mellon Bank, N.A., an affiliate of Standish Mellon under a custody, administration and accounting services agreement for providing custody, fund administration and fund accounting services for the Fund. Pursuant to this agreement the Fund was charged $102,617 during the year ended September 30, 2004. No director, officer or employee of Standish Mellon or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of Standish Mellon or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 31, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $2,473 Benjamin M. Friedman $2,473 John H. Hewitt $2,473 Caleb Loring, III $2,661 Patrick J. Sheppard 0 Richard S. Wood* 0
* Mr. Wood resigned rrom the Board of Trustees on October 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term investments, for the year ended September 30, 2004 were $108,472,923 and $67,221,880, respectively. For the year ended September 30, 2004, the Fund did not purchase or sell any long-term U.S. Government securities. 15 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 3,137,202 1,067,097 Shares issued to shareholders in payment of distributions declared 174,989 69,868 Shares redeemed (1,332,957) (1,647,943) ---------- ---------- Net increase (decrease) 1,979,234 (510,978) ---------- ----------
At September 30, 2004, the Fund had two shareholders of record owning approximately 42% and 10% of the Fund's outstanding shares. Investment activity of these shareholders could have a material impact on the Fund. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes all of its taxable income for its fiscal year. Dividends paid by the Fund from net interest earned on tax-exempt municipal bonds are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Internal Revenue Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The tax basis components of distributable earnings and the federal tax cost as of September 30, 2004, was as follows: Unrealized appreciation $ 2,916,339 Unrealized depreciation (399,340) ------------ Net unrealized appreciation/depreciation 2,516,999 Undistributed ordinary income 2,638 Undistributed tax exempt income 95,091 Undistributed capital gains 224,040 ------------ Total distributable earnings $ 2,838,768 ============ Cost for federal income tax purposes $107,752,816
Tax character of distributions paid during the fiscal year ended September 30, 2004, was as follows:
Distributions paid from: Amount Tax-exempt income $3,098,871 Ordinary income 2,940 Capital gains 1,895,222
16 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (6) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these investments are set forth more fully in the Fund's Prospectus and Statement of Additional Information. The Fund may trade the following financial instruments with off-balance sheet risk: FUTURES CONTRACTS The Fund may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to the margin requirements, the Fund deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Fund's exposure to the underlying instrument, while selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund investments. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparties do not perform under the contract's terms. The Fund enters into financial futures transactions primarily to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Fund held no outstanding futures contracts. SWAP AGREEMENTS The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into interest rate and credit default swap agreements to manage its exposure to interest rates and credit risk. Interest rate swap agreements involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. The Fund may use credit default swaps to provide a measure of protection against defaults of issuers (i.e., to reduce risk where the Fund owns or has exposure to the corporate or sovereign issuer) or to take an active long or short position with respect to the likelihood of a particular corporate or sovereign issuer's default. In connection with these agreements, cash or securities may be set aside as collateral in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral. Swaps are marked to market daily based upon quotations from market makers and change in value, if any, is recorded as unrealized gain or loss in the Statement of Operations. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and differences could be material. Payments received or made from credit default swaps at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Net payments of interest on interest rate swap agreements are included as part of realized gain in the Statement of Operations. Entering into these agreements, if any, involves, to varying degrees, elements of credit, market, and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of contractual terms in the agreements, and that there may be unfavorable changes in interest rates. At September 30, 2004, the Fund had one swap agreement outstanding. See Schedule of Investments for detail. 17 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (7) DELAYED DELIVERY TRANSACTIONS: The Fund may purchase securities on a "when-issued", "delayed delivery" or "forward commitment" basis. Delivery and payment for such securities typically take longer than the customary settlement periods. The payment obligation and interest rates on the securities are fixed at the time the fund enters into such commitments, but interest will not accrue to the fund until delivery of and payment for the securities. The Fund may receive compensation for such forgone interest. Although the Fund will only make commitments to purchase when-issued, delayed delivery or forward commitment securities with the intention of actually acquiring the securities, the fund may sell the securities before the settlement date if deemed advisable by the investment adviser. The Fund offsets in its Statement of Assets and Liabilities the payables and receivables associated with the purchases and sales of when-issued, delayed delivery or forward commitment securities that have the same coupon, settlement date and broker. When-issued, delayed delivery or forward commitment securities that are purchased from or sold to different brokers are reflected as both payables and receivables in the Fund's Statement of Assets and Liabilities. Unless the Fund has entered into an offsetting agreement to sell the securities, cash or liquid obligations with a market value at least equal to the amount of the Fund's commitment will be segregated with the Fund's custodian bank. If the market value of these securities declines, additional cash or securities will be segregated daily so that the aggregate market value of the segregated securities equals the amount of the Fund's commitment. Securities purchased on a when-issued, delayed delivery or forward commitment basis may have a market value on delivery that is less than the amount paid by the fund. The Fund may also sell portfolio securities on a delayed delivery basis. The market value of the securities when they are delivered may be more than the amount to be received by the Fund. At September 30, 2004 the Fund held delayed delivery securities. See Schedule of Investments for further detail. (8) LINE OF CREDIT: The Fund, other funds in the Trust and subtrusts in the Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% on the committed amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the expense related to the facility fee was $1,991 for the Fund. During the year ended September 30, 2004, the Fund had no borrowings under the credit facility. 18 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of Standish Mellon Intermediate Tax Exempt Bond Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Standish Mellon Intermediate Tax Exempt Bond Fund (the "Fund") at September 30, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 19 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
20 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
21 [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0933AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 The level of uncertainty in the equity markets has diverted investor attention from investment fundamentals (e.g., earnings and earnings growth), to investment behavior that is more emotionally driven. The current unsettled climate is fostered by terrorist threats, the election puzzle, oil price uncertainty, inflation fears and interest rate concerns. The economy continues to perform relatively well and concerns about slowing economic growth and the resultant slowing corporate profit growth seem to be somewhat overblown. For the twelve months ended September 30, 2004 The Boston Company Small Cap Tax Sensitive Equity Fund had a total return of 17.34%. This was well ahead of the Russell 2000 Growth Index at 11.92% for the period. The Fund has had strong relative performance in recent months as our holdings have been somewhat more risk averse but, at the same time, it has participated fully in the recent positive move. Within the markets, smaller stocks again performed better than large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up 13.87%), and value has outpaced growth, especially in smaller stocks where the Russell 2000 Value Index was up more than twice that of the Russell 2000 Growth index. Our risk averse approach continues to be a rewarding strategy in this very volatile market environment. We are finding many companies we believe are truly undervalued, not just cheap for an obvious reason. These potentially rewarding opportunities seem to be a by-product of the prevailing market caution, bordering on pessimism. The US economy slowed a bit in the summer as higher energy prices and interest rates, along with the uncertainty surrounding the election and its potential market impact, reduced consumer and investor confidence and put a modest damper on the stock market. We continue to view the economic landscape positively and expect corporate capital spending to remain relatively strong. Our best performing sectors relative to the index have been health care, industrials and consumer discretionary. We expect strong earnings in these sectors and continue to emphasize them in our portfolio allocation decisions. Our energy holdings have been reduced at the margin as the stocks have done well. We continue to carry a market weight in this sector because of our long-term positive outlook for energy prices. Our emphasis here continues to be on energy services and exploration companies. We continue to deemphasize financials as most of these stocks are fully valued in our view. Business momentum is neutral at best and rising interest rates will further narrow spreads and put more pressure on earnings in coming quarters. Stocks in the industrials sector are attractive because of the positive outlook for corporate capital spending. We look for several more quarters of relatively strong earnings from this group and remain significantly overweight here. 2 Our general outlook remains positive. We continue to find many companies in our research universe we believe are undervalued with strong fundamentals and good earnings prospects. With a good chance for continued economic growth and modest inflation, capital spending should be robust for several quarters. The major concerns were highlighted earlier but we believe our fundamental approach, emphasizing strong business momentum and undervaluation, will yield good returns even in this more volatile equity environment. /s/ B. Randall Watts /s/ Todd Wakefield -------------------- ------------------ B. Randall Watts Todd Wakefield 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND AND RUSSELL 2000 GROWTH INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000 Tax Sensitive Equity Growth Index -------------------- ------------ Beginning $100,000 $100,000 1996 Quarter1 $107,550 $105,744 Quarter2 $120,750 $111,923 Quarter3 $117,948 $110,969 Quarter4 $121,231 $111,262 1997 Quarter1 $108,557 $99,593 Quarter2 $135,058 $117,076 Quarter3 $163,362 $136,885 Quarter4 $149,858 $125,666 1998 Quarter1 $168,288 $140,598 Quarter2 $163,756 $132,523 Quarter3 $130,421 $102,892 Quarter4 $165,821 $127,213 1999 Quarter1 $186,769 $125,076 Quarter2 $206,861 $143,519 Quarter3 $204,796 $136,462 Quarter4 $332,765 $182,031 2000 Quarter1 $409,302 $198,926 Quarter2 $377,054 $184,261 Quarter3 $381,323 $176,941 Quarter4 $286,899 $141,201 2001 Quarter1 $217,874 $119,733 Quarter2 $252,751 $141,254 Quarter3 $191,388 $101,590 Quarter4 $224,660 $128,170 2002 Quarter1 $223,201 $125,659 Quarter2 $197,444 $105,936 Quarter3 $164,463 $83,140 Quarter4 $170,739 $89,383 2003 Quarter1 $163,734 $85,917 Quarter2 $196,634 $106,664 Quarter3 $215,893 $117,829 Quarter4 $248,141 $132,773 2004 Quarter1 $266,458 $140,184 Quarter2 $264,500 $140,314 Quarter3 $253,252 $131,880
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 1/02/1996 ------------------------------------------------------------------------------- 17.34% 9.79% 4.34% 11.20%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 -------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $ 950.40 $5.02 Hypothetical (5% return per year before expenses) $1,000.00 $1,019.85 $5.20
------------ + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.03%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Percentage of Top Ten Holdings* Sector Net Assets ------------------------------------------------------------------------------------------- Cooper Cos. Health Care 2.7 MSC Industrial Direct Co., Inc. Industrials 2.3 FMC Technologies Energy 2.2 Fisher Scientific International Health Care 2.0 Lions Gate Entertainment Corp. Consumer Discretionary 2.0 UTI Worldwide Industrials 1.8 Covance Health Care 1.8 Matria Healthcare Health Care 1.7 Laureate Education Industrials 1.6 Respironics Health Care 1.6 ----- 19.7
* Excluding short-term investments and investment of cash collateral.
Percentage of Economic Sector Allocation Net Assets ----------------------------------------------------- Consumer Discretionary 13.2 Consumer Staples 5.4 Energy 7.4 Financials 7.5 Health Care 24.8 Industrials 13.6 Materials 2.1 Technology 19.6 Utilities 1.0 Short-term and Other Net Assets 5.4 ----- 100.0
The Portfolio is actively managed. Current holdings may be different than those presented above. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- EQUITIES--94.6% CONSUMER DISCRETIONARY--13.2% A.C. Moore Arts & Crafts, Inc. * 36,800 $ 910,064 California Pizza Kitchen, Inc. * 79,300 1,732,705 Christopher & Banks Corp. 37,800 605,178 Citadel Broadcasting Co. * 35,300 452,546 Entravision Communications Corp. * 102,600 780,786 Fairmount Hotels & Resorts 31,670 865,224 Lions Gate Entertainment Corp. 273,000 2,375,100 Nautilus Group, Inc. (a) 53,960 1,218,956 Nu Skin Enterprises, Inc. 28,900 679,439 Pacific Sunware of California 55,100 1,159,855 Panera Bread Co. (a) * 39,300 1,475,322 Peet's Coffee & Tea, Inc. 39,900 933,261 Petco Animal Supplies, Inc. 30,320 990,251 Quicksilver, Inc. * 20,300 516,026 Rare Hospitality International, Inc. 23,400 623,610 Speedway Motorsports, Inc. 17,400 579,942 ---------- 15,898,265 ---------- CONSUMER STAPLES--5.4% Arden Group, Inc. 5,994 509,490 Church & Dwight Co., Inc. 40,260 1,129,696 Delta & Pine Land Co. 15,700 419,975 Hain Celestial Group, Inc. 71,000 1,255,280 Jarden Corp. 26,100 952,389 The Yankee Candle Co. 49,690 1,439,022 United Natural Foods, Inc. 29,400 782,040 ---------- 6,487,892 ---------- ENERGY--7.4% Arch Coal, Inc. 26,900 954,681 Consol Energy, Inc. 35,700 1,245,573 Dril-Quip, Inc. 16,500 367,950 FMC Technologies, Inc. * 79,670 2,660,978 Oil States International, Inc. 70,200 1,312,740 Patterson-UTI Energy, Inc. 49,100 936,337 Penn Virginia Corp. 18,330 725,685 Vintage Petroleum, Inc. 33,240 667,127 ---------- 8,871,071 ---------- FINANCIAL--7.5% Affiliated Managers Group (a) * 12,450 666,573 Bristol West Holdings, Inc. 24,220 415,131 Cathay General Bancorp 16,200 602,478 Center Financial Corp. 17,231 327,734
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- FINANCIAL (CONTINUED) City National Corp., Class A 9,950 $ 646,253 Commercial Capital Bancorp, Inc. 28,500 646,665 Cullen/Frost Bankers, Inc. 17,300 803,931 CVB Financial Corp. 1 24 First Community Bancorp, Inc., Class A 14,800 606,800 First Midwest Bancorp, Inc. 23,750 820,800 Investors Financial Services Corp. 15,350 692,746 Mercantile Bank Corp. 18,355 639,488 New York Community Bancorp (a) 4 87 R&G Financial Corp. 16,600 641,590 Southwest Bancorporation of Texas 32,600 656,564 Triad Guaranty, Inc. 15,400 854,392 ---------- 9,021,256 ---------- HEALTH CARE--24.8% Able Laboratories, Inc. * 38,815 743,695 American Medical Systems Holdings, Inc. * 24,200 877,734 Bone Care Intrenational, Inc. * 20,400 495,720 Community Health Systems, Inc. 32,100 856,428 Connetics Corp. 26,850 725,487 Cooper Cos, Inc. 48,150 3,300,683 Covance, Inc. 54,400 2,174,368 Coventry Health Care, Inc. 14,750 787,208 Discovery Laboratories, Inc. 95,400 639,180 Fisher Scientific International (a) 41,200 2,403,196 Flamel Technologies SA ADR (a) 32,100 470,907 Inveresk Research Group, Inc. 35,700 1,316,973 Inverness Medical Innovation (a) * 58,300 1,212,640 Matria Healthcare, Inc. 72,800 2,060,968 Medicines Co. (a) 30,600 738,684 Merit Medical Systems, Inc. 56,800 858,248 Nabi Biopharmaceuticals 40,500 541,890 PSS World Medical, Inc. * 112,300 1,127,492 Resmed, Inc. (a) 17,300 823,653 Respironics, Inc. 36,100 1,929,184 Select Medical Corp. 47,200 633,896 Steris Corp. 53,400 1,171,596 Sybron Dental Specialties, Inc. 22,700 673,963 Telik, Inc. * 26,800 597,640 Triad Hospitals * 18,950 652,638 VCA Antech, Inc. 42,600 878,838 VISX, Inc. * 24,400 502,640 Zoll Medical Corp. 18,800 627,732 ---------- 29,823,281 ----------
The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- INDUSTRIAL--13.6% Applied Industrial Technologies 19,170 $ 685,136 Carlisle Companies, Inc. 9,900 632,907 Educate, Inc. (a) * 40,400 476,316 Forward Air Corp. 24,370 975,287 Hudson Highland Group 19,980 583,216 Iron Mountain, Inc. 23,825 806,476 Laureate Education, Inc. 52,200 1,942,884 LECG Corp. 69,600 1,176,936 MSC Industrial Direct Co., Inc. 81,000 2,760,480 Navigant Consulting, Inc. * 60,100 1,319,796 Old Dominion Freight Line 22,000 633,820 The Princeton Review, Inc. 63,464 475,980 SCS Transportation, Inc. * 31,000 587,140 UTI Worldwide, Inc. 37,000 2,175,970 Waste Connections 36,700 1,162,656 ---------- 16,395,000 ---------- MATERIALS--2.1% Agrium, Inc. 86,500 1,536,240 Glamis Gold Ltd 41,800 782,914 Spartech Corp. 6,400 160,640 ---------- 2,479,794 ---------- TECHNOLOGY--19.6% Avocent Corp. 27,800 723,634 Anteon International Corp. * 41,600 1,524,640 BearingPoint, Inc. * 103,600 926,184 Borland Software Corp. * 70,400 587,840 Cymer, Inc. 39,900 1,143,534 Formfactor, Inc. 54,100 1,047,917 Forrester Research, Inc. 65,100 992,124 Foundry Networks, Inc. * 44,400 421,356 Helix Technology Corp. 39,800 541,081 Ingram Micro,Inc., Class A 98,150 1,580,215 Internet Security Systems * 81,800 1,390,600 Lam Research Corp. 37,051 810,676 Macromedia, Inc. 60,200 1,208,816 Mcafee, Inc. 90,600 1,821,060 ManTech International Corp., Class A 34,800 651,456 Paxar Corp. 26,990 612,133 Polycom, Inc. * 43,400 860,188 Power Integrations, Inc. 75,500 1,542,465 Progress Software Corp. 79,700 1,586,030
The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY (CONTINUED) Scientific-Atlanta, Inc. 18,600 $ 482,112 Verisign, Inc. * 74,350 1,478,078 Zoran Corp. * 108,100 1,699,332 ------------ 23,631,471 ------------ UTILITIES--1.0% AGL Resources, Inc. 39,780 1,224,031 ------------ TOTAL EQUITIES (Cost $95,890,387) 113,832,061 ------------ SHORT-TERM INVESTMENTS--4.9% Rate Maturity Par Value ----- -------- --------- U.S. GOVERNMENT--0.3% U.S. Treasury Bill ((+)) 1.640% 12/16/2004 $ 325,000 323,882 INVESTMENT COMPANIES--4.6% Shares --------- Dreyfus Institutional Preferred Plus ++ 5,595,286 5,595,286 ------------ Total Short Term Investments (Cost $5,919,168) 5,919,168 ------------ INVESTMENT OF CASH COLLATERAL--5.1% Dreyfus Cash Management Plus Money Market Fund ++ (Cost $6,181,015) 6,181,015 6,181,015 ------------ TOTAL INVESTMENTS--104.6% (COST $107,990,570) 125,932,244 LIABILITIES IN EXCESS OF OTHER ASSETS--(4.6%) (5,560,294) ------------ NET ASSETS--100% $120,371,950 ============
NOTES TO SCHEDULE OF INVESTMENTS: ADR--American Depositary Receipt (a) Security, or a portion of thereof, was on loan at 9/30/04. * Non-income producing security + Denotes all or part of security pledged as collateral. ++ Affiliated institutional money market fund. At September 30, 2004, the Fund held the following futures contracts:
Underlying Face Unrealized Contract Position Expiration Date Amount At Value Gain ---------------------------------------------------------------------------------------------------------------------- Russell 2000 Index (9 contracts) Long 12/16/2004 $ 2,571,250 $ 11,709
The accompanying notes are an integral part of the financial statements. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investments in securities (Note 7) Unaffiliated issuers, at value (Note 1A) (identified cost $96,214,269) $114,155,943 Affiliated issuers, at value (Note 1A) (cost $11,776,301) (Note 1F) 11,776,301 Cash 63,799 Receivable for investments sold 1,550,916 Receivable for Fund shares sold 123,079 Interest and dividends receivable 21,984 Variation margin receivable (Note 6) 45,450 Prepaid expenses 17,637 ------------ Total assets 127,755,109 LIABILITIES Liability for securities on loan $ 6,181,015 Payable for investments purchased 1,105,133 Payable for Fund shares redeemed 29,469 Accrued accounting, custody and transfer agent fees 19,901 Accrued trustees' fees and expenses 3,445 Accrued expenses and other liabilities 44,196 ------------ Total liabilities 7,383,159 ------------ NET ASSETS $120,371,950 ============ NET ASSETS CONSIST OF: Paid-in capital $104,916,999 Accumulated net realized loss (2,498,513) Undistributed net investment income 82 Net unrealized appreciation 17,953,382 ------------ TOTAL NET ASSETS $120,371,950 ============ SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,467,917 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 34.71 ============
The accompanying notes are an integral part of the financial statements. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income (net of $374 in foreign withholding tax paid) $ 297,939 Interest income (including securities lending income of $21,929) (Note 7) 76,845 ----------- Total investment Income 374,784 EXPENSES Investment advisory fee (Note 2) $ 949,430 Accounting, custody, and transfer agent fees (Note 2) 115,266 Professional fees 58,700 Registration fees 29,202 Trustees' fees and expenses (Note 2) 26,177 Insurance expense 12,452 Miscellaneous 24,959 ----------- Total expenses 1,216,186 ----------- Net investment loss (841,402) ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Investment security transactions 15,799,398 Futures contracts (556,937) ----------- Net realized gain 15,242,461 Change in unrealized appreciation (depreciation) Investment securities 3,980,691 Futures contracts 197,698 ----------- Change in net unrealized appreciation (depreciation) 4,178,389 ----------- Net realized and unrealized gain on investments 19,420,850 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS $18,579,448 ===========
The accompanying notes are an integral part of the financial statements. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment loss $ (841,402) $ (396,695) Net realized gains 15,242,461 9,438,799 Change in net unrealized appreciation (depreciation) 4,178,389 17,026,734 ------------ ------------ Net increase in net assets from operations 18,579,448 26,068,838 ------------ ------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 19,103,910 19,249,572 Redemption fees credited to capital 242 -- Cost of shares redeemed (24,029,775) (21,069,623) ------------ ------------ Net increase (decrease) in net assets from Fund share transactions (4,925,623) (1,820,051) ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 13,653,825 24,248,787 NET ASSETS At beginning of year 106,718,125 82,469,338 ------------ ------------ At end of year (including undistributed net investment income of $82 and $104) $120,371,950 $106,718,125 ============ ============
The accompanying notes are an integral part of the financial statements. 13 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, ----------------------------------------------------------------- 2004 2003 2002 2001 2000 -------- -------- ------- ------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 29.58 $ 22.53 $ 26.23 $ 63.32 $ 40.70 -------- -------- ------- ------- -------- FROM OPERATIONS: Net investment income (loss)*(1) (0.24) (0.11) (0.13) (0.20) (0.39) Net realized and unrealized gains (loss) on investments 5.37(2) 7.16(2) (3.57)(2) (28.28) 33.65 -------- -------- ------- ------- -------- Total from operations 5.13 7.05 (3.70) (28.48) 33.26 -------- -------- ------- ------- -------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net realized gains on investments -- -- -- (8.61) (10.64) -------- -------- ------- ------- -------- Total distributions to shareholders -- -- -- (8.61) (10.64) -------- -------- ------- ------- -------- NET ASSET VALUE, END OF YEAR $ 34.71 $ 29.58 $ 22.53 $ 26.23 $ 63.32 ======== ======== ======= ======= ======== TOTAL RETURN 17.34% 31.29%+ (14.11)%+ (49.81)%+ 86.20% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 1.03% 1.00% 1.00% 1.00% 0.87% Net Investment (Loss) (to average daily net assets)* (0.71)% (0.43)% (0.47)% (0.54)% (0.60)% Portfolio Turnover 150% 252% 241% 174% 182% Net Assets, End of Year (000's omitted) $120,372 $106,718 $82,469 $81,711 $215,201
-------------- * For the years indicated, the investment advisor voluntarily agreed not to impose all or a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment loss per share and ratios would have been: Net investment loss per share (1) N/A $ (0.13) $ (0.15) $ (0.21) N/A Ratios (to average daily net assets): Expenses N/A 1.07% 1.08% 1.04% N/A Net investment income N/A (0.50)% (0.55)% (0.58)% N/A
+ Total return would have been lower in the absence of expense waivers. (1) Calculated based on average shares outstanding. (2) Amount includes securities litigation proceeds received by the Fund of $0.03 for the year ended September 30, 2004, less than $0.01 for the year ended September 30, 2003 and $0.02 for the year ended September 30, 2002. The accompanying notes are an integral part of the financial statements. 14 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Small Cap Tax-Sensitive Equity Fund (the "Fund") is a separate diversified investment series of the Trust. The objective of the Fund is to maximize after-tax total return, consisting of long-term growth of capital. The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of small capitalization U.S. companies. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Securities (including illiquid securities) for which quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Trustees. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which approximates market value. If the Portfolio acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method on long-term debt securities. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividends representing a return of capital are reflected as a reduction of cost. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on the ex-dividend date. The Fund's dividends from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless the shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for wash sales and realized and unrealized gains or losses on futures. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications among undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 15 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- E. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. F. AFFILIATED ISSUERS Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to TBCAM for overall investment advisory, administrative services, and general office facilities, is paid monthly at the annual rate of 0.80% of the Fund's average daily net assets. For the year ended September 30, 2004, the Fund paid $949,430 in investment advisory fees to TBCAM. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide custody, fund administration and fund accounting services for the Fund. For these services, the Fund pays Mellon Bank a fixed fee plus asset and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $106,106 during the year ended September 30, 2004. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees for the Fund's fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $3,442 Benjamin M. Friedman $3,442 John H. Hewitt $3,442 Caleb Loring, III $3,695 Patrick J. Sheppard 0 Richard S. Wood * 0
* Mr. Wood resigned from the Board of Trustees on October 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations for the year ended September 30, 2004, were $169,101,701 and $176,724,398, respectively. For the year ended September 30, 2004, the Fund did not purchase or sell any long-term U.S. Government securities. 16 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 553,482 766,053 Shares redeemed (692,914) (819,341) -------- -------- Net increase (decrease) (139,432) (53,288) ======== ========
At September 30, 2004, two shareholders of record held approximately 44% and 11% of the total outstanding shares of the Fund. Investment activity of these shareholders could have a material impact on the Fund. The Fund imposes a redemption fee of 2% of the net asset value of the shares, with certain exceptions, which are redeemed or exchanged less than 90 days from the day of their purchase. The redemption fee is paid directly to the Fund, and is designed to offset brokerage commissions, market impact, and other costs associated with short-term trading. The fee does not apply to shares that were acquired through reinvestment of distributions. For the year ended September 30, 2004, the Fund received $242 in redemption fees. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes all of its taxable income for its fiscal year. The tax basis components of distributable earnings and the federal tax cost as of September 30, 2004, was as follows: Cost for federal income tax purposes $108,070,932 ------------ Unrealized appreciation $ 20,564,477 Unrealized depreciation (2,703,248) ------------ Net unrealized appreciation/depreciation 17,861,229 ============ Undistributed ordinary income 82 Capital loss carry-forward (2,406,360)
At September 30, 2004, the Fund, for federal income tax purposes, has capital loss carryovers which will reduce the Fund's taxable income arising from net realized gain on investments, if any, to the extent permitted by the Internal Revenue Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Such capital loss carryovers are as follows:
Capital Loss Carry Over Expiration Date ------------- --------------- $2,406,360 9/30/2011
17 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (6) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Fund's Prospectus and Statement of Additional Information. The Fund may trade the following instruments with off-balance sheet risk: OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Fund may use options to seek to hedge against risks of market exposure and changes in securities prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tend to increase the Fund's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. Options, both held and written by the Fund, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Fund is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Fund did not enter into option transactions during the year ended September 30, 2004. FUTURES CONTRACTS The Fund may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to the margin requirements, the Fund deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Fund's exposure to the underlying instrument, while selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund investments. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparties do not perform under the contract's terms. The Fund enters into financial futures transactions primarily to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Fund held financial futures contracts. See Schedule of Investments for further detail. 18 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (7) SECURITY LENDING: The Fund entered into an agreement with Mellon Bank to perform certain securities lending activities and to act as the Fund's lending agent. Pursuant to this agreement Mellon Bank receives an agreed upon percentage of the net lending revenues. This compensation is a standard form of compensation received by securities lending agents with respect to non-affiliated entities. The Fund may lend its securities to financial institutions which the Fund deems to be creditworthy. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The market value of securities loaned is determined daily and any additional required collateral is allocated to the Fund on the next business day. For the duration of a loan, the Fund receives the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation from the investment of the collateral. As with other extensions of credit, the Fund bears the risk of delay in recovery or even loss of rights in its securities on loan should the borrower of the securities fail financially or default on its obligations to the Fund. In the event of borrower default, the Fund generally has the right to use the collateral to offset losses incurred. The Fund may incur a loss in the event it was delayed or prevented from exercising its rights to dispose of the collateral. The Fund also bears the risk in the event that the interest and/or dividends received on invested collateral is not sufficient to meet the Fund's obligations due on the loans. The Fund loaned securities during the year ended September 30, 2004 resulting in $21,929 of security lending income. At September 30, 2004, the Fund had $5,986,620 worth of securities on loan. See the Schedule of Investments for further detail of the security positions on loan. (8) LINE OF CREDIT: The Fund, and other funds in the Trust and subtrusts in the Mellon Institutional Funds Master Portfolio Trust (the "Portfolio Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% on the committed amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the facility fee was $2,468. During the year ended September 30, 2004, the Fund had borrowings under the credit facility and incurred $72 of interest expense. 19 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company Small Cap Tax-Sensitive Equity Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Small Cap Tax-Sensitive Equity Fund (the "Fund") at September 30, 2004 and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 20 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
21 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
22 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0938AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 The Boston Company International Small Cap Fund (the "International Small Cap Fund") return for the twelve months ended September 30, 2004 was 33.35% versus 26.46% for its benchmark, the S&P Citigroup EMI ex. US index. The International Small Cap Fund's 1 Year, 3 Year and 5 Year returns have exceeded the benchmark by solid margins. All EAFE markets were up this year, and all but Greece posted double-digit annual returns, as measured in US dollars. Ireland proved to be the highest performing market with a 108% return, due primarily to tremendous strength in one stock, Elan, a pharmaceuticals company. Four other international equity markets were up more than 50%. In general, energy producing countries benefited at the relative expense of energy consuming countries. For example, oil rich Norway witnessed its market produce annual returns of greater than 50%, while oil dependent Japan's market was a relative laggard with only a 16.5% return for the period. From an economic sector perspective, it was an excellent year for energy stocks, and a relative struggle for technology stocks. Energy stocks were up the most with a return of 66%, buoyed by oil prices that remained much higher than anticipated. Very strong demand, especially from developing markets, and supply concerns, due to unrest in Iraq and elsewhere, combined to keep oil prices high. Technology stocks were up only 6.5%, and were depressed by very intense price competition, industry overcapacity, reluctance of buyers to invest in new products, and valuations levels that still appear to be too high relative to other sectors. The International Small Cap Fund outperformed the index during the period, largely due to our process of disciplined stock selection. Contribution to the positive relative performance was broad based. The Fund had positive stock selection versus the benchmark in 19 of 24 countries. In addition the Fund outperformed the benchmark in eight of 10 economic sectors. The portfolio continues to reflect our approach of investing in stocks of companies that are attractively valued and exhibit improving business momentum. The global economy is growing. Policy makers have begun the process of removing the massive stimulus pumped into the system following the last recession and the September 11 terrorist attacks. While policy has not yet moved into restrictive territory, the combination of higher rates and higher oil prices may undermine the strength of the economic expansion. Corporate profits are expected to grow, but at a slower pace. It remains unclear whether investors will be encouraged by the growth, or discouraged by the slowdown in the rate of growth. Overall, valuation levels seem reasonable. /s/ Daniel LeVan /s/ John Evers ---------------- -------------- Daniel LeVan John Evers 2 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY INTERNATIONAL SMALL CAP EQUITY FUND AND S&P/CITIGROUP EMI EX-US INDEX -------------------------------------------------------------------------------- [DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC International S&P / CitiGroup Small Cap Fund EMI ex-US Index ----------------- --------------- Beginning $100,000 $100,000 1996 Quarter1 $109,123 $105,745 Quarter2 $117,983 $110,417 Quarter3 $118,543 $107,917 Quarter4 $125,933 $107,249 1997 Quarter1 $129,050 $105,276 Quarter2 $144,933 $112,849 Quarter3 $147,408 $108,293 Quarter4 $127,767 $97,180 1998 Quarter1 $155,480 $113,897 Quarter2 $158,609 $113,484 Quarter3 $125,511 $96,313 Quarter4 $140,652 $108,988 1999 Quarter1 $153,742 $110,537 Quarter2 $175,694 $117,334 Quarter3 $193,860 $123,300 Quarter4 $198,510 $134,573 2000 Quarter1 $209,392 $137,310 Quarter2 $216,061 $134,913 Quarter3 $209,758 $127,812 Quarter4 $206,590 $120,702 2001 Quarter1 $187,102 $107,833 Quarter2 $200,451 $111,117 Quarter3 $173,819 $94,001 Quarter4 $186,603 $101,766 2002 Quarter1 $200,107 $107,879 Quarter2 $214,855 $110,042 Quarter3 $183,192 $90,656 Quarter4 $188,963 $94,345 2003 Quarter1 $184,006 $90,003 Quarter2 $220,558 $110,889 Quarter3 $250,224 $125,485 Quarter4 $290,085 $145,041 2004 Quarter1 $323,249 $158,702 Quarter2 $328,461 $160,101 Quarter3 $333,283 $160,202
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 1/02/96* ------------------------------------------------------------------------------- 33.35% 24.23% 11.45% 14.75%
*COMBINED LP & MF PERFORMANCE AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,031.00 $6.45 Hypothetical (5% return per year before expenses) $1,000.00 $1,018.65 $6.41
-------------- + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.27%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). THE EXAMPLE REFLECTS THE COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS ALL ITS ASSETS. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in The Boston Company International Small Cap Portfolio ("Portfolio"), at value (Note 1A) $211,828,916 Receivable for Fund shares sold 232,708 Prepaid expenses 6,320 ------------ Total assets 212,067,944 LIABILITIES Payable for Fund shares redeemed $ 8,830 Accrued transfer agent fees 3,253 Accrued trustees' fees and expenses 18 Accrued expenses and other liabilities 23,431 ------------ Total liabilities 35,532 ------------ NET ASSETS $212,032,412 ------------ NET ASSETS CONSIST OF: Paid-in capital $164,560,911 Accumulated net realized gain 14,084,367 Undistributed net investment income 949,027 Net unrealized appreciation 32,438,107 ------------ TOTAL NET ASSETS $212,032,412 ------------ Shares of beneficial interest outstanding 13,310,373 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 15.93 ============
The accompanying notes are an integral part of the financial statements. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income allocated from Portfolio (net of foreign withholding taxes of $322,835) $ 2,895,344 Interest income allocated from Portfolio (including security lending income of $171,516) 237,754 Expenses allocated from Portfolio (1,666,703) ----------- Net investment income allocated from Portfolio 1,466,395 EXPENSES Transfer agent fees (Note 2) $ 7,833 Legal and audit services 34,632 Registration fees 24,745 Shareholder reports 17,200 Trustees' fees and expenses (Note 2) 2,034 Insurance expense 1,140 Miscellaneous 7,538 ----------- Total expenses 95,122 ----------- Net investment income 1,371,273 ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) allocated from Portfolio on: Investment security transactions, foreign currency transactions and forward foreign currency exchange contracts 18,477,139 Change in unrealized appreciation (depreciation) on investments allocated from Portfolio 15,364,375 ----------- Net realized and unrealized gain on investments 33,841,514 ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $35,212,787 ===========
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment income $ 1,371,273 $ 539,070 Net realized gains 18,477,139 1,815,495 Change in net unrealized appreciation 15,364,375 16,959,328 ------------ ------------ Net increase in net assets from operations 35,212,787 19,313,893 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C) From net investment income (1,083,002) (487,612) ------------ ------------ Total distributions to shareholders (1,083,002) (487,612) ------------ ------------ FUND SHARE TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 102,193,352 44,415,601 Value of shares issued to shareholders in payment of distributions declared 859,847 370,146 Redemption fees credited to capital 1,605 -- Cost of shares redeemed (14,722,174) (7,812,410) ------------ ------------ Net increase (decrease) in net assets from Fund share transactions 88,332,630 36,973,337 ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 122,462,415 55,799,618 NET ASSETS At beginning of period 89,569,997 33,770,379 ------------ ------------ At end of period (including undistributed net investment income of $949,027 and $425,208) $212,032,412 $ 89,569,997 ============ =============
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the Period February 1, 2000 Year Ended September 30, (Commencement ------------------------------------------------ of Operations) to 2004 2003 2002 2001 September 30, 2000 -------- ------- ------- ------- ------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 12.05 $ 8.91 $ 8.55 $ 10.65 $ 10.00 -------- ------- ------- ------- ------- FROM INVESTMENT OPERATIONS: Net investment income*(1) 0.14 0.10 0.09 0.11 0.09 Net realized and unrealized gains (loss) on investments 3.86 3.13 0.38 (1.89) 0.63 -------- ------- ------- ------- ------- Total from investment operations 4.00 3.23 0.47 (1.78) 0.72 -------- ------- ------- ------- ------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (0.12) (0.09) (0.11) (0.08) (0.07) From net realized gains on investments -- -- -- (0.24) -- -------- ------- ------- ------- ------- Total distributions to shareholders (0.12) (0.09) (0.11) (0.32) (0.07) -------- ------- ------- ------- ------- Net Asset Value, End of Period $ 15.93 $ 12.05 $ 8.91 $ 8.55 $ 10.65 ======== ======= ======= ======= ======= TOTAL RETURN 33.35% 36.47%++ 5.39%++ (17.13)%++ 7.19%+ RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)* 1.27% 1.39% 1.25% 1.25% 1.25%+ Net Investment Income (to average daily net assets)* 0.99% 1.01% 0.96% 1.10% 1.21%+ Portfolio Turnover (2) N/A 15% 69% 89% 70% Net Assets, End of Period (000's omitted) $212,032 $89,570 $33,770 $22,386 $17,092
* For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund and Portfolio for a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and ratios would have been: Net investment income per share(1) N/A $ 0.08 $ 0.04 $ 0.04 $ 0.01 Ratios (to average daily net assets): Expenses N/A 1.65% 1.82% 1.98% 2.29%+ Net investment income N/A 0.75% 0.39% 0.37% 0.17%+
(1) Calculated based on average shares outstanding. (2) Portfolio turnover represents activity while the Fund was investing directly in securities until January 27, 2003. The portfolio turnover for the period since the Fund transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. + Computed on an annualized basis. ++ Total return would have been lower in the absence of expense waivers Returns for periods of less than one year have not been annualized. The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company International Small Cap Fund (the "Fund") is a separate diversified investment series of the Trust. The Fund invests all of its investable assets in an interest of The Boston Company International Small Cap Portfolio (the "Portfolio"), a subtrust of Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which is organized as a New York trust, and has the same investment objective as the Fund. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities in companies that are located in foreign countries represented in the S&P Citigroup EMI Ex-U.S. Index and, to a limited extent, emerging markets. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio (approximately 96.6% at September 30, 2004). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS The Fund records its investment in the Portfolio at value. The method by which the Portfolio values its securities is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. The Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with accounting principles generally accepted in the United States of America. All realized and unrealized gains and losses of the Portfolio are allocated pro rata among the investors in the Portfolio. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on ex-dividend date. The Fund's dividends from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. In determining the amounts of its dividends, the Fund will take into account its share of the income, gains or losses, expenses, and any other tax items of the Portfolio. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless a shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for foreign currency transactions, passive foreign investment companies (PFICs) and capital loss carryovers and redemptions in-kind. In 2004, the fund incurred a redemption in-kind which resulted in a realized gain of $2,404,435, which will be deferred indefinitely for tax purposes. Permanent book and tax basis differences relating to shareholder distributions, including distributions in kind, will result in reclassifications among undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. and redemptions in-kind. In 2004, the fund incurred a redemption in-kind which resulted in a realized gain of $2,404,435, which will be deferred indefinitely for tax purposes. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The Fund does not directly pay any investment advisory fees, but indirectly bears its pro rata share of the compensation paid by the Portfolio to The Boston Company Asset Management, LLC ("TBCAM") for such services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. The Fund imposes a redemption fee of 2% of the net asset value of the shares, with certain exceptions, which are redeemed or exchanged less than 90 days from the day of their purchase. The redemption fee is paid directly to the Fund, and is designed to offset brokerage commissions, market impact, and other costs associated with short-term trading. The fee does not apply to shares that were acquired through reinvestment of distributions. For the year ended September 30, 2004, the Fund received $1,605 in redemption fees. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 30, 2004. The fund also bears its pro rata share of the renumeration paid to the Trustees by the Portfolio. See Note 2 of the Portfolio's notes to financial statements which are included elsewhere in this report.
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $500 Benjamin M. Friedman $500 John H. Hewitt $500 Caleb Loring, III $500 Patrick J. Sheppard 0 Richard S. Wood * 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003. (3) INVESTMENT TRANSACTIONS: Increases and decreases in the Fund's investment in the Portfolio for the year ended September 30, 2004, aggregated $103,027,135 and $15,880,090, respectively. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
for the for the Year Ended Year Ended Institutional Class: September 30, 2004 September 30, 2003 ------------------ ------------------ Shares sold 6,808,462 4,394,538 Shares issued to shareholders in payment of distributions declared 60,513 36,828 Shares redeemed (989,803) (788,597) --------- ---------- Net increase 5,879,172 3,642,769 ========= =========
At September 30, 2004, two shareholders of record held approximately 30% and 15% of the total outstanding shares of the Fund. Investment activities of these shareholders could have a material impact on the Fund. (5) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income $15,018,686 Tax character of distributions paid during the fiscal year ended September 30, 2004, was as follows: Distributions paid from: Ordinary income $1,083,002 See corresponding master portfolio for tax basis unrealized appreciation/(depreciation) information. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company International Small Cap Fund: In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company International Small Cap Fund (the "Fund") at September 30, 2004, the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investment in the Portfolio at September 30, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 12 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Percentage of Top Ten Holdings* Country Sector Net Assets ---------------------------------------------------------------------------------------------------------- Puma AG Germany Consumer Discretionary 1.2 Sumisho Lease, Co., Ltd. Japan Financials 0.9 Continental AG Germany Consumer Discretionary 0.8 Nippon Shokubai Co. Japan Materials 0.8 Home Capital Group Canada Financials 0.8 Perpetual Trustees Australia Australia Financials 0.8 Keihin Corp. Japan Consumer Discretionary 0.8 Sims Group Ltd. Australia Materials 0.8 Jyske Bank Denmark Financials 0.8 Micronas Semiconductor Switzerland Information Technology 0.8 ----- 8.5
Percentage of Economic Sector Allocation Net Assets ------------------------------------------------- Consumer Discretionary 19.7 Consumer Staples 6.2 Energy 4.2 Financials 17.5 Health Care 6.0 Industrials 18.8 Information Technology 7.6 Materials 10.5 Telecommunication Services 1.9 Utilities 1.8 Short-term and Net Other Assets 5.8 ----- 100.0
Percentage of Geographic Region Allocation* Net Assets ------------------------------------------------- Europe ex U.K. 40.8 U.K. 20.0 Asia ex Japan 9.3 Japan 18.5 Americas ex U.S. 5.6 ----- 94.2
* Excluding short-term investments and investment of cash collateral. The Portfolio is actively managed. Current holdings may be different than those presented above. 13 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- EQUITIES--94.2% AUSTRALIA--3.6% Caltex Australia Ltd. 172,600 $ 1,164,16 Oil Search Ltd. 1,327,800 1,439,500 Perpetual Trustees Australia Ltd. 48,000 1,750,082 Sims Group Ltd. (a) 171,100 1,711,770 Southern Cross Broadcasting (Australia) Ltd. 99,100 897,709 West Australian Newspaper Holdings (a) 170,400 941,031 ---------- Total Cost ($6,726,711) 7,904,253 ---------- AUSTRIA--0.5% Boehler-Uddeholm 11,500 1,062,995 ---------- Total Cost ($733,722) BELGIUM--1.7% Colruyt NV Right 9,724 12,937 Colruyt SA (a) 9,724 1,366,263 Mobistar SA * 20,000 1,429,910 NV Union Miniere SA 13,400 978,867 --------- Total Cost ($2,443,222) 3,787,977 ---------- CANADA--5.6% Astral Media, Inc. 34,500 775,846 Axcan Pharma, Inc. 54,300 846,537 Canfor Corp. 76,400 966,283 CHC Helicopter Corp. 39,100 1,519,229 Ensign Resource Service Group, Inc. 52,100 956,399 GSI Lumonic, Inc. * 62,200 651,051 Home Capital Group, Inc. 92,900 1,753,984 Inmet Mining Corp.. * 78,400 1,361,478 Northbridge Financial 69,900 1,292,576 Trican Well Service Ltd. * 33,000 1,256,046 Wheaton River Minerals Ltd. * 265,800 836,750 ---------- Total Cost ($9,960,686) 12,216,179 ---------- DENMARK--1.7% GN Store Nord A/S 93,500 945,518 Jyske Bank * 26,000 1,694,887 Topdanmark A/S * 17,200 1,106,858 ---------- Total Cost ($3,119,880) 3,747,263 ---------- FINLAND--2.0% Kesko Oyj 55,400 1,213,742 Nokian Renkaat Oyj 12,700 1,381,728 Rautaruukki Oyj 99,000 966,308 YIT-Yhtyma Oyj 38,300 754,812 ---------- Total Cost ($3,174,978) 4,316,590 ----------
The accompanying notes are an integral part of the financial statements. 14 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- FRANCE--7.7% Alten 49,500 $ 965,69 Ciments Francais (a) 11,100 966,122 Clarins 12,155 743,434 CNP Assurances 16,700 1,085,998 Eiffage 14,922 1,276,516 Elior 106,700 945,943 Essilor International SA 11,600 746,413 Euler Hermes SA 27,100 1,632,578 Iliad SA (a) 39,700 937,897 Imerys SA 21,100 1,404,924 Legardere SCA 12,800 794,821 Natexis Banques Populaires 11,900 1,356,835 Oberthur Card Systems (a) 86,400 585,492 SR Teleperformance 38,300 778,623 Vallourec 11,020 1,288,013 Vinci SA 11,300 1,301,771 ---------- Total Cost ($14,848,479) 16,811,073 ---------- GERMANY--6.3% AWD Holding AG 22,600 748,606 Continental AG 32,900 1,790,537 Hannover Rueckversicherung AG 35,650 1,156,940 Hypo Real Estate Holding * 44,200 1,516,849 Krones AG 8,400 779,582 Mobilcom AG 58,300 845,961 MPC Capital AG 10,400 749,631 Puma AG 9,500 2,548,149 Rhoen Klinikum AG 14,500 716,665 Software AG 22,800 751,262 Thyssenkrupp AG 51,400 1,002,760 United Internet AG Registered Shares 36,414 783,295 Vossloh AG 11,300 441,886 ---------- Total Cost ($10,547,612) 13,832,123 ---------- GREECE--0.3% Germanos SA 29,600 694,872 ---------- Total Cost ($549,577) HONG KONG--2.7% Global Biochem Tech 1,379,000 1,052,375 Golden Meditech Co., Ltd. 3,629,200 763,386 Kerry Properties Ltd. 350,500 660,837 Orient Overseas International Ltd. 283,000 1,132,479 Skyworth Digital Holdings Ltd. 2,654,000 723,351
The accompanying notes are an integral part of the financial statements. 15 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- HONG KONG (CONTINUED) Wing Hang Bank Ltd. 91,100 $ 595,906 Xinao Gas Holdings Ltd. * 1,898,000 967,659 ---------- Total Cost ($5,379,338) 5,895,993 ---------- IRELAND--1.4% Fyffes PLC 508,400 1,131,539 Grafton Group PLC 115,200 1,071,433 Kerry Group PLC 35,700 790,131 ---------- Total Cost ($2,388,106) 2,993,103 ---------- ITALY--3.2% Autostrada Torino-Milano Spa (a) 54,300 1,120,776 Banco Popolare di Verona e Novara 57,800 1,014,784 Davide Campari-Milano Spa 15,800 795,652 Fondiaria-Sai Spa (a) 24,900 562,555 Milano Assicurazioni Spa (a) 271,800 1,145,671 Pirelli & C Real Estate (a) 28,500 1,184,301 Saipem Spa 115,800 1,303,071 ---------- Total Cost ($6,091,630) 7,126,810 ---------- JAPAN--18.5% Alpine Electronics, Inc. (a) 64,600 828,642 Central Glass Co., Ltd. 176,000 1,292,800 CMK Corp.. (a) 71,000 959,145 Cosmo Oil Co., Ltd. 249,000 724,364 Doshisha Co., Ltd. 30,200 1,051,509 Goldcrest Co., Ltd. 17,500 1,024,545 Hamamatsu Photonics KK (a) 44,700 751,773 Hisamitsu Pharamaceutical 60,000 1,077,273 Hitachi Construction Machinery Co., Ltd. (a) 53,000 646,600 Index Corp.. (a) 459 1,018,145 Izumi Co. Ltdronics, Inc. 30,600 613,391 Kawasaki Kisen Kaisha Ltd. (a) 190,200 1,303,735 Keihin Corp. 106,900 1,710,400 Kirin Beverage Corp. 42,700 912,227 Koito Manufacturing Co. (a) 160,000 1,360,000 Komeri Co., Ltd. 35,600 775,109 Koyo Seiko Co., Ltd. (a) 87,000 976,773 Kuroda Electric Co., Ltd. (a) 67,800 1,531,664 Kyowa Exeo Corp. 184,000 1,201,018 Makita Corp.. (a) 76,000 1,075,055 Nippon Shokubai Ltd. (a) 236,000 1,765,709 Nissan Chemical Industries Ltd. (a) 141,000 1,083,136 Nissen Co., Ltd. 45,100 856,900
The accompanying notes are an integral part of the financial statements. 16 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- JAPAN (CONTINUED) Nisshin Seifun Group, Inc. (a) 109,000 $ 1,054,32 Nisshin Steel Co., Ltd. 608,000 1,348,655 Otsuka Corp. 22,400 1,179,055 Ricoh Leasing Co., Ltd. (a) 50,600 1,216,700 Sanyo Shinpan Finance Co., Ltd. 22,000 1,180,000 Seino Transportation Co., Ltd. 128,000 1,146,182 Shinko Electric Industrial 30,400 920,291 Sodick Co., Ltd. (a) 120,000 741,818 Sumisho Lease Co., Ltd. 53,100 1,921,255 Sumitomo Rubber Industries, Inc. (a) 157,000 1,521,473 Sysmex Corp. 25,100 928,700 Tamron Co., Ltd. (a) 24,800 919,855 Tokyo Tatemono Co., Ltd. 192,000 958,255 Tsuruha Co., Ltd. 34,900 920,091 ---------- Total Cost ($36,742,452) 40,496,570 ---------- NETHERLANDS--3.5% Aalberts Industries NV 32,700 1,189,281 ASM International NV 44,000 588,675 Corio NV 30,800 1,478,636 Hunter Douglas NV 21,400 984,258 Koninklijke BAM Groep NV 26,400 981,490 Koninklijke Wessanen NV 64,400 859,204 Stork NV 48,200 1,153,089 VNU NV 20,300 522,489 ---------- Total Cost ($6,548,326) 7,757,122 ---------- NORWAY--0.9% Leroy Seafood Group ASA 116,300 563,570 Tandberg Television ASA * 192,300 1,440,788 ---------- Total Cost ($1,663,203) 2,004,358 ---------- PORTUGAL--1.2% Banco BPI SA 406,100 1,524,933 Jeronimo Martins, SGPS, S.A. * 88,700 1,000,326 ---------- Total Cost ($2,350,075) 2,525,259 ---------- SINGAPORE--1.0% First Engineering Ltd. 1,323,000 989,776 Jurong Technologies Industrial 1,497,000 1,111,062 ---------- Total Cost ($1,882,038) 2,100,838 ---------- SOUTH KOREA--2.0% Hanjin Shipping Corp. 46,600 795,560 Honam Petrochemical Corp. 21,900 867,628 Hyundai Mipo Dockyard 54,600 1,228,619
The accompanying notes are an integral part of the financial statements. 17 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- SOUTH KOREA (CONTINUED) Interflex Co., Ltd. 39,700 $ 827,802 Korean Reinsurance Co. 193,330 663,470 ---------- Total Cost ($3,735,003) 4,383,079 ---------- SPAIN--4.0% ACS Actividades 56,300 1,026,950 Aldeasa SA 32,100 987,850 Corp. Mapfre SA 55,200 648,607 Ebro Puleva, S.A (a) 63,400 744,170 Enagas 77,600 929,178 Gamesa Corp. Tecnological 101,000 1,483,140 Immobiliaria Urbis SA 125,400 1,437,604 Indra Sistemas SA 61,600 821,082 TPI Telefonica Publicidad e Informacion SA 101,100 707,735 ---------- Total Cost ($6,965,707) 8,786,316 ---------- SWEDEN--1.5% Elekta AB * (a) 54,859 1,334,255 Getinge AB 83,400 1,014,208 Nobia AB 78,600 1,012,539 ---------- Total Cost ($2,543,312) 3,361,002 ---------- SWITZERLAND--4.9% Actelion NV 6,800 699,173 Geberit AG 2,080 1,620,692 Logitech International SA * 19,610 953,012 Micronas Semiconductor Holdings * 39,100 1,664,632 Rieter Holding AG 4,600 1,248,936 Saurer AG 22,040 1,203,888 Sika AG 2,000 1,156,719 Straumann Holding AG 4,600 979,195 Syngenta AG 8,600 822,074 Vontobel Holding AG 23,300 483,818 ---------- Total Cost ($8,375,203) 10,832,139 ---------- UNITED KINGDOM--20.0% Acambis PLC * 159,700 882,452 Aggregate Industries PLC 872,100 1,508,884 Alliance Unichem PLC 74,400 898,379 Balfour Beatty PLC 268,700 1,355,749 Barratt Developments PLC 78,300 802,906 BPB PLC 206,000 1,597,340 British Airways PLC * 129,700 487,578 Cairn Energy PLC * 35,500 932,573
The accompanying notes are an integral part of the financial statements. 18 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) ---------------------------------------------------------------------------------- UNITED KINGDOM (CONTINUED) Close Brothers Group PLC 49,000 $ 614,755 Collins Stewart Tullett 98,400 713,085 Computacenter PLC 90,500 553,361 Cookson Group PLC 1,516,400 824,179 Crest Nicholson 102,500 664,803 Enterprise Inns PLC 123,100 1,271,216 FirstGroup PLC 173,000 919,900 Friends Provident PLC 504,200 1,271,992 Galen Holdings PLC 93,600 1,300,641 George Wimpey PLC 112,300 817,885 Grainger Trust 34,600 1,150,266 Greene King PLC 42,500 801,541 Hiscox PLC 532,900 1,600,242 HMV Group PLC 246,800 1,020,569 Inchcape PLC 45,100 1,273,823 Intertek Group PLC 90,800 987,014 iSOFT Group PLC 138,906 981,457 Johnston Press PLC 92,300 930,579 Kelda Group PLC 78,100 757,699 Kensington Group PLC 85,700 621,982 Kidde PLC 533,100 1,192,784 Kier Group PLC 92,400 1,217,843 Mcbride PLC 519,500 1,390,591 McCarthy & Stone PLC 102,200 1,110,934 Next PLC 52,500 1,553,216 SIG PLC 130,800 1,161,155 Speedy Hire PLC 153,200 1,221,231 Taylor Nelson Sofres PLC 221,500 890,867 Travis Perkins PLC 44,000 1,144,705 Ultra Electronics Holdings 66,600 804,797 United Business Media PLC 150,500 1,272,645 Viridian Group PLC 108,700 1,244,609 Whitbread PLC 70,300 1,049,467 WS Atkins PLC 106,900 1,254,983 ----------- Total Cost ($37,488,981) 44,052,677 ----------- TOTAL EQUITIES (Cost $174,258,241) 206,688,591 -----------
The accompanying notes are an integral part of the financial statements. 19 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Rate Maturity Par Value (Note 1A) ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--3.0% U.S. GOVERNMENT--0.3% U.S. Treasury Bill ((+)) 1.640% 12/16/2004 $ 675,000 $ 672,677 INVESTMENT COMPANIES--2.7% Shares ---------- Dreyfus Institutional Preferred Plus Money Market Fund ++ 5,845,266 5,845,266 ----------- TOTAL SHORT TERM INVESTMENTS (Cost $6,517,943) 6,517,943 ----------- INVESTMENT OF CASH COLLATERAL--9.2% Dreyfus Cash Management Plus Money Market Fund ((+)(+)) (Cost $20,299,307) 20,299,307 20,299,307 ----------- TOTAL INVESTMENTS--106.4% (COST $201,075,491) 233,505,841 LIABILITIES IN EXCESS OF OTHER ASSETS--(6.4%) (14,137,871) ----------- NET ASSETS--100% $219,367,970 ============
NOTES TO SCHEDULE OF INVESTMENTS: (a) Security, or a portion of thereof, was on loan at 9/30/04. * Non-income producing security + Denotes all or part of security segregated as collateral. ++ Affiliated institutional money market fund. At September 30, 2004, the Portfolio held the following futures contracts:
Underlying Face Unrealized Contract Position Expiration Date Amount At Value Loss --------------------------------------------------------------------------------------------------------------------- MSCI Pan-Euro (347 contracts) Long 12/17/2004 $7,007,068 $(31,869) Topix Futures (21 contracts) Long 12/9/2004 2,137,902 (31,143) -------- $(63,012) ========
The accompanying notes are an integral part of the financial statements. 20 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investments in securities (including securities on loan, valued at $19,274,168) (Note 6): Unaffiliated issuers, at value (Note 1A) (cost $174,930,918) $207,361,268 Affiliated issuers, at value (Note 1A) (cost $26,144,573) (Note 1H) 26,144,573 Foreign currency, at value (identified cost, $5,278,543) 5,364,153 Receivable for investment securities sold 336,507 Interest and dividends receivable 537,726 Prepaid expenses 12,727 ------------ Total assets 239,756,954 LIABILITIES Liability for securities on loan (Note 6) $20,299,307 Payable for variation margin on open futures contracts (Note 5) 17,058 Accrued accounting and custody fees 36,899 Accrued trustees' fees and expenses 5,306 Accrued expenses and other liabilities 30,414 ----------- Total liabilities 20,388,984 ------------ NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $219,367,970 ============
The accompanying notes are an integral part of the financial statements. 21 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income (net of foreign withholding taxes of $329,947) $ 2,960,708 Interest income (including securities lending income of $177,450) 243,145 ----------- Total investment income 3,203,853 EXPENSES Investment advisory fee (Note 2) $1,416,138 Accounting and custody fees (Note 2) 210,328 Legal and audit services 33,950 Trustees' fees and expenses (Note 2) 24,169 Insurance expense 9,567 Miscellaneous 5,976 ---------- Total expenses 1,700,128 ----------- Net investment income 1,503,725 ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Investment security transactions 18,989,770 Futures contracts 52,749 Foreign currency transactions and forward foreign currency exchange contracts (162,883) ---------- Net realized gain 18,879,636 Change in unrealized appreciation (depreciation) Investment securities 15,276,111 Financial futures contracts 32,848 Foreign currency transactions and forward foreign currency exchange contracts 59,997 ---------- Net change in unrealized appreciation (depreciation) 15,368,956 ----------- Net realized and unrealized gain 34,248,592 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS $35,752,317 ===========
The accompanying notes are an integral part of the financial statements. 22 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the Period January 28, 2003 (Commencement For the of Operations) Year Ended to September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,503,725 $ 531,792 Net realized gains 18,879,636 2,795,189 Change in net unrealized appreciation 15,368,956 15,196,221 ------------ ------------ Net increase in net assets from operations 35,752,317 18,523,202 ------------ ------------ CAPITAL TRANSACTIONS Assets contributed by Standish International Small Cap Fund (including unrealized appreciation of $0 and $1,891,429) -- 39,701,792 Contributions 112,536,550 35,896,110 Withdrawals (18,465,788) (4,576,213) ------------ ------------ Net increase in net assets from capital transactions 94,070,762 71,021,689 ------------ ------------ TOTAL INCREASE IN NET ASSETS 129,823,079 89,544,891 NET ASSETS At beginning of period 89,544,891 -- ------------ ------------ At end of period $219,367,970 $ 89,544,891 ============ ============
The accompanying notes are an integral part of the financial statements. 23 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the Period January 28, 2003 For the (Commencement of Year Ended Operations) to September 30, 2004 September 30, 2003 ------------------ ------------------ TOTAL RETURN+ 33.42% 36.44%(1)++ RATIOS: Expenses (to average daily net assets)* 1.20% 1.46%(2) Net Investment Income (to average daily net assets)* 1.06% 1.29%(2) Portfolio Turnover 72% 46%(1) Net Assets, End of Period (000's omitted) $219,368 $89,545
----------- * For the period indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Portfolio for a portion of its operating expenses. If this voluntary action had not been taken, the ratios would have been: Ratios (to average daily net assets): Expenses N/A 1.49%(2) Net investment income N/A 1.26%(2)
+ Total return for the Portfolio has been calculated based on the total return for the investor Fund, assuming all distributions were reinvested, and adjusted for the difference in expenses as set out in the notes to the financial statements. ++ Total return for the Portfolio includes performance of The Boston Company International Small Cap Fund prior to its conversion to a master-feeder structure and contribution of its investments to the Portfolio. Total return would have been lower in the absence of expense waivers. (1) Not annualized. (2) Computed on an annualized basis. The accompanying notes are an integral part of the financial statements. 24 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was organized as a master trust fund under the laws of the State of New York on January 18, 1996 and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company International Small Cap Portfolio (the "Portfolio"), a separate diversified investment series of the Portfolio Trust, commenced operations on January 28, 2003. The objective of the Portfolio is to achieve long-term growth of capital. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of companies that are located in foreign countries represented in the Salomon Smith Barney Extended Market Ex-U.S. Index and, to a limited extent, emerging markets. At September 30, 2004, there were two funds, The Boston Company International Small Cap Fund and Dreyfus Premier International Small Cap Fund invested in the Portfolio. The value of the funds' investment in the Portfolio reflects the funds' proportionate interests in the net assets of the Portfolio. At September 30, 2004, The Boston Company International Small Cap Fund and the Dreyfus Premier International Small Cap Fund held approximately 96.6% and 3.4% interests in the Portfolio, respectively. The following is a summary of significant accounting policies followed by the Portfolio in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the Portolio's shares may change on days when shareholders are not able to buy or sell them. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect the events that occur after such close but before the close of the New York Stock Exchange. If market quotations are not readily available or do not accurately reflect fair value, or the value of a security has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market) , the Portfolio may value its assets by a method the Trustees believe accurately reflects the fair value. The Trustees have adopted fair value pricing procedures, which, among other things, require the Portfolio to fair value such secutities if there has been a movement in the U.S. market that exceeds a specified threshold. Although the threshold may be revised from time to time and the number of days on which fair value prices will be used will depend on market activity, it is possible that fair value prices for foreign securities will be used by each fund to a significant extent. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which approximates market value. If the Portfolio acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. The Portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Net realized gains and losses on foreign currency transactions represent gains and losses on disposition of foreign currencies and forward foreign currency exchange contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts usually received or paid. 25 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- D. INCOME TAXES The Portfolio is treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the source of income and diversification requirements applicable to regulated investment companies (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio allocates at least annually among its investors each investor's distributive share of the Portfolio's net investment income, net realized capital gains, and any other items of income, gain, loss deduction or credit. E. FOREIGN CURRENCY TRANSACTIONS Investment security valuations, other assets, and liabilities initially expressed in foreign currencies are converted into U.S. dollars based upon current currency exchange rates. Purchases and sales of foreign investment securities and income and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Section 988 of the Internal Revenue Code provides that gains or losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. For financial statement purposes, such amounts are included in net realized gains or losses. F. INVESTMENT RISK There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. G. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Portfolio may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Portfolio under these arrangements is unknown, as this would involve future claims that may be made against the Portfolio that have not yet occurred. However, based on experience, the Portfolio expects the risks of loss to be remote. H. AFFILIATED ISSUERS Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to TBCAM for overall investment advisory, administrative services, and general office facilities, is paid monthly at the annual rate of 1.00% of the Portfolio's average daily net assets. For the year ended September 30, 2004, the Portfolio paid $1,416,138 in investment advisory fees to TBCAM. The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide custody, fund administration and fund accounting services for the Portfolio. For these services the Portfolio pays Mellon Bank a fixed fee plus fees that are asset and transaction based, as well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio was charged $209,622 during the year ended September 30, 2004. 26 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Portfolio for serving as an officer or Trustee of the Trust. The Portfolio Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Portfolio Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Portfolio for the fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $3,062 Benjamin M. Friedman $3,062 John H. Hewitt $3,062 Caleb Loring, III $3,293 Patrick J. Sheppard 0 Richard S. Wood * 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations, for the year ended September 30, 2004 were $182,962,215 and $98,297,342, respectively. For the year ended September 30, 2004, the Portfolio did not purchase or sell any long-term U.S. government securities. (4) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The cost and unrealized appreciation (depreciation) in value of the investment securities owned at September 30, 2004, as computed on a federal income tax basis, were as follows: Aggregate Cost $201,075,491 ============ Gross unrealized appreciation $ 35,337,997 Gross unrealized depreciation (2,907,647) ------------ Net unrealized appreciation $ 32,430,350 ============
(5) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Portfolio Trust's registration statement. The Portfolio may trade the following financial instruments with off-balance sheet risk: 27 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Portfolio may use options to seek to hedge against risks of market exposure and changes in security prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tend to increase the Portfolio's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Portfolio's exposure to the underlying instrument, or hedge other Portfolio investments. Options, both held and written by the Portfolio, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Portfolio is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Portfolio did not enter into option transactions during the year ended September 30, 2004. FORWARD CURRENCY EXCHANGE CONTRACTS The Portfolio may enter into forward foreign currency and cross currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar and other foreign currencies. The forward foreign currency and cross currency exchange contracts are marked to market using the forward foreign currency rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the contract settlement date or upon the closing of the contract. Forward currency exchange contracts are used by the Portfolio primarily to protect the value of the Portfolio's foreign securities from adverse currency movements. Unrealized appreciation and depreciation of forward currency exchange contracts is included in the Statement of Assets and Liabilities. At September 30, 2004, the Portfolio did not hold any forward currency exchange contracts. FUTURES CONTRACTS The Portfolio may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to margin requirements the Portfolio deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Portfolio. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Portfolio's exposure to the underlying instrument, while selling futures tends to decrease the Portfolio's exposure to the underlying instrument or hedge other investments. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparty does not perform under the contract's terms. The Portfolio enters into financial futures transactions primarily to seek to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.At September 30, 2004, the Portfolio held the following outstanding financial futures contracts: At September 30, 2004, the Portfolio held futures contracts. See Schedule of Investments for further details. 28 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (6) SECURITY LENDING: The Portfolio entered into an agreement with Mellon Bank to perform certain securities lending activities and to act as the Portfolio's lending agent. Pursuant to this agreement the Mellon Bank receives an agreed upon percentage of the net lending revenues. This compensation is a standard form of compensation received by securities lending agents with respect to non-affiliated entities. The Portfolio may lend its securities to financial institutions which the Portfolio deems to be creditworthy. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The market value of securities loaned is determined daily and any additional required collateral is allocated to the Portfolio on the next business day. For the duration of a loan, the Portfolio receives the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation from the investment of the collateral. As with other extensions of credit, the Portfolio bears the risk of delay in recovery or even loss of rights in its securities on loan should the borrower of the securities fail financially or default on its obligations to the Portfolio. In the event of borrower default, the Portfolio generally has the right to use the collateral to offset losses incurred. The Portfolio may incur a loss in the event it was delayed or prevented from exercising its rights to dispose of the collateral. The Portfolio also bears the risk in the event that the interest and/or dividends received on invested collateral is not sufficient to meet the Portfolio's obligations due on the loans. The Portfolio loaned securities during the year ended September 30, 2004 resulting in $177,450 worth of security lending income. At September 30, 2004, the Portfolio had securities valued at $19,274,168 on loan. (7) LINE OF CREDIT: The Portfolio, and other subtrusts in the Portfolio Trust and funds in the Mellon Institutional Funds Investment Trust (the "Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% on the committed amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the facility fee was $1,949. During the year ended September 30, 2004, the Portfolio had no borrowings under the credit facility. 29 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Portfolio and Investors of The Boston Company International Small Cap Portfolio: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company International Small Cap Portfolio (the "Portfolio") at September 30, 2004 and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 30 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
31
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED) Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
31 THIS PAGE INTENTIONALLY LEFT BLANK 33 [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0939AR0904 34 [LOGO] Mellon ------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY SMALL CAP GROWTH FUND (INSTITUTIONAL AND SERVICE CLASS SHARES) -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. November 29, 2004 [LOGO] Mellon ------------------- Mellon Institutional Funds Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND-INSTITUTIONAL AND SERVICE CLASSES MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 The level of uncertainty in the equity markets has diverted investor attention from investment fundamentals (e.g., earnings and earnings growth) to investment behavior that is more emotionally driven. The current unsettled climate is fostered by terrorist threats, the election puzzle, oil price uncertainty, inflation fears and interest rate concerns. The economy continues to perform relatively well and concerns about slowing economic growth and the resultant slowing corporate profit growth seem to be somewhat overblown. For the twelve months ended September 30, 2004 The Boston Company Small Cap Growth Fund-Institutional Class had a total return of 17.09% versus 11.92% for the Russell 2000 Growth Index. The Boston Company Small Cap Growth Fund-Service Class returned 16.76% as compared to the same benchmark. The Funds have had strong relative performance in recent months as our holdings have been somewhat more risk averse but, at the same time, they have participated fully in the recent positive move. Within the markets, smaller stocks again performed better than large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up 13.87%), and value has outpaced growth, especially in smaller stocks where the Russell 2000 Value Index was up more than twice that of the Russell 2000 Growth index. Our risk averse approach continues to be a rewarding strategy in this very volatile market environment. We are finding many companies we believe are truly undervalued, not just cheap for an obvious reason. These potentially rewarding opportunities seem to be a by-product of the prevailing market caution, bordering on pessimism. The US economy slowed a bit in the summer as higher energy prices and interest rates, along with the uncertainty surrounding the election and its potential market impact, reduced consumer and investor confidence and put a modest damper on the stock market. We continue to view the economic landscape positively and expect corporate capital spending to remain relatively strong. Our best performing sectors relative to the index have been health care, industrials and consumer discretionary. We expect strong earnings in these sectors and continue to emphasize them in our portfolio allocation decisions. Our energy holdings have been reduced at the margin as the stocks have done well. We continue to carry a market weight in this sector because of our long-term positive outlook for energy prices. Our emphasis here continues to be on energy services and exploration companies. We continue to deemphasize financials as most of these stocks are fully valued in our view. Business momentum is neutral at best and rising interest rates will further narrow spreads and put more pressure on earnings in coming quarters. Stocks in the industrials sector are attractive because of the positive outlook for corporate capital spending. We look for several more quarters of relatively strong earnings from this group and remain significantly overweight here. Our general outlook remains positive. We continue to find many companies in our research universe we believe are undervalued with strong fundamentals and good earnings prospects. With a good chance for continued economic growth and modest inflation, capital spending should be robust for several quarters. The major concerns were highlighted earlier but we believe our fundamental approach, emphasizing strong business momentum and undervaluation, will yield good returns even in this more volatile equity environment. /s/ B. Randall Watts /s/ Todd Wakefield -------------------- ------------------ B. Randall Watts Todd Wakefield 2 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND-INSTITUTIONAL CLASS COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY SMALL CAP GROWTH FUND INSTITUTIONAL CLASS AND THE RUSSELL 2000 GROWTH INDEX -------------------------------------------------------------------------------- [DATA WAS REPRESENTED BY A LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000 Growth Fund Growth Index ------------- ------------ Beginning $100,000 $100,000 1997 Quarter1 $91,266 $89,512 Quarter2 $116,634 $105,225 Quarter3 $142,935 $123,029 Quarter4 $130,864 $112,946 1998 Quarter1 $151,900 $126,366 Quarter2 $144,500 $119,109 Quarter3 $117,440 $92,477 Quarter4 $149,574 $114,336 1999 Quarter1 $175,419 $112,415 Quarter2 $199,996 $128,991 Quarter3 $202,163 $122,649 Quarter4 $340,533 $163,606 2000 Quarter1 $398,210 $178,790 Quarter2 $369,884 $165,610 Quarter3 $346,916 $159,031 Quarter4 $270,173 $126,909 2001 Quarter1 $216,630 $107,613 Quarter2 $251,397 $126,956 Quarter3 $189,567 $91,307 Quarter4 $222,198 $115,197 2002 Quarter1 $220,061 $112,939 Quarter2 $193,582 $95,212 Quarter3 $160,498 $74,724 Quarter4 $166,001 $80,336 2003 Quarter1 $159,203 $77,221 Quarter2 $191,054 $95,867 Quarter3 $209,881 $105,902 Quarter4 $241,078 $119,333 2004 Quarter1 $258,576 $125,994 Quarter2 $256,815 $126,111 Quarter3 $245,686 $118,531
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5 Year 12/23/1996 -------------------------------------------------------------------------------- 17.09% 9.03% 3.98% 12.43%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND-SERVICE CLASS COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY SMALL CAP GROWTH FUND SERVICE CLASS AND THE RUSSELL 2000 GROWTH INDEX -------------------------------------------------------------------------------- [DATA WAS REPRESENTED BY A LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000 Growth Service Fund Growth Index ------------------- ------------ Beginning $100,000 $100,000 2000 Quarter3 $93,772 $96,027 Quarter4 $72,985 $76,631 2001 Quarter1 $58,489 $64,980 Quarter2 $67,820 $76,660 Quarter3 $51,119 $55,134 Quarter4 $59,872 $69,559 2002 Quarter1 $59,242 $68,196 Quarter2 $52,082 $57,492 Quarter3 $43,154 $45,120 Quarter4 $44,607 $48,509 2003 Quarter1 $42,751 $46,628 Quarter2 $51,290 $57,887 Quarter3 $56,302 $63,947 Quarter4 $64,646 $72,057 2004 Quarter1 $69,284 $76,079 Quarter2 $68,778 $76,150 Quarter3 $65,732 $71,572
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 5/05/2000 -------------------------------------------------------------------------------- 16.76% 8.74% (7.74)%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to Institutional Shares April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $ 950.20 $5.75 Hypothetical (5% return per year before expenses) $1,000.00 $1,019.10 $5.96
------------ + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.18%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to Service Shares April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $ 948.70 $6.97 Hypothetical (5% return per year before expenses) $1,000.00 $1,017.85 $7.21
------------ + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.43%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). THE EXAMPLE REFLECTS THE COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS ALL ITS ASSETS. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in The Boston Company Small Cap Growth Portfolio ("Portfolio"), at value (Note 1A) $ 32,769,399 Receivable for Fund shares sold 3,609 Prepaid expenses 10,219 ------------ Total assets 32,783,227 LIABILITIES Accrued transfer agent $ 8,794 Accrued service fees-Service Class (Note 3) 8,952 Accrued trustees' fees and expenses 2,055 Accrued expenses and other liabilities 29,868 --------- Total liabilities 49,669 ------------ NET ASSETS $ 32,733,558 ============ NET ASSETS CONSIST OF: Paid-in capital $ 49,414,876 Accumulated net realized loss (20,492,300) Net unrealized appreciation 3,810,982 ------------ TOTAL NET ASSETS $ 32,733,558 ============ NET ASSETS ATTRIBUTABLE TO: Institutional Class $ 18,273,800 ============ Service Class $ 14,459,758 ============ SHARES OF BENEFICIAL INTEREST OUTSTANDING Institutional Class 481,542 ============ Service Class 385,046 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) Institutional Class $ 37.95 ============ Service Class $ 37.55 ============
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income allocated from Portfolio (net of foreign withholding taxes of $106) $ 86,505 Interest income allocated from Portfolio (including security lending income of $5,911) 21,033 Expenses allocated from Portfolio (396,489) ---------- Net investment loss allocated from Portfolio (288,951) EXPENSES Professional fees $ 26,310 Registration fees 32,078 Service Fees--Service Class (Note 3) 33,217 Transfer agent fees--Institutional Class (Note 2) 6,564 Transfer agent fees--Service Class (Note 2) 6,285 Trustees' fees and expenses (Note 2) 2,001 Insurance expense 761 Shareholder reports 12,400 Miscellaneous 6,576 --------- Total expenses 126,192 DEDUCT: Reimbursement of Fund operating expenses--Institutional Class (Note 2) (46,892) Reimbursement of Fund operating expenses--Service Class (Note 2) (34,772) --------- Total expense deductions (81,664) -------- Net expenses 44,528 ---------- Net investment loss (333,479) ---------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) allocated from Portfolio on: Investment security transactions 5,039,347 Financial futures contracts (51,871) --------- Net realized gain 4,987,476 Change in unrealized appreciation (depreciation) allocated from Portfolio 378,758 ---------- Net realized and unrealized gain (loss) 5,366,234 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $5,032,755 ==========
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment loss $ (333,479) $ (127,333) Net realized gains allocated from Portfolio 4,987,476 2,646,711 Change in net unrealized appreciation allocated from Portfolio 378,758 4,670,966 ----------- ------------ Net increase in net assets from operations 5,032,755 7,190,344 ----------- ------------ FUND SHARE TRANSACTIONS (NOTE 5) Net proceeds from sale of shares Institutional Class 1,679,964 9,023,694 Service Class 7,576,844 2,573,894 Redemption fees credited to capital Institutional Class 51 -- Cost of shares redeemed Institutional Class (8,131,829) (11,987,346) Service Class (3,512,445) (1,209,938) ----------- ------------ Net decrease in net assets from Fund share transactions (2,387,415) (1,599,696) ----------- ------------ TOTAL INCREASE IN NET ASSETS 2,645,340 5,590,648 NET ASSETS At beginning of year 30,088,218 24,497,570 ----------- ------------ At end of year (including undistributed net investment income of $0 and $28) $32,733,558 $ 30,088,218 =========== ============
The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST IHE BOSTON COMPANY SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS--INSTITUTIONAL CLASS --------------------------------------------------------------------------------
Year Ended September 30, ------------------------------------------------------------ 2004 2003 2002 2001 2000 ------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF YEAR $ 32.41 $ 24.78 $ 29.28 $ 60.87 $ 38.28 ------- ------- ------- ------- ------- FROM OPERATIONS: Net investment income* (1) (0.33) (0.11) (0.16) (0.19) (0.43) Net realized and unrealized gains (loss) on investments 5.87(3) 7.74(3) (4.34)(3) (25.66) 26.82 ------- ------- ------- ------- ------- Total from operations 5.54 7.63 (4.50) (25.85) 26.39 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS TO SHAREHOLDERS: From net realized gains on investments -- -- -- (5.74) (3.80) ------- ------- ------- ------- ------- Total distributions to shareholders -- -- -- (5.74) (3.80) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF YEAR $ 37.95 $ 32.41 $ 24.78 $ 29.28 $ 60.87 ======= ======= ======= ======= ======= TOTAL RETURN(+) 17.09% 30.79% (15.37)% (45.36)% 71.60% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets)(2) 1.18% 1.00% 1.00% 1.00% 0.98% Net Investment Income (to average daily net assets) (0.87)% (0.42)% (0.52)% (0.48)% (0.70)% Net Assets, End of Year (000's omitted) $18,274 $21,168 $18,780 $31,365 $82,840
------------ * For the years indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Net investment income per share (1) $ (0.40) $ (0.30) $ (0.25) $ (0.28) N/A Ratios (to average daily net assets): Expenses(2) 1.37% 1.66% 1.29% 1.20% N/A Net investment income (1.06)% (1.08)% (0.81)% (0.68)% N/A
(1) Calculated based on average shares outstanding. (2) Includes the Fund's share of the The Boston Company Small Cap Growth Portfolio's allocated expenses. (3) Amount includes securities litigation proceeds received by the Fund of $0.06 for the year ended September 30, 2004, less than $0.01 for the year ended September 30, 2003 and $0.01 for the year ended September 30, 2002. (+) Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS--SERVICE CLASS --------------------------------------------------------------------------------
For the Period May 8, 2000 Year Ended September 30, (Commencement ----------------------------------------------- of Operations) to 2004 2003 2002 2001 September 30, 2000 ------- ------ ------- ------- ------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 32.16 $24.65 $ 29.19 $ 60.83 $59.04 ------- ------ ------- ------- ------ FROM INVESTMENT OPERATIONS: Net investment income* (1) (0.41) (0.19) (0.23) (0.29) (0.21) Net realized and unrealized gains (loss) on investments 5.80(3) 7.70(3) (4.31)(3) (25.63) 2.00 ------- ------ ------- ------- ------ Total from investment operations 5.39 7.51 (4.54) (25.92) 1.79 ------- ------ ------- ------- ------ LESS DISTRIBUTIONS TO SHAREHOLDERS: From net realized gains on investments -- -- -- (5.72) -- ------- ------ ------- ------- ------ Total distributions to shareholders -- -- -- (5.72) -- ------- ------ ------- ------- ------ NET ASSET VALUE, END OF YEAR $ 37.55 $32.16 $ 24.65 $ 29.19 $60.83 ======= ====== ======= ======= ====== TOTAL RETURN+++ 16.76% 30.47% (15.55)% (45.49)% 3.03%++ RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets) * (2) 1.43% 1.25% 1.25% 1.25% 1.23%+ Net Investment Income (to average daily net assets) (1.12)% (0.68)% (0.74)% (0.75)% (0.84)%+ Net Assets, End of Year (000's omitted) $14,460 $8,921 $ 5,718 $ 6,156 $8,031
----------- * For the years indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Net investment income per share(1) $ (0.51) $ (0.40) $ (0.35) $ (0.41) $(0.24) Ratios (to average daily net assets): Expenses(2) 1.70% 2.00% 1.66% 1.55% 1.36%(+) Net investment income (1.38)% (1.43)% (1.15)% (1.05)% (0.97)%(+)
(1) Calculated based on average shares outstanding. (2) Includes the Fund's share of the The Boston Company Small Cap Growth Portfolio's allocated expenses. (3) Amount includes securities litigation proceeds received by the Fund of $0.06 for the year ended September 30, 2004, less than $0.01 for the year ended September 30, 2003 and $0.01 for the year ended September 30, 2002. + Computed on an annualized basis. ++ Not annualized. +++ Total return would have been lower in the absence of expense waivers The accompanying notes are an integral part of the financial statements. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Small Cap Growth Fund (the "Fund") is a separate diversified investment series of the Trust. The objective of the Fund is to achieve long-term growth of capital. The Fund invests all of its investable assets in an interest in The Boston Company Small Cap Growth Portfolio (the "Portfolio"), a subtrust of Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which is organized as a New York trust, and has the same investment objective as the Fund. The Portfolio seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets in equity securities of small cap U.S. companies. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. As of September 30, 2004 the Fund owned approximately 100% of the Portfolio assets. The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund currently offers two classes of shares: Institutional Class and Service Class. Expenses of the Fund are borne pro-rata by the holders of each class of shares, except for transfer agent fees and an account service fee of 0.25% of the average daily net assets of the Service Class of shares. Each class votes separately as a class only with respect to its own distribution plan (Service Class only) or other matters that relate only to that class. Shares of each class would receive their pro-rata share of the net assets of the Fund (after satisfaction of any class-specific expenses) if the Fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. Shares of the Service Class may be purchased by entities ("Account Administrators") that provide omnibus accounting services for groups of individuals who beneficially own Service Class shares ("Omnibus Accounts"). Omnibus Accounts include pension and retirement plans (such as 401(k) plans, 457 plans and 403(b) plans), and programs through which personal and or account maintenance services are provided to groups of individuals whether or not such individuals invest on a tax-deferred basis. Individual investors may only purchase Service Class shares through their Omnibus Account Administrators. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS The Fund records its investment in the Portfolio at value. The method by which the Portfolio values its securities is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. SECURITIES TRANSACTIONS AND INCOME Investment transactions are recorded as of the trade date. The Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with accounting principles generally accepted in the United States of America. All realized and unrealized gains and losses of the Portfolio are allocated pro rata among the investors in the Portfolio. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on ex-dividend date. The Fund's distributions from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. In determining the amounts of its distributions, the Fund will take into account its share of the income, gains or losses, expenses, and any other tax items of the Portfolio. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless a shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for losses deferred due to wash sales, capital loss carryovers and realized and unrealized gains or losses on futures. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. The calculation of net investment income per share in the financial highlights table excludes these reclassifications. 11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- D. ALLOCATION OF OPERATING ACTIVITY The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Investment income, common expenses and realized and unrealized gains and losses are allocated among the share classes of the Fund based on the relative net assets of each class. Transfer agent fees, which are directly attributable to a class of shares, are charged to that class' operations. Service fees, which are directly attributable to the Service Class shares, are charged to the Service Class operations. E. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The Fund does not directly pay any investment advisory fees, but indirectly bears its pro rata share of the compensation paid by the Portfolio to The Boston Company Asset Management, LLC ("TBCAM") for such services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. TBCAM voluntarily agreed to limit the Institutional Class operating expenses (excluding brokerage commission, taxes and extraordinary expense) to 1.20% of the Institutional Class' average daily net assets and the Service Class operating expenses (excluding brokerage commissions, taxes and extraordinary expenses), so that the Service Class' annual operating expenses do not exceed the total operating expenses of the Institutional Class (net of any expense limitation) for the comparable period plus 0.25% (the maximum Service Fee). Pursuant to this agreement, for the year ended September 30, 2004, TBCAM reimbursed the Institutional Class $46,892 and the Service Class $34,772 for class-specific and Fund operating expenses. Prior to November 1, 2003, the voluntary expense limitation was 1.00% for Institutional Class shares and 1.25% for Service Class shares. This agreement is voluntary and temporary and may be discontinued or revised by TBCAM at any time. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $7,000 during the year ended September 30, 2004. The Fund imposes a redemption fee of 2% of the net asset value of the shares, with certain exceptions, which are redeemed or exchanged less than 90 days from the day of their purchase. The redemption fee is paid directly to the Fund, and is designed to offset brokerage commissions, market impact, and other costs associated with short-term trading. The fee does not apply to shares that were acquired through reinvestment of distributions. For the year ended September 30, 2004, the Fund received $51 in redemption fees. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 30, 2004. The fund also bears its pro rata share of the renumeration paid to the Trustees by the Portfolio. See Note 2 of the Portfolio's notes to financial statements which are included elsewhere in this report.
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $500 Benjamin M. Friedman $500 John H. Hewitt $500 Caleb Loring, III $500 Patrick J. Sheppard 0 Richard S. Wood* 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (3) SERVICE FEE: Pursuant to a service plan, the Service Class pays a service fee at an aggregate annual rate of up to 0.25% of the class' average daily net assets. The service fee is payable for the benefit of participants in the omnibus accounts that are shareholders in the Service Class and is intended to be compensation to Account Administrators for providing personal services and/or account maintenance services to participants in omnibus accounts that are the beneficial owners of Service Class shares. (4) INVESTMENT TRANSACTIONS: Increases and decreases in the Fund's investment in the Portfolio for the year ended September 30, 2004 aggregated $9,465,370 and $11,682,896 respectively. (5) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended Institutional Class: September 30, 2004 September 30, 2003 ------------------- ------------------- Shares sold 43,938 337,618 Shares redeemed (215,460) (442,332) -------- -------- Net decrease (171,522) (104,714) ======== ======== For the For the Year Ended Year Ended Service Class: September 30, 2004 September 30, 2003 ------------------- ------------------- Shares sold 202,065 90,258 Shares redeemed (94,424) (44,827) -------- --------- Net increase 107,641 45,431 ======== =========
At September 30, 2004, one shareholder of record held approximately 12% of the total outstanding shares of the Institutional Class and one shareholder held of record approximately 100% of the total outstanding shares of the Service Class. Investment activity of these shareholders could have a material impact on the Fund. (6) FEDERAL TAXES As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Capital loss carry-forward (20,461,964) ----------- At September 30, 2004, the Fund, for federal income tax purposes, has capital loss carryovers which will reduce the Fund's taxable income arising from net realized gain on investments, if any, to the extent permitted by the Internal Revenue Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Such capital loss carryovers are as follows:
CAPITAL LOSS CARRY OVER EXPIRATION DATE ------------- --------------- $18,165,638 9/30/2010 $2,296,326 9/30/2011
See corresponding master portfolio for tax basis unrealized appreciation/(depreciation) information. 13 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP GROWTH FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company Small Cap Growth Fund: In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Small Cap Growth Fund (the "Fund") at September 30, 2004 and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investment in the Portfolio at September 30, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 14 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
PERCENTAGE OF TOP TEN HOLDINGS(*) SECTOR NET ASSETS ---------------------------------------------------------------------------------------------------------- Cooper Cos Health Care 2.6 MSC Industrial Direct Co., Inc. Industrials 2.4 FMC Technologies Energy 2.1 Lions Gate Entertainment Corp. Consumer Discretionary 2.0 Covance Inc. Health Care 2.0 Fisher Scientific International Health Care 2.0 UTI Worldwide Industrials 1.9 Matria Healthcare Health Care 1.6 Laureate Education Industrials 1.6 Respironics Health Care 1.6 ----- 19.8
* Excluding short-term investments and investment of cash collateral.
Percentage of Economic Sector Allocation Net Assets -------------------------------------------- Consumer Discretionary 13.2 Consumer Staples 5.5 Energy 7.2 Financials 7.6 Health Care 24.8 Industrials 14.0 Materials 2.0 Technology 19.9 Utilities 1.0 Short-term and Net Other Assets 4.8 ----- 100.0
The Portfolio is actively managed. Current holdings may be different than those presented above. 15 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- EQUITIES--95.2% CONSUMER DISCRETIONARY--13.2% A.C. Moore Arts & Crafts, Inc.* 10,010 $ 247,547 California Pizza Kitchen, Inc.* 22,000 480,700 Christopher & Banks Corp. 9,900 158,499 Citadel Broadcasting Co.* 9,900 126,918 Entravision Communications Corp.* 27,400 208,514 Fairmount Hotels & Resorts 8,610 235,225 Lions Gate Entertainment Corp.* 74,700 649,890 Nautilus Group, Inc. (a) 14,710 332,299 Nu Skin Enterprises, Inc. 7,900 185,729 Pacific Sunware of California* 15,100 317,855 Panera Bread Co.* (a) 11,100 416,694 Peet's Coffee & Tea, Inc.* 10,800 252,612 Petco Animal Supplies, Inc.* 7,850 256,381 Quicksilver, Inc.* 5,600 142,352 Rare Hospitality International, Inc.* 6,600 175,890 Speedway Motorsports, Inc. 4,700 156,651 ----------- 4,343,756 ----------- CONSUMER STAPLES--5.5% Arden Group, Inc. 1,762 149,770 Church & Dwight Co., Inc. 10,975 307,959 Delta & Pine Land Co. 4,000 107,000 Hain Celestial Group, Inc.* 20,900 369,512 Jarden Corp.* 7,100 259,079 The Yankee Candle Co.* 13,390 387,774 United Natural Foods, Inc.* 7,900 210,140 ----------- 1,791,234 ----------- ENERGY--7.2% Arch Coal, Inc. (a) 7,200 255,528 Consol Energy, Inc. 9,200 320,988 Dril-Quip, Inc.* 4,500 100,350 FMC Technologies, Inc.* 20,690 691,046 Oil States International, Inc.* 18,200 340,340 Patterson-UTI Energy, Inc. 13,700 261,259 Penn Virginia Corp. 4,840 191,616 Vintage Petroleum, Inc. 9,140 183,440 ----------- 2,344,567 ----------- FINANCIAL--7.6% Affiliated Managers Group* 3,350 179,359 Bristol West Holdings, Inc. 6,800 116,552 Cathay General Bancorp 4,400 163,636 Center Financial Corp. 4,724 89,850
The accompanying notes are an integral part of the financial statements. 16 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- FINANCIAL (CONTINUED) City National Corp., Class A 2,800 $ 181,860 Commercial Capital Bancorp, Inc. 8,200 186,058 Cullen/Frost Bankers, Inc. 4,900 227,703 First Community Bancorp, Inc., Class A 4,000 164,000 First Midwest Bancorp, Inc. 6,300 217,728 Investors Financial Services Corp. 4,500 203,085 Mercantile Bank Corp. 4,835 168,451 R&G Financial Corp. 4,300 166,195 Southwest Bancorporation of Texas 9,200 185,288 Triad Guaranty, Inc.* 4,300 238,564 ----------- 2,488,329 ----------- HEALTH CARE--24.8% Able Laboratories, Inc.* 10,300 197,348 American Medical Systems Holdings, Inc.* 6,500 235,755 Bone Care International, Inc.* 5,400 131,220 Community Health Systems, Inc.* 10,000 266,800 Connetics Corp.* 7,300 197,246 Cooper Cos, Inc. 12,500 856,875 Covance, Inc.* 16,200 647,514 Coventry Health Care, Inc.* 4,350 232,160 Discovery Laboratories, Inc.* 26,300 176,210 Fisher Scientific International* 11,000 641,630 Flamel Technologies SA ADR* (a) 8,500 124,695 Inveresk Research Group, Inc.* 9,600 354,144 Inverness Medical Innovation* (a) 15,900 330,720 Matria Healthcare, Inc.* 19,000 537,890 Medicines Co.* (a) 8,250 199,155 Merit Medical Systems, Inc.* 14,900 225,139 Nabi Biopharmaceuticals* 11,900 159,222 PSS World Medical, Inc.* 29,200 293,168 Resmed, Inc.* (a) 4,800 228,528 Respironics, Inc.* 9,900 529,056 Select Medical Corp. 13,000 174,590 Steris Corp.* 14,500 318,130 Sybron Dental Specialties, Inc.* 5,800 172,202 Telik, Inc.* 7,600 169,480 Triad Hospitals* 5,550 191,142 VCA Antech, Inc.* 12,000 247,560 VISX, Inc.* 6,800 140,080 Zoll Medical Corp.* 4,900 163,611 ----------- 8,141,270 -----------
The accompanying notes are an integral part of the financial statements. 17 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- INDUSTRIAL--14.0% Applied Industrial Technologies 5,230 $ 186,920 Carlisle Companies, Inc. 2,700 172,611 Educate, Inc.* (a) 11,000 129,690 Forward Air Corp.* 6,650 266,133 Hudson Highland Group* 5,490 160,253 Iron Mountain, Inc.* 6,875 232,719 Laureate Education, Inc.* 14,400 535,968 LECG Corp.* 18,600 314,526 MSC Industrial Direct Co., Inc. 23,200 790,656 Navigant Consulting, Inc.* 16,500 362,340 Old Dominion Freight Line* 6,000 172,860 SCS Transportation, Inc.* 8,600 162,884 The Princeton Review, Inc.* 17,286 129,645 UTI Worldwide, Inc. 10,600 623,386 Waste Connections* (a) 10,850 343,728 ----------- 4,584,319 ----------- MATERIALS--2.0% Agrium, Inc. 22,500 399,600 Glamis Gold Ltd.* 11,200 209,776 Spartech Corp. 1,700 42,670 ----------- 652,046 ----------- TECHNOLOGY--19.9% Anteon International Corp.* 10,900 399,485 Avocent Corp.* 8,100 210,843 BearingPoint, Inc.* 28,300 253,002 Borland Software Corp.* 19,200 160,320 Cymer, Inc.* 11,400 326,724 Forrester Research, Inc.* 18,100 275,844 Formfactor, Inc.* 14,300 276,991 Foundry Networks, Inc.* 12,250 116,253 Ingram Micro, Inc., Class A* 26,200 421,820 Internet Security Systems* 21,400 363,800 Helix Technology Corp. 11,600 157,702 Lam Research Corp.* (a) 10,600 231,928 Macromedia, Inc.* 15,900 319,272 ManTech International Corp., Class A* 9,400 175,968 McAfee, Inc.* 25,800 518,580 Paxar Corp.* 7,270 164,884 Polycom, Inc.* 11,800 233,876 Power Integrations, Inc.* 20,500 418,815
The accompanying notes are an integral part of the financial statements. 18 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) ----------------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY (CONTINUED) Progress Software Corp.* 21,700 $ 431,830 Scientific-Atlanta, Inc. 5,250 136,080 Verisign, Inc.* 21,300 423,444 Zoran Corp.* 32,000 503,040 ----------- 6,520,501 ----------- UTILITIES--1.0% AGL Resources, Inc. 10,310 317,238 ----------- TOTAL EQUITIES (Cost $27,374,019) 31,183,260 ----------- SHORT-TERM INVESTMENTS--4.6% Rate Maturity Par Value ----- -------- --------- U.S. GOVERNMENT--0.6% U.S. Treasury Bill + 1.640% 12/16/2004 190,000 189,346 INVESTMENT COMPANIES--4.0% Shares --------- Dreyfus Institutional Preferred Plus ++ 1,318,156 1,318,156 ----------- Total Short Term Investments (Cost $1,507,502) 1,507,502 ----------- INVESTMENT OF CASH COLLATERAL--5.3% Dreyfus Cash Management Plus Money Market Fund (+)(+) (Cost $1,760,672) 1,760,672 1,760,672 ----------- TOTAL INVESTMENTS--105.1% (COST $30,642,193) 34,451,434 LIABILITIES IN EXCESS OF OTHER ASSETS--(5.1%) (1,682,035) ----------- NET ASSETS--100% $32,769,399 ===========
NOTES TO SCHEDULE OF INVESTMENTS: ADR--American Depository Receipt (a) Security, or a portion of thereof, was on loan at 9/30/04. * Non-income producing security. + Denotes all or part of security segregated as collateral. ++ Affiliated institutional money market fund. At September 30, 2004 the Fund held the following futures contracts:
Underlying Face Unrealized Contract Position Expiration Date Amount At Value Gain ------------------------------------------------------------------------------------------------------------------------------ Russell 2000 Index (2 Contracts) Long 12/16/2004 $574,000 $1,741
The accompanying notes are an integral part of the financial statements. 19 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in securities (including securities on loan, valued at $1,704,668) (Note 6) Unaffiliated issuers, at value (cost $27,563,365) $31,372,606 Affiliated issuers (Note 1A and E) (identified cost $3,078,828) 3,078,828 Receivable for investments sold 397,957 Interest and dividends receivable 5,723 Receivable for variation margin on open futures contracts (Note 5) 2,500 Prepaid expenses 6,040 ----------- Total assets 34,863,654 LIABILITIES Liability for securities on loan (Note 6) $1,760,672 Payable for investments purchased 300,084 Accrued accounting and custody fees 14,789 Accrued trustees' fees and expenses 945 Accrued expenses and other liabilities 17,765 ---------- Total liabilities 2,094,255 ----------- NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $32,769,399 ===========
The accompanying notes are an integral part of the financial statements. 20 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income (net of foreign withholding taxes of $106) $ 86,505 Interest income (including securities lending income of $5,911) 21,033 ---------- Total investment Income 107,538 EXPENSES Investment advisory fee (Note 2) $ 276,922 Accounting and custody fees (Note 2) 88,095 Legal and audit services 25,741 Trustees' fees and expenses (Note 2) 6,524 Insurance expense 6,846 Miscellaneous 1,832 --------- Total expenses 405,960 DEDUCT: Waiver of investment advisory fee (Note 2) (9,471) --------- Net expenses 396,489 ---------- Net investment loss (288,951) ---------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Investment security transactions 5,039,347 Futures contracts (51,871) ---------- Net realized gain (loss) 4,987,476 Change in unrealized appreciation (depreciation) Investment security transactions 321,334 Futures contracts 57,321 ---------- Net unrealized gain (loss) 378,655 ---------- Net realized and unrealized gain (loss) 5,366,131 ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $5,077,180 ==========
The accompanying notes are an integral part of the financial statements. 21 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment loss $ (288,951) $ (110,593) Net realized gains 4,987,476 2,646,730 Change in net unrealized appreciation 378,655 4,670,997 ------------- ------------- Net increase in net assets from operations 5,077,180 7,207,134 ------------- ------------- CAPITAL TRANSACTIONS Contributions 9,465,370 11,400,746 Withdrawals (11,682,896) (13,197,733) ------------- ------------- Net increase (decrease) in net assets from capital transactions (2,217,526) (1,796,987) ------------- ------------- TOTAL INCREASE IN NET ASSETS 2,859,654 5,410,147 NET ASSETS At beginning of year 29,909,745 24,499,598 ------------- ------------- At end of year $ 32,769,399 $ 29,909,745 ============= =============
The accompanying notes are an integral part of the financial statements. 22 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended September 30, ----------------------------------------------------------- 2004 2003 2002 2001 2000 ------- ------- ------- ------- ------- TOTAL RETURN(+) 17.12%++ 30.79%++ (15.37)%++ (45.36)%++ 71.67% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets) 1.15% 1.00% 1.00% 1.00% 0.91% Net Investment Income (to average daily net assets) (0.83)% (0.42)% (0.51)% (0.49)% (0.63)% Portfolio Turnover 153% 261% 239% 191% 305% Net Assets, End of Year (000's omitted) $32,769 $29,910 $24,500 $37,590 $91,114
------------ * For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been:
Ratios (to average daily net assets): Expenses 1.18% 1.28% 1.18% 1.08% N/A Net investment income (0.86)% (0.70)% (0.69)% (0.57)% N/A
+ Total return for the Portfolio has been calculated based on the total return for the investor Fund, assuming all distributions were reinvested, and adjusted for the difference in expenses as set out in the notes to the financial statements. ++ Total return would have been lower in the absence of expense waivers. The accompanying notes are an integral part of the financial statements. 23 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was organized as a master trust fund under the laws of the State of New York on January 18, 1996 and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Small Cap Growth Portfolio (the "Portfolio") is a separate diversified investment series of the Portfolio Trust. The objective of the Portfolio is to achieve long-term growth of capital. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of its net assets in equity securities of small cap U.S. companies. At September 30, 2004, there was one Fund, The Boston Company Small Cap Growth Fund (the "Fund") invested in the Portfolio. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. The Fund's proportionate interest at September 30, 2004 was approximately 100%. The following is a summary of significant accounting policies followed by the Portfolio in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Securities (including illiquid securities) for which quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Trustees. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which approximates market value. If the Portfolio acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. Interest income is determined on the basis of interest accrued, adjusted for accretion of discount or amortization of premium using the yield-to-maturity method on long-term debt securities. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. C. INCOME TAXES The Portfolio is treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the source of income and diversification requirements applicable to regulated investment companies (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio allocates at least annually among its investors each investor's distributive share of the Portfolio's net investment income, net realized capital gains, and any other items of income, gain, loss deduction or credit. D. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Portfolio may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Portfolio under these arrangements is unknown, as this would involve future claims that may be made against the Portfolio that have not yet occurred. However, based on experience, the Portfolio expects the risks of loss to be remote. E. AFFILIATED ISSUERS Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. 24 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to TBCAM, a wholly-owned subsidiary of Mellon Financial Corporation, for overall investment advisory and administrative services is paid monthly at the annual rate of 0.80% of the Portfolio's average daily net assets. Effective November 1, 2003 TBCAM voluntarily agreed to limit total Portfolio operating expenses (excluding brokerage commissions, taxes and extraordinary expenses) to 1.20% effective November 1, 2003, from 1.00% prior to that date, of the Portfolio's average daily net assets. Pursuant to this agreement, for the year ended September 30, 2004, TBCAM voluntarily did not impose $9,471 of its investment advisory fee. This agreement is voluntary and temporary and may be discontinued or revised by TBCAM at any time. The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide custody, fund administration and fund accounting services for the Portfolio. For these services the Portfolio pays Mellon Bank a fixed fee plus fees that are asset and transaction based, as well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio was charged $86,325 during the year ended September 30, 2004. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Portfolio for serving as an officer or Trustee of the Trust. The Portfolio Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Portfolio Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees for the Portfolio's fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $880 Benjamin M. Friedman $880 John H. Hewitt $880 Caleb Loring, III $951 Patrick J. Sheppard 0 Richard S. Wood* 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations, for the year ended September 30, 2004, were $50,161,289 and $52,317,920, respectively. For the year ended September 30, 2004, the Portfolio did not purchase or sell any long-term U.S. Government securities. (4) FEDERAL TAXES: The cost and unrealized appreciation (depreciation) in value of the investment securities owned at September 30, 2004, as computed on a federal income tax basis, were as follows: Aggregate Cost $30,670,788 =========== Gross unrealized appreciation $ 4,724,699 Gross unrealized depreciation (944,053) ----------- Net unrealized appreciation $ 3,780,646 ===========
25 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (5) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Portfolio Trust's registration statement. The Portfolio may trade the following financial instruments with off-balance sheet risk: OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Portfolio may use options to seek to hedge against risks of market exposure and changes in security prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tend to increase the Portfolio's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Portfolio's exposure to the underlying instrument, or hedge other Portfolio investments. Options, both held and written by the Portfolio, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Portfolio is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Portfolio did not enter into option transactions during the year ended September 30, 2004. See the Schedule of Investments for securities on loan as of 9/30/04. FUTURES CONTRACTS The Portfolio may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to margin requirements the Portfolio deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Portfolio. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Portfolio's exposure to the underlying instrument, while selling futures tends to decrease the Portfolio's exposure to the underlying instrument or hedge other investments. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparty does not perform under the contract's terms. The Portfolio enters into financial futures transactions primarily to seek to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Portfolio held financial futures contracts. See Schedule of Investments for further detail. (6) SECURITY LENDING: The Portfolio entered into an agreement with Mellon Bank to perform certain securities lending activities and to act as the Portfolio's Portfolio lending agent. Pursuant to this agreement Mellon Bank receives an agreed upon percentage of the net lending revenues. This compensation is a standard form of compensation received by securities lending agents with respect to non-affiliated entities. 26 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- The Portfolio may lend its securities to financial institutions which the Portfolio deems to be creditworthy. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The market value of securities loaned is determined daily and any additional required collateral is allocated to the Portfolio on the next business day. For the duration of a loan, the Portfolio receives the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation from the investment of the collateral. As with other extensions of credit, the Portfolio bears the risk of delay in recovery or even loss of rights in its securities on loan should the borrower of the securities fail financially or default on its obligations to the Portfolio. In the event of borrower default, the Portfolio generally has the right to use the collateral to offset losses incurred. The Portfolio may incur a loss in the event it was delayed or prevented from exercising its rights to dispose of the collateral. The Portfolio also bears the risk in the event that the interest and/or dividends received on invested collateral is not sufficient to meet the Portfolio's obligations due on the loans. The Portfolio loaned securities during the year ended September 30, 2004 resulting in $5,911 worth of security lending income. At September 30, 2004, the Portfolio had $1,704,668 worth of securities on loan. See the Schedule of Investments for securities on loan as of September 30, 2004. (7) LINE OF CREDIT: The Portfolio, and other subtrusts in the Portfolio Trust and funds in the Mellon Institutional Funds Investment Trust (the "Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee, computed at an annual rate of .060 of 1% on the commited amount, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the facility fee was $716 for the Portfolio. During the year ended September 30, 2004, the Portfolio had borrowings under the credit facility. As a result of these borrowings the Portfolio incurred $38 of interest expense. 27 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of The Boston Company Small Cap Growth Portfolio: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, and in all material respects, the financial position of The Boston Company Small Cap Growth Portfolio (the "Portfolio") at September 30, 2004 and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 28 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
29 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0941AR0904 [LOGO] Mellon -------------------------- Mellon Institutional Funds Annual Report THE BOSTON COMPANY SMALL CAP VALUE FUND -------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 2004 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund' s historical or future performance are statements of the opinion of Fund management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. Commencing with the fiscal quarter ending December 31, 2004, the Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington D.C. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. To view the Fund' s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, 2004, visit the SEC's web site at http: //www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the proxy voting guidelines. [LOGO] Mellon -------------------------- Mellon Institutional Funds November 29, 2004 Dear Mellon Institutional Fund Shareholder: Enclosed you will find your Fund's annual report for the fiscal year ended September 30, 2004. The past 12 months have been largely positive ones for the financial markets, as the economic expansion continued. However, as the year progressed, estimates of the recovery's strength have been reined in, to the benefit of fixed income and the detriment of stocks. The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its peak in March, fueled to a large degree by above-trend GDP growth and driven by a potent mix of tax cuts, monetary policy and government spending. But the momentum stalled, as the market dealt with the prospect of inflation and a new tightening cycle by the Federal Reserve, and the uncertainties of a tight presidential campaign. Since March, the S&P 500 has been largely range-bound, except for booming oil stocks. Economic indicators increasingly painted a picture of a slowdown to more normal growth, and corporate profits appeared strong, but less robust than anticipated. In the bond market, 2003 ended with much speculation about when and how the Fed would end one of the longest stretches of easy monetary policy on record, which had driven rates to historical lows. In the fall of 2003, the prospect of deflation was still a factor in the Fed's deliberations, and was its stated rationale for maintaining an accommodative stance. Soon, however, the Fed began to refer to a "measured pace" of tightening. The market reacted by switching gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16 to 4.9% on June 14. Since then, as the economic outlook softened, with relatively tame inflation, yields have settled back to about 4%, roughly the same as a year ago. Looking ahead, it's clear that there are some causes for concern. Consumers are weighted with debt and potentially vulnerable in a rising rate environment. Companies are hoarding cash, and are being deliberate in boosting employment and spending on plant and equipment, as federal stimulus is waning. Nevertheless, business activity has some significant momentum, which should carry over into 2005, with reasonably strong profit growth and modest inflation. We wish to thank you for your business and confidence in Mellon Institutional Funds. Please feel free to contact us with questions or comments. Sincerely, /s/ Patrick J. Sheppard ----------------------- Patrick J. Sheppard One Boston Place * Boston, MA 02108-4402 A Mellon Asset Management Company 1 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND MANAGEMENT DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- September 2004 The level of uncertainty in the equity markets has diverted investor attention from investment fundamentals (e.g., earnings and earnings growth), to investment behavior that is more emotionally driven. The current unsettled climate is fostered by terrorist threats, the election puzzle, oil price uncertainty, inflation fears and interest rate concerns. The economy continues to perform relatively well and concerns about slowing economic growth and the resultant slowing corporate profit growth seem to be somewhat overblown. For the twelve months ended September 30, 2004 The Boston Company Small Cap Value Fund had a total return of 29.92%. This was well ahead of the Russell 2000 Value Index at 25.66% for the period. The Fund has had strong relative performance in recent months as our holdings have been somewhat more risk averse but, at the same time, it participated fully in the recent positive move. Within the markets, smaller stocks again performed better than large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up 13.87%), and value has outpaced growth, especially in smaller stocks where the Russell 2000 Value Index was up more than twice that of the Russell 2000 Growth index. Our value approach continues to be a rewarding strategy in this very volatile market environment. We are finding many companies we believe are truly undervalued, not just cheap for an obvious reason. These potentially rewarding opportunities seem to be a by-product of the prevailing market caution, bordering on pessimism. The US economy slowed a bit in the summer as higher energy prices and interest rates, along with the uncertainty surrounding the election and its potential market impact, reduced consumer and investor confidence and put a modest damper on the stock market. We continue to view the economic landscape positively and expect corporate capital spending to remain relatively strong. Our best performing sectors relative to the index have been health care and information technology. We expect continued strength in these sectors and remain overweight in both relative to the benchmark. Other overweight sectors include consumer staples and industrials. Our energy holdings have been reduced at the margin as the stocks have done well. We continue to carry a market weight in this sector because of our long-term positive outlook for energy prices. Our emphasis here continues to be on energy services and exploration companies. We continue to deemphasize financials as most of these stocks are fully valued in our view. Business momentum is neutral at best and rising interest rates will further narrow spreads and put more pressure on earnings in coming quarters. Stocks in the industrials sector are attractive because of the positive outlook for corporate capital spending. We look for several more quarters of relatively strong earnings from this group and remain significantly overweight here. 2 Our general outlook remains positive. We continue to find many companies in our research universe we believe are undervalued with strong fundamentals and good earnings prospects. With a good chance for continued economic growth and modest inflation, capital spending should be robust for several quarters. The major concerns were highlighted earlier but we believe our fundamental approach, emphasizing strong business momentum and undervaluation, will yield good returns even in this more volatile equity environment. /s/ Stephanie Brandaleone /s/ Joseph Corrado ------------------------- ------------------ Stephanie Brandaleone Joseph Corrado 3 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY SMALL CAP VALUE FUND AND THE RUSSELL 2000 VALUE INDEX -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE ORIGINAL DOCUMENT.]
TBC Small Cap Russell 2000 Value Fund Value Index ------------- ------------ Beginning $100,000 $100,000 2000 Quarter2 $100,843 $101,951 Quarter3 $107,683 $109,435 Quarter4 $111,802 $118,304 2001 Quarter1 $108,929 $119,454 Quarter2 $126,736 $133,355 Quarter3 $111,044 $115,573 Quarter4 $134,837 $134,897 2002 Quarter1 $149,245 $147,818 Quarter2 $144,170 $144,685 Quarter3 $116,989 $113,880 Quarter4 $120,162 $119,484 2003 Quarter1 $112,611 $113,415 Quarter2 $137,985 $139,187 Quarter3 $151,696 $149,939 Quarter4 $174,883 $174,480 2004 Quarter1 $189,135 $186,553 Quarter2 $195,135 $188,134 Quarter3 $196,400 $188,415
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 9/30/2004) --------------------------------------------------------------------------------
Since Inception 1 Year 3 Year 2/01/2000 --------------------------------------------------------------------------------------------- 29.92% 20.93% 19.72%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT, ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE $100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. 4 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND SHAREHOLDER EXPENSE EXAMPLE -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (April 1, 2004 to September 30, 2004). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000.00=8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expenses ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid Beginning Ending During Period+ Account Value Account Value April 1, 2004 to April 1, 2004 September 30, 2004 September 30, 2004 ------------------------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,038.40 $6.01 Hypothetical (5% return per year before expenses) $1,000.00 $1,019.10 $5.96
------------ + EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.18%, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).THE EXAMPLE REFLECTS THE COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS ALL ITS ASSETS. 5 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in The Boston Company Small Cap Value Portfolio ("Portfolio"), at value (Note 1A) $61,140,507 Receivable for Fund shares sold 59,502 Prepaid expenses 6,700 ----------- Total assets 61,206,709 LIABILITIES Accrued transfer agent fees $ 3,346 Accrued trustees' fees and expenses 563 Accrued expenses and other liabilities 21,063 -------- Total liabilities 24,972 ----------- NET ASSETS $61,181,737 =========== NET ASSETS CONSIST OF: Paid-in capital $40,705,669 Accumulated net realized gain 9,823,185 Undistributed net investment income (loss) 2,846 Net unrealized appreciation 10,650,037 ----------- TOTAL NET ASSETS $61,181,737 =========== Shares of beneficial interest outstanding 2,792,718 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE (Net Assets/Shares outstanding) $ 21.91 ===========
The accompanying notes are an integral part of the financial statements. 6 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B) Dividend income allocated from Portfolio $ 466,365 Interest income allocated from Portfolio 35,505 Expenses allocated from Portfolio (553,932) ----------- Net investment loss allocated from Portfolio (52,062) EXPENSES Transfer agent fees (Note 2) $ 7,828 Legal and audit services 24,179 Registration fees 22,715 Trustees' fees and expenses (Note 2) 1,043 Shareholder reports 8,600 Insurance expense 975 Miscellaneous 10,418 -------- Total expenses 75,758 ----------- Net investment income (loss) (127,820) ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) allocated from Portfolio on: Investment security transactions 9,973,051 Change in unrealized appreciation (depreciation) on investments allocated from Portfolio 3,761,962 ----------- Net realized and unrealized gain (loss) on investments 13,735,013 ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $13,607,193 ===========
The accompanying notes are an integral part of the financial statements. 7 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS Net investment loss $ (127,820) $ (18,579) Net realized gains 9,973,051 4,950,349 Change in net unrealized appreciation 3,761,962 5,875,996 ----------- ----------- Net increase in net assets from operations 13,607,193 10,807,766 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C) From net investment income -- (57,917) From net realized gains on investments (4,564,248) (43,792) ----------- ----------- Total distributions to shareholders (4,564,248) (101,709) ----------- ----------- FUND SHARE TRANSACTIONS (NOTE 4) Net proceeds from sale of shares 11,834,111 7,729,570 Value of shares issued to shareholders in payment of distributions declared 4,026,790 71,480 Cost of shares redeemed (9,027,160) (9,136,228) ----------- ----------- Net increase (decrease) in net assets from Fund share transactions 6,833,741 (1,335,178) ----------- ----------- TOTAL INCREASE IN NET ASSETS 15,876,686 9,370,879 NET ASSETS At beginning of period 45,305,051 35,934,172 ----------- ----------- At end of period (including undistributed net investment income of $2,846 and $6,976) $61,181,737 $45,305,051 =========== ===========
The accompanying notes are an integral part of the financial statements. 8 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 1, 2000 YEAR ENDED SEPTEMBER 30, (COMMENCEMENT ----------------------------------------------- OF OPERATIONS) TO 2004 2003 2002 2001 SEPTEMBER 30, 2000 ------- ------ ------- ------- ------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 18.49 $14.30 $ 13.86 $ 14.01 $11.05 ------- ------ ------- ------- ------ FROM INVESTMENT OPERATIONS: Net investment income* (1) (0.05) (0.01) 0.05 0.10 0.04 Net realized and unrealized gains (loss) on investments 5.27 4.24 0.75 0.31 2.94 ------- ------ ------- ------- ------ Total from investment operations 5.22 4.23 0.80 0.41 2.98 ------- ------ ------- ------- ------ LESS DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (0.02) (0.04) (0.06) (0.02) From net realized gains on investments (1.80) (0.02) (0.32) (0.50) -- ------- ------ ------- ------- ------ Total distributions to shareholders (1.80) (0.04) (0.36) (0.56) (0.02) ------- ------ ------- ------- ------ NET ASSET VALUE, END OF PERIOD $ 21.91 $18.49 $ 14.30 $ 13.86 $14.01 ======= ====== ======= ======= ====== TOTAL RETURN (+) 29.92% 29.64% 5.43% 3.12% 26.98% RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets) 1.18% 1.15% 1.00% 1.00% 1.00%** Net Investment Income (loss) (to average daily net assets) (0.24)% (0.05)% 0.32% 0.68% 0.50%** Portfolio Turnover (2) N/A 51% 164% 149% 71% Net Assets, End of Period (000's omitted) $61,182 $45,305 $35,934 $28,532 $3,764
------- * For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If this voluntary action had not been taken, the investment income per share and the ratios would have been: Net investment income per share (1) N/A $ (0.03) $ 0.01 $ 0.05 $(0.26) Ratios (to average daily net assets): Expenses N/A 1.28% 1.24% 1.37% 4.51%(**) Net investment income N/A (0.18)% 0.08% 0.31% (3.01)%(**)
(1) Calculated based on average shares outstanding. (2) Portfolio turnover represents actitivy while the Fund was investing directly in securities until January 27, 2003. The Portfolio turnover for the period since the Fund transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. + Total return would have been lower in the absence of expense waivers, returns for periods of less than one year have not been annualized. ** Annualized for periods less than 1 year. The accompanying notes are an integral part of the financial statements. 9 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Investment Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Small Cap Value Fund (the "Fund") is a separate diversified investment series of the Trust. The Fund invests all of its investable assets in an interest of The Boston Company Small Cap Value Portfolio (the "Portfolio"), a subtrust of Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which is organized as a New York trust, and has the same investment objective as the Fund. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of small cap U.S. companies. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio (approximately 92% at September 30, 2004). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS The Fund records its investment in the Portfolio at value. The method by which the Portfolio values its securities is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of the trade date. The Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with accounting principles generally accepted in the United States of America. All realized and unrealized gains and losses of the Portfolio are allocated pro rata among the investors in the Portfolio. C. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded on ex-dividend date. The Fund's dividends from short-term and long-term capital gains, if any, after reduction of capital losses will be declared and distributed at least annually. In determining the amounts of its dividends, the Fund will take into account its share of the income, gains or losses, expenses, and any other tax items of the Portfolio. Dividends from net investment income and distributions from capital gains, if any, are reinvested in additional shares of the Fund unless a shareholder elects to receive them in cash. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for realized and unrealized gains or losses on REITS and wash sales. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications among undistributed net investment income, accumulated net realized gain (loss) and paid in capital. Undistributed net investment income and accumulated net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. D. EXPENSES The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the relative size of the funds. E. Commitments and Contingencies In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risks of loss to be remote. 10 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: The Fund does not directly pay any investment advisory fees, but indirectly bears its pro rata share of the compensation paid by the Portfolio to The Boston Company Asset Management, LLC ("TBCAM"), a wholly owned subsidiary of Mellon Institutional Asset Management, for such services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Effective February 23, 2004, the Fund entered into an agreement with Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus Corporation, a wholly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide personnel and facilities to perform transfer agency and certain shareholder services for the Fund. For these services the Fund pays Dreyus Transfer, Inc. a fixed fee plus per account and transaction based fees, as well as, out-of-pocket expenses. Pursuant to this agreement the Fund was charged $3,500 during the year ended September 30, 2004. The Fund began imposing a redemption fee of 2% of the net asset value of the shares, with certain exceptions, which are redeemed or exchanged less than 90 days from the day of their purchase. The redemption fee is paid directly to the Fund, and is designed to offset brokerage commissions, market impact, and other costs associated with short-term trading. The fee does not apply to shares that were acquired through reinvestment of distributions. For the year ended September 30, 2004, the Fund received no redemption fees. No director, officer or employee of TBCAM or its affiliates receives any compensation from the Trust or the Fund for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of TBCAM or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees by the Fund for the fiscal year ended September 30, 2004. The fund also bears its pro rata share of the renumeration paid to the Trustees by the Portfolio. See Note 2 of the Portfolio's notes to financial statements which are included elsewhere in this report.
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $500 Benjamin M. Friedman $500 John H. Hewitt $500 Caleb Loring, III $500 Patrick J. Sheppard 0 Richard S. Wood* 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003. (3) INVESTMENT TRANSACTIONS: Increases and decreases in the Fund's investment in the Portfolio for the year ended September 30, 2004 aggregated $16,001,574 and $13,717,798, respectively. (4) SHARES OF BENEFICIAL INTEREST: The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of one cent per share. Transactions in Fund shares were as follows:
For the For the Year Ended Year Ended September 30, 2004 September 30, 2003 ------------------- ------------------- Shares sold 566,701 488,251 Shares issued to shareholders in payment of distributions declared 215,710 4,747 Shares redeemed (440,530) (555,316) --------- --------- Net increase (decrease) 341,881 (62,318) ========= =========
11 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- At September 30, 2004, two shareholders of record held approximately 12% and 10% of the total outstanding shares of the Fund, respectively. Investment activities of these shareholders could have a material impact on the Fund. (5) FEDERAL TAXES As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistibuted capital gains $4,548,304 Undistributed ordinary income $5,315,315
Tax character of distributions paid during the fiscal year ended September 30, 2004, was as follows:
Distributions paid from: Ordinary income $2,331,714 Capital gains $2,232,534
See corresponding master portfolio for tax basis unrealized appreciation/(depreciation) information. 12 MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL CAP VALUE FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Investment Trust and the Shareholders of The Boston Company Small Cap Value Fund: In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Small Cap Value Fund (the "Fund") at September 30, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investment in the Portfolio at September 30, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 13 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Percentage of Top Ten Holdings(*) Sector Net Assets ---------------------------------------------------------------------------------------------------------- The Brinks Co. Industrials 2.0 Ralcorp Consumer Consumer Staples 2.0 FMC Technologies Energy 1.9 Perot SYS Corp. Information Technology 1.8 Waste Connections Industrials 1.8 Toro Industrials 1.5 Knight Trading Group Financials 1.5 Metris Cos., Inc. Financials 1.5 Jones Lang LaSalle Financials 1.4 UGI Corp. Utilities 1.3 ----- 16.7
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF ECONOMIC SECTOR ALLOCATION NET ASSETS -------------------------------------------- Consumer Discretionary 11.7 Consumer Staples 6.3 Energy 4.4 Financials 18.4 Health Care 8.5 Industrials 20.8 Information Technology 16.0 Materials 7.8 Telecom Services 1.0 Utilities 4.0 Short-term and Net Other Assets 1.1 ----- 100.0
The Portfolio is actively managed. Current holdings and allocations may be different than those presented above. 14 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
VALUE SECURITY SHARES (NOTE 1A) -------------------------------------------------------------------------------- EQUITIES--98.9% CONSUMER DISCRETIONARY--11.7% American Greetings Corp., Class A 12,200 $ 306,464 Aztar Corp.* 17,000 450,500 Big 5 Sporting Goods Corp.* 23,200 528,960 Cache, Inc.* 22,600 339,000 Charming Shoppes, Inc.* 63,100 449,272 Circuit City Stores, Inc. 40,200 616,668 Courier Corp. 11,650 485,572 Gemstar-TV Guide International, Inc.* 114,500 646,925 Interface, Inc.* 32,500 260,650 JAKKS Pacific, Inc.* 14,200 326,600 K-Swiss Inc., Class A 14,700 282,975 Landry's Restaurants, Inc. 10,500 286,545 Lifetime Hoan Corp. (a) 14,500 215,325 Regis Corp. 13,600 546,992 Saks, Inc. 23,700 285,585 Stanley Furniture Co., Inc. 10,400 457,600 The Men's Wearhouse, Inc.* 10,000 290,500 The Yankee Candle Co.* 22,400 648,704 Too, Inc.* 17,800 321,646 ----------- 7,746,483 ----------- CONSUMER STAPLES--6.3% American Italian Pasta Co. (a) 13,200 345,180 Fresh Del Monte Produce 15,900 396,069 Green Mountain Coffee Roasters* 16,000 336,320 Hain Celestial Group, Inc.* 30,500 539,240 J & J Snack Food Corp.* 7,100 304,448 Longs Drug Stores Corp. 21,700 525,140 Performance Food Group Co.* 18,300 433,710 Ralcorp Holdings, Inc. 36,100 1,303,210 ----------- 4,183,317 ----------- ENERGY--4.4% Dril-Quip, Inc.* 18,800 419,240 FMC Technologies, Inc.* 36,800 1,229,120 Hydril Co.* 14,100 605,595 Tetra Technologies* 21,150 656,708 ----------- 2,910,663 ----------- FINANCIAL--18.4% Alabama National Bancorp/Del 5,000 299,350 Alexandria Real Estate Equities, Inc. REIT 8,600 565,192 American Home Mortgage Investment Corp. REIT 11,000 307,450
The accompanying notes are an integral part of the financial statements. 15 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- FINANCIAL (CONTINUED) Aspen Insurance Holdings Ltd. 12,500 $ 287,625 Assured Guaranty Ltd. 18,000 299,880 Bank of Hawaii Corp. 8,900 420,525 Boykin Lodging Co. REIT 39,200 329,672 Capital Automotive REIT 19,500 609,765 First Republic Bank 12,200 561,200 Horace Mann Educators Corp. 26,500 465,870 Innkeepers USA Trust REIT 64,200 798,648 ITLA Capital Corp.* 6,400 295,680 Jones Lang Lasalle* 27,300 901,173 Knight Trading Group* (a) 107,200 989,456 Lasalle Hotel Properties REIT 17,000 469,200 Metris Cos, Inc.* 99,900 977,022 Pacific Capital Bancorp 14,500 428,910 Provident Bancorp, Inc. 23,100 271,194 Provident Bankshares Corp. 12,900 432,795 Santander BanCorp. 11,840 296,000 Scottish Annuity & Life Holding 24,600 520,782 SL Green Realty Corp. REIT 10,800 559,548 Southwest Bancorporation of Texas 24,600 495,444 Sterling Bancshares, Inc. 21,200 285,140 Summit Bancshares, Inc. (Texas) 10,000 332,500 ------------ 12,200,021 ------------ HEALTH CARE--8.5% Amedisys, Inc.* 13,200 395,340 Apria Healthcare Group, Inc.* 13,500 367,875 Discovery Partner International* 80,400 385,920 Hooper Holmes, Inc. 105,900 474,432 Inverness Medical Innovation* 23,000 478,400 Matthews International Corp., Class A 10,500 355,740 Medicines Co.* 10,800 260,712 Penwest Pharmaceuticals Co.* 20,100 226,929 Perrigo Co. 14,900 306,195 Polymedia Corp. 21,600 665,280 Res-Care Inc.* 28,100 332,985 Select Medical Corp. 25,100 337,093 Sierra Health Services* 9,520 456,294 U.S. Physical Therapy, Inc.* 24,100 327,519 United Therapeutics Corp.* 7,200 251,496 ------------ 5,622,210 ------------
The accompanying notes are an integral part of the financial statements. 16 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- INDUSTRIAL--20.8% AGCO Corp.* 13,800 $ 312,156 C&D Technologies, Inc. 32,400 616,248 Celadon Group, Inc.* 28,700 546,735 CIRCOR International, Inc. 13,400 261,300 Cubic Corp. 28,600 654,940 Dollar Thrifty Automotive Group* 22,600 549,858 Esterline Technologies Corp.* 18,200 556,738 Granite Construction, Inc. 20,800 497,120 GSI Lumonics Inc.* 32,900 344,134 Heico Corp. 18,300 323,544 Herley Industries, Inc.* 23,100 431,739 Insituform Technologies, Inc.* 30,400 567,568 Labor Ready* 30,900 433,218 Laidlaw International, Inc.* 37,600 618,520 Landstar System* 5,400 316,872 McGrath Rentcorp 14,000 511,700 Modtech Holdings Inc.* 26,500 199,810 Reliance Steel & Aluminum 11,400 452,580 School Specialty, Inc.* 12,200 480,802 Simpson Manufacturing 7,700 486,640 Sypris Solutions, Inc. 31,400 428,610 The Brink's Co. 45,000 1,357,650 Toro Co. 14,600 997,180 Trinity Industries 15,200 473,784 Ultralife Batteries, Inc.* 18,900 192,213 Waste Connections* (a) 37,050 1,173,744 ------------ 13,785,403 ------------ INFORMATION TECHNOLOGY--16.0% Actel Corp.(*) 18,300 278,160 Advanced Energy Industries* 30,200 280,558 Anaren, Inc.* 37,500 504,750 Borland Software Corp.(*) 43,600 364,060 Cabot Microelectronics* 9,300 337,125 Cymer, Inc.* 10,300 295,198 Digi International, Inc.* 26,700 305,181 EFunds Corp.* 28,300 526,097 Electronics for Imaging, Inc.* 21,900 355,656 EPIQ Systems, Inc.* 26,600 414,428 Exar Corp.* (a) 12,900 182,664 Hutchinson Technology, Inc.* 6,500 173,745 Komag, Inc.* 12,200 169,580
The accompanying notes are an integral part of the financial statements. 17 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONTINUED) Macromedia, Inc.* 19,200 $ 385,536 ManTech International Corp., Class A* 32,900 615,888 Mentor Graphics Corp.* 19,100 209,432 Newport Corp.* 36,900 423,243 Paxar Corp.* 27,000 612,360 Perot Systems Corp., Class A* 73,100 1,173,986 Remec, Inc.* 71,700 337,707 SafeNet, Inc.* 25,700 677,966 Seachange International, Inc.* (a) 15,000 239,850 Sybase, Inc.* 39,000 537,810 The Bisys Group, Inc.* 27,600 403,236 THQ, Inc.* 26,800 521,528 Zoran Corp.* 17,500 275,100 ----------- 10,600,844 ----------- MATERIALS--7.8% Arch Coal, Inc.* (a) 15,500 550,095 Balchem Corp. 12,500 372,500 Compass Minerals International, Inc. 20,300 450,660 Cytec Industries, Inc. 4,500 220,275 Florida Rock Industries, Inc. 9,900 485,001 FMC Corp. 5,300 257,421 Hercules, Inc.* 20,800 296,400 Massey Energy 17,300 500,489 NN, Inc. 36,300 415,635 Octel Corp. 13,900 295,236 RTI International Metals, Inc.* 22,600 437,762 Spartech Corp. 19,500 489,450 Worthington Industries 17,500 373,625 ----------- 5,144,549 ----------- TELECOMMUNICATIONS SERVICES--1.0% Surewest Communications 14,800 424,316 Warwick Valley Telephone Co. 10,300 244,728 ----------- 669,044 ----------- UTILITIES--4.0% Cleco Corp. 48,400 834,416 Nicor, Inc. (a) 12,800 469,760 PNM Resources Inc. 21,700 488,467 UGI Corp. 23,700 883,061 ----------- Total (Cost $2,448,496) 2,675,704 ----------- TOTAL EQUITIES (Cost $54,672,140) 65,538,238 -----------
The accompanying notes are an integral part of the financial statements. 18 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
Value Security Shares (Note 1A) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS--2.7% INVESTMENT COMPANIES--2.7% Dreyfus Institutional Preferred Plus ** (Cost $1,797,889) 1,797,889 $ 1,797,889 ------------ INVESTMENT OF CASH COLLATERAL--4.9% Dreyfus Cash Management Plus Money Market Fund (**) (Cost $3,258,008) 3,258,008 3,258,008 ------------ TOTAL INVESTMENTS (COST $59,728,037)--106.5% 70,594,135 LIABILITIES IN EXCESS OF OTHER ASSETS--(6.5%) (4,282,193) ------------ NET ASSETS--100% $ 66,311,942 ============
NOTES TO SCHEDULE OF INVESTMENTS: REIT--Real Estate Investment Trust (a) Security, or a portion thereof, was on loan at 9/30/04. * Non-income producing security. ** Affiliated institutional money market fund. The accompanying notes are an integral part of the financial statements. 19 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
ASSETS Investment in securities (Note 1A) (including securities on loan, valued at $3,122,542 (Note 6) Unaffiliated issuers, at value (identified cost $54,672,140) $65,538,238 Affiliated investment (Note 1F) (identified cost $5,055,897) 5,055,897 Receivable for investments sold 1,778,805 Interest and dividends receivable 55,168 Prepaid expenses 4,548 ----------- Total assets 72,432,656 LIABILITIES Liability for securities on loan (Note 6) $3,258,008 Payable for investments purchased 2,820,583 Accrued accounting and custody fees 14,007 Accrued trustees' fees and expenses 2,115 Accrued expenses and other liabilities 26,001 ---------- Total liabilities 6,120,714 ----------- NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $66,311,942 ===========
The accompanying notes are an integral part of the financial statements. 20 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C) Dividend income $ 481,098 Interest income (including securities lending income of $24,999) (Note 6) 35,596 ----------- Total investment income 516,694 EXPENSES Investment advisory fee (Note 2) $ 441,974 Accounting and custody fees (Note 2) 76,754 Legal and audit services 29,031 Trustees' fees and expenses (Note 2) 11,052 Insurance expense 8,412 Miscellaneous 2,014 --------- Total expenses 569,237 ----------- Net investment loss (52,543) ----------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) Investment security transactions 10,097,630 Change in unrealized appreciation (depreciation) Investment securities 3,979,928 ----------- Net realized and unrealized gain on investments 14,077,558 ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $14,025,015 ===========
The accompanying notes are an integral part of the financial statements. 21 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the Period January 28, 2003 for the (Commencement of Year Ended Operations) to September 30, 2004 September 30, 2003 ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) $ (52,543) $ (19,540) Net realized gains (losses) 10,097,630 4,435,792 Change in net unrealized appreciation (depreciation) 3,979,928 7,419,673 ----------- ----------- Net increase in net assets from operations 14,025,015 11,835,925 ----------- ----------- CAPITAL TRANSACTIONS Assets contributed by Standish Small Cap Value Fund (including unrealized appreciation/depreciation of $533,503) -- 36,721,319 Contributions 21,855,319 5,115,275 Withdrawals (14,941,264) (8,299,647) ----------- ----------- Net increase (decrease) in net assets from capital transactions 6,914,055 33,536,947 ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 20,939,070 45,372,872 NET ASSETS At beginning of year 45,372,872 -- ----------- ----------- At end of year $66,311,942 $45,372,872 =========== ===========
The accompanying notes are an integral part of the financial statements. 22 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the Period January 28, 2003 for the (Commencement of Year Ended Operations) to September 30, 2004 September 30, 2003 ------------------- ------------------- TOTAL RETURN + 30.07% 29.85%(1) RATIOS/SUPPLEMENTAL DATA: Expenses (to average daily net assets) 1.03% 1.10%(2) Net Investment Income (to average daily net assets) (0.10)% (0.07)%(2) Portfolio Turnover 123% 102%(1) Net Assets, End of Period (000's omitted) $66,312 $45,373
----------- * For the periods indicated, the investment advisor voluntarily agreed not to impose a portion of its investment advisory fee and/or reimbursed the Fund for all or a portion of its operating expenses. If the voluntary action had not been taken, the investment income per share and the ratios would have been:
Ratios (to average daily net assets): Expenses N/A 1.10%(2) Net investment income N/A (0.07)%(2)
+ Total return for the Portfolio has been calculated based on the total return for the investor Fund, assuming all distributions were reinvested, and adjusted for the difference in expenses as set out in the notes to the financial statements. Total return would have been lower in the absence of expense waivers. (1) Not annualized (2) Computed on an annualized basis. The accompanying notes are an integral part of the financial statements. 23 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES: Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was organized as a master trust fund under the laws of the State of New York on January 18, 1996 and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Boston Company Small Cap Value Portfolio (the "Portfolio"), a separate diversified investment series of the Portfolio Trust, commenced operations on January 28, 2003. The objective of the Portfolio is to achieve long-term growth of capital. The Portfolio seeks to achieve its objective by investing, under normal circumstances, at least 80% of net assets in equity securities of small cap U.S. companies. At September 30, 2004, there were two funds, The Boston Company Small Cap Value Fund and Dreyfus Premier Small Cap Equity Fund invested in the Portfolio. The value of the funds' investment in the Portfolio reflects the funds' proportionate interests in the net assets of the Portfolio. At September 30, 2004, The Boston Company Small Cap Value Fund and the Dreyfus Premier Small Cap Equity Fund held approximately 92% and 8% interests in the Portfolio, respectively. The following is a summary of significant accounting policies followed by the Portfolio in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. INVESTMENT SECURITY VALUATIONS Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price, or the NASDAQ official close if applicable, in the principal market in which such securities are normally traded. Securities (including illiquid securities) for which quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Trustees. Short-term instruments with less than sixty-one days remaining to maturity when acquired by the Portfolio are valued at amortized cost, which approximates market value. If the Portfolio acquires a short-term instrument with more than sixty days remaining to its maturity, it is valued at current market value until the sixtieth day prior to maturity and will then be valued at amortized value based upon the value on such date unless the Trustees determine during such sixty-day period that amortized value does not represent fair value. C. SECURITIES TRANSACTIONS AND INCOME Securities transactions are recorded as of trade date. Interest income is determined on the basis of interest accrued, adjusted for amortization of premium or discount on long-term debt securities when required for federal income tax purposes. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of return of capital is conclusively determined. D. INCOME TAXES The Portfolio is treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the source of income and diversification requirements applicable to regulated investment companies (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio allocates at least annually among its investors each investor's distributive share of the Portfolio's net investment income, net realized capital gains, and any other items of income, gain, loss deduction or credit. E. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Portfolio may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Portfolio under these arrangements is unknown, as this would involve future claims that may be made against the Portfolio that have not yet occurred. However, based on experience, the Portfolio expects the risks of loss to be remote. 24 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- F. AFFILIATED ISSUERS: Issuers in which the Fund held investments in other investment companies advised by The Boston Company Asset Management, LLC ("TBCAM") or its affiliates. (2) INVESTMENT ADVISORY AND OTHER TRANSACTIONS WITH AFFILIATES: The investment advisory fee paid to TBCAM for overall investment advisory, administrative services, and general office facilities, is paid monthly at the annual rate of 0.80% of the Portfolio's average daily net assets. The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a whollly owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to provide a custody, fund administration and fund accounting services for the Portfolio. For these services the Portfolio pays Mellon Bank a fixed fee plus fees that are asset and transaction based, as well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio was charged $73,447 during the year ended September 30, 2004. No director, officer or employee of Standish Mellon or its affiliates receives any compensation from the Trust or the Portfolio for serving as an officer or Trustee of the Trust. The Trust pays each Trustee who is not a director, officer or employee of Standish Mellon or its affiliates an annual fee and a per meeting fee as well as reimbursement for travel and out of pocket expenses. In addition, the Portfolio Trust pays the legal fees for the independent counsel of the Trustees. The following table sets forth all remuneration paid to the Trustees for the Portfolio's fiscal year ended September 30, 2004:
NAME OF TRUSTEE ------------------------------- Samuel C. Fleming $1,330 Benjamin M. Friedman $1,330 John H. Hewitt $1,330 Caleb Loring, III $1,441 Patrick J. Sheppard 0 Richard S. Wood* 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003. (3) PURCHASES AND SALES OF INVESTMENTS: Purchases and proceeds from sales of investments, other than short-term obligations, for the year ended September 30, 2004 were $74,313,053 and $67,042,007, respectively. For the year ended September 30, 2004, the Portfolio did not purchase or sell any long-term U.S. Government securities. (4) FEDERAL TAXES: As a regulated investment company qualified under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The cost and unrealized appreciation (depreciation) in value of the investment securities owned at September 30, 2004, as computed on a federal income tax basis, were as follows: Aggregate Cost $59,765,625 =========== Gross unrealized appreciation $11,889,141 Gross unrealized depreciation (1,060,631) ----------- Net unrealized appreciation $10,828,510 ===========
25 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (5) FINANCIAL INSTRUMENTS: In general, the following instruments are used for hedging purposes as described below. However, these instruments may also be used to seek to enhance potential gain in circumstances where hedging is not involved. The nature, risks and objectives of these instruments are set forth more fully in the Portfolio Trust's registration statement. The Portfolio may trade the following financial instruments with off-balance sheet risk: OPTIONS Call and put options give the holder the right to purchase or sell a security or currency or enter into a swap arrangement on a future date at a specified price. The Portfolio may use options to seek to hedge against risks of market exposure and changes in security prices and foreign currencies, as well as to seek to enhance returns. Writing puts and buying calls tend to increase the Portfolio's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the Portfolio's exposure to the underlying instrument, or hedge other Portfolio investments. Options, both held and written by the Portfolio, are reflected in the accompanying Statement of Assets and Liabilities at market value. The underlying face amount at value of any open purchased options is shown in the Schedule of Investments. This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contract or if the counterparty does not perform under the contract's terms. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. Realized gains and losses on purchased options are included in realized gains and losses on investment securities, except purchased options on foreign currency which are included in realized gains and losses on foreign currency transactions. If a put option written by the Portfolio is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by the dealers. The Portfolio did not enter into option transactions during the year ended September 30, 2004. FUTURES CONTRACTS The Portfolio may enter into financial futures contracts for the delayed sale or delivery of securities or contracts based on financial indices at a fixed price on a future date. Pursuant to margin requirements the Portfolio deposits either cash or securities in an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Portfolio. There are several risks in connection with the use of futures contracts as a hedging device. The change in value of futures contracts primarily corresponds with the value of their underlying instruments or indices, which may not correlate with changes in the value of hedged investments. Buying futures tends to increase the Portfolio's exposure to the underlying instrument, while selling futures tends to decrease the Portfolio's exposure to the underlying instrument or hedge other investments. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market. Losses may arise if there is an illiquid secondary market or if the counterparty does not perform under the contract's terms. The Portfolio enters into financial futures transactions primarily to seek to manage its exposure to certain markets and to changes in securities prices and foreign currencies. Gains and losses are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. At September 30, 2004, the Portfolio held no outstanding financial futures contracts. 26 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (6) SECURITY LENDING: The Portfolio entered into an agreement with Mellon Bank to perform certain securities lending activities and to act as the Portfolio lending agent. Pursuant to this agreement the Mellon Bank receives an agreed upon percentage of the net lending revenues. This compensation is a standard form of compensation received by securities lending agents with respect to non-affiliated entities. The Portfolio may lend its securities to financial institutions which the Portfolio deems to be creditworthy. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The market value of securities loaned is determined daily and any additional required collateral is allocated to the Portfolio on the next business day. For the duration of a loan, the Portfolio receives the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives compensation from the investment of the collateral. As with other extensions of credit, the Portfolio bears the risk of delay in recovery or even loss of rights in its securities on loan should the borrower of the securities fail financially or default on its obligations to the Portfolio. In the event of borrower default, the Portfolio generally has the right to use the collateral to offset losses incurred. The Portfolio may incur a loss in the event it was delayed or prevented from exercising its rights to dispose of the collateral. The Portfolio also bears the risk in the event that the interest and/or dividends received on invested collateral is not sufficient to meet the Portfolio's obligations due on the loans. The Fund loaned securities during the year ended September 30, 2004 resulting in security lending income of $24,999. At September 30, 2004, the Fund had $3,122,542 worth of securities on loan. See Schedule of Investments for further detail on the security positions on loan. (7) LINE OF CREDIT: The Portfolio, and other subtrusts in the Portfolio Trust and funds in the Mellon Institutional Funds Investment Trust (the "Trust") are parties to a committed line of credit facility, which enables each portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is charged to each participating portfolio/fund based on its borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition, a commitment fee, computed at an annual rate of 0.60 of 1% on the daily unused portion of the facility, is allocated ratably among the participating portfolios/funds at the end of each quarter. For the year ended September 30, 2004, the commitment fee was $1,038 for the Portfolio. During the year ended September 30, 2004 the Portfolio had borrowed under the credit facility incurring $54 of interest expense. 27 MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of The Boston Company Small Cap Value Portfolio: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Boston Company Small Cap Value Portfolio (the "Portfolio") at September 30, 2004, and the results of its operations, the changes in its net assets, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY November 19, 2004 28 TRUSTEES AND OFFICERS The following table lists the Trust's trustees and officers; their address and date of birth; their position with the Trust; the length of time holding that position with the Trust; their principal occupation(s) during the past five years; the number of portfolios in the fund complex they oversee; and other directorships they hold in companies subject to registration or reporting requirements of the Securities Exchange Act of 1934 (generally called "public companies") or in registered investment companies as of September 30, 2004. The Trust's Statement of Additional Information includes additional information about the Trust's trustees and is available, without charge, upon request by writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585 or calling toll free 1-800-221-4795. INDEPENDENT TRUSTEES
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Trustee Trustee ------------------------------------------------------------------------------------------------------------------------------------ Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None c/o Decision Resources, Inc. 11/3/1986 and Chief Executive 260 Charles Street Officer, Decision Waltham, MA 02453 Resources, Inc. 9/30/40 Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None c/o Essex Street Associates 11/3/1986 Associates (family P.O. Box 181 investment trust office) Beverly, MA 01915 11/14/43 Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None c/o Harvard University 9/13/1986 Professor of Political Cambridge, MA 02138 Economy, Harvard 8/5/44 University John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None P.O. Box 2333 11/3/1986 House, Inc. (hospice) New London, NH 03257 4/11/35 INTERESTED TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Mellon Institutional and Chief and Chief Operating Asset Management Executive Officer Officer, Mellon Institutional One Boston Place Asset Management; Boston, MA 02108 formerly Vice President 7/24/65 and Chief Financial Officer, Mellon Institutional Asset Management PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None Mellon Institutional and Secretary and Head of Operations Asset Management Mellon Institutional Asset One Boston Place Management, formerly Boston, MA 02108 First Vice President, 2/20/61 Mellon Institutional Asset Management and Mellon Global Investments
29 PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
Number of Principal Portfolios in Other Name Term of Office Occupation(s) Fund Complex Directorships Address, and Position(s) and Length of During Past Overseen by Held by Date of Birth Held With Trust Time Served 5 Years Officer Officer ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon Asset Management Treasurer since Institutional Asset One Boston Place 2002 Management Boston, MA 02108 7/14/65 Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None Mellon Institutional President Manager, Mutual Funds Asset Management Operations, Mellon One Boston Place Institutional Asset Boston, MA 02108 Management 8/19/51 Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None Mellon Institutional President and Manager, Shareholder Asset Management Services, Mellon Institutional One Boston Place Asset Management since 2001; Boston, MA 02108 Shareholder Representative, 1/19/71 Standish Mellon Asset Management Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None Standish Mellon Assest Compliance Chief Compliance Officer Management Company LLC Officer for Standish Mellon Asset One Boston Place Management Company LLC; Boston, MA 02108 formerly Director of 8/9/66 Compliance and Administration and Chief Administration Officer for Standish Mellon Asset Management Company LLC, Senior Vice President and Chief Administration Officer for Mellon Bond Associates, LLP, and First Vice President and Senior Sales Associate for Mellon Institutional Asset Management
30 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK [LOGO] Mellon -------------------------- Mellon Institutional Funds One Boston Place Boston, MA 02108-4408 800.221.4795 www.melloninstitutionalfunds.com 0944AR0904 Item 2. Code of Ethics. As of September 30, 2004, the Registrant has adopted a Code of Ethics, as defined in Item 2(b) of Form N-CSR, that applies to the Principal Executive Officer and Principal Financial Officer. For the fiscal year ended September 30, 2004, there were no amendments to a provision of the Code of Ethics nor were there any waivers granted from a provision of the Code of Ethics. A copy of the Registrant's Code of Ethics that applies to the Principal Executive Officer and Principal Financial Officer is filed as an exhibit to this Form N-CSR under item 11 (a)(1). Item 3. Audit Committee Financial Expert. The Registrant's Board of Trustees has determined that the Registrant has more than one audit committee financial expert, as defined in Item 3 of Form N-CSR, serving on its audit committee. The audit committee financial experts serving on the Registrant's audit committee are John H. Hewitt and Caleb Loring III, both of whom are "independent" pursuant to paragraph (a)(2) of Item 3 of Form N-CSR. Mr. Hewitt served at Morgan Stanley as a securities analyst and also in a supervisory role regarding analysis. He has held a chartered financial analyst designation, as well as a master's degree in business administration from Harvard University. He has been a member of the Registrant's audit committee since its inception. Mr. Loring served as an executive in the commercial lending division of the Bank of Boston, N.A., performing and supervising credit analyses and reviewing financial statements of potential and existing borrowers. Also, Mr. Loring has served as a private trustee in the Ayer Family Office, where his duties involve financial statement analysis. He has been a member of the Registrant's audit committee since its inception, and has served on the audit committees of several privately held companies. Item 4. Principal Accountant Fees and Services. (a) AUDIT FEES: The aggregate fees paid or accrued by the Registrant for professional services rendered by the Registrant's principal accountant, PricewaterhouseCoopers LLP, for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended September 30, 2004 and 2003 were $74,219 and $69,089, respectively. (b) AUDIT-RELATED FEES: The aggregate fees paid or accrued by the Registrant for the fiscal years ended September 30, 2004 and 2003 for assurance and related services by PricewaterhouseCoopers LLP that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item were $34,211 and $30,653, respectively. The nature of the services comprising the fees disclosed under this Item included: the preparation of fiscal year end tax provisions and distribution requirements necessary to prepare annual financial statements. (c) TAX FEES: The aggregate fees paid or accrued for the fiscal years ended September 30, 2004 and 2003 for professional services rendered by PricewaterhouseCoopers LLP for tax compliance, tax advice, and tax planning were $85,985 and $84,216, respectively. (d) ALL OTHER FEES: Other than the services reported in paragraphs (a) through (c) of this Item, PricewaterhouseCoopers LLP billed no other fees for products or services provided for the fiscal years ended September 30, 2004 and 2003. (e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICY: The Registrant's audit committee pre-approves all audit and non-audit services to be performed by the Registrant's accountant before the accountant is engaged by the Registrant to perform such services. (e) (2) 100% of the services described in each of paragraphs (b) through (d) of this Item 4 were pre-approved by the Registrant's audit committee before the accountant was engaged by the Registrant to perform such services. (f) Not applicable. (g) The aggregate non-audit fees billed by PricewaterhouseCoopers LLP for services rendered to the Registrant and the Registrant's investment advisers, and any entity controlling, controlled by or under common control with the advisers that provides ongoing services to the Registrant for the fiscal years ended September 30, 2004 and 2003 were $0 and $50,925, respectively. (h) The Registrant's Audit Committee of the Board of Directors had pre-approved all of the non-audit services that were rendered to the Registrant's investment advisers and any entity controlling, controlled by, or under common control with the investment advisers that provides ongoing services to the Registrant, and no such non-audit services were not pre-approved. Item 5. Audit Committee of Listed Registrants. Not applicable to the Registrant. Item 6. Schedule of Investments Included as part of the report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable to the Registrant. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable to the Registrant. Item 9. Submission of Matters to a Vote of Security Holders. There have been no material changes. Item 10. Controls and Procedures. (a) The Registrant's Principal Executive Officer and Principal Financial Officer concluded that the Registrant's disclosure controls and procedures are effective based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date" as defined in Rule 30a-3(c) under the Investment Company Act of 1940). (b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 that occurred during the Registrant's second fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) Code of Ethics required by Item 2 is attached hereto as an exhibit. (a)(2) Certifications of the Principal Executive Officer and Principal Financial Officer of the Registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 are attached hereto as Exhibit 99CERT.302 (b) Certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940 and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99CERT.906. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Mellon Institutional Funds Investment Trust By (Signature and Title): /s/ BARBARA A. MCCANN --------------------- Barbara A. McCann, Vice President and Secretary Date: December 9, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities, and on the dates indicated. By (Signature and Title): /s/ PATRICK J. SHEPPARD ----------------------- Patrick J. Sheppard, President and Chief Executive Officer Date: December 9, 2004 By (Signature and Title): /s/ STEVEN M. ANDERSON ---------------------- Steven M. Anderson, Vice President and Treasurer Date: December 9, 2004