UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-13908

Registrant’s telephone number, including area code: (404) 892-0896

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Exchange on Which Registered
Common Shares, $0.20 par value per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

(The registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 contained financial statements prepared in accordance with International Financial Reporting Standards.)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

At June 30, 2007, the aggregate market value of the voting stock held by non-affiliates was $8.4 billion, based on the closing price of (i) the registrant’s Ordinary Shares, par value U.S. $0.10 per share, on the London Stock Exchange and (ii) the registrant’s American Depositary Shares (each representing two (2) Ordinary Shares) on the New York Stock Exchange.

Following the registrant’s December 4, 2007 redomicile and reverse stock split transactions, as of January 31, 2008, the most recent practicable date, 424,767,233 million of the company’s common shares, par value U.S. $0.20 per share, were outstanding. The primary market for the common shares is the New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant will incorporate by reference information required in response to Part III, Items 10 - 14 in its definitive Proxy Statement for its annual meeting of shareholders, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2007.

 

 

TABLE OF CONTENTS

We include cross references to captions elsewhere in this Annual Report on Form 10-K, which we refer to as this “Report,” where you can find related additional information. The following table of contents tells you where to find these captions.

				Page
		Special Cautionary Note Regarding Forward-Looking Statements			1
PART I
Item 1.		Business			3
Item 1A.		Risk Factors			9
Item 1B.		Unresolved Staff Comments			15
Item 2.		Properties			15
Item 3.		Legal Proceedings			15
Item 4.		Submission of Matters to a Vote of Security Holders			16
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			18
Item 6.		Selected Financial Data			21
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			48
Item 8.		Financial Statements and Supplementary Data			53
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			103
Item 9A.		Controls and Procedures			103
Item 9B.		Other Information			103
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			104
Item 11.		Executive Compensation			104
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			104
Item 13.		Certain Relationships and Related Transactions, and Director Independence			104
Item 14.		Principal Accountant Fees and Services			104
PART IV
Item 15.		Exhibits and Financial Statement Schedules			105
EX-10.1 AMENDED AND RESTATED FIVE YEAR CREDIT AGREEMENT
EX-10.2 THIRD AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
EX-10.4 AMENDMENT NO. 5 TO FACILITY DOCUMENTS
EX-10.5 GLOBAL STOCK PLAN AS AMENDED AND RESTATED
EX-10.6 NO. 3 EXECUTIVE SHARE OPTION SCHEME
EX-10.7 2000 SHARE OPTION PLAN
EX-10.8 INVESCO ESOP, AS AMENDED AND RESTATED
EX-10.9 WHOLESALE REPRESENTATIVES DEFERRAL PLAN
EX-10.10 2003 SHARE OPTION PLAN (CANADA)
EX-10.12 RULES OF THE AMVESCAP INTL. SHARESAVE PLAN
EX-10.14 GLOBAL PARTNER AGREEMENT/LOREN M. STARR
EX-10.15 GLOBAL PARTNER AGREEMENT/PHILIP A. TAYLOR
EX-10.16 GLOBAL PARTNER AGREEMENT/ROBERT J. YERBURY
EX-10.17 GLOBAL PARTNERS EMPLOYMENT CONTRACT/ANDREW LO
EX-21 LIST OF SUBSIDIARIES
EX-23.1 CONSENT OF ERNST & YOUNG LLP
EX-31.1 SECTION 302, CERTIFICATION OF MARTIN L. FLANAGAN
EX-31.2 SECTION 302, CERTIFICATION OF LOREN M. STARR
EX-32.1 SECTION 906, CERTIFICATION OF MARTIN L. FLANAGAN
EX-32.2 SECTION 906, CERTIFICATION OF LOREN M. STARR

SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We believe it is important to communicate our future expectations to our shareholders and to the public. This Report, the documents incorporated by reference herein, other public filings and oral and written statements by us and our management, may include statements that constitute “forward-looking statements” within the meaning of the United States securities laws. These statements are based on the beliefs and assumptions of our management and on information available to us at the time such statements are made. Forward-looking statements include information concerning possible or assumed future results of our operations, earnings, liquidity, cash flows and capital expenditures, industry or market conditions, assets under management, acquisition activities and the effect of completed acquisitions, debt levels and our ability to obtain additional financing or make payments on our debt, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, when used in this Report, the documents incorporated by reference herein or such other documents or statements, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements.

The following important factors, and other factors described elsewhere or incorporated by reference in this Report or in our other filings with the U.S. Securities and Exchange Commission (“SEC”), among others, could cause our results to differ materially from any results described in any forward-looking statements:

	n		variations in demand for our investment products or services, including termination or non-renewal of our investment advisory agreements;
	n		significant changes in net cash flows into or out of the accounts we manage or declines in market value of the assets in, or redemptions or other withdrawals from, those accounts;
	n		significant fluctuations in the performance of debt and equity markets worldwide;
	n		exchange rate fluctuations, especially as against the U.S. dollar;
	n		the effect of economic conditions and interest rates in the U.S. or globally;
	n		our ability to compete in the investment management business;
	n		the effect of consolidation in the investment management business;
	n		limitations or restrictions on access to distribution channels for our products;
	n		our ability to attract and retain key personnel, including investment management professionals;
	n		the investment performance of our investment products;
	n		our ability to acquire and integrate other companies into our operations successfully and the extent to which we can realize anticipated cost savings and synergies from such acquisitions;
	n		changes in regulatory capital requirements;
	n		our substantial debt and the limitations imposed by our credit facility;
	n		the effect of failures or delays in support systems or customer service functions, and other interruptions of our operations;
	n		the occurrence of breaches and errors in the conduct of our business, including any failure to properly safeguard confidential and sensitive information;
	n		the execution risk inherent in our current company-wide transformational initiatives;
	n		the effect of political or social instability in the countries in which we invest or do business;
	n		the effect of terrorist attacks in the countries in which we invest or do business and the escalation of hostilities that could result therefrom;
	n		enactment of adverse state, federal or foreign legislation or changes in government policy or regulation (including accounting standards) affecting our operations or the way in which our profits are taxed;
	n		war and other hostilities in or involving countries in which we invest or do business; and
	n		adverse results in litigation, including private civil litigation related to mutual fund fees and any similar potential regulatory or other proceedings.

Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such other assumptions to be realized may also cause actual results to differ materially from those projected. For more discussion of the risks affecting us, please refer to Part 1, Item 1A, “Risk Factors”.

You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us and our businesses generally. We expressly disclaim any obligation to update any of the information in this or any other public report if any forward-looking statement later turns out to be inaccurate, whether as a result of new information, future events or otherwise. For all forward-looking statements, we claim the “safe harbor” provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

PART I

In this Annual Report on Form 10-K, unless otherwise specified, the terms “we,” “our,” “us,” “company,” “Invesco,” and “Invesco Ltd.” refer to Invesco Ltd., a company incorporated in Bermuda, and its subsidiaries.

Item 1. Business

Introduction

Invesco is a leading independent global investment management company, dedicated to helping people worldwide build their financial security. By delivering the combined power of our distinctive worldwide investment management capabilities, including AIM, Atlantic Trust, Invesco, Perpetual, PowerShares, Trimark and WL Ross, Invesco provides a comprehensive array of enduring solutions for retail, institutional and high-net-worth clients around the world. Operating in 20 countries, Invesco had $500.1 billion in assets under management (AUM) as of December 31, 2007.

The key drivers of success for Invesco are long-term investment performance and client service delivered across a diverse spectrum of capabilities, distribution channels, geographic areas and market exposures. By achieving success in these areas, we seek to generate positive net flows, increased AUM and associated revenues. We are affected significantly by market movements, which are beyond our control; however, we endeavor to mitigate the impact of market movement by offering broad capability, client and geographical diversification. We measure relative investment performance by comparing our investment capabilities to competing products, industry benchmarks and client investment objectives. Generally, distributors, investment advisors and consultants heavily weigh longer-term performance (e.g., three-year and five-year performance) in selecting the investment capabilities they recommend to their customers, although shorter-term performance may also be an important consideration. Third-party ratings can also have an influence on client investment decisions. Quality of client service is monitored in a variety of ways, including periodic client satisfaction surveys, analysis of response times and redemption rates, competitive benchmarking of services and feedback from investment consultants.

Invesco Ltd. is organized under the laws of Bermuda, and our common shares are listed and traded on the New York Stock Exchange under the symbol “IVZ.” We maintain a Web site at www.Invesco.com. (Information contained on our Web site shall not be deemed to be part of, or to be incorporated into, this document).

Strategy

The company is focusing on four key strategic drivers that we believe will contribute to our long-term success:

•		Achieve strong investment performance over the long term by having clearly articulated investment disciplines and providing truly enduring solutions to our clients;
•		Deliver the combined power of our distinctive investment management capabilities anywhere in the world to meet our clients’ needs;
•		Unlock the power of our global operating platform by simplifying our processes and procedures and integrating the support structures of our business globally; and
•		Continue to build a high-performance organization by fostering greater transparency, accountability and execution at all levels.

Prior to 2006, Invesco operated as a collection of diverse business units. During 2006 and 2007, Invesco increasingly leveraged the individual strengths of these business units by working more effectively as a unified global organization. Under the leadership of chief executive officer (CEO) Mr. Martin L. Flanagan, the company developed and is implementing a comprehensive operating plan designed to achieve our strategic objectives. We believe these changes have strengthened the business. Invesco’s primary senior management team consists of the CEO and eight direct reports, each of whom has responsibility for a core aspect of our global business. Since we take a unified approach to our business, we are presenting our financial statements and other disclosures under the single operating segment “asset management.”

Recent Developments

In September 2006, we acquired PowerShares, a leading provider of exchange-traded funds (ETFs). As of December 31, 2007, PowerShares managed approximately $14.5 billion in assets and offered investors more than 100 domestic and international ETFs. In October 2006, we acquired WL Ross & Co., one of the industry’s leading financial restructuring groups, expanding the range of high-quality alternative investment offerings for our clients. Led by Wilbur Ross and his team, WL Ross & Co. assumed responsibility for the direct private equity operations of Invesco, with $6.8 billion in combined assets under management as of year end 2007. Our 2007 operating results include a full year of operations of both PowerShares and WL Ross & Co.

On May 24, 2007, with approval from our shareholders, we changed our name from AMVESCAP PLC to Invesco PLC to better reflect our position as an integrated global company. We chose Invesco from among our many powerful brands since Invesco is recognized in every market in which we operate and because being an investment management company is embedded in the name. On November 5, 2007, we introduced a new brand identity for Invesco. This move was part of our long-range brand strategy that will further unify our company and build on the strength of our existing brands to help us promote our global investment management expertise.

Throughout the year, we remained committed to executing on our comprehensive operating plan. At the same time, we were intensely focused on investing for growth. Our focus on continuous improvement gave us the flexibility to invest in our core markets and in the long-term success of our business. During 2007, we undertook a number of initiatives that provided the resources for reinvesting in our business, including:

	•		Transformation of our Operations and Technology group and our North American retail operations; and
	•		Rationalization of our enterprise support, institutional sales and service and transfer agent operations.

These initiatives provided resources that were reinvested in the business to support our expansion in key markets, launch new products, enhance our infrastructure and retain and motivate our high-performing employees. See Part II, Item 8, “Financial Statements and Supplementary Data - Note 13, Restructuring Charge” for additional details.

Operating margin and net operating margin increased to 25.6% and 36.0% in 2007, respectively, from 23.4% and 31.4% in 2006, respectively. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Schedule of Non-GAAP Information” for a reconciliation of operating income to net operating income (and by calculation, a reconciliation of operating margin to net operating margin) and for important additional disclosures.

On December 4, 2007, we moved our primary listing to the New York Stock Exchange and redomiciled the company from the United Kingdom to Bermuda in a transaction previously approved by shareholders. To accomplish this, our predecessor company INVESCO PLC effected a court-approved U.K. Scheme of Arrangement under which our shareholders received common shares in Invesco Ltd., our new Bermuda parent company, in exchange for their ordinary shares in INVESCO PLC. Holders of our American Depositary Shares (ADSs) and our Canadian exchangeable shares also received common shares in the new Bermuda parent company. Following the redomicile, Invesco Ltd. effected a one-for-two reverse stock split, such that all of our shareholders now hold common shares, par value $0.20 per share, in Invesco Ltd. Per share amounts have been adjusted throughout this Annual Report on Form 10-K to give effect to the reverse stock split. See Part I, Item 4, “Submission of Matters to a Vote of Security Holders” and Part II, Item 8, “Financial Statements and Supplementary Data — Note 1, Accounting Policies” for additional information.

Certain Demographic and Industry Trends

During 2007, we saw demographic and economic trends around the world continue to transform the investment management industry and our business:

•		Population and economic growth are creating a larger universe of investable assets and a growing number of investors who need professional support to reach their financial goals.
•		Global economic prosperity and changes in retirement needs are creating a larger middle class of investors, resulting in the growth of mutual funds around the globe. The greater reliance on self-funded retirement will result in not only a higher level of investable assets, but a greater need to be advised on how to invest effectively for the future. The effect of the recent changes to U.S. pension laws could potentially further increase the size of the defined contribution market. We believe we are well-positioned to attract these retirement assets through our products developed to meet retirement needs, including lifecycle and target maturity funds.

•		We have seen increasing demand from clients for alpha and beta to be separated as investment strategies in the investment management industry. (“Alpha” is defined as excess return attributable to a manager, and “beta” refers to the return of an underlying benchmark.) This trend reflects how clients are differentiating between low-cost beta solutions such as passive, index and ETF products and higher-priced alpha strategies such as alternative products.
•		Investors are increasingly seeking to invest outside their domestic markets. They seek firms that operate globally and have investment expertise in markets around the world. Invesco, with 15 distinct investment centers worldwide, has the global capabilities to benefit from this trend.

Our plans for taking the business forward acknowledge these demographic and economic trends, as well as our competitive position. Our multi-year strategy is designed to leverage our global presence, our distinctive worldwide investment management capabilities and our talented people to grow our business and ensure our long-term success.

During the last half of 2007 and continuing into early 2008 through the date of this Report, the fixed income markets experienced unprecedented disruptions impacting the liquidity and valuation of certain securities, including a variety of asset-backed securities and other securities with complex structures, particularly those exposed to sub-prime mortgage securities. These market events, in turn, caused the investment management industry to experience a marked decline in investor demand for certain credit-sensitive U.S. fixed income products, in particular certain collateralized debt obligations (CDO) vehicles that directly or indirectly held these types of securities. In addition, certain other products, including certain short duration fixed income funds, experienced liquidity and valuation difficulties with respect to investments in these types of securities. These events had a negative impact on several financial institutions, as well as many asset managers; some of these firms decided to provide financial support to these products in order to offset or prevent losses, as securities were sold at, or portfolio values adjusted to reflect, distressed prices. Although Invesco does have limited levels of exposure to these types of securities within its CDOs and certain un-registered short duration funds, among other products it manages, this exposure has not created any material financial loss or a need to fund any payment under support agreements as of the date of this Report. In addition, as of the date of this Report, none of Invesco’s registered money market funds have experienced any significant liquidity or valuation disruptions as a result of these market factors.

Investment Management Capabilities

Invesco is a leading independent global investment manager with offices in 20 countries. As of December 31, 2007, Invesco managed $500.1 billion in assets for retail, institutional and high-net-worth investors around the world. By delivering the combined power of our distinctive worldwide investment management capabilities, including AIM, Atlantic Trust, Invesco, Perpetual, PowerShares, Trimark and WL Ross, Invesco provides a comprehensive array of enduring solutions for our clients. Invesco shares are traded publicly on the New York Stock Exchange under the symbol “IVZ.”

Supported by a global operating platform, Invesco delivers a broad array of investment products and services to retail, institutional and high-net-worth investors on a global basis. We have a significant presence in the institutional and retail segments of the investment management industry in North America, Europe and Asia-Pacific, with clients in more than 100 countries.

We are committed to delivering the combined power of our distinctive worldwide investment management capabilities globally. We believe that our discipline-specific teams provide us with a competitive advantage. In addition, we offer multiple investment objectives within the various asset classes and products that we manage. Our asset classes include money market, fixed income, balanced, equity and alternatives. Approximately 49.6% of our AUM as of December 31, 2007, was invested in equities, with the balance invested in fixed income and other securities. We believe that having our investment professionals working in and investing from many of the world’s financial markets is one of our core strengths.

The following table sets forth the investment objectives by which we manage, sorted by asset class:

Objectives by Asset Class

The following table sets forth the categories of products sold through our three principal distribution channels:

Investment Vehicles by Distribution Channel

*		Investment companies with variable capital

The following tables present a breakdown of AUM by client domicile, distribution channel and asset class as of December 31, 2007:

AUM Diversification ($ in billions)

See Part II, Item 8, “Financial Statements and Supplementary Data — Note 14, “Geographic Information,” for a geographic breakdown of our consolidated operating revenues for the years ended December 31, 2007, 2006 and 2005.

Distribution Channels

Retail

Invesco is a significant provider of retail investment solutions to clients through our distribution channels: AIM in the U.S., Trimark in Canada, Invesco Perpetual in the U.K., Invesco in Europe and Asia, and PowerShares (for our ETF products). Collectively, the retail product management teams manage $259.5 billion as of December 31, 2007. We offer retail products within all of the major asset classes (money market, fixed income, balanced, equity and alternatives). Our retail products are primarily distributed through third-party financial intermediaries, including traditional broker-dealers, fund “supermarkets,” retirement platforms, financial advisors, insurance companies and trust companies.

The U.S., Canadian and U.K. retail operations rank among the largest, by AUM, in their respective regions: as of year end 2007, AIM was the 11 ^th largest non-proprietary mutual fund complex in the U.S., Trimark was the 5 ^th largest retail fund manager in Canada, and Invesco Perpetual was the largest retail fund provider in the U.K. In addition, Invesco Great Wall, our joint venture in China was the second-largest Sino-foreign manager in China, with AUM of approximately $14.6 billion as of December 31, 2007. PowerShares adds a leading set of ETF products (with $14.5 billion in AUM and 105 exchanged-traded funds as of December 31, 2007) to the extensive choices available to our retail investors. In 2007, PowerShares successfully launched ETF products in Europe. We now provide our retail clients with one of the industry’s most robust and comprehensive product lines.

Institutional

We provide investment solutions to institutional investors globally, with a major presence in the U.S., Canada, U.K., Continental Europe and Asia-Pacific regions through Invesco and AIM ($223.1 billion in AUM as of December 31, 2007). We offer a broad suite of domestic and global products, including traditional equities, structured equities, fixed income, real estate, private equity (expanded through our 2006 acquisition of WL Ross & Co.), financial structures, and absolute return strategies. Global and regional sales forces distribute our products and provide services to clients and intermediaries around the world. We have a diversified client base that includes major public entities, corporate, union, non-profit, endowments, foundations, and financial institutions. Clients of AIM’s institutional money market funds included 22 of the 25 largest U.S. banks, nine of the largest 25 global banks, 10 of the Fortune 25 U.S. corporations, and seven of the top 25 Fortune Global Corporations all as of December 31, 2007.

Private Wealth Management

Through Atlantic Trust, Invesco provides high-net-worth individuals and their families with a broad range of personalized and sophisticated wealth management services, including financial counseling, estate planning, asset allocation, investment management (including sale of third party-managed investment products), private equity, trust, custody and family office services. Atlantic Trust also provides asset management services to foundations and endowments in the U.S. Atlantic Trust obtains new clients through referrals from existing clients, recommendations from other professionals serving the high net worth market such as attorneys and accountants and from financial intermediaries such as brokers. Atlantic Trust has offices in 11 U.S. cities and manages $17.5 billion as of December 31, 2007.

Employees

As of December 31, 2007, we had 5,475 employees, the majority of whom were located in North America. As of December 31, 2006 and 2005, we had 5,574 and 5,798 employees, respectively. None of our employees is covered under collective bargaining agreements.

Competition

The investment management business is highly competitive, with points of differentiation including investment performance, the range of products offered, brand recognition, business reputation, financial strength, the depth and continuity of relationships, quality of service and the level of fees charged for services. We compete with a large number of investment management firms, commercial banks, investment banks, broker dealers, hedge funds, insurance companies and other financial institutions. We believe that the diversity of our investment styles, product types and channels of distribution enable us to compete effectively in the investment management business. We also believe being an independent investment manager is a competitive advantage, as our business model avoids conflicts that are inherent within institutions that both distribute investment products and manage investment products.

Management Contracts

We derive substantially all of our revenues from investment management contracts with clients. Fees vary with the type of assets being managed, with higher fees earned on actively managed equity and balanced accounts, along with real estate and alternative asset products, and lower fees earned on fixed income, money market and stable return accounts. Investment management contracts are generally terminable upon thirty or fewer days’ notice. Typically, mutual fund and unit trust investors may withdraw their funds at any time without prior notice. Institutional and private wealth management clients may elect to terminate their relationship with us or reduce the aggregate amount of assets under management upon very short-notice periods.

Government Regulation

As with all investment management companies, our operations and investment products are highly regulated in almost all countries in which we conduct business. Laws and regulations applied at the national, state or provincial and local level generally grant government agencies and industry self-regulatory authorities broad administrative discretion over the activities of our business, including the power to limit or restrict business activities. Possible sanctions for violations of law include the revocation of licenses to operate certain businesses, the suspension or expulsion from a particular jurisdiction or market of any of our business organizations or their key personnel, the imposition of fines and censures on us or our employees and the imposition of additional capital requirements. It is also possible that laws and regulations governing our operations in general or particular investment products could be amended or interpreted in a manner that is adverse to us.

We conduct substantial business operations in the U.S. Various of our subsidiaries and/or products and services offered by such subsidiaries are regulated by the U.S. Securities and Exchange Commission (SEC), the Financial Industry Reporting Authority (FINRA), the National Futures Association, the Commodity Futures Trading Commission and the Office of the Comptroller of the Currency (OCC). Federal statutes that regulate the products and services we offer in the U.S. include the Securities Act of 1933, the Securities Exchange Act of 1934 (Exchange Act), the Investment Company Act of 1940, (the Investment Company Act), the Investment Advisers Act of 1940 and the Employee Retirement Income Security Act of 1974. The Investment Advisers Act of 1940, as amended (the Investment Advisers Act), imposes numerous obligations on registered investment advisers, including record-keeping requirements, operational requirements, marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act imposes similar obligations on registered investment companies, as well as detailed operational requirements on investment advisers. The SEC is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act and the Investment Company Act, ranging from fines and censure to termination of an investment adviser’s registration. Investment advisers also are subject to certain state securities laws and regulations. In addition, in recent years, the SEC adopted various rules, the effect of which has been to further regulate the investment management industry and has imposed on Invesco additional compliance obligations and costs for fulfilling such obligations.

Various of our subsidiaries are regulated in the United Kingdom by the Financial Services Authority (FSA). Our operations elsewhere in the world are regulated by similar regulatory organizations. Other regulators who potentially exert a significant impact on our businesses around the world include the Ministry of Finance and the Financial Services Agency in Japan, the Austrian Financial Market Authority (FMA), the Bundesamt für Finanzdienstleistungsaufsicht (BaFin) in Germany, the Canadian securities administrators (including the Ontario Securities Commission), the Financial Regulator in Ireland, the Autorité des Marchs Financiers in France, the China Securities Regulatory Commission in the Peoples Republic of China, the Financial Supervisory Commission of the Ministry of Finance and the Investment Commission of the Ministry of Economic Affairs of the Peoples Republic of China, the Securities and Futures Commission of Hong Kong, the Commission Bancaire, Financière et des Assurances (CBFA) in Belgium, the Australian Securities & Investments Commission, the Commissione Nazionale per le Società e la Borsa (CONSOB) in Italy, the Swiss Federal Banking Commission, La Comisión Nacional del Mercado de Valores (CNMV) in Spain, the Monetary Authority of Singapore, the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, the Jersey Financial Services Commission and the Dubai Financial Services Authority.

Certain of our subsidiaries are required to maintain minimum levels of capital. These and other similar provisions of applicable law may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities. After redomicile and after consultation with the U.K. FSA, it has been determined that, for the purposes of prudential supervision, Invesco Ltd. is not subject to regulatory consolidated capital requirements under current European Union (EU) Directives. A sub-group, however, including all of our regulated EU subsidiaries, is subject to these consolidated capital requirements, and capital is maintained within this sub-group to satisfy these regulations. At December 31, 2007, the European sub-group had cash and cash equivalent balances of $758.1 million, much of which is used to satisfy these regulatory requirements. Complying with our regulatory commitments may result in an increase in the capital requirements applicable to the European sub-group. As a result of corporate restructuring and the regulatory undertakings that we have given, certain of these EU subsidiaries may be required to limit their distributions. We cannot guarantee that further corporate restructuring will not be required to comply with applicable legislation. See Part 1, Item 1A, “Risk Factors.”

To the extent that existing or future regulations affecting the sale of our products and services or our investment strategies cause or contribute to reduced sales or increased redemptions of our products or impair the investment performance of our products, our aggregate assets under management and revenues might be adversely affected.

Available Information

We file current and periodic reports, proxy statements, and other information with the SEC, copies of which can be obtained from the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at www.sec.gov. We make available free of charge on our Web site, www.Invesco.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors

Our revenues would be adversely affected by any reduction in assets under our management as a result of either a decline in market value of such assets or net outflows, which would reduce the investment management fees we earn.

We derive substantially all of our revenues from investment management contracts with clients. Under these contracts, the investment management fees paid to us are typically based on the market value from time to time of assets under management. Assets under management may decline for various reasons. For any period in which revenues decline, our income and operating margin may decline by a greater proportion because certain expenses remain relatively fixed. Factors that could decrease assets under management (and therefore revenues) include the following:

Declines in the Market Value of the Assets in the Funds and Accounts Managed. These could be caused by price declines in the securities markets generally or by price declines in the market segments in which those assets are concentrated. Approximately 49.6% of our total assets under management were invested in equity securities and approximately 50.4% were invested in fixed income and other securities at December 31, 2007. Through the date of the filing of the Annual Report on Form 10-K with the SEC, markets continue to be volatile, and our AUM as of January 31, 2008 had fallen 4.9% from year-end levels. We cannot predict whether the continued volatility in the markets will result in substantial or sustained declines in the securities markets generally or result in price declines in market segments in which our assets under management are concentrated. Any of the foregoing could negatively impact our revenues, income and operating margin.

Redemptions and Other Withdrawals from, or Shifting Among, the Funds and Accounts Managed. These could be caused by investors (in response to adverse market conditions or pursuit of other investment opportunities) reducing their investments in funds and accounts in general or in the market segments on which Invesco focuses; investors taking profits from their investments; poor investment performance of the funds and accounts managed by Invesco; and portfolio risk characteristics, which could cause investors to move assets to other investment managers. Poor performance relative to other investment management firms tends to result in decreased sales, increased redemptions of fund shares, and the loss of private institutional or individual accounts, with corresponding decreases in our revenues. Failure of our funds and accounts to perform well could, therefore, have a material adverse effect on us. Furthermore, the fees we earn vary with the types of assets being managed, with higher fees earned on actively managed equity and balanced accounts, along with real estate and alternative asset products, and lower fees earned on fixed income and stable return accounts. Therefore, our revenues may decline if clients shift their investments to lower fee accounts.

Declines in the value of seed capital and partnership investments. The company has investments in sponsored investment products that invest in a variety of asset classes, including but not limited to equities, fixed income products, and real estate. Investments in these products are generally made to establish a track record. Adverse market conditions may result in the need to write down the value of these seed investments. As of December 31, 2007 the company had $113.6 million in seed capital and partnership investments.

Our investment advisory agreements are subject to termination or non-renewal, and our fund and other investors may withdraw their assets at any time.

Substantially all of our revenues are derived from investment advisory agreements. Investment advisory agreements are generally terminable upon 30 or fewer days’ notice. Agreements with U.S. mutual funds may be terminated with notice, or terminated in the event of an “assignment” (as defined in the Investment Company Act), and must be renewed annually by the disinterested members of each fund’s board of directors or trustees, as required by law. In addition, the board of trustees or directors of certain other funds accounts of Invesco or our subsidiaries generally may terminate these investment advisory agreements upon written notice for any reason. Mutual fund and unit trust investors may generally withdraw their funds at any time without prior notice. Institutional clients may elect to terminate their relationships with us or reduce the aggregate amount of assets under our management, and individual clients may elect to close their accounts, redeem their shares in our funds, or shift their funds to other types of accounts with different rate structures. Any termination of or failure to renew a significant number of these agreements, or any other loss of a significant number of our clients or assets under management, would adversely affect our revenues and profitability.

Our revenues and profitability from money market and other fixed-income assets may be harmed by interest rate, liquidity and credit volatility.

In a rising-rate environment, certain institutional investors using money market products and other short-term duration fixed-income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields than those available in money market and other fund products holding lower yielding instruments. These redemptions would reduce managed assets, thereby reducing our revenues. In addition, rising interest rates will tend to reduce the market value of bonds held in various investment portfolios and other products. Thus, increases in interest rates could have an adverse effect on our revenues from money market portfolios and from other fixed-income products. If securities within a money market portfolio default, or investor redemptions force the portfolio to realize losses, there could be negative pressure on its net asset value. Although money market investments are not guaranteed instruments, the company might decide, under such a scenario, that it is in its best interest to provide support in the form of a support agreement, capital infusion, or other methods to help stabilize a declining net asset value. Some of these methods could have an adverse impact on our profitability. Additionally, we have $39.0 million of equity at risk invested in our collateralized loan and debt obligation products, the valuation of which could change with changes in interest and default rates. We have no significant or direct exposure to SIVs or sub-prime commercial paper.

We operate in an industry that is highly regulated in the U.S. and numerous foreign countries, and any adverse changes in the regulations governing our business could decrease our revenues and profitability.

As with all investment management companies, our activities are highly regulated in almost all countries in which we conduct business. Laws and regulations applied at the national, state or provincial and local level generally grant governmental agencies and industry self-regulatory authorities broad administrative discretion over our activities, including the power to limit or restrict business activities. Possible sanctions include the revocation of licenses to operate certain businesses, the suspension or expulsion from a particular jurisdiction or market of any of our business organizations or their key personnel, the imposition of fines and censures on us or our employees and the imposition of additional capital requirements. It is also possible that laws and regulations governing our operations or particular investment products could be amended or interpreted in a manner that is adverse to us.

Certain of our subsidiaries are required to maintain minimum levels of capital. These and other similar provisions of applicable law may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities. After redomicile and after consultation with the U.K. Financial Services Authority (FSA), it has been determined that, for the purposes of prudential supervision, Invesco Ltd. is not subject to regulatory consolidated capital requirements under current European Union (EU) Directives. A sub-group, however, including all of our regulated EU subsidiaries, is subject to these consolidated capital requirements, and capital is maintained within this sub-group to satisfy these regulations. At December 31, 2007, the European sub-group had cash and cash equivalent balances of $758.1 million, much of which is used to satisfy these regulatory requirements. Complying with our regulatory commitments may result in an increase in the capital requirements applicable to the European sub-group. As a result of corporate restructuring and the regulatory undertakings that we have given, certain of these EU subsidiaries may be required to limit their distributions. We cannot guarantee that further corporate restructuring will not be required to comply with applicable legislation.

The regulatory environment in which we operate frequently changes and has seen significant increased regulation in recent years. We may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations. To the extent that existing regulations are amended or future regulations are adopted that reduce the sale, or increase the redemptions, of our products and services, or that negatively affect the investment performance of our products, our aggregate assets under management and our revenues could be adversely affected. In addition, regulatory changes could impose additional costs which could negatively impact our profitability.

Civil litigation and governmental enforcement actions and investigations could adversely affect our assets under management and future financial results, and increase our costs of doing business.

Invesco and certain related entities have in recent years been subject to various legal proceedings arising from normal business operations and/or matters that have been the subject of previous regulatory actions. See Part I, Item 3, “Legal Proceedings,” for additional information.

Our investment management professionals and other key employees are a vital part of our ability to attract and retain clients, and the loss of a significant portion of those professionals could result in a reduction of our revenues and profitability.

Retaining highly skilled technical and management personnel is important to our ability to attract and retain clients and retail shareholder accounts. The market for investment management professionals is competitive and has grown more so in recent periods as the investment management industry has experienced growth. The market for investment managers is also increasingly characterized by the movement of investment managers among different firms. Our policy has been to provide our investment management professionals with compensation and benefits that we believe are competitive with other leading investment management firms. However, we may not be successful in retaining our key personnel, and the loss of a significant portion, either in quality or quantity, of our investment management personnel could reduce the attractiveness of our products to potential and current clients and could, therefore, adversely affect our revenues and profitability. During 2007, several members of our Stable Value team departed for a competitor, which resulted in net outflows of AUM of $16.2 billion.

If our reputation is harmed, we could suffer losses in our business, revenues and net income.

Our business depends on earning and maintaining the trust and confidence of clients, regulators and other market participants, and the resulting good reputation is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries, employee misconduct and rumors, among other things, can substantially damage our reputation, even if they are baseless or satisfactorily addressed. Any damage to our reputation could impede our ability to attract and retain clients and key personnel, and lead to a reduction in the amount of our assets under management, any of which could have a material adverse effect on our revenues and net income.

Competitive pressures may force us to reduce the fees we charge to clients, increase commissions paid to our financial intermediaries or provide more support to those intermediaries, all of which could reduce our profitability.

The investment management business is highly competitive, and we compete based on a variety of factors, including investment performance, the range of products offered, brand recognition, business reputation, financing strength, strength and continuity of client and intermediary relationships, quality of service, level of fees charged for services and the level of compensation paid and distribution support offered to financial intermediaries. We continue to face market pressures regarding fee levels in certain products.

We face strong competition in every market in which we operate. Our competitors include a large number of investment management firms, commercial banks, investment banks, broker-dealers, hedge funds, insurance companies and other financial institutions. Some of these institutions have greater capital and other resources, and offer more comprehensive lines of products and services, than we do. The recent trend toward consolidation within the investment management industry has served to increase the strength of a number of our competitors. These

strengthened competitors seek to expand their market share in many of the products and services we offer. If these competitors are successful, our revenues and profitability could be adversely affected. In addition, there are relatively few barriers to entry by new investment management firms, and the successful efforts of new entrants into our various distribution channels around the world have also resulted in increased competition.

We may engage in strategic transactions that could create risks.

As part of our business strategy, we regularly review, and from time to time have discussions with respect to potential strategic transactions, including potential acquisitions, dispositions, consolidations, joint ventures or similar transactions, some of which may be material. There can be no assurance that we will find suitable candidates for strategic transactions at acceptable prices, have sufficient capital resources to accomplish such transactions, or be successful in entering into agreements for desired transactions.

Acquisitions, including completed acquisitions, also pose the risk that any business we acquire may lose customers or employees or could underperform relative to expectations. We could also experience financial or other setbacks if transactions encounter unanticipated problems, including problems related to execution or integration. Following the completion of an acquisition, we may have to rely on the seller to provide administrative and other support, including financial reporting and internal controls, to the acquired business for a period of time. There can be no assurance that the seller will do so in a manner that is acceptable to us.

Our substantial indebtedness could adversely affect our financial position.

We have a significant amount of indebtedness. As of December 31, 2007, we had outstanding total long-term debt of $1,276.4 million (which excludes $116.6 million of debt held by consolidated investment products) and shareholders’ equity of $6,590.6 million. The significant amount of indebtedness we carry could limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, increase our vulnerability to adverse economic and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business or industry, and place us at a disadvantage in relation to our competitors. Any or all of the above factors could materially adversely affect our financial position.

We have received credit ratings of A3 and BBB+ from Moody’s and Standard & Poor’s credit rating agencies, respectively, as of the date of this Annual Report on Form 10-K. Both Standard & Poor’s and Moody’s have a “stable” outlook for the rating as of the date of this Annual Report on Form 10-K. We believe that rating agency concerns include but are not limited to: our ability to sustain net positive asset flows across customer channels, product type and geographies, our substantial indebtedness, and our ability to maintain consistent positive investment performance. Material deterioration of these factors, and others defined by each rating agency, could result in downgrades to our credit ratings, thereby limiting our ability to generate additional financing or receive mandates. Management believes that solid investment grade ratings are an important factor in winning and maintaining institutional business and strives to manage the company to maintain such ratings.

Our credit facility imposes restrictions on our ability to conduct business and, if amounts borrowed under it were to be accelerated, we might not have sufficient assets to repay such amounts in full.

Our credit facility requires us to maintain specified financial ratios, including maximum debt-to-earnings and minimum interest coverage ratios. This credit facility also contains customary affirmative operating covenants and negative covenants that, among other things, restrict certain of our subsidiaries’ ability to incur debt and restrict our ability to transfer assets, merge, make loans and other investments and create liens. The breach of any covenant would result in a default under the credit facility. In the event of any such default, lenders that are party to the credit facility could refuse to make further extensions of credit to us and require all amounts borrowed under the credit facility, together with accrued interest and other fees, to be immediately due and payable. If any indebtedness under the credit facility were to be accelerated, we might not have sufficient liquid assets to repay such indebtedness in full.

Changes in the distribution channels on which we depend could reduce our revenues and hinder our growth.

We sell a portion of our investment products through a variety of financial intermediaries, including major wire houses, regional broker-dealers, banks and financial planners in North America, and independent brokers and financial advisors, banks and financial organizations in Europe and Asia. Increasing competition for these distribution channels could cause our distribution costs to rise, which would lower our net revenues. Additionally, certain of the intermediaries upon whom we rely to distribute our investment products also sell their own competing

proprietary funds and investment products, which could limit the distribution of our products. In addition, some investors rely on third-party financial planners, registered investment advisers, and other consultants or financial professionals to advise them on the choice of investment adviser and investment portfolio. These professionals and consultants could favor a competing investment portfolio as better meeting their particular client’s needs. There is no assurance that our investment products will be among their recommended choices in the future. Additionally, if one of our major distributors were to cease operations, it could have a significant adverse effect on our revenues and profitability. Moreover, any failure to maintain strong business relationships with these distribution sources would impair our ability to sell our products, which could have a negative effect on our revenues and profitability.

We could be subject to losses if we fail to properly safeguard confidential and sensitive information.

We maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations as part of our regular operations. Our systems could be attacked by unauthorized users or corrupted by computer viruses or other malicious software code, or authorized persons could inadvertently or intentionally release confidential or proprietary information.

Such disclosure could, among other things, damage our reputation, allow competitors to access our proprietary business information, result in liability for failure to safeguard our clients’ data, result in the termination of contracts by our existing customers, subject us to regulatory action, or require material capital and operating expenditures to investigate and remediate the breach.

Our business is vulnerable to failures in support systems and customer service functions that could lead to loss of customers, breaches and errors, or claims against us or our subsidiaries.

The ability to consistently and reliably obtain securities pricing information, process client portfolio and fund shareholder transactions and provide reports and other customer service to fund shareholders and investors in other accounts managed by us is essential to our continuing success. Any delays or inaccuracies in obtaining pricing information, processing such transactions or such reports, other breaches and errors, and any inadequacies in other customer service, could result in reimbursement obligations or other liabilities, or alienate customers and potentially give rise to claims against us. Our customer service capability, as well as our ability to obtain prompt and accurate securities pricing information and to process transactions and reports, is highly dependent on communications and information systems and on third-party vendors. These systems could suffer failures or interruptions due to various natural or man-made causes, and our back-up procedures and capabilities may not be adequate to avoid extended interruptions in operations. Other similar problems could occur from time to time due to human error.

If we are unable to successfully recover from a disaster or other business continuity problem, we could suffer material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

If we were to experience a local or regional disaster or other business continuity problem, such as a pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities and the proper functioning of our computer, telecommunication and other related systems and operations. In such an event, our operational size, the multiple locations from which we operate, and our existing back-up systems would provide us with an important advantage. Nevertheless, we could still experience near-term operational challenges with regard to particular areas of our operations, such as key executive officers or technology personnel. Further, as we expand our operations in particular areas, such as India, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases. Although we seek to regularly assess and improve our existing business continuity plans, a major disaster, or one that affected certain important operating areas, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

Since many of our subsidiary operations are located outside of the United States and have functional currencies other than the U.S. dollar, changes in the exchange rates to the U.S. dollar may affect our reported financial results from one period to the next.

The largest component of our net assets, revenues and expenses, as well as our assets under management, is presently derived from the United States. However, we have a large number of subsidiaries outside of the United States whose functional currencies are not the U.S. dollar.

As a result, fluctuations in the exchange rates to the U.S. dollar may affect our reported financial results from one period to the next. We do not actively manage our exposure to such effects. Consequently, changes in exchange rates to the U.S. dollar could have a material negative impact on our reported financial results.

The carrying value of goodwill on our balance sheet could become impaired, which would adversely affect our results of operations.

We have goodwill on our balance sheet that is subject to an annual impairment review. Goodwill totaled $6,848.0 million at December 31, 2007 (2006: $6,360.7 million). We may not realize the value of such goodwill. We perform impairment reviews of the book values of goodwill on an annual basis. A variety of factors could cause such book values to become impaired. Should valuations be deemed to be impaired, a write-down of the related asset would occur, adversely affecting our results of operations for the period.

Bermuda law differs from the laws in effect in the United States and may afford less protection to shareholders.

Our shareholders may have more difficulty protecting their interests than shareholders of a corporation incorporated in a jurisdiction of the United States. As a Bermuda company, we are governed by the Companies Act 1981 of Bermuda (“Companies Act”). The Companies Act differs in some material respects from laws generally applicable to United States corporations and shareholders, including provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits and indemnification of directors.

Under Bermuda law, the duties of directors and officers of a company are generally owed to the company only. Shareholders of Bermuda companies do not generally have rights to take action against directors or officers of the company, and may only do so in limited circumstances. Directors and officers may owe duties to a company’s creditors in cases of impending insolvency. Directors and officers of a Bermuda company must, in exercising their powers and performing their duties, act honestly and in good faith with a view to the best interests of the company and must exercise the care and skill that a reasonably prudent person would exercise in comparable circumstances. Directors have a duty not to put themselves in a position in which their duties to the company and their personal interests may conflict and also are under a duty to disclose any personal interest in any material contract or proposed material contract with the company or any of its subsidiaries. If a director or officer of a Bermuda company is found to have breached his duties to that company, he may be held personally liable to the company in respect of that breach of duty.

Our bye-laws provide for indemnification of our directors and officers in respect of any loss arising or liability attaching to them in respect of any negligence, default, breach of duty or breach of trust of which a director or officer may be guilty in relation to us other than in respect of his own fraud or dishonesty, which is the maximum extent of indemnification permitted under the Companies Act. Under our bye-laws, each of our shareholders agrees to waive any claim or right of action, other than those involving fraud, against us or any of our officers or directors.

Legislative and other measures that may be taken by U.S. and/or other governmental authorities could materially increase our tax burden or otherwise adversely affect our financial conditions, results of operations or cash flows.

Under current laws, as the company is domiciled and tax resident in Bermuda, taxation in other jurisdictions is dependent upon the types and the extent of the activities of the company undertaken in those jurisdictions. There is a risk that changes in either the types of activities undertaken by the company or changes in tax rules relating to tax residency could subject the company and its shareholders to additional taxation. Additionally, under existing U.S. tax rules earnings from non-U.S. subsidiaries of the company are not subject to U.S. taxation.

We continue to assess the impact of various U.S. federal and state legislative proposals, and modifications to existing tax treaties between the United States and foreign countries, that could result in a material increase in our U.S. federal and state taxes. More recently, several proposals have been introduced in the U.S. Congress that, if ultimately enacted, could limit treaty benefits on certain payments made by our U.S. subsidiaries to non-U.S. affiliates. We cannot predict the outcome of any specific legislative proposals. However, if such proposals were to be enacted, or if modifications were to be made to certain existing tax treaties, the consequences could have a materially adverse impact on the company, including increasing our tax burden, increasing costs of our tax compliance or otherwise adversely affecting our financial condition, results of operations or cash flows.

Examinations and audits by tax authorities could result in additional tax payments for prior periods.

The company and its subsidiaries’ income tax returns periodically are examined by various tax authorities. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional income taxes will be due. We adjust these liabilities in light of changing facts and circumstances. Due to the complexity of some of these uncertainties, however, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.

Item 1B. Unresolved Staff Comments

N/A

Item 2. Properties

Our registered office is located in Hamilton, Bermuda, and our principal executive offices are in leased office space at 1360 Peachtree Street N.E., Atlanta, Georgia, 30309, U.S.A. We own office facilities at Perpetual Park, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom, and at 301 W. Roosevelt, Wheaton, Illinois, 60187, and we lease our additional principal offices located at 30 Finsbury Square, London, EC2A 1AG, United Kingdom; 11 Greenway Plaza, Houston, Texas 77046; 4350 South Monaco Street, Denver, Colorado 80237; and in Canada at 5140 Yonge Street, Toronto, Ontario M2N 6X7. We have entered into a lease for a new principal office location at 1555 Peachtree Street, NE, Atlanta, Georgia 30309, which we expect to occupy by the latter half of 2008. We lease office space in 17 other countries.

Item 3. Legal Proceedings

Following the industry-wide regulatory investigations, multiple lawsuits based on market timing allegations were filed against various parties affiliated with Invesco. These lawsuits were consolidated in the United States District Court for the District of Maryland, together with market timing lawsuits brought against affiliates of other mutual fund companies, and on September 29, 2004, three amended complaints were filed against company-affiliated parties: (1) a putative shareholder class action complaint brought on behalf of shareholders of AIM funds formerly advised by INVESCO Funds Group, Inc.; (2) a derivative complaint purportedly brought on behalf of certain AIM funds and the shareholders of such funds; and (3) an ERISA complaint purportedly brought on behalf of participants in the company’s 401(k) plan. On September 15, 2006, the court dismissed the ERISA lawsuit with prejudice. The plaintiff has appealed that dismissal to the United States Court of Appeals for the Fourth Circuit. Oral argument was held on December 5, 2007. The company and plaintiffs have reached a settlement in principle of the shareholder class action and derivative lawsuits. The proposed settlement, which is subject to court approval, calls for a payment by the company of $9.8 million, recorded in general and administrative costs in the 2007 Consolidated Statement of Income, in exchange for dismissal with prejudice of all pending claims. In addition, under the terms of the proposed settlement the company may incur certain costs in connection with providing notice of the proposed settlement to affected shareholders. Based on information currently available, it is not believed that any such incremental notice costs will have any material effect on the consolidated financial position or results of operations of the company.

The company and/or company-affiliated parties have also been named as defendants in a lawsuit alleging that one or more of the company’s funds inadequately employed fair value pricing, and thereby made such funds more susceptible to market timing. The lawsuit is a purported class action seeking unspecified monetary damages. It is now pending in the State court in Madison County, Illinois after a series of removals to the United States District Court for the Southern District of Illinois and remands back to the State Court. The Auditor of the State of West Virginia, in his capacity as securities commissioner, has initiated administrative proceedings against many mutual fund companies, including AIM, seeking disgorgement and other monetary relief based on allegations similar to those underlying the market timing lawsuits. The action against AIM was initiated on August 30, 2005. AIM’s time to respond to the Auditor’s proceeding has not yet elapsed. Although there can be no assurances, based on information currently available, the company does not believe it is probable that the ultimate outcome of any of these actions will have a material adverse effect on the company’s consolidated financial position or results of operations.

The asset management industry also is subject to extensive levels of ongoing regulatory oversight and examination. In the United States and other jurisdictions in which the company operates, governmental authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to compliance with

applicable laws and regulations. Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the future be filed against the company and related entities and individuals in the U.S. and other jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or client confidence as a result of such inquiries and/or litigation could result in a significant decline in assets under management, which would have an adverse effect on the company’s future financial results and its ability to grow its business.

In the normal course of its business, the company is subject to various litigation matters. Although there can be no assurances, at this time management believes, based on information currently available to it, that it is not probable that the ultimate outcome of any of these actions will have a material adverse effect on the consolidated financial condition or results of operations of the company.

Item 4. Submission of Matters to a Vote of Security Holders

On July 18, 2007, our predecessor, INVESCO PLC, announced that it had lost its foreign private issuer status in the United States, chiefly as a result of U.S. share ownership exceeding fifty percent of issued share capital. As a result of this, INVESCO PLC immediately became subject to the full requirements of two primary securities regulators, the SEC in the United States and the FSA in the United Kingdom, and two different accounting standards, U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS). Different regulatory and accounting standards placed INVESCO PLC in an untenable position that may have produced supervisory conflicts that may have impeded full compliance with the requirements of either primary regulatory scheme. In response, INVESCO PLC proposed to its shareholders that the company change its primary listing from the London Stock Exchange to the New York Stock Exchange and redomicile from the U.K. to Bermuda by order of a scheme of arrangement.

On November 14, 2007, two meetings of INVESCO PLC shareholders were held — a court meeting and an extraordinary general meeting. The court meeting was convened so that the appropriate U.K. court would have the authority to sanction the scheme of arrangement if approved by INVESCO PLC shareholders. The extraordinary general meeting was held to authorize the implementation of the following inter-related proposals (Proposals):

•		to move Invesco’s primary listing from the London Stock Exchange to the New York Stock Exchange;
•		to reorganize pursuant to a court approved scheme of arrangement under the laws of England and Wales so that INVESCO PLC would become a wholly-owned subsidiary of Invesco Ltd. and the former holders of INVESCO PLC shares would become shareholders of Invesco Ltd.;
•		to implement a reverse stock split, also known as a share capital consolidation, on a one-for-two basis immediately after the scheme of arrangement becoming effective; and
•		to transfer Invesco’s regulated business in the European Union from INVESCO PLC to Invesco Ltd. promptly after the scheme of arrangement becoming effective. The transfer was accomplished by INVESCO PLC issuing bonus shares, cancelling such bonus shares (see resolutions 2 and 3 of the Extraordinary General Meeting below) and utilizing the distributable reserves created by such issuance and cancellation to transfer Invesco’s regulated business from INVESCO plc to Invesco Ltd.

The shareholders of INVESCO PLC approved the scheme of arrangement at the court meeting and the Proposals at the extraordinary general meeting. The results of voting at each of the court meeting and the extraordinary meeting are set forth below.

Court Meeting

At the Court Meeting, (i) a majority in number of Invesco PLC shareholders who voted (either in person or by proxy), and (ii) over 75 percent in value of all Invesco PLC shares held by such shareholders, voted in favor of the resolution to approve the Scheme of Arrangement. The final result was as follows:

The scheme of arrangement became effective on December 4, 2007. As a result, INVESCO PLC became a wholly-owned subsidiary of Invesco Ltd. and the shareholders of INVESCO PLC received common shares of Invesco Ltd. in exchange for their ordinary shares of INVESCO PLC.

PART II

The following graph illustrates the cumulative total shareholder return of our common shares (ordinary shares prior to December 4, 2007) over the five-year period ending December 31, 2007 and compares it to the cumulative total return on the Standard and Poor’s (S&P) 500 Index and to a group of peer asset management companies. This table is not intended to forecast future performance of our common shares.

The chart below illustrates the cumulative total shareholder return of our common shares (ordinary shares prior to December 4, 2007) over the period since the company began its comprehensive operating plan designed to strengthen the business, build renewed momentum and identify the most promising opportunities for future growth.

Note: The Asset Manager Index includes Affiliated Managers Group, Alliance Bernstein, BlackRock, Eaton Vance, Federated Investors, Franklin Resources, Gamco Investors, Invesco Ltd., Janus, Legg Mason, Schroders, T. Rowe Price, Waddell & Reed, and W.P. Stewart & Co.

Important Information Regarding Dividend Payments

An interim dividend of $0.164 per INVESCO PLC ADS was declared on August 2, 2007 and paid on October 25, 2007. On February 1, 2008, the board of directors declared a final (semi-annual) dividend for 2007 of $0.22 per common share. The dividend will be paid on April 7, 2008 to holders of record on March 19, 2008.

If dividends are paid in the future, they will be declared and paid on a quarterly basis. The declaration, payment and amount of any future dividends will be declared by our board of directors and will depend upon, among other factors, our earnings, financial condition and capital requirements at the time such declaration and payment are considered. The board has a policy of managing dividends in a prudent fashion, with due consideration given to profit levels, overall debt levels, and historical dividend payouts. See also Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources - Dividends,” for additional details regarding dividends.

(1)		Purchases from October 1, 2007 through December 3, 2007 were made by INVESCO PLC and were comprised of ordinary shares trading on the London Stock Exchange. Purchases made after December 3, 2007 were comprised of Invesco Ltd. common shares trading on the New York Stock Exchange. Historical share prices were converted into U.S. dollars using the foreign exchange rate in effect on the date that the shares were purchased.
(2)		From time to time, the trustees of the Invesco Global Stock Plan (GSP) and the Invesco Employee Share Option Trust purchased ordinary shares in the open market. These trusts were established to satisfy our obligations to issue ordinary shares under the GSP, our share option and other share-based schemes. During the fourth quarter 2007, the company contributed $216.6 million to these trusts, which in turn purchased 16.9 million ordinary shares (equivalent to 8.4 million common shares). All transactions during the quarter were executed before the redomicile and relisting of the company discussed above. At the 2008 annual meeting of shareholders, the company will be proposing for shareholder approval two new equity compensation plans. Provided that such plans are approved, the company does not intend to fund further purchases by these trusts.
(3)		An aggregate of 0.3 million shares were repurchased in private transactions from current executive officers at the respective NYSE closing prices for the common shares on the preceding day.
(4)		On June 13, 2007, our board of directors authorized a share repurchase program of up to $500.0 million of the company’s shares through June 30, 2008. A public announcement of the authorization was made on June 14, 2007. Of the total amount authorized, $154.5 million remained as of December 31, 2007. During the fourth quarter, purchases related to this program totaled $240.3 million, representing 8.7 million shares.

			component of the cost of the October 2006 acquisition of WL Ross & Co, which was accounted for as prepaid compensation (see Part II, Item 8, “Financial Statements and Supplementary Data — Note 2, Acquisitions and Dispositions” for additional details).
	•		An increase in general and administrative expenses of $88.2 million (42.5%). The increase included growth in legal costs related to a $24.0 million insurance recovery in 2006 and to fund launches, a $12.8 million charge related to the relisting of the company on the New York Stock Exchange and a $9.8 million charge related to the proposed final settlement of market-timing private litigation that commenced in 2003.
	•		An increase in income tax expense of $102.7 million (40.3%), which was consistent with the increase in income before taxes.

Invesco ended 2007 with a record year-end AUM of $500.1 billion, an 8.1% increase over 2006 resulting from a combination of market gains, positive flows into money market funds and foreign currency translation partially offset by net outflows of $3.4 billion. Larger AUM increased operating revenues to $3,878.9 million, a 19.5% increase over the previous year. Operating expenses increased 16.0% to $2,884.6 million. The growth in operating revenues exceeded the increase in operating expenses, producing record operating income of $994.3 million in 2007, an increase of 31.0% over operating income of $759.2 million in 2006, and a significant expansion of operating margin and net operating margin to 25.6% and 36.0% in 2007, respectively, from 23.4% and 31.4% in 2006, respectively. Diluted earnings per share improved 37.8%, from $1.19 in 2006 to $1.64 in 2007. See “Schedule of Non-GAAP Information” for a reconciliation of operating income to net operating income (and by calculation, a reconciliation of operating margin to net operating margin) and important additional disclosures.

Achieving strong investment performance continues to be a strategic focus for Invesco. Within our retail products, the U.K. has continued to have strong relative performance versus its competitors throughout 2007. The U.S., Continental Europe and Asia were ahead of peers over most relevant time periods, while the relative performance in Canada tended to lag peers due to certain portfolios being underweight in the resources sector while being relatively overweight in consumer discretionary businesses. The strong Canadian dollar was an additional impediment for funds with higher-than-average investment in foreign securities. Many of our institutional products were ahead of benchmark over most relevant time periods with our fixed income and money market products once again delivering consistent outstanding relative performance.

Industry Discussion

Global equity markets generally increased for the full year of 2007. However, both equity and credit markets suffered sharp corrections at times during the fourth quarter, mainly due to sub-prime related write-downs from the large investment banks and tighter liquidity in short-term money markets. In North America during 2007, the Dow Jones Industrial Average, the S&P 500, the Nasdaq Composite Index, and the S&P/TSX Composite (Canada) were up 8.9%, 5.5%, 10.7%. and 9.8%, respectively; in Europe the FTSE 100 was up 7.8% and the FTSE World Europe was up 3.3%; and in Asia the China SE Shanghai Composite was up 97.9% while the Nikkei 225 was down 10.2%. The Lehman Brothers U.S. Aggregate Bond Index returned 7.0% for the year, bolstered by two interest rate cuts by the Federal Reserve in the fourth quarter, and despite credit concerns that increased across the broader economy. The markets continue to be volatile in early 2008. Our AUM at the end of 2007 were $500.1 billion (2006: $462.6 billion). At January 31, 2008, AUM decreased by $24.5 billion (4.9%) to $475.6 billion due primarily to this market volatility.

Assets Under Management

Average AUM for 2007 were $489.1 billion, compared to $424.2 billion in 2006. Net outflows for the year ended December 31, 2007, were $3.4 billion, with inflows of $119.9 billion and outflows of $123.3 billion. The primary driver of net outflows for 2007 were net outflows from the Stable Value product of $16.2 billion. These outflows occurred following the departure of several members of our Stable Value team to a competitor in April 2007. Our retail net inflows for 2007 were $6.0 billion, compared to net inflows of $0.5 billion in 2006. Institutional net outflows were $9.2 billion in 2007 (including the Stable Value net outflows of $16.2 billion) versus net outflows of $1.2 billion in 2006. Our Private Wealth Management (PWM) channel had net outflows of $0.2 billion in 2007 compared to net outflows of $0.7 billion in 2006.

Changes in AUM were as follows:

(1)		Net revenue yield on AUM is equal to net revenue divided by average AUM. Net revenues are operating revenues less third-party distribution, service and advisory costs, plus our proportional share of net revenues from joint venture investments. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues and important additional disclosures.

Our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net new business inflows (or outflows) and changes in the mix of investment products between asset classes may materially affect our revenues from period to period. The returns from global capital markets declined in 2007. The total returns (in local currency terms) of the FTSE 100, the S&P 500 and the Dow Jones Industrial Average (DJIA) all declined in 2007 from 2006: FTSE 100 — from 14.8% to 7.8%, S&P 500 — from 15.8% to 5.5% and the DJIA — from 19.0% to 8.9%, respectively. The total returns of the NASDAQ increased slightly from 10.4% to 10.7%. Our AUM by channel, by asset class, and by client domicile were as follows:

(a)		The beginning balances were adjusted to reflect certain asset reclassifications.
(b)		Includes PowerShares’s ETF AUM ($14.5 billion at December 31, 2007), which are primarily invested in equity securities.
(c)		Assets have been restated beginning December 31, 2006 to reflect an amended definition of the alternative asset class. The alternative asset class includes real estate, private equity and absolute return strategies.

(a)		The beginning balances were adjusted to reflect certain asset reclassifications. The company began documenting and presenting AUM by client domicile in 2006.

Note:		As of December 31, 2007. Certain funds and products were excluded from the analysis because of limited benchmark or peer group data. Had these been available, results may be different. These results are preliminary and subject to revision. Performance assumes the reinvestment of dividends. Past performance is not indicative of future results and may not reflect an investor’s experience.

Within U.S. retail, over 64% of assets were in the top half of their respective peer groups on both a three- and five-year Lipper basis while 45% of assets were in the top half on a one-year basis. Morningstar peer groups result in 49%, 65%, and 50% of AUM being in the top half on a one-, three- and five-year basis, respectively. During 2007, we evaluated, rationalized and merged five funds in the U.S. retail product line and introduced six new target date allocation funds as part of our efforts to ensure we are delivering the best possible investment solutions to our clients.

In our Canadian retail operations, certain portfolios lagged peers in 2007 due to being underweight in the resources sectors while overweight in consumer discretionary businesses. The strong Canadian dollar was an additional headwind for funds with higher-than-average investment in foreign securities.

The U.K. retail operations have produced particularly strong results across all measured time frames. In Continental Europe and Asia, 72%, 57% and 85% of AUM are performing in the top half of their peer groups on a one-, three- and five-year basis, respectively.

In our institutional operations, over 98% of our money market assets were in the top-half of their respective peer groups over one-, three-and five-year periods. At least 89% of alternatives and fixed income AUM were ahead of benchmark over three and five year periods. The institutional equity products experienced some relative weakness over a one year period but had 56% of AUM ahead of benchmark over a three- and five-year period. Although measuring our investment performance against benchmarks is an important criterion, our institutional operations are also evaluated against peer groups and consultant perception.

Results of Operations

Results of Operations for the Year Ended December 31, 2007 Compared with the Year Ended December 31, 2006

Operating Revenues and Net Revenues

Operating revenues increased by 19.5% in 2007 to $3,878.9 million (2006: $3,246.7 million). Net revenues are operating revenues less third-party distribution, service and advisory costs, plus our proportional share of net revenues from joint venture arrangements. Net revenues increased by 19.0% in 2007 to $2,888.4 million (2006: $2,428.0 million). See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues. The main categories of revenues, and the dollar and percentage change between the periods, are as follows:

Investment Management Fees

Investment management fees are derived from providing professional services to manage client accounts and include fees received from retail mutual funds, unit trusts, investment companies with variable capital (ICVCs), investment trusts and institutional advisory contracts. Investment management fees for products offered in the retail distribution channel are generally calculated as a percentage of the daily average asset balances and therefore vary as the levels of AUM change resulting from inflows, outflows and market movements. Investment management fees for products offered in the institutional and private wealth management distribution channels are calculated in accordance with the underlying investment management contracts and also vary in relation to the level of client assets managed.

Investment management fees increased 22.8% in 2007 to $3,080.1 million (2006: $2,508.2 million) due to increases in assets under management during the year. AUM at December 31, 2007 were $500.1 billion (2006: $462.6 billion).

Performance Fees

Performance fee revenues are only generated on certain management contracts when certain performance hurdles are achieved. They are recorded in operating revenues as of the performance measurement date, or on the date of achievement of the performance hurdle, when the outcome can be estimated reliably. The performance measurement date is defined in each contract in which incentive and performance fee revenue agreements are in effect.

Performance fees will fluctuate from period to period and may not correlate with general market changes, since most of the fees are driven by relative performance to the respective benchmark rather than absolute performance. In 2007, these fees decreased 14.4% to $70.3 million (2006: $82.1 million). The performance fees generated in 2006 were the result of outstanding investment performance across a number of our investment disciplines.

Service and Distribution Fees

Service fees are generated through fees charged to cover several types of expenses, including fund accounting fees, SEC filings and other maintenance costs for mutual funds, unit trusts and ICVCs, and administrative fees received from closed-ended funds. Service fees also include transfer agent fees, which are fees charged to cover the expense of transferring shares of a mutual fund or units of a unit trust into the investor’s name. Distribution fees include 12b-1 fees received from certain mutual funds to cover allowable sales and marketing expenses for those funds and also include asset-based sales charges paid by certain mutual funds for a period of time after the sale of those funds. Distribution fees typically vary in relation to the amount of client assets managed. Retail products offered outside of the U.S. do not generate a separate distribution fee, as the quoted management fee rate is inclusive of these services; instead fees for distribution services are included within investment management fee revenues for these locations.

In 2007, service and distribution fees increased 10.9% to $593.1 million (2006: $534.9 million) due to increased sales and assets under management.

Other Revenues

Other revenues include fees derived primarily from transaction commissions received upon the closing of new investments into certain of our retail funds and fees received upon the closing of real estate investment transactions in our real estate group. Real estate transaction fees are derived from commissions earned through the buying and selling of properties. The performance measurement date in which revenues are recorded is the date on which the transaction is legally closed. Other revenues also include the revenues of consolidated investment products.

In 2007, other revenues increased 11.4% to $135.4 million (2006: $121.5 million) driven by increases in sales volumes of funds subject to front-end commissions, offset by declines in real estate transaction fees from 2006. Increases in other revenues were also offset by decreases in the revenues of consolidated investment products, which were primarily the result of the deconsolidation of certain variable interest entities following the company’s determination that it was no longer the primary beneficiary of those entities. See Item 8, “Financial Statements and Supplementary Data — Note 18, Consolidated Investment Products.”

Third-Party Distribution, Service and Advisory Costs

Third-party distribution, service and advisory costs include renewal commissions paid to independent financial advisors for as long as the clients’ assets are invested and are payments for the servicing of the client accounts. Renewal commissions are calculated based upon a percentage of the AUM value. Third-party distribution costs also include the amortization of upfront commissions paid to broker/dealers for sales of fund shares with a contingent deferred sales charge (a charge levied to the investor for client redemption of AUM within a certain contracted period of time). The distribution commissions are amortized over the contractual AUM-retention period. Also included in third-party distribution, service and advisory costs are sub-transfer agency fees that are paid to a third party for transferring shares of a mutual fund or units of a unit trust into the investor’s name. Third-party distribution, service and advisory costs may increase or decrease at a rate different from the rate of change in service and distribution fee revenues due to the inclusion of distribution, service and advisory costs for the U.K. and Canada, where the related revenues are recorded as investment management fee revenues, as noted above.

Third-party distribution, service and advisory costs increased 27.1% in 2007 to $1,051.1 million (2006: $826.8 million), driven by increased renewal commissions generated by increased assets under management. Additionally, the trend towards platform and fund supermarket sales in the U.K. has further contributed to the increase in these costs.

Proportional share of revenues, net of third-party distribution costs, from joint venture investments

Management believes that the addition of our proportional share of revenues, net of third-party distribution costs, from joint venture arrangements should be added to operating revenues to arrive at net revenues, as it is important to evaluate the contribution to the business that our joint venture arrangements are making. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues. The company’s most significant joint venture arrangement, as identified in Item 8, “Financial Statements and Supplementary Data — Note 3, Investments,” is our 49.0% investment in INVESCO Great Wall Fund Management Company Limited. The 648.1% increase in our proportional share of revenues, net of third-party distribution costs, to $60.6 million in 2007 (2006: $8.1 million), is driven by the significant growth in assets under management in this joint venture.

Operating Expenses

During 2007, operating expenses increased 16.0% to $2,884.6 million (2006: $2,487.5 million), driven by increases in employee compensation, third-party distribution, service and advisory costs and general and administrative costs.

The main categories of operating expenses are as follows:

The table below sets forth these cost categories as a percentage of total operating expenses, operating revenues and net revenues, which we believe provides useful information as to the relative significance of each type of cost.

*		Net revenues are operating revenues less third-party distribution, service and advisory costs, plus our proportional share of net revenues from joint venture investments. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues and important additional disclosures.

Employee Compensation

Employee compensation continues to be the largest component of total operating expenses, accounting for 39.4% of total operating expenses for 2007 (2006: 43.0%). Competitive compensation is critical for the success of the company in attracting and retaining the highest caliber employees.

Employee compensation increased $67.1 million, or 6.3%, in 2007 from 2006 due predominantly to increases in base salaries, sales incentive bonuses and staff bonuses for performance against corporate objectives, and $25.0 million in amortization related to a component of the cost of the October 2006 acquisition of WL Ross & Co., which was accounted for as prepaid compensation (see Item 8, “Financial Statements and Supplementary Data – Note 2, Acquisitions and Dispositions”).

Third-Party Distribution, Service and Advisory Costs

Third-party distribution, service and advisory costs are discussed above in the operating and net revenues section.

Marketing

Marketing expenses include marketing support payments, which are payments made to distributors of certain of our retail products over and above the 12b-1 distribution payments. These fees are contracted separately with each distributor. Marketing expenses also include the cost of direct advertising of our products through trade publications, television and other media. Public relations costs, such as the marketing of the company’s products through conferences or other sponsorships, are also included in marketing costs, as well as the cost of marketing-related employee travel.

Marketing expenses increased 13.5% in 2007 to $157.6 million (2006: $138.8 million) due to increased marketing support payments related to increased sales and AUM in the U.S. but were relatively flat as a percentage of net revenues (5.5% of net revenues in 2007 vs. 5.7% of net revenues in 2006).

Property, Office and Technology

Property, office and technology expenses include rent and utilities for our various leased facilities, depreciation of company-owned property and capitalized computer equipment costs, minor non-capitalized computer equipment and software purchases and related maintenance payments, and costs related to externally provided computer, record-keeping and portfolio management services.

Property, office and technology costs increased 5.1% to $242.5 million in 2007 from $230.7 million in 2006, due primarily to a $7.4 million lease charge for unused office space.

General and Administrative

General and administrative expenses include professional services costs, such as information service subscriptions, consulting fees, professional insurance costs, audit, tax and legal fees, non-marketing related employee travel expenditures, recruitment and training costs, and the amortization of certain intangible assets.

General and administrative expenses increased by $88.2 million (42.5%) to $295.8 million in 2007 from $207.6 million in 2006. This increase included growth in legal and other costs related to a $24.0 million insurance recovery in 2006 and to fund launch costs for a broad array of new ETF products through PowerShares. In addition, during the fourth quarter of 2007, we recorded a $12.8 million charge related to the relisting of the company on the New York Stock Exchange and a $9.8 million charge related to the proposed final settlement of market-timing private litigation that commenced in 2003.

Restructuring Charge

We did not incur any restructuring costs in 2007. In 2006, we recorded $13.1 million in remaining charges related to the operational restructuring efforts that began in 2005. See Item 8, “Financial Statements and Supplementary Data – Note 13, Restructuring Charge,” for additional information.

Operating Income, Net Operating Income, Operating Margin and Net Operating Margin

Operating income increased 31.0% to $994.3 million in 2007 from $759.2 million in 2006, driven by the growth in operating revenues. Operating margin (operating income divided by operating revenues) was 25.6% in 2007, up from 23.4% in 2006. Net operating income (operating income plus our proportional share of the operating income from joint venture arrangements) increased 36.4% to $1,039.8 million in 2007 from $762.1 million in 2006. Net operating margin is equal to net operating income divided by net revenues. Net revenues are equal to operating revenues less third-party distribution, service and advisory costs, plus our proportional share of the net revenues from our joint venture arrangements. Net operating margin was 36.0% in 2007, up from 31.4% in 2006. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues, a reconciliation of operating income to net operating income and additional important disclosures regarding net revenues, net operating income and net operating margins.

Other Income and Expenses

Interest income increased 80.3% to $48.5 million in 2007 from $26.9 million in 2006 largely as a result of growth in our interest-earning cash balances during the year. Interest expense decreased 7.6% to $71.3 million in 2007 from $77.2 million in 2006 due to lower credit facility balances and a lower coupon interest rate on the new senior notes issued in April 2007.

Other gains and losses, net decreased 63.1% to $9.9 million in 2007 from $26.8 million in 2006. Included in other gains and losses, net are gains on disposals of investments, which increased to $32.2 million in 2007 from $18.1 million in 2006, primarily driven by gains realized upon the redemption of seed money investments. Also included in other gains are net foreign exchange gains and losses. In 2007, we incurred $10.3 million in net foreign exchange losses; whereas in 2006 we benefited from $8.5 million in net foreign exchange gains. Additionally, we incurred $13.6 million in write-downs and losses on seed capital investments during 2007 (2006: $1.7 million). See Item 8, “Financial Statements and Supplementary Data — Note 15, Other Gains and Losses, Net,” for additional details related to other gains and losses.

Included in other income and expenses are net other realized and unrealized gains of consolidated investment products. These net gains decreased 27.2% to $214.3 million in 2007 from $294.3 million in 2006, primarily due to the deconsolidation of certain variable interest entities for which we determined that we were no longer the primary beneficiary.

Income Tax Provision

Our subsidiaries operate in several taxing jurisdictions around the world, each with its own statutory income tax rate. As a result, our effective tax rate will vary from year to year depending on the mix of the profits and losses of our subsidiaries. The majority of our profits are earned in the U.S., Canada and the U.K. The current U.K. statutory tax rate is 30.0%, the Canadian statutory tax rate is 36.0% and the U.S. Federal statutory tax rate is 35.0%.

On July 19, 2007, legislation was enacted that will decrease the U.K.’s tax rate to 28.0% effective April 1, 2008. On December 14, 2007, legislation was enacted to reduce the Canadian income tax rate over the next five years. Beginning January 1, 2008, the Canadian tax rate will be reduced to 33.5%, with further reductions to 33.0% in 2009, 32.0% in 2010, 30.5% in 2011, and finally 29.0% in 2012.

Our effective tax rate excluding minority interest for 2007 was 34.6%, as compared to 34.5% in 2006. In 2007 a larger percentage of our profits originated from the U.K. than in 2006, which further decreased our effective tax rate. Similar to 2006, this reduction was offset by state taxes, additional taxes on subsidiary dividends, and an increase in the net valuation allowance for subsidiary operating losses. In 2007, we also reduced our Canadian and U.K. deferred tax assets to reflect the tax rate changes discussed above and we incurred transaction costs associated with our change in listing and domicile that were not deductible for tax purposes.

The inclusion of income from minority interests reduced our effective tax rate to 28.7% in 2007 and 24.6% in 2006.

Results of Operations for the Year Ended December 31, 2006 Compared with the Year Ended December 31, 2005

Operating Revenues and Net Revenues

Operating revenues increased by 13.0% in 2006 to $3,246.7 million (2005: $2,872.6 million). Net revenues are operating revenues less third-party distribution, service and advisory costs, plus our proportional share of revenues, net of third-party distribution costs, from joint venture arrangements. Net revenues increased by 12.1% in 2006 to $2,428.0 million (2005: $2,166.6 million). See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues. The main categories of revenues, and the dollar and percentage change between the periods, are as follows:

Investment Management Fees

Investment management fees increased 15.8% in 2006 over 2005, due to market appreciation on fund assets, investment performance and increased sales in Europe of the Dublin-based offshore fund range and the U.K. onshore fund range.

Performance fees

Performance fees increased to $82.1 million in 2006 from $33.5 million in 2005, as several institutional products exceeded performance hurdles. In the U.K., strong investment performance contributed to the increase in performance fees.

Service and Distribution Fees

In 2006, increases in service revenues in the U.K., in line with higher AUM, were offset by decreases in distribution and transfer agent revenues. Distribution fees declined due to the full year of 12b-1 rate reductions on certain U.S. retail products. The decline in transfer agent fee revenues arose primarily in U.S. retail from a change in the sub-transfer agent methodology, account fee rate changes, and fewer open accounts. Distribution and transfer agent fees in 2005 included revenues from AMVESCAP Retirement, which was sold in the second half of 2005, thereby further contributing to the decline in revenues in 2006.

Other Revenues

In 2006, other revenues decreased 9.5% from 2005, primarily due to lower real estate transaction commissions and reduced transaction commissions following the sale of our German banking license. In 2005, other revenues included fees earned from our German banking business, such as interest earned from balances available on demand from clients and credit institutions and commissions earned from derivative instruments.

Third-Party Distribution, Service and Advisory Costs

Third-party distribution, service and advisory costs increased 17.1% to $826.8 million in 2006 (2005: $706.0 million) due primarily to increases in renewal commissions, partially offset by declines in third-party distribution fees.

Proportional share of revenues, net of third-party distribution costs, from joint venture investments

Management believes that the addition of our proportional share of revenues, net of third-party distribution costs, from joint venture arrangements should be added to operating revenues to arrive at net revenues, as it is important to evaluate the contribution to the business that our joint venture arrangements are making. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues. The $8.1 million increase in our proportional share of revenues, net of third-party distribution costs, in 2006 (2005: $nil), is driven by the growth in assets under management in our Chinese joint venture, Invesco Great Wall Fund Management Company Limited.

Operating Expenses

The main categories of operating expenses are as follows:

The table below sets forth these cost categories as a percentage of total operating expenses, operating revenues and net revenues, which we believe provides useful information as to the relative significance of each type of cost.

*		Net revenues are operating revenues less third-party distribution, service and advisory costs, plus our proportional share of net revenues from joint venture investments. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues and important additional disclosures.

Employee Compensation

Employee compensation continues to be the largest component of total operating expenses, accounting for 43.0% of total operating expenses for 2006: (2005: 42.4%). Employee compensation expenses increased $25.8 million, or 2.5%. in 2006 from 2005, due primarily to $84.2 million in incremental non-cash amortization of share-related compensation programs, including a charge of $44.7 million ($0.08 per share, net of tax) relating to the cumulative previously unrecognized cost to the company of performance-based share options granted in 2003 that vested in February 2007. No expense for these options was recorded in 2005 as it was not expected in 2005 that the awards would vest. An increase of $15.5 million in staff bonuses and smaller increases in sales incentive bonuses also contributed to the overall rise in compensation costs. The increases in share-based payment and bonus costs were offset by decreases in base salary and pension costs in 2006, reflecting lower headcount levels.

Third-Party Distribution, Service and Advisory Costs

Third-party distribution, service and advisory costs increased 17.1% to $826.8 million in 2006 (2005: $706.0 million) due primarily to increases in renewal commissions, partially offset by declines in third-party distribution fees.

Marketing

Marketing expenses decreased 0.5% in 2006 from 2005 and were 5.7% of net revenues in 2006 compared to 6.4% of net revenues in 2005.

Property, Office and Technology

Property, office and technology costs decreased 14.8% to $230.7 million in 2006 from $270.9 million in 2005. Lower costs reflect a reduction in the amount of leased office space and lower depreciation expense caused by a decline in overall hardware purchases.

General and Administrative

General and administrative costs decreased 7.5% in 2006 compared to 2005. In 2006 legal costs, which included a $6.0 million settlement, were offset by a $24.0 million insurance recovery related to market timing litigation in prior years. Professional insurance costs declined in 2006 due to reduced premiums, and general recruitment costs declined in 2006. These declines were partially offset by increases in external consulting costs related to various strategic initiatives.

Restructuring Charge

In 2006 we recorded $13.1 million in remaining charges related to the operational and structural restructuring efforts that began in 2005. In 2005, we incurred $62.6 million in restructuring costs. See Item 8, “Financial Statements and Supplementary Data — Note 13, Restructuring Charge,” for additional information.

Goodwill Impairment

In 2005, we recorded a $16.6 million non-cash goodwill impairment charge related to our Private Wealth Management business. See Item 8, “Financial Statements and Supplementary Data — Note 8, Goodwill” for additional details.

Operating Income, Net Operating Income, Operating Margin and Net Operating Margin

Operating income increased 86.1% to $759.2 million in 2006 from $407.9 million in 2005, driven by the growth in operating revenues. Operating margin (operating income divided by operating revenues) was 23.4% in 2006, up from 14.2% in 2005. Net operating income (operating income plus our proportional share of the operating income from joint venture arrangements) increased 86.8% to $762.1 million in 2006 from $407.9 million in 2005. Net operating margin is equal to net operating income divided by net revenues. Net revenues are equal to operating revenues less third-party distribution, service and advisory costs, plus our proportional share of the net revenues from our joint venture arrangements. Net operating margin was 31.4% in 2006, up from 18.8% in 2005. See “Schedule of Non-GAAP Information” below for a reconciliation of operating revenues to net revenues, a reconciliation of operating income to net operating income and additional important disclosures regarding net revenues, net operating income and net operating margins.

Other Income and Expenses

Interest income increased 61.1% to $26.9 million in 2006 from $16.7 million in 2005 as a result, largely, of growth in our interest-earning cash balances during the year. Other gains and losses, net increased $26.8 million in 2006 from $13.4 million in 2005, driven by the realization of gains from our investments in collateralized debt obligations, fund seed money and foreign exchange gains. In 2005, we recognized $32.6 million in gain upon the sale of the AMVESCAP Retirement business.

Income Tax Provision

Our effective tax rate excluding minority interest for 2006 was 34.5%, as compared to 40.8% in 2005. In 2006 a larger percentage of our profits originated from the U.K. than in 2005, which further decreased our effective tax rate. This reduction was offset by state taxes, additional taxes on subsidiary dividends, and an increase in the net valuation allowance for subsidiary operating losses. In 2005, our effective tax rate excluding minority interest was higher due primarily to the absence of lower taxed profits, Europe and Asia operating losses, nondeductible restructuring expenses and nondeductible investment write-downs.

The inclusion of income from minority interests reduced our effective tax rate to 24.6% in 2006 and 31.4% in 2005.

Schedule of Non-GAAP Information

Net revenues, net operating income and net operating margin are non-GAAP financial measures. Management believes that these measures are additional meaningful measures to evaluate our operating performance. The most comparable U.S. GAAP measures are operating revenues, operating income and operating margin. Management believes that the deduction of third-party distribution, service and advisory costs from operating revenues in the computation of net revenues and the related computation of net operating margin provides useful information to investors because the distribution, service and advisory fee amounts represent costs that are passed through to external parties, which essentially are a share of the related revenues.  Management also believes that the addition of our proportional share of operating revenues, net of distribution costs, from joint venture investments in the computation of net revenues and the addition of our proportional share of operating income in the related computations of net operating income and net operating margin also provides useful information to investors, as management considers it appropriate to evaluate the contribution of its growing joint venture investment to the operations of the business. Net revenues, net operating income and net operating margin should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies.

The following is a reconciliation of operating revenues, operating income and operating margin on a U.S. GAAP basis to net revenues, net operating income and net operating margin.

*		Operating margin is equal to operating income divided by operating revenues.
**		Net operating margin is equal to net operating income divided by net revenues.