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Interim Report BNY Mellon Investment Funds All sub-funds report 31 December 2010 (Unaudited) BNY Mellon Investment Funds Interim Report & Accounts Table of Contents Report of the Authorised Corporate Director 3 Economic & Market Overview 5 Aggregated Financial Statements 8 BNY Mellon Global Strategic Bond Fund 11 BNY Mellon Long-Term Global Equity Fund 26 Newton 50/50 Global Equity Fund 36 Newton American Fund 50 Newton Asian Income Fund 61 Newton Balanced Fund 74 Newton Cautious Managed Fund 89 Newton Continental European Fund 101 Newton Corporate Bond Fund 111 Newton European Higher Income Fund 125 Newton Global Balanced Fund 139 Newton Global Dynamic Bond Fund 154 Newton Global High Yield Bond Fund 171 Newton Global Higher Income Fund 186 Newton Global Opportunities Fund 202 Newton Growth Fund 213 Newton Higher Income Fund 226 Newton Income Fund 243 Newton Index Linked Gilt Fund 258 Newton International Bond Fund 268 Newton International Growth Fund 284 Newton Japan Fund 297 Newton Long Corporate Bond 307 Newton Long Gilt Fund 319 Newton Managed Fund 330 Newton Oriental Fund 344 Newton Overseas Equity Fund 355 - 1 - BNY Mellon Investment Funds Interim Report & Accounts Newton Pan-European Fund 369 Newton Phoenix Multi-Asset Fund 380 Newton Real Return Fund 394 Newton UK Equity Fund 412 Newton UK Opportunities Fund 425 Additional Information Directors’ Statement 436 Investor Information 437 Significant Events 437 Investment Funds Information 443 Management and Professional Services 443 - 2 - BNY Mellon Investment Funds Interim Report & Accounts Report of the Authorised Corporate Director This is the interim report for BNY Mellon Investment Funds ICVC (‘BNYMIF’) for the six-months ended 31 December 2010. The six-months ended 31 December 2010 was characterised by continued economic uncertainty, although there were tentative signs of a sustained recovery. The period also witnessed a growing gulf between those developing countries achieving relatively higher rates of economic growth, and the developed world, whose economies are faced with austerity measures and policies aimed at consolidating economic recovery amid lower levels of growth. In the face of persistent economic uncertainty, and market volatility over the period, investors remained wary, engaging in ‘consensus’ behaviour. However, some comfort was drawn from reassuring economic data and supportive fiscal and monetary policies from Western governments and central bankers, including the US Federal Reserve’s launch of a second wave of quantitative easing – effectively the printing of more money – in early November. Against this backdrop, equity markets rose strongly, with a preference for risk assets seeing strong inflows into emerging market assets. Meanwhile, with the Eurozone sovereign debt crisis as yet unresolved, ‘safe haven’ assets also proved popular among investors, who sought refuge in currencies such as the Swiss franc, and strongly performing commodities such as gold. Fixed income assets made steady gains over the period, with UK Gilts performing well relative to most other Western government bonds as the UK maintained its fiscal credibility on the back of the coalition government’s comprehensive spending review. Improved investor risk appetite also saw emerging market government bonds and high yield bonds perform strongly. Meanwhile, European corporate bonds struggled towards the end of the period, giving back some of the gains they had made over the previous 18 months. This owed much to weakness in the high yielding bank sector which suffered as a result of renewed concerns about exposure to peripheral Eurozone debt. Indeed, the Eurozone saw an unprecedented degree of turmoil amid renewed concerns about Europe’s weaker economies and their ability to continue servicing their sovereign debt. In November, the Irish government reticently accepted a €85 billion aid package from the EU and the International Monetary Fund. Investors’ attention rapidly shifted elsewhere, to the likes of Spain and Portugal, as contagion threatened the very survival of the euro. In the UK, Chancellor of the Exchequer George Osborne unveiled the coalition government’s comprehensive spending review in October, paving the way for a drastic deficit reduction plan. Similar fiscal austerity drives were initiated on the Continent, sparking Europe-wide popular discontent. Historically, both Newton and Walter Scott have maintained a preference for high quality assets (such as shares in more resilient companies that are less dependent for their financial performance on the health of the economy), a tack that served them well during the height of the credit crisis, and this preference will continue. However, this means that during periods of heightened investor appetite for riskier investments, when high quality assets generally underperformed, these funds tend to lag the market somewhat. In terms of fund performance, a number of the fixed income funds on the range performed well, with the Standish- managed BNY Mellon Global Strategic Bond Fund outperforming the market despite the challenging fixed income environment. Meanwhile, the Newton Higher Income Fund continued to grow its income stream, although its strict yield criteria – the Fund will only invest in stocks paying a higher dividend than the market average – meant that its total return over the period was somewhat below that of the market, as it was unable to invest in much of the low- yielding but strongly performing mining sector. Our asset management model continues to command the respect of industry commentators. The fund range received excellent ratings from the independent ratings agency Standard & Poor’s; there are two funds in the range – the Newton Balanced Fund and the Newton Real Return Fund – with the much sought after ‘AAA’ rating, while 60% of the funds in the range are now rated ‘AA’ and above. Newly rated funds over the period included the Newton Global Dynamic Bond Fund, which gained an ‘A’ rating. - 3 - BNY Mellon Investment Funds Interim Report & Accounts Report of the Authorised Corporate Director (continued) Looking forward, although there are tentative signs of economic improvement, it seems inevitable that there will be further bumps along the road to sustained economic recovery. However, we remain confident that our asset managers are particularly well suited to navigating through such uncertain market conditions. ‘Cautious optimism’ would best sum up the views of our asset managers, although the emphasis remains on ‘cautious’. We hope that you will find this report informative, and thank you for investing with us. Alan Mearns Director For and on behalf of BNY Mellon Fund Managers Limited Authorised Corporate Director 4 February 2011 - 4 - BNY Mellon Investment Funds Interim Report & Accounts Market Background Economic & Market Overview Introduction The six months to 31 December 2010 saw tentative signs of a sustained global economic recovery. As it stands, this recovery is patchy at best, with a growing gulf between those developing countries achieving relatively higher rates of economic growth, and those of the developed world, whose economies have been the target of unprecedented government intervention aimed at consolidating recovery amid lower levels of growth. In the face of enduring economic and market volatility, investors remained wary over the period, engaging in ‘consensus’ behaviour; a preference for risk assets saw strong inflows into emerging market bonds and equities, stoking inflation across Asia, where authorities employed various measures to curb inflationary pressures. With the Eurozone sovereign debt crisis as yet unresolved, safe haven assets also proved popular among investors, who sought refuge in currencies such as the Swiss franc, strongly performing commodities such as gold, and the safety of German Bunds. Currency and trade disputes provided the broad framework for international economic discourse, as continuing US calls for a rapid appreciation of the Chinese yuan went unheeded, while the Japanese government intervened to curb the rise of the yen. Meanwhile, China overtook Japan as the world’s second largest economy, hinting at the prospect of a redistribution of global economic power to the East. The six-month period to the end of December 2010 served to highlight the extent to which economic power is becoming more widely dispersed on an international scale. Against this backdrop, the FTSE World Index rose by 19.3% in sterling terms. In stark contrast, the JP Morgan Global Government Bond Index returned 1.3%, amid falling yields across the core sovereign debt markets. North America The US Federal Open Market Committee announced a second round of quantitative easing (QE2) in November, with a further US$600 billion to be pumped into the US economy by the end of June 2011. The US Federal Reserve’s (Fed) decision sparked a global backlash, with China, Russia and Eurozone countries airing their concerns over the prospect of a weaker US dollar. The announcement of QE2 came amid stubbornly high levels of unemployment in the US, peaking at 9.8% in November, although some respite was offered as the rate fell to 9.4% in December, its lowest level since May 2009. Elsewhere, the beleaguered US housing market showed little sign of recovery; the S&P/Case-Shiller Home Price indices, having traced the monotonous downward trend of house prices over the year, showed a broad slowdown in house price growth in October. There was little change in the Fed’s interest rate policy, with the US federal funds rate maintained at between zero and 0.25%. Surprisingly, however, the Fed recognised publicly for the first time in recent years that inflation was below the level ‘consistent with its mandate to promote maximum employment and price stability’, as inflation fell to an annualised rate of 1.1% in August, from 1.2% in July. There was some positive news on the economic front, as third quarter annualised US GDP growth surpassed the previous quarter’s 1.7%. Nevertheless, US consumer confidence continued to hover at historically low levels. The S&P 500 Index rose by 23.3% over the period in US dollar terms (matching its performance over the previous six month period) and 17.8% in sterling terms.

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