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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, 2010
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
(INVESCO LOGO)
Invesco Ltd.
(Exact Name of Registrant as Specified in Its Charter)
     
Bermuda   98-0557567
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
     
1555 Peachtree Street, NE, Suite 1800, Atlanta, GA   30309
(Address of Principal Executive Offices)   (Zip Code)
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 þ No o
     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 þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
     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):
             
Large accelerated filer þ   Accelerated filer o  Non-accelerated filer o  Smaller reporting company o
        (Do not check if a smaller reporting company)    
     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, 2010, the aggregate market value of the voting stock held by non-affiliates was $6.3 billion, based on the closing price of the registrant’s Common Shares, par value U.S. $0.20 per share, on the New York Stock Exchange. At January 31, 2011, the most recent practicable date, the number of Common Shares outstanding was 460,382,514.
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, 2010.
 
 

 


 

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.
         
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PART I
 
       
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PART II
 
       
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PART III
 
       
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PART IV
 
       
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 EX-10.11
 EX-10.12
 EX-21
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
     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, expenses, 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, legal and 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,” “projects,” “forecasts,” 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 or other outcomes. 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 in this Report or incorporated by reference into this Report or contained 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:
    variations in demand for our investment products or services, including termination or non-renewal of our investment advisory agreements;
 
    significant changes in net asset 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;
 
    enactment of adverse state, federal or foreign legislation or changes in government policy or regulation (including accounting standards) affecting our operations, our capital requirements or the way in which our profits are taxed;
 
    significant fluctuations in the performance of debt and equity markets worldwide;
 
    exchange rate fluctuations, especially as against the U.S. Dollar;
 
    the effect of economic conditions and interest rates in the U.S. or globally;
 
    our ability to compete in the investment management business;
 
    the effect of consolidation in the investment management business;
 
    limitations or restrictions on access to distribution channels for our products;
 
    our ability to attract and retain key personnel, including investment management professionals;
 
    the investment performance of our investment products;
 
    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;
 
    changes in regulatory capital requirements;
 
    our debt and the limitations imposed by our credit facility;
 
    the effect of failures or delays in support systems or customer service functions, and other interruptions of our operations;
 
    the occurrence of breaches and errors in the conduct of our business, including any failure to properly safeguard confidential and sensitive information;
 
    the execution risk inherent in our ongoing company-wide transformational initiatives;
 
    the effect of political or social instability in the countries in which we invest or do business;

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    the effect of terrorist attacks in the countries in which we invest or do business and the escalation of hostilities that could result therefrom;
 
    war and other hostilities in or involving countries in which we invest or do business; and
 
    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 I, 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 manager, dedicated to helping investors worldwide achieve their financial objectives. By delivering the combined power of our distinctive investment management capabilities, Invesco provides a comprehensive range of investment strategies and vehicles to our retail, institutional and high-net-worth clients around the world. Operating in more than 20 countries, Invesco had $616.5 billion in assets under management (AUM) as of December 31, 2010.
     The key drivers of success for Invesco are long-term investment performance, effective distribution relationships, and high-quality client service delivered across a diverse spectrum of investment management capabilities, distribution channels, geographic areas and market exposures. By achieving success in these areas, we seek to generate competitive investment results, 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 maintaining broad diversification across asset classes, client domiciles and geographies. We measure relative investment performance by comparing our investment capabilities to competitors’ products, industry benchmarks and client investment objectives. Generally, distributors, investment advisors and consultants take into consideration longer-term investment performance (e.g., three-year and five-year performance) in their selection of investment product and manager recommendations to their clients, although shorter-term performance may also be an important consideration. Third-party ratings may also influence 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 be incorporated into, this document).
Strategy
     The company focuses on four key strategic priorities that are designed to strengthen our business over time and help ensure our long-term success:
    Achieve strong investment performance over the long term for our clients;
 
    Deliver our investment capabilities anywhere in the world to meet our clients’ needs;

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    Harness the power of our global operating platform by continuously improving our processes and procedures and further integrating the support structures of our business globally; and
 
    Perpetuate a high-performance organization by driving greater transparency, accountability and execution at all levels.
     Since 2005 Invesco has taken a number of steps to further unify our business and present the organization as a single firm to our clients around the world. We believe these changes have strengthened Invesco’s ability to operate more efficiently and effectively as an integrated, global organization.
     Since we take a unified approach to our business, we present our financial statements and other disclosures under the single operating segment “investment management.”
Recent Developments
     On June 1, 2010, Invesco acquired Morgan Stanley’s retail asset management business, including Van Kampen Investments. The addition of this diversified business brought $114.6 billion in AUM across equity, fixed income and alternative asset classes (including mutual funds, variable insurance funds, separate accounts and unit investment trusts (UITs)). Furthermore, Invesco gained the experience, knowledge and expertise of nearly 600 investment, distribution and operations support professionals globally. This transformational combination:
    Expanded the depth and breadth of our investment strategies, enabling us to offer an even more comprehensive range of investment capabilities and vehicles to our clients around the world;
 
    Enhanced our ability to serve U.S. clients by positioning Invesco among the leading U.S. investment managers by AUM, diversity of investment teams and client profiles;
 
    Deepened Invesco’s relationships with clients and strengthened our overall distribution capabilities; and
 
    Further strengthened our position in the Japanese investment management market.
     Our goal from the day we announced the transaction was to complete the preparatory integration work prior to close. With a focused effort across Invesco, we accomplished our goal and were able to deliver the value of the combined organization to clients from Day 1. Throughout the second half of 2010, we saw strong momentum in the combined business.
     In addition to our acquisition of Morgan Stanley’s retail asset management business, Invesco’s commitment to a multi-year strategy set a firm foundation for the company’s many achievements throughout the year. During 2010:
    Relative investment performance remained strong across the enterprise, with 68% of ranked assets* performing ahead of peers on a 3-year basis at year end;
 
    We focused on strengthening and deepening relationships with clients in key markets. For example, we maintained a market share ranking in the top three on all major platforms in the U.K. retail market and strengthened relationships with leading financial institutions in all U.S. retail channels, where 70% of AUM is with top 20 distributors;
 
    We expanded our presence and improved our competitive advantage as a global investment manager in fast-growing, high-priority markets and segments;
 
    We resumed our share repurchase program, purchasing 9.4 million shares for $192.2 million; and
 
    We maintained strong inflows at Invesco PowerShares, and expanded our offering of intelligent exchange-traded funds (ETFs) within the Canadian marketplace through an innovative suite of mutual funds.
 
*   As of December 31, 2010, 68% of ranked assets were performing ahead of peers on a 3-year basis. Of total Invesco AUM, 61% were ranked at year-end. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Capabilities Performance Overview,” for more discussion of AUM rankings by investment capability.

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     Together, these efforts resulted in positive net flows for our business in 2010. Adjusted operating margin improved to 34.5% in 2010 from 28.5% in 2009. 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 adjusted operating margin, and important additional disclosures.
     Throughout 2010, we continued to execute our long-term strategy, making disciplined capital and resource allocation decisions, which we believe further improved our ability to serve our clients, reinforced our reputation as a premier global investment manager, and helped to deliver competitive levels of operating income and margins as we progressed through the year. In addition, we took steps to further strengthen our financial position and augment our capital flexibility through the execution of a new credit facility and the maintenance of a balanced approach to capital management. We have received credit ratings of A3/Stable and A-/Stable from Moody’s and Standard & Poor’s credit rating agencies, respectively, as of the date of this Annual Report on Form 10-K. In the fourth quarter, Standard & Poor’s increased Invesco’s enterprise risk management (ERM) rating from “adequate” to “strong,” making Invesco one of only four publicly rated investment managers with a “strong” ERM designation.
Certain Demographic and Industry Trends
     Demographic and economic trends around the world continue to transform the investment management industry and our business and underscore the need to be well-diversified with broad capabilities globally and across asset classes:
    There is an increasing number of investors who seek external professional advice and investment managers to help them reach their financial goals.
 
    As the “baby boomer” generation continues to mature, there is an increasingly large segment of the world population that is reaching retirement age. Economic growth in emerging market countries has created a large and rapidly expanding middle class and high net worth population with accelerating levels of wealth. As a result, globally, there is a high degree of demand for an array of investment solutions that span the breadth of investment capabilities, with a particular emphasis on savings vehicles for retirement. We believe Invesco, as one of the few truly global, independent investment managers, is very well-positioned to attract these retirement assets through its enduring products that are focused on long-term investment performance.
 
    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 volatility in returns versus 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 those offered by many 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.
 
    Although the U.S. and Europe are currently the two largest markets for financial assets by a wide margin, other markets in the world, such as China and India, are rapidly growing. As these population-heavy markets mature, investment managers that are truly global will be in the best position to capture this growth. Additionally, population age differences between emerging and developed markets will result in differing investment needs and horizons among countries. Asset allocation and pension type also differ substantially among countries. Invesco has a meaningful and expanding market presence in many of the world’s fastest growing and wealthiest regions, including the U.S., Canada, Western Europe and the UK, the Middle East and Asia-Pacific. Our strong U.S. presence and growing global presence represent significant long-term growth prospects for our business.
 
    The global trend towards the provision of defined contribution retirement plans continues, although significant opportunity remains for managers to increase defined benefit market share.
     Invesco is well positioned to capture the opportunities created by global demographic and industry trends. Through a variety of economic and market environments, our progress over the past five years has significantly strengthened 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 further grow our business and ensure our long-term success.

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Investment Management Capabilities
     Supported by a global operating platform, Invesco delivers a comprehensive array of investment capabilities 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, serving clients in more than 150 countries.
     We believe that the proven strength of our distinct and globally located investment centers and their well-defined investment disciplines provide us with a competitive advantage. There are few independent investment managers with teams as globally diverse as Invesco’s and with the same breadth and depth of investment capabilities and vehicles. We offer multiple investment objectives within the various asset classes and products that we manage. Our asset classes, broadly defined, include money market, fixed income, balanced, equity and alternatives. Approximately 48% of our AUM as of December 31, 2010, were invested in equity securities (December 31, 2009: 41%), and approximately 52% was invested in fixed income and other investments (December 31, 2009: 59%).
     The following table sets forth the investment objectives, sorted by asset class, which we manage:
Investment Objectives by Asset Class
                 
Money Market   Fixed Income   Balanced   Equity   Alternatives
Cash Plus
Government/Treasury
Prime
Taxable
Tax-Free
  Bank Loans
Convertibles
Core/Core Plus
Emerging Markets
Enhanced Cash
Government Bonds
High-Yield Bonds
Intermediate Term
International/Global
Investment Grade Credit
Municipal Bonds
Passive/Enhanced
Short Term
Stable Value
Structured Securities
   (ABS, MBS, CMBS)
  Asset Allocation
Global
Single Country
Target Date
Target Risk
  Enhanced Index/Quantitative
Global
International
Large Cap Core
Large Cap Growth
Large Cap Value
Mid Cap Core
Mid Cap Growth
Mid Cap Value
Regional/Single Country
Sector Funds
Small Cap Core
Small Cap Growth
Small Cap Value
  Absolute Return
Asian Direct Real Estate
Commodities
Currencies
European Direct Real Estate
Financial Structures
Global Macro
Global REITS
Private Capital - Direct
Private Capital - Fund of Funds
Risk Premia Capture
U.S. Direct Real Estate
U.S. REITS
     The following table sets forth the categories of investment vehicles sold through our three principal distribution channels:
Investment Vehicles by Distribution Channel
         
Retail   Institutional   Private Wealth Management
Closed-end Mutual Funds
Exchange-Traded Funds
Individual Savings Accounts
Investment Companies with Variable Capital
Investment Trusts
Open-end Mutual Funds
Separately Managed Accounts
Unit Investment Trusts
Variable Insurance Funds
  Collective Trust Funds
Exchange-Traded Funds
Institutional Separate Accounts
Private Capital Funds
  Exchange-Traded Funds
Managed Accounts
Mutual Funds
Private Capital Funds
Separate Accounts

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     One of Invesco’s greatest competitive strengths is the diversification in its AUM by client domicile, distribution channel and asset class. Our distribution network has gathered assets of 61% retail, 36% institutional, and 3% Private Wealth Management clients as of December 31, 2010. 32.6% of client assets under management are outside the U.S., and we serve clients in more than 150 countries. The following tables present a breakdown of AUM by client domicile, distribution channel and asset class as of December 31, 2010. Additionally, the fourth table below illustrates the split of our higher-fee non-passive AUM as compared to our lower-fee ETF, UIT, and passive AUM.
AUM Diversification

(PIE CHART)
By Client Domicile
                 
($ billions)           1-Yr Change
         
U.S.
  $ 415.4       41.2 %
Canada
  $ 27.9       (3.8 )%
U.K.
  $ 92.1       8.5 %
Continental Europe
  $ 35.3       44.7 %
Asia
  $ 45.8       69.0 %
         
 
               
Total
  $ 616.5       34.2 %
 
               


(PIE CHART)
By Distribution Channel
                 
($ billions)           1-Yr Change
         
Retail
  $ 378.4       58.1 %
Institutional
  $ 221.1       7.9 %
PWM
  $ 17.0       11.8 %
           
 
               
Total
  $ 616.5       34.2 %


(PIE CHART)
By Asset Class
                 
($ billions)           1-Yr Change
         
Equity
  $ 294.1       52.6 %
Balanced
  $ 43.5       9.0 %
Money Market
  $ 68.3       (18.2 )%
Fixed Income
  $ 131.9       73.3 %
Alternative
  $ 78.7       16.9 %
           
 
               
Total
  $ 616.5       34.2 %
 
               


(PIE CHART)
Non-Passive/Passive
                 
($ billions)           1-Yr Change
         
Non-Passive
  $ 535.7       31.8 %
ETF, UIT, and Passive
  $ 80.8       52.5 %
           
 
               
Total
  $ 616.5       34.2 %


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See Part II, Item 8, “Financial Statements and Supplementary Data — Note 18, Geographic Information,” for a geographic breakdown of our consolidated operating revenues for the years ended December 31, 2010, 2009 and 2008.
Distribution Channels
     Channel refers to the distribution channel from which the AUM originated. Retail AUM arose from client investments into funds available to the public with shares or units. Institutional AUM originated from individual corporate clients, endowments, foundations, government authorities, universities, or charities. Private Wealth Management AUM arose from high net worth client investments.
Retail
     Invesco is a significant provider of retail investment solutions to clients in all major markets: Invesco in the U.S., Invesco Trimark in Canada, Invesco Perpetual in the U.K., Invesco in Europe and Asia, and Invesco PowerShares (for our ETF products). Additionally, Invesco is now also a market leading sponsor of UIT products as a result of the acquisition of Morgan Stanley’s retail asset management business. Collectively, the retail investment management teams managed assets of $378.4 billion as of December 31, 2010. 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, banks, insurance companies and trust companies.
     The U.K., U.S. and Canadian retail operations rank among the largest by AUM in their respective markets. As of December 31, 2010, Invesco Perpetual was the No. 1 retail fund provider in the U.K.; Invesco’s U.S. retail business was the 9th largest non-proprietary fund complex in the U.S. by long-term assets, including the Invesco Powershares franchise; and Invesco Trimark was the 9th largest retail fund manager in Canada by long-term assets. Invesco Great Wall, our joint venture in China, was one of the largest Sino-foreign managers of equity products in China, with AUM of approximately $7.2 billion as of December 31, 2010. Invesco PowerShares adds a leading set of ETF products (with $55.7 billion in AUM and 176 exchange-traded funds as of December 31, 2010) to the extensive choices we make available to our retail investors. We 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., U.K., Continental Europe and Asia-Pacific with $221.1 billion in AUM as of December 31, 2010. We offer a broad suite of domestic and global products, including traditional equities, structured equities, fixed income (including money market funds for institutional clients), real estate, private equity, distressed equities, financial structures and absolute return strategies. 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, corporations, unions, non-profit organizations, endowments, foundations, pension funds and financial institutions. Invesco’s institutional money market funds serve some of the largest financial institutions and corporations in the world.
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 use of third-party managed investment products), private equity, trust, custody and family office services. Atlantic Trust also provides investment management services to foundations and endowments. 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 managed $17.0 billion as of December 31, 2010.
Employees
     As of December 31, 2010, we had 5,617 employees across the globe. As of December 31, 2009 and 2008, we had 4,890 and 5,325 employees, respectively. None of our employees is covered under collective bargaining agreements. Formal hiring of staff in our Hyderabad, India, facility commenced with 83 individuals becoming our employees in late 2010. An additional 474 individuals became our employees by the date of this Report.

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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 quality and 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 and/or serve investment products and manage investment products. Lastly, we believe continued execution against our multi-year strategy will further strengthen our long-term competitive position.
Management Contracts
     We derive substantially all of our revenues from investment management contracts with funds and other 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 value accounts, as well as certain ETFs. Investment management contracts are generally terminable upon thirty or fewer days’ notice. Typically, retail 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 with very short notice periods.
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
Volatility and disruption in world capital and credit markets, as well as adverse changes in the global economy, can negatively affect Invesco’s revenues and may continue to do so.
     The capital and credit markets have been experiencing substantial volatility and disruption since 2007. While these disruptions moderated to some extent following the March 2009 lows in equity markets, historical norms have not returned and the potential for extreme disruptions remains. These market events have materially impacted our results of operations, and may continue to do so, and could materially impact our financial condition and liquidity. In this regard:
    The volatility of global market conditions around the world has resulted, and may continue to result, in significant volatility in our assets under management and in our revenues, driven by market value fluctuations on our managed portfolios.
 
    In addition to the impact of the market values on client portfolios, the illiquidity and volatility of both the global fixed income and equity markets could negatively affect our ability to manage client inflows and outflows from pooled investment vehicles or to timely meet client redemption requests.
 
    Our money market funds have always maintained a $1.00 net asset value (NAV); however, we do not guarantee such level. Market conditions could lead to severe liquidity issues in money market products, which could affect their NAVs. If the NAV of one of our money market funds were to decline below $1.00 per share, such funds could experience significant redemptions in assets under management, loss of shareholder confidence and reputational harm. In 2010 the SEC adopted new rules governing U.S. registered money market funds. These rules are designed to significantly strengthen the regulatory requirements governing money market funds, increase the resilience of such funds to economic stresses, and

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      reduce the risk of runs on these funds. Regulators in the U.S. continue to evaluate whether to propose mandating a variable (“floating”) NAV for money market funds. The company believes such a change would have significant adverse consequences on the money market funds industry and the short-term credit markets.
 
    Even if legislative or regulatory initiatives or other efforts successfully stabilize and add liquidity to the financial markets, we may need to modify our strategies, businesses or operations, and we may incur increased capital requirements and constraints or additional costs in order to satisfy new regulatory requirements or to compete in a changed business environment.
 
    In the event of extreme circumstances, including economic, political, or business crises, such as a widespread systemic failure in the global financial system or additional failures of firms that have significant obligations as counterparties on financial instruments, we may suffer significant declines in assets under management and severe liquidity or valuation issues in the short-term sponsored investment products in which client and company assets are invested, all of which would adversely affect our operating results, financial condition, liquidity, credit ratings, ability to access capital markets, and retention and ability to attract key employees. Additionally, these factors could impact our ability to realize the carrying value of our goodwill and other intangible assets.
We may not adjust our expenses quickly enough to match significant deterioration in global financial markets.
     If we are unable to effect appropriate expense reductions in a timely manner in response to declines in our revenues, or if we are otherwise unable to adapt to rapid changes in the global marketplace, our profitability, financial condition and results of operations would be adversely affected.
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 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 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 48% of our total assets under management were invested in equity securities and approximately 52% were invested in fixed income and other investments at December 31, 2010. Our AUM as of January 31, 2011, was $624.3 billion. We cannot predict whether 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, private equity, and real estate. Investments in these products are generally made to establish a track record, meet purchase size requirements for trading blocks, or demonstrate economic alignment with other investors in our funds. Adverse market conditions may result in the need to write down the value of these seed capital and partnership investments. As of December 31, 2010, the company had $198.0 million in seed capital and partnership investments.

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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 fund 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 fee 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.
     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 $32.9 million invested in Invesco Mortgage Capital, Inc., $23.3 million of equity at risk invested in our collateralized loan obligation products, and $7.1 million invested in fixed income seed money at December 31, 2010, the valuation of which could change with changes in interest and default rates.
We operate in an industry that is highly regulated in many countries, and any adverse changes in the laws or 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. Subsidiaries operating in the European Union (EU) also are subject to various EU Directives, which are implemented by member state national legislation. 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. A sub-group of Invesco subsidiaries, including all of our regulated EU subsidiaries, is subject to consolidated capital requirements under EU Directives, and capital is maintained within this sub-group to satisfy these regulations. At December 31, 2010, the European sub-group had cash and cash equivalent balances of $456.2 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 dividends to the parent company, Invesco Ltd. 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.

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     Various changes in law and regulation have been enacted or adopted and are beginning to be implemented or otherwise developed in multiple jurisdictions globally in response to the crisis in the financial markets that began in 2007. Various other proposals remain under consideration by various legislators, regulators, other government officials and other public policy commentators. Certain enacted provisions and certain other proposals are potentially far reaching and, depending upon their implementation, could have a material impact on Invesco’s business. While many of these provisions appear designed to address perceived problems in the banking sector, certain of the provisions will or may be applied to other financial services companies, including investment managers.
     In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. While Invesco does not at this time believe that the Dodd-Frank Act will fundamentally change the investment management industry or cause Invesco to reconsider its fundamental strategy, it does appear that certain provisions will, and other provisions may, increase regulatory burdens and related compliance costs. In addition, the scope of many provisions of the Dodd-Frank Act will be determined by implementing regulations, some of which will require lengthy proposal and promulgation periods. Moreover, the Dodd-Frank Act mandates many regulatory studies, some of which pertain directly to the investment management industry, which could lead to additional legislation or regulation. As a result of these uncertainties regarding implementation of the Dodd-Frank Act and such other future potential legislative or regulatory changes, the impact of the Dodd-Frank Act on the investment management industry and Invesco cannot be predicted at this time.
     The European Union has promulgated or is considering various new or revised Directives pertaining to financial services, including investment managers. Such Directives are progressing at various stages, and are being or will or would be implemented by national legislation in member states. As with the Dodd-Frank Act, Invesco does not believe implementation of these Directives will fundamentally change our industry or cause us to reconsider our fundamental strategy, but it does appear certain provisions will, and other provisions may, increase regulatory burdens and compliance costs. Similar developments are being implemented or considered in other jurisdictions where we do business; such developments could have similar effects.
     Potential developments under enacted and proposed legal and regulatory changes, and related matters, include:
    Expanded prudential regulation over investment management firms.
 
    New or increased capital requirements and related regulation (including new capital requirements pertaining to money market funds).
 
    Additional change to the regulation of money market funds in the U.S. The SEC has adopted changes to Rule 2a-7, the primary securities regulation governing U.S. registered money market funds. These new rules are designed to significantly strengthen the regulatory requirements governing money market funds, increase the resilience of such funds to economic stresses, and reduce the risk of runs on these funds. Regulators in the U.S. continue to evaluate whether to propose mandating a variable (“floating”) NAV for money market funds. Invesco believes such a change would have significant adverse consequences on the money market funds industry and the short-term credit markets, and is encouraged by the recognition of these concerns in the Report of the President’s Working Group on Financial Markets on Money Market Fund Reform Options issued October 21, 2010.
 
    Changes to the distribution of investment funds and other investment products. In the U.S., the SEC has proposed significant changes to Rule 12b-1. Invesco believes these proposals would increase operational and compliance costs. The U.K. Financial Services Authority continues to develop its Retail Distribution Review, which is expected to reshape the manner in which retail investment funds are sold in the U.K. The EU adopted the Alternative Investment Fund Manager Directive; implementing legislation in member states could, among other elements, impose restrictions on the marketing and sale within the EU of private equity and other alternative investment funds sponsored by non-EU managers. Various regulators have promulgated or are considering other new disclosure and suitability requirements pertaining to the distribution of investment funds and other investment products, including enhanced standards and requirements pertaining to disclosures made to retail investors at the point of sale.
 
    Guidelines regarding the structure and components of compensation, including under the Dodd-Frank Act and various EU Directives.
 
    Additional resourcing for regulatory examinations and inspections, including enforcement reviews, and a more aggressive posture regarding commencing enforcement proceedings.
 
    Changes impacting certain other products or markets (e.g., retirement savings).
 
    Enhanced licensing and qualification requirements for key personnel.

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    Other additional rules and regulations and disclosure requirements. Certain provisions impose additional disclosure burdens on public companies, including Invesco. Certain proposals could impose requirements for more widespread disclosures of compensation to highly-paid individuals. Depending upon the scope of any such requirements, Invesco could be disadvantaged in retaining key employees vis-à-vis private companies, including hedge fund sponsors.
 
    Strengthening standards regarding various ethical matters, including enhanced focus of U.S. regulators and law enforcement agencies on compliance with the Foreign Corrupt Practices Act and the enactment of the U.K. Bribery Act.
 
    Other changes impacting the identity or the organizational structure of regulators with supervisory authority over Invesco.
     Invesco cannot at this time predict the full impact of potential legal and regulatory changes on its business. It is possible such changes could impose new compliance costs or capital requirements or impact Invesco in other ways that could have a material adverse impact on Invesco’s results of operations, financial condition or liquidity. Moreover, certain legal or regulatory changes could require us to modify our strategies, businesses or operations, and we may incur other new constraints or costs in order to satisfy new regulatory requirements or to compete in a changed business environment.
     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 results of operations might be adversely affected.
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 key individuals or 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 a supportive professional working environment and 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 key individuals or significant investment management personnel could reduce the attractiveness of our products to potential and current clients and could, therefore, adversely affect our revenues and profitability.
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 our 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, material errors in public reports, employee dishonesty or other misconduct and rumors, among other things, can substantially damage our reputation, even if they are baseless or satisfactorily addressed. Further, our business requires us to continuously manage actual and potential conflicts of interest, including situations where our services to a particular client conflict, or are perceived to conflict, with the interests of another client or those of Invesco. We have procedures and controls that are designed to address and manage conflicts of interest, but this task can be complex and difficult, and our reputation could be damaged, and the willingness of clients to enter into transactions in which such a conflict might arise may be affected, if we fail — or appear to fail — to deal appropriately with conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions. 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.

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Failure to comply with client contractual requirements and/or guidelines could result in damage awards against us and loss of revenues due to client terminations.
     Many of the investment management agreements under which we manage assets or provide products or services specify guidelines or contractual requirements that Invesco is required to observe in the provision of its services. A failure to comply with these guidelines or contractual requirements could result in damage to our reputation or in our clients seeking to recover losses, withdrawing their assets or terminating their contracts, any of which could cause our revenues and net income to decline. We maintain various compliance procedures and other controls to prevent, detect and correct such errors. When an error is detected, we typically will make a payment into the applicable client account to correct it. Significant errors could impact our results of operations.
     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, financial strength, stability 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. Our 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.
     In recent years there have been several instances of industry consolidation, both in the area of distributors and manufacturers of investment products. Further consolidation may occur in these areas in the future. The increasing size and market influence of certain distributors of our products and of certain direct competitors may have a negative impact on our ability to compete at the same levels of profitability in the future, should we find ourselves unable to maintain relevance in the markets in which we compete.
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 pursue such transactions, be successful in negotiating the required agreements, or successfully close transactions after signing such agreements.
     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 pending transactions encounter unanticipated problems, including problems related to closing 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 such sellers will do so in a manner that is acceptable to us.
Our ability to access the capital markets in a timely manner should we seek to do so depends on a number of factors.
     Our access to the capital markets, including for purposes of financing potential acquisitions, depends significantly on our credit ratings. We have received credit ratings of A3/Stable and A-/Stable from Moody’s and Standard & Poor’s credit rating agencies, respectively, as of the date of this Annual Report on Form 10-K. According to Moody’s, obligations rated ‘A’ are considered upper medium grade and are subject to low credit risk. Invesco’s rating of A3 is at the low end of the A range (A1, A2, A3), but three notches above the lowest investment grade rating of Baa3. Standard and Poor’s rating of A- is at the lower end of the A rating, with BBB- representing Standard and Poor’s lowest investment grade rating. According to Standard and Poor’s, A obligations exhibit a strong capacity to meet financial commitments, but are somewhat susceptible to adverse economic conditions or changing circumstances. We believe that rating agency concerns include but are not limited to: our revenues are somewhat exposed to equity market volatility, negative tangible equity, potential impact from regulatory changes to the industry, and integration risk related to the acquisition of Morgan Stanley’s retail asset management business. Additionally, the rating agencies could decide to downgrade the entire investment management industry, based on their perspective of future growth and solvency. Material deterioration of these

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factors, and others defined by each rating agency, could result in downgrades to our credit ratings, thereby limiting our ability to generate additional financing. Our credit facility borrowing rates are tied to our credit ratings. 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.
     A reduction in our long- or short-term credit ratings could increase our borrowing costs, limit our access to the capital markets, and may result in outflows thereby reducing AUM and revenues. Continued volatility in global finance markets may also affect our ability to access the capital markets should we seek to do so. If we are unable to access capital markets in a timely manner, our business could be adversely affected.
Our indebtedness could adversely affect our financial position.
     As of December 31, 2010, we had outstanding total debt of $1,315.7 million and total equity attributable to common shareholders of $7,769.1 million, excluding retained earnings appropriated for investors in consolidated investment products. The 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 or results of operations.
Our credit facility imposes restrictions on our ability to conduct business and, if amounts borrowed under it were subject to accelerated repayment, 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 (either due to our actions or due to a significant and prolonged market-driven decline in our operating results) 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 subject to accelerated repayment, 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 significant 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. Following the financial crisis, there has been consolidation of banks and broker-dealers, particularly in the U.S., and a limited amount of migration of brokers and financial advisors away from major banks to independent firms focused largely on providing advice. If these trends continue, our distribution costs could increase as a percentage of our revenues generated. Additionally, particularly outside of the U.S., 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. Increasingly, investors, particularly in the institutional market, rely on external consultants and other unconflicted third parties for advice on the choice of investment manager. These consultants and third parties tend to exert a significant degree of influence and they may favor a competitor of Invesco 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. If one of our major distributors were to cease operations, it could have a significant adverse effect on our revenues and profitability. Any failure to maintain strong business relationships with these distribution sources and the consultant community would impair our ability to sell our products, which in turn 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.

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     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 deficiencies and failures in support systems and customer service functions that could lead to breaches and errors, resulting in loss of customers or claims against us or our subsidiaries.
     The ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and fund shareholder transactions and provide reports and other customer service to fund shareholders and clients in other accounts managed by us is essential to our continuing success. In recent periods, illiquid markets for certain types of securities have required increased use of fair value pricing, which is dependent on certain subjective judgments that have the potential to be challenged. 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 or vendors could suffer deficiencies, 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. Certain of these processes involve a degree of manual input, and thus 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 strive to achieve cost savings by shifting certain business processes to lower-cost geographic locations 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 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 affect our reported financial results from one period to the next. We do not actively manage our exposure to such effects. Consequently, significant strengthening of the U.S. dollar relative to the U.K. Pound Sterling, Euro, or Canadian dollar, among other currencies, could have a material negative impact on our reported financial results.
The carrying value of goodwill and other intangible assets on our balance sheet could become impaired, which would adversely affect our results of operations.
     We have goodwill and indefinite-lived intangible assets on our balance sheet that are subject to annual impairment reviews. Goodwill and indefinite-lived intangible assets totaled $6,980.2 million and $1,161.7 million, respectively, at December 31, 2010 (2009: $6,467.6 million and $110.6 million, respectively). We may not realize the value of such assets. We perform impairment reviews of the book values of these assets on an annual basis or more frequently if impairment indicators are present. 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 assets would occur, adversely affecting our results of operations for the period. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Goodwill” and “— Intangibles” for additional details of the company’s goodwill impairment analysis process.

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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, both individually and on our behalf, other than those involving fraud or dishonesty, against us or any of our officers, directors or employees. The waiver applies to any action taken by a director, officer or employee, or the failure of such person to take any action, in the performance of his duties, except with respect to any matter involving any fraud or dishonesty on the part of the director, officer or employee. This waiver limits the right of shareholders to assert claims against our directors, officers and employees unless the act or failure to act involves fraud or dishonesty.
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.
     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. Proposals have been introduced in the U.S. Congress that, if ultimately enacted, could either limit treaty benefits on certain payments made by our U.S. subsidiaries to non-U.S. affiliates, treat the company as a U.S. corporation and thereby subject the earnings from non-U.S. subsidiaries of the company to U.S. taxation, or both. 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.
We have anti-takeover provisions in our Bye-Laws that may discourage a change of control.
     Our Bye-Laws contain provisions that could make it more difficult for a third-party to acquire us or to obtain majority representation on our board of directors without the consent of our board. As a result, shareholders may be limited in their ability to obtain a premium for their shares under such circumstances.

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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 1555 Peachtree Street N.E., Suite 1800, 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; 1166 Avenue of the Americas, New York, New York 10036; 17W110 22nd Street, Oakbrook Terrace, Illinois 60181, and in Canada at 5140 Yonge Street, Toronto, Ontario M2N 6X7. We lease office space in 18 other countries.
Item 3.   Legal Proceedings
     In July 2010, various closed-end funds formerly advised by Van Kampen Investments or Morgan Stanley Investment Management included in the acquired business had complaints filed against them in New York State Court commencing derivative lawsuits purportedly brought on behalf of the common shareholders of those funds. The funds are nominal defendants in these derivative lawsuits and the defendants also include Van Kampen Investments (acquired by Invesco on June 1, 2010), Morgan Stanley Investment Management and certain officers and trustees of the funds who are or were employees of those firms. Invesco has certain obligations under the applicable acquisition agreement regarding the defense costs and any damages associated with this litigation. The plaintiffs allege breaches of fiduciary duties owed by the non-fund defendants to the funds’ common shareholders related to the funds’ redemption in prior periods of Auction Rate Preferred Securities (“ARPS”) theretofore issued by the funds. The complaints are similar to other complaints recently filed against investment advisers, officers and trustees of closed-end funds in other fund complexes which issued and redeemed ARPS. The complaints allege that the advisers, distributors and certain officers and trustees of those funds breached their fiduciary duty by redeeming ARPS at their liquidation value when there was no obligation to do so and when the value of ARPS in the secondary marketplace were significantly below their liquidation value. The complaints also allege that the ARPS redemptions were principally motivated by the fund sponsors’ interests to preserve distribution relationships with brokers and other financial intermediaries who held ARPS after having repurchased them from their own clients. Certain other funds included in the acquired business have received demand letters expressing similar allegations. Such demand letters could be precursors to additional similar lawsuits being commenced against those other funds. The Boards of Trustees of the funds are evaluating the complaints and demand letters and have established special committees of independent trustees to conduct an inquiry regarding the allegations. Invesco believes the cases should be dismissed following completion of such review period, although there can be no assurance of that result. Invesco intends to defend vigorously any cases which may survive beyond initial motions to dismiss.
     The investment 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
     None.

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PART II
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
     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.” At January 31, 2011, there were approximately 6,777 holders of record of our common shares.
     The following table sets forth, for the periods indicated, the high and low reported share prices on the New York Stock Exchange, based on data reported by Bloomberg.
                         
    Invesco Ltd.
    Common Shares
                    Dividends
    High   Low   Declared*
2010
                       
Fourth Quarter
  $ 24.24     $ 21.06     $ 0.1100  
Third Quarter
  $ 21.90     $ 16.63     $ 0.1100  
Second Quarter
  $ 23.66     $ 16.83     $ 0.1100  
First Quarter
  $ 23.63     $ 18.32     $ 0.1025  
2009
                       
Fourth Quarter
  $ 23.97     $ 20.04     $ 0.1025  
Third Quarter
  $ 23.00     $ 15.72     $ 0.1025  
Second Quarter
  $ 18.73     $ 13.60     $ 0.1025  
First Quarter
  $ 15.00     $ 9.51     $ 0.1000  
 
*   Dividends declared represent amounts declared in the current quarter but are attributable to the prior fiscal quarter.
     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, 2010, and compares it to the cumulative total return of the Standard and Poor’s (S&P) 500 Index and to a group of peer investment management companies. This table is not intended to forecast future performance of our common shares.
(LINE CHART)
Note:   The above chart is the average annual total return for the period from December 31, 2005 through December 31, 2010. Asset Manager Index includes Affiliated Managers Group, Alliance Bernstein, BlackRock, Eaton Vance, Federated Investors, Franklin Resources, Gamco Investors, Invesco Ltd., Janus, Legg Mason, Schroders Plc, T. Rowe Price, and Waddell & Reed.

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Important Information Regarding Dividend Payments
     Invesco declares and pays dividends on a quarterly basis in arrears. On October 25, 2010, the company declared a third quarter cash dividend of $0.11 per Invesco Ltd. common share which was paid on December 8, 2010 to shareholders of record as of November 19, 2010. On January 27, 2011, the company declared a fourth quarter 2010 cash dividend of $0.11 per Invesco Ltd. common share which will be paid on March 9, 2011 to shareholders of record as of February 23, 2011.
     The total dividend attributable to the 2010 fiscal year of $0.44 per share represented a 7.3% increase over the total dividend attributable to the 2009 fiscal year of $0.41 per share. The declaration, payment and amount of any future dividends will be determined 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.
Repurchases of Equity Securities
     The following table shows share repurchase activity during the three months ended December 31, 2010:
                                 
                            Maximum Number at end of
                    Total Number of   period (or Approximate
                    Shares Purchased as   Dollar Value) of Shares that
                    Part of Publicly   May Yet Be Purchased
    Total Number of   Average Price   Announced Plans   Under the Plans
Month   Shares Purchased (1)   Paid Per Share   or Programs (2)   or Programs (2) (millions)
October 1-31, 2010
    160,181     $ 21.38           $ 1,232.9  
November 1-30, 2010
    2,934,853     $ 21.99       2,934,853     $ 1,168.4  
December 1-31, 2010
    33     $ 23.23           $ 1,168.4  
 
                               
 
    3,095,067               2,934,853          
 
                               
 
(1)   An aggregate of 160,214 restricted share awards included in the table above were surrendered to us by Invesco employees to satisfy tax withholding obligations or loan repayments in connection with the vesting of equity awards.
 
(2)   On April 23, 2008, our board of directors authorized a share repurchase authorization of up to $1.5 billion of our common shares with no stated expiration date.

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Item 6.   Selected Financial Data
     The following tables present selected consolidated financial information for the company as of and for each of the five fiscal years in the period ended December 31, 2010. Except as otherwise noted below, the consolidated financial information has been prepared in accordance with U.S. generally accepted accounting principles.
                                         
    As of and For The Years Ended December 31,
$ in millions, except per share and other data   2010   2009   2008   2007   2006
Operating Data:
                                       
Operating revenues
    3,487.7       2,627.3       3,307.6       3,878.9       3,246.7  
Net revenues(1)
    2,602.2       1,984.6       2,490.2       2,881.9       2,412.8  
Operating income
    589.9       484.3       747.8       994.3       759.2  
Adjusted operating income(2)
    897.7       565.6       826.1       1,078.6       766.2  
Operating margin
    16.9 %     18.4 %     22.6 %     25.6 %     23.4 %
Adjusted operating margin(2)
    34.5 %     28.5 %     33.2 %     37.4 %     31.8 %
Net income attributable to common shareholders
    465.7       322.5       481.7       673.6       482.7  
Adjusted net income(3)
    639.7       378.1       527.1       718.2       499.7  
Per Share Data:
                                       
Earnings per share:
                                       
-basic
    1.01       0.77       1.24       1.68       1.22  
-diluted
    1.01       0.76       1.21       1.64       1.19  
Adjusted EPS(3)
    1.38       0.89       1.32       1.74       1.23  
Dividends declared per share
    0.4325       0.4075       0.5200       0.3720       0.3570  
Balance Sheet Data:
                                       
Total assets
    20,444.1       10,909.6       9,756.9       12,925.2       12,228.5  
Long-term debt
    1,315.7       745.7       1,159.2       1,276.4       1,279.0  
Long-term debt of consolidated investment products
    5,865.4                   116.6       37.0  
Total equity attributable to common shareholders
    8,264.6       6,912.9       5,689.5       6,590.6       6,164.0  
Total equity
    9,360.9       7,620.8       6,596.2       7,711.8       7,668.6  
Other Data:
                                       
Ending AUM (in billions)
  $ 616.5     $ 459.5     $ 377.1     $ 529.3     $ 482.0  
Average AUM (in billions)
  $ 532.3     $ 415.8     $ 468.9     $ 511.7     $ 430.7  
Headcount
    5,617       4,890       5,325       5,475       5,574  
 
(1)   Net revenues are operating revenues less third-party distribution, service and advisory expenses, plus our proportional share of the net revenues of our joint venture investments, plus management fees earned from, less other revenue recorded by, consolidated investment products. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Schedule of Non-GAAP Information” for the reconciliation of operating revenues to net revenues.
 
(2)   Adjusted operating margin is adjusted operating income divided by net revenues. Adjusted operating income includes operating income plus our proportional share of the operating income of our joint venture investments, transaction and integration charges, amortization of acquisition-related prepaid compensation and other intangibles, compensation expense related to market valuation changes in deferred compensation plans, the operating income impact of the consolidation of investment products, and other reconciling items. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Schedule of Non-GAAP Information” for the reconciliation of operating income to adjusted operating income.
 
(3)   Adjusted net income is net income attributable to common shareholders adjusted to add back transaction and integration charges, amortization of acquisition-related prepaid compensation and other intangibles, and the tax cash flow benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets. Adjusted net income excludes the net income of consolidated investment products, and the net income impact of deferred compensation plans and other reconciling items. By calculation, adjusted EPS is adjusted net income divided by the weighted average number of shares outstanding (for diluted EPS). See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Schedule of Non-GAAP Information” for the reconciliation of net income to adjusted net income.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
     The following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented. This overview and the remainder of this management’s discussion and analysis supplements, and should be read in conjunction with, the Consolidated Financial Statements of Invesco Ltd. and its subsidiaries (collectively, the “company” or “Invesco”) and the notes thereto contained elsewhere in this Annual Report on Form 10-K.
     Invesco is a leading independent global investment manager with offices in more than 20 countries. As of December 31, 2010, we managed $616.5 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, Invesco provides a comprehensive array of enduring solutions for our clients. We have a significant presence in the institutional and retail segments of the investment management industry in North America, UK, Europe and Asia-Pacific, serving clients in more than 150 countries.
     Despite a number of challenges during the year, including the U.S. equity market flash crash in May, the heightened risk of European sovereign default, and continued uncertainty about the strength of the economic recovery, most global equity markets achieved positive returns in 2010 marking the second year of recovery from the financial crisis as illustrated in the chart below:
(LINE CHART)
     The response to these challenges by governments and central banks around the world of providing additional fiscal and monetary stimulus led to an investor environment that favored riskier assets as yields on less risky government bonds reached record lows. As a result, most global equity markets achieved positive returns in 2010 with the S&P 500 climbing almost 13%, the FTSE 100 rising 9%, and the MSCI EAFE index gaining nearly 5%. The exception was the equity market in Japan which declined 3% as the strength in the Japanese Yen, up almost 15% against the U.S. Dollar in 2010, negatively impacted the profits of Japanese exporters and multinational corporations. The table below summarizes the year ended December 31 returns of several major market indices for 2010, 2009, and 2008:
                         
    Year ended December 31,
Index   2010   2009   2008
S&P 500
    12.8 %     23.5 %     (37.0 %)
FTSE 100
    9.0 %     22.1 %     (28.0 %)
Nikkei 225
    (3.0 %)     19.0 %     (41.1 %)
MSCI EAFE
    4.9 %     27.8 %     (45.1 %)

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     Both Treasury markets and corporate credit markets achieved positive returns in 2010 as well. Treasury securities benefited from the combination of the “flight to quality” trade in the first half of the year, coinciding with the U.S. equity market flash crash and increased risk of default by some European governments, as well as the Federal Reserve beginning the second round of quantitative easing, a process whereby the Federal Reserve creates new money to purchase Treasury securities. For the year, 10-year Treasury notes gained 8% while shorter dated 3- and 5-year notes gained 5% and 7% respectively. Corporate credit markets benefited from improved fundamentals as earnings improved and corporations stockpiled cash. Further, the stimulus efforts from central bankers around the globe provided support as yields on government securities reached record lows, and fixed income investors moved out the credit risk curve in search of higher yields. For the year, investment grade credit gained 9.0% while high-yield bonds returned 14.6%.
     Invesco continued to make progress in a number of areas that better positioned our company as the markets continue their measured return to pre-financial crisis levels. Throughout the course of 2010, the company’s financial performance strengthened. In addition, during this period, Invesco continued to strengthen its competitive position with respect to investment performance, maintained its focus on its clients, and enhanced its profile in the industry.
     A critical factor in Invesco’s ability to weather the economic storms of the past three years was our integrated approach to risk management. Our risk management framework provides the basis for consistent and meaningful risk dialogue up, down and across the company. Our Global Performance Measurement and Risk group provides senior management and the Board with insight into core investment risks, while our Corporate Risk Management Committee facilitates a focus on strategic, operational and all other business risks. Further, business component, functional, and geographic risk management committees maintain an ongoing risk assessment process that provides a bottom-up perspective on the specific risk areas existing in various domains of our business. Through this regular and consistent risk communication, the Board has reasonable assurance that all material risks of the company are being addressed and that the company is propagating a risk-aware culture in which effective risk management is built into the fabric of the business.
     In addition, we benefited from having a diversified asset base. One of Invesco’s core strengths, and a key differentiator for the company within the industry, is our broad diversification across client domiciles, asset classes and distribution channels. Our geographical diversification recognizes growth opportunities in different parts of the world. Invesco is also diversified by asset class, with approximately 48% of our assets under management in equities and the remaining 52% invested in fixed income and other investments. This broad diversification enables Invesco to withstand different market cycles and take advantage of growth opportunities in various markets and channels.
     On June 1, 2010, the company acquired Morgan Stanley’s retail asset management business, including Van Kampen Investments (the “acquired business” or the “acquisition”) in exchange for a combination of $770.0 million in cash paid and 30.9 million common shares and common share equivalents, which were subsequently sold, as converted, to unrelated third parties. The acquisition added assets under management across equity, fixed income and alternative asset classes (including mutual funds, variable insurance funds, separate accounts and UITs). More specifically, this acquisition:
    Expanded the depth and breadth of the company’s investment strategies, enabling the company to offer an even more comprehensive range of investment capabilities and vehicles to its clients around the world;
 
    Enhanced the company’s ability to serve U.S. clients by positioning Invesco among the leading U.S. investment managers by assets under management (AUM), diversity of investment teams and client profiles;
 
    Deepened Invesco’s relationships with clients and strengthen its overall distribution capabilities; and
 
    Further strengthened its position in the Japanese investment management market.
Presentation of Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The company provides investment management services to, and has transactions with, various private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and other investment entities sponsored by the company for the investment of client assets in the normal course of business. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of the products. Certain of these entities are consolidated under variable interest or voting interest entity consolidation guidance. See Part II, Item 8, Financial Statements and Supplementary Data — Note 1, “Accounting Policies” and Note 20, “Consolidated Investment Products,” for additional details.

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     Effective January 1, 2010, the company adopted guidance now encompassed in Accounting Standards Codification Topic 810, “Consolidation.” The adoption of this new guidance had a significant impact on the presentation of the company’s financial statements in 2010, as its provisions required the company to consolidate certain CLOs that were not previously consolidated. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. The majority of the company’s consolidated investment products balances were CLO-related as of December 31, 2010. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company’s minimal direct investments in, and management fees generated from, the CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Additionally, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability.
     The impact of consolidation of investment products is so significant to the presentation of company’s financial statements (but not to the underlying financial condition or results of operations of the company) that, combined with the presentation of newly-incurred transaction and integration costs and additional intangible asset amortization resulting from the acquired business, the company expanded its use of non-GAAP measures beginning with the presentation of the company’s results for the three months ended March 31, 2010. The discussion that follows therefore combines results presented under U.S. generally accepted accounting principles (GAAP) with the company’s non-GAAP presentation. There are four distinct sections within this Management’s Discussion and Analysis of Financial Condition and Results of Operations after the Assets Under Management discussion:
    Results of Operations (for the year ended December 31, 2010, compared with the year ended December 31, 2009, and for the year ended December 31, 2009, compared with the year ended December 31, 2008);
 
    Schedule of Non-GAAP Information;
 
    Balance Sheet Discussion; and
 
    Liquidity and Capital Resources.
Each of the financial statement summary sections (Results of Operations, Balance Sheet Discussion, and Liquidity and Capital Resources) begins with a table illustrating the impact of the consolidation of investment products. The narrative that follows each of these sections separately provides discussion of the underlying financial statement activity for the company, before consolidation of investment products, as well as of the financial statement activity of consolidated investment products. Additionally, wherever a non-GAAP measure is referenced, a disclosure will follow in the narrative or in the note referring the reader to the Schedule of Non-GAAP Information, where additional details regarding the use of the non-GAAP measure by the company are disclosed, along with reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures. To further enhance the readability of the Results of Operations section, separate tables for each of the revenue, expense, and non-operating income/expense sections of the income statement introduce the narrative that follows, providing a section-by-section review of the company’s income statements for the periods presented.

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Summary Operating Information
     Summary operating information for 2010, 2009 and 2008 is presented in the table below.
                         
    Year ended December 31,
U.S. GAAP Financial Measures Summary   2010   2009   2008
Operating revenues
  $ 3,487.7 m   $ 2,627.3 m   $ 3,307.6 m
Operating margin
    16.9 %     18.4 %     22.6 %
Net income attributable to common shareholders
  $ 465.7 m   $ 322.5 m   $ 481.7 m
Diluted EPS
  $ 1.01     $ 0.76     $ 1.21  
Average assets under management (in billions)
  $ 532.3     $ 415.8     $ 468.9  
                         
    Year ended December 31,
Non-GAAP Financial Measures Summary   2010   2009   2008
Net revenues(1)
  $ 2,602.2 m   $ 1,984.6 m   $ 2,490.2 m
Adjusted operating margin(2)
    34.5 %     28.5 %     33.2 %
Adjusted net income(3)
  $ 639.7 m   $ 378.1 m   $ 527.1 m
Adjusted EPS(3)
  $ 1.38     $ 0.89     $ 1.32  
Average assets under management (in billions)
  $ 532.3     $ 415.8     $ 468.9  
 
(1)   Net revenues are operating revenues less third-party distribution, service and advisory expenses, plus our proportional share of the net revenues of our joint venture investments, plus management fees earned from, less other revenue recorded by, consolidated investment products. See “Schedule of Non-GAAP Information” for the reconciliation of operating revenues to net revenues.
 
(2)   Adjusted operating margin is adjusted operating income divided by net revenues. Adjusted operating income includes operating income plus our proportional share of the operating income of our joint venture investments, transaction and integration charges, amortization of acquisition-related prepaid compensation and other intangibles, compensation expense related to market valuation changes in deferred compensation plans, the operating income impact of the consolidation of investment products, and other reconciling items. See “Schedule of Non-GAAP Information” for the reconciliation of operating income to adjusted operating income.
 
(3)   Adjusted net income is net income attributable to common shareholders adjusted to add back transaction and integration charges, amortization of acquisition-related prepaid compensation and other intangibles, and the tax cash flow benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets. Adjusted net income excludes the net income of consolidated investment products, and the net income impact of deferred compensation plans and other reconciling items. By calculation, adjusted EPS is adjusted net income divided by the weighted average number of shares outstanding (for diluted EPS). See “Schedule of Non-GAAP Information” for the reconciliation of net income to adjusted net income.
     A significant portion of our business and AUM is based outside of the U.S. The strengthening or weakening of the U.S. dollar against other currencies, primarily the Pound Sterling and the Canadian dollar, will impact our reported revenues and expenses from period to period. Additionally, 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 and geographies may materially affect our revenues from period to period. The returns from most global capital markets increased in the year ended December 31, 2010, which also contributed to net increases in AUM of $35.7 billion (excluding acquisitions) during the year. AUM at January 31, 2011, was $624.3 billion.

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Investment Capabilities Performance Overview
     Invesco’s first strategic priority is to achieve strong investment performance over the long-term for our clients. Long-term performance in our equities capabilities, as measured by the percentage of AUM ahead of benchmark and ahead of peer median, is generally strong with some pockets of outstanding performance. Within our equity asset class, Asian, Continental European, and U.S. Core have had strong relative performance versus competitors and versus benchmark over three- and five-year periods. Our U.S. Value and Global Ex-U.S. and Emerging Markets have exceptional long-term performance with over 92% of assets ahead of benchmarks and peer group medians. Within our fixed income asset class, Global fixed income products have achieved strong long-term performance with at least 80% of AUM ahead of benchmarks and 77% of AUM ahead of peers on a 3-year and 5-year basis.
                                                         
            Benchmark Comparison   Peer Group Comparison
            % of AUM Ahead of   % of AUM In Top Half of
            Benchmark   Peer Group
            1yr   3yr   5yr   1yr   3yr   5yr
Equities  
U.S. Core
    20 %     72 %     95 %     24 %     62 %     78 %
       
U.S. Growth
    43 %     31 %     69 %     59 %     46 %     53 %
       
U.S. Value
    59 %     95 %     94 %     61 %     92 %     94 %
       
Sector
    56 %     74 %     71 %     22 %     42 %     63 %
       
U.K.
    9 %     44 %     92 %     1 %     1 %     90 %
       
Canadian
    49 %     77 %     30 %     42 %     93 %     25 %
       
Asian
    55 %     76 %     95 %     37 %     73 %     72 %
       
Continental European
    63 %     84 %     93 %     53 %     76 %     77 %
       
Global
    56 %     77 %     78 %     19 %     49 %     44 %
       
Global Ex U.S. and Emerging Markets
    69 %     94 %     98 %     26 %     93 %     94 %
       
 
                                               
Balanced  
Balanced
    27 %     87 %     76 %     27 %     78 %     71 %
       
 
                                               
Money Market  
Money Market
    37 %     77 %     74 %     96 %     93 %     93 %
       
 
                                               
Fixed Income  
U.S. Fixed Income
    71 %     38 %     43 %     69 %     60 %     60 %
       
Global Fixed Income
    48 %     80 %     83 %     40 %     77 %     77 %
Note:   AUM measured in the one-, three-, and five-year peer group rankings represents 62%, 61%, and 59% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one-, three-, and five-year basis represents 73%, 72%, and 68% of total Invesco AUM, respectively, as of 12/31/10. Peer group rankings are sourced from a widely-used third party ranking agency in each fund’s market (Lipper, Morningstar, Russell, Mercer, eVestment Alliance, SITCA) and asset-weighted in USD. Rankings are as of prior quarter-end for most institutional products and prior month-end for Australian retail funds due to their late release by third parties. Rankings for the most representative fund in each GIPS composite are applied to all products within each GIPS composite. Excludes Invesco PowerShares, W.L. Ross & Co., Invesco Private Capital, non-discretionary direct real estate products and CLOs. Certain other funds and products were excluded from the analysis because of limited benchmark or peer group data. Had these been available, results may have been 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.

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     Assets Under Management
     The company’s rolling presentation of AUM from period to period (on the following pages) illustrates long-term inflows and outflows separately from the net flows into institutional money market funds. Long-term inflows and the underlying reasons for the movements in this line item include investments from new clients, existing clients adding new accounts/funds or contributions/subscriptions into existing accounts/funds, and new funding commitments into private equity funds. We present net flows into institutional money market funds separately, because shareholders of those funds typically utilize them as short-term funding vehicles and because their flows are particularly sensitive to short-term interest rate movements.
     There are numerous drivers of AUM inflows and outflows, including individual investor decisions to change their investment preferences, fiduciaries making broad asset allocation decisions on behalf of advised clients and reallocation of investments within portfolios. We are not a party to these asset allocation decisions, as the company does not generally have access to the underlying investor’s decision-making process, including their risk appetite or liquidity needs. Therefore, the company is not in a position to provide meaningful information regarding the drivers of inflows and outflows.
     To align our external reporting of AUM with how Invesco is portrayed in the industry and to reflect more fully the company’s revenue drivers, in the three months ended June 30, 2010, the company changed its definition of AUM to include assets with which the company is also associated: the PowerShares QQQQ ETF, PowerShares DB ETFs, and other passive assets. These products previously were not included in the company’s reported AUM because the company does not receive investment management fees from these assets. These assets are marketed as Invesco products, and to include them as part of our AUM more accurately reflects the full size and capabilities of Invesco. Additionally, the company may receive meaningful performance service, distribution, or transaction revenues from these assets. The inclusion of these assets as AUM changed the following data points from those previously disclosed:
                 
    Previously   Post-Reporting
$ in billions   Disclosed   Alignment
Ending AUM:
               
December 31, 2006
    462.6       482.0  
December 31, 2007
    500.1       529.3  
December 31, 2008
    357.2       377.1  
December 31, 2009
    423.1       459.5  
Average AUM:
               
Year ended December 31, 2006
    424.2       430.7  
Year ended December 31, 2007
    489.1       511.7  
Year ended December 31, 2008
    440.6       468.9  
Year ended December 31, 2009
    388.7       415.8  
Net revenue yield on AUM*:
               
Year ended December 31, 2006
  56.9 bps   55.9 bps
Year ended December 31, 2007
  59.1 bps   56.5 bps
Year ended December 31, 2008
  56.5 bps   53.1 bps
Year ended December 31, 2009
  50.9 bps   47.7 bps
Net revenue yield on AUM before performance fees*:
               
Year ended December 31, 2006
  55.0 bps   54.0 bps
Year ended December 31, 2007
  57.7 bps   55.2 bps
Year ended December 31, 2008
  54.8 bps   51.5 bps
Year ended December 31, 2009
  50.1 bps   47.0 bps
Gross revenue yield on AUM*:
               
Year ended December 31, 2006
    N/A     75.6 bps
Year ended December 31, 2007
  80.0 bps   76.5 bps
Year ended December 31, 2008
  75.8 bps   71.2 bps
Year ended December 31, 2009
  68.2 bps   63.8 bps
Gross revenue yield on AUM before performance fees*:
               
Year ended December 31, 2006
    N/A     73.6 bps
Year ended December 31, 2007
  78.5 bps   75.1 bps
Year ended December 31, 2008
  74.1 bps   69.6 bps
Year ended December 31, 2009
  67.5 bps   63.0 bps
 
*   Net and gross revenue yield are defined in the paragraphs that follow this table.

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     Additionally, as a result of the acquisition, the company now manages unit investment trust (UIT) products, which are categorized in this passive asset group, and for which we earn revenues related to transactional sales charges from the sale of these products and trading income arising from securities temporarily held to form new UIT products.
     AUM at December 31, 2010 were $616.5 billion (December 31, 2009: $459.5 billion; December 31, 2008: $377.1 billion). The acquisition added $114.6 billion in AUM at June 1, 2010. Additionally, during the year ended December 31, 2010, other acquisitions added $6.9 billion of AUM, net of dispositions. During the year ended December 31, 2010, net inflows increased AUM by $5.5 billion, while positive market movements increased AUM by $43.9 billion. We experienced net outflows in institutional money market funds of $15.5 billion and increases in AUM of $1.6 billion due to changes in foreign exchange rates during the year ended December 31, 2010. During the year ended December 31, 2009, net inflows increased AUM by $16.6 billion and positive market movements increased AUM by $54.7 billion. We experienced net outflows in institutional money market funds of $0.1 billion and increases in AUM of $11.2 billion due to changes in foreign exchange rates during the year ended December 31, 2009. During the year ended December 31, 2008, net outflows decreased AUM by $20.3 billion and negative market movements decreased AUM by $113.0 billion. We experienced net inflows in institutional money market funds of $8.4 billion and decreases in AUM of $27.3 billion due to changes in foreign exchange rates during the year ended December 31, 2008. Average AUM during the year ended December 31, 2010 included the impact of the acquired business and were $532.3 billion, compared to $415.8 billion for the year ended December 31, 2009 and $468.9 billion for the year ended December 31, 2008.
     Net inflows during the year ended December 31, 2010 included net long-term inflows of ETF, UIT and passive AUM of $4.3 billion and other net long-term inflows of $1.2 billion. Net flows were driven by net inflows into our institutional and high net worth distribution channels of $5.6 billion and $1.1 billion, respectively, primarily in the fixed income asset class, while our Retail distribution channel experienced net outflows of $1.2 billion.
     Market gains and losses/reinvestment of AUM includes the net change in AUM resulting from changes in market values of the underlying investments from period to period and reinvestment of client dividends. Of the total increase in AUM resulting from market gains during the year ended December 31, 2010, $33.4 billion of this increase was due to the change in value of our equity asset class across all of our business components. Our balanced and alternatives asset classes were also positively impacted by the change in market valuations during the period. During the year ended December 31, 2010, our equity AUM increased in line with equity markets globally. As discussed in the “Executive Overview” section of this Management’s Discussion and Analysis, the S&P 500 and the FTSE 100 indices increased 12.8% and 9.0%, respectively, during the year ended December 31, 2010. Of the $54.7 billion increase in AUM resulting from market increases during the year ended December 31, 2009, $42.1 billion of this increase was due to the change in value of our equity asset class, in line with increases in the S&P 500 and the FTSE 100 indices of 23.5% and 22.1%, respectively, during that period. Of the $113.0 billion decrease in AUM resulting from market declines during the year ended December 31, 2008, $94.7 billion of this decrease was due to the change in value of our equity asset class, in line with decreases in the S&P 500 and the FTSE 100 indices of 37.0% and 28.0%, respectively, during that period.
     Foreign exchange rate movements in our AUM result from the effect of changes in foreign exchange rates from period to period as non-U.S. Dollar denominated AUM is translated into U.S. Dollars, the reporting currency of the company. The impact of the change in foreign exchange rates at December 31, 2010 was driven primarily by the weakening of the Pound Sterling relative to the U.S. Dollar, which was reflected in the translation of our Pound Sterling-based AUM into U.S. Dollars, the strengthening of the Canadian Dollar relative to the U.S. Dollar, which was reflected in the translation of our Canadian Dollar-based AUM into U.S. Dollars, and to the weakening of the Euro relative to the U.S. Dollar, which was reflected in the translation of our Euro-based AUM into U.S. Dollars. The impact of the change in foreign exchange rates at December 31, 2009 was driven by the strengthening of the Pound Sterling, Canadian Dollar and Euro relative to the U.S. Dollar. The impact of the change in foreign exchange rates at December 31, 2008 was driven by the weakening of the Pound Sterling, Canadian Dollar and Euro relative to the U.S. Dollar.
     The table below illustrates the spot foreign exchange rates for translation into the U.S. Dollar, the reporting currency of the company, at December 31, 2010, 2009, and 2008:
                         
    December 31, 2010   December 31, 2009   December 31, 2008
Pound Sterling ($  per £)
    1.56       1.61       1.45  
Canadian Dollar (CAD per $)
    0.99       1.05       1.23  
Euro ($  per Euro)
    1.34       1.43       1.39  

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     Net revenue yield increased slightly to 48.9 basis points in the year ended December 31, 2010 from the year ended December 31, 2009 level of 47.7 basis points. The acquired business added $114.6 billion in AUM at June 1, 2010 with an approximate effective fee rate of 47 basis points. Market driven changes in our asset mix significantly impact our net revenue yield calculation. Our equity AUM generally earn a higher net revenue rate than money market AUM. At December 31, 2010, equity AUM were $294.1 billion, representing 48% of our total AUM at that date; whereas at December 31, 2009, equity AUM were $192.7 billion, representing 42% of our total AUM at that date. In addition, ETF, UIT and Passive AUM generally earn a lower effective fee rate than AUM excluding ETF, UIT and Passive asset classes. At December 31, 2010, ETF, UIT and Passive AUM were $80.8 billion, representing 13.1% of total AUM at that date; whereas at December 31, 2009, ETF, UIT and Passive AUM were $53.0 billion, representing 11.5% of our total AUM at that date.
     Gross revenue yield on AUM increased 2.2 basis points to 66.0 basis points in the year ended December 31, 2010 from the year ended December 31, 2009 level of 63.8 basis points. Management does not consider gross revenue yield, the most comparable U.S. GAAP-based measure to net revenue yield, to be a meaningful effective fee rate measure. The numerator of the gross revenue yield measure, operating revenues, excludes the management fees earned from consolidated investment products; however the denominator of the measure includes the AUM of these investment products. Therefore, the gross revenue yield measure is not considered representative of the company’s true effective fee rate from AUM. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues (gross revenues) to net revenues.
     Changes in AUM were as follows:
                                                                         
                                    AUM ex                   AUM ex    
            AUM ex ETF,   ETF, UIT &           ETF, UIT &   ETF, UIT &           ETF, UIT &   ETF, UIT &
    Total AUM   UIT & Passive   Passive   Total AUM   Passive   Passive   Total AUM   Passive   Passive
$ in billions   2010   2010   2010   2009   2009   2009   2008   2008   2008
January 1
    459.5       406.5       53.0       377.1       346.6       30.5       529.3       484.0       45.3  
Long-term inflows
    154.7       84.6       70.1       106.1       65.7       40.4       136.5       66.0       70.5  
Long-term outflows
    (149.2 )     (83.4 )     (65.8 )     (89.5 )     (59.9 )     (29.6 )     (156.8 )     (89.9 )     (66.9 )
 
                                                                       
Long-term net flows
    5.5       1.2       4.3       16.6       5.8       10.8       (20.3 )     (23.9 )     3.6  
Net flows in institutional money market funds
    (15.5 )     (15.5 )           (0.1 )     (0.1 )           8.4       8.4        
Market gains and losses/reinvestment
    43.9       36.3       7.6       54.7       43.3       11.4       (113.0 )     (95.2 )     (17.8 )
Acquisitions/dispositions, net
    121.5       107.1       14.4                                      
Foreign currency translation
    1.6       0.1       1.5       11.2       10.9       0.3       (27.3 )     (26.7 )     (0.6 )
 
                                                                       
December 31
    616.5       535.7       80.8       459.5       406.5       53.0       377.1       346.6       30.5  
 
                                                                       
Average long-term AUM
    463.5       393.8       69.7       328.8       291.2       37.6       389.1       363.9       25.2  
Average institutional money market AUM
    68.8       68.8             87.0       87.0             79.8       79.8        
 
                                                                       
Average AUM
    532.3       462.6       69.7       415.8       378.2       37.6       468.9       443.7       25.2  
 
                                                                       
Gross revenue yield on AUM(1)
  66.0 bps   74.3 bps   10.8 bps   63.8 bps   68.8 bps   13.4 bps   71.2 bps   74.1 bps   20.1 bps
Gross revenue yield on AUM before performance fees(1)
  65.5 bps   73.8 bps   10.8 bps   63.0 bps   68.0 bps   13.4 bps   69.6 bps   72.2 bps   20.1 bps
Net revenue yield on AUM(2)
  48.9 bps   54.6 bps   10.8 bps   47.7 bps   51.1 bps   13.4 bps   53.1 bps   55.0 bps   20.1 bps
Net revenue yield on AUM before performance fees(2)
  48.4 bps   54.1 bps   10.8 bps   47.0 bps   50.4 bps   13.4 bps   51.5 bps   53.3 bps   20.1 bps
 
(1)   Gross revenue yield on AUM is equal to annualized total operating revenues divided by average AUM, excluding joint venture (JV) AUM. Our share of the average AUM in 2010 for our JVs in China was $3.6 billion (2009: $3.7 billion, 2008: $4.5 billion). It is appropriate to exclude the average AUM of our JVs for purposes of computing gross revenue yield on AUM, because the revenues resulting from these AUM are not presented in our operating revenues. Under U.S. GAAP, our share of the pre-tax earnings of the JVs is recorded as equity in earnings of unconsolidated affiliates on our Consolidated Statements of Income.
 
(2)   Net revenue yield on AUM is equal to annualized net revenues divided by average AUM. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues.

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Our AUM by channel, by asset class, and by client domicile were as follows:
     Total AUM by Channel(1)
                                 
                            Private
                            Wealth
$ in billions   Total   Retail   Institutional   Management
January 1, 2010 AUM
    459.5       239.4       204.9       15.2  
Long-term inflows
    154.7       106.2       45.2       3.3  
Long-term outflows
    (149.2 )     (107.4 )     (39.6 )     (2.2 )
 
                               
Long-term net flows
    5.5       (1.2 )     5.6       1.1  
Net flows in institutional money market funds
    (15.5 )           (15.5 )      
Market gains and losses/reinvestment
    43.9       36.8       6.4       0.7  
Acquisitions/dispositions, net
    121.5       104.0       17.5        
Foreign currency translation
    1.6       (0.6 )     2.2        
 
                               
December 31, 2010 AUM
    616.5       378.4       221.1       17.0  
 
                               
 
                               
January 1, 2009 AUM (2)
    377.1       165.9       197.8       13.4  
Long-term inflows
    106.1       85.1       16.1       4.9  
Long-term outflows
    (89.5 )     (67.0 )     (18.0 )     (4.5 )
 
                               
Long-term net flows
    16.6       18.1       (1.9 )     0.4  
Net flows in institutional money market funds
    (0.1 )           (0.1 )      
Market gains and losses/reinvestment
    54.7       45.7       7.6       1.4  
Foreign currency translation
    11.2       9.7       1.5        
 
                               
December 31, 2009 AUM
    459.5       239.4       204.9       15.2  
 
                               
 
                               
January 1, 2008 AUM (2)
    529.3       287.9       224.0       17.4  
Long-term inflows
    136.5       111.6       20.1       4.8  
Long-term outflows
    (156.8 )     (121.1 )     (31.1 )     (4.6 )
 
                               
Long-term net flows
    (20.3 )     (9.5 )     (11.0 )     0.2  
Net flows in institutional money market funds
    8.4       0.6       7.8        
Market gains and losses/reinvestment
    (113.0 )     (87.5 )     (21.3 )     (4.2 )
Foreign currency translation
    (27.3 )     (25.6 )     (1.7 )      
 
                               
December 31, 2008 AUM
    377.1       165.9       197.8       13.4  
 
                               
 
    See accompanying notes to these AUM tables on the following page.

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    ETF, UIT & Passive AUM by Channel(1)
                                 
                            Private
                            Wealth
$ in billions   Total   Retail   Institutional   Management
January 1, 2010 AUM
    53.0       48.0       5.0        
Long-term inflows
    70.1       51.2       18.9        
Long-term outflows
    (65.8 )     (47.2 )     (18.6 )      
 
                               
Long-term net flows
    4.3       4.0       0.3        
Net flows in institutional money market funds
                       
Market gains and losses/reinvestment
    7.6       4.8       2.8        
Acquisitions/dispositions, net
    14.4       13.7       0.7        
Foreign currency translation
    1.5             1.5        
 
                               
December 31, 2010 AUM
    80.8       70.5       10.3        
 
                               
 
                               
January 1, 2009 AUM (2)
    30.5       27.1       3.4        
Long-term inflows
    40.4       40.1       0.3        
Long-term outflows
    (29.6 )     (29.6 )            
 
                               
Long-term net flows
    10.8       10.5       0.3        
Net flows in institutional money market funds
                       
Market gains and losses/reinvestment
    11.4       10.3       1.1        
Foreign currency translation
    0.3       0.1       0.2        
 
                               
December 31, 2009 AUM
    53.0       48.0       5.0        
 
                               
 
                               
January 1, 2008 AUM (2)
    45.3       41.1       4.2        
Long-term inflows
    70.5       70.3       0.2        
Long-term outflows
    (66.9 )     (66.9 )            
 
                               
Long-term net flows
    3.6       3.4       0.2        
Net flows in institutional money market funds
                       
Market gains and losses/reinvestment
    (17.8 )     (17.4 )     (0.4 )      
Foreign currency translation
    (0.6 )           (0.6 )      
 
                               
December 31, 2008 AUM
    30.5       27.1       3.4        
 
                               
 
    See accompanying notes to these AUM tables on the following page.

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    Total AUM by Asset Class(3)
                                                 
                    Fixed             Money        
$ in billions   Total     Equity     Income     Balanced     Market     Alternatives(4)  
January 1, 2010 AUM
    459.5       192.7       76.1       39.9       83.5       67.3  
Long-term inflows
    154.7       95.8       32.7       8.2       1.5       16.5  
Long-term outflows
    (149.2 )     (104.4 )     (19.1 )     (7.4 )     (1.9 )     (16.4 )
 
                                   
Long-term net flows
    5.5       (8.6 )     13.6       0.8       (0.4 )     0.1  
Net flows in institutional money market funds
    (15.5 )                       (15.5 )      
Market gains and losses/reinvestment
    43.9       33.4       4.2       2.5       0.1       3.7  
Acquisitions/dispositions, net
    121.5       75.1       37.9       0.3       0.6       7.6  
Foreign currency translation
    1.6       1.5       0.1                    
 
                                   
December 31, 2010 AUM
    616.5       294.1       131.9       43.5       68.3 (5)     78.7  
 
                                   
 
                                               
January 1, 2009 AUM(2)
    377.1       140.7       61.4       31.7       84.2       59.1  
Long-term inflows
    106.1       58.4       19.4       8.2       2.2       17.9  
Long-term outflows
    (89.5 )     (55.2 )     (12.6 )     (8.0 )     (3.1 )     (10.6 )
 
                                   
Long-term net flows
    16.6       3.2       6.8       0.2       (0.9 )     7.3  
Net flows in institutional money market funds
    (0.1 )                       (0.1 )      
Market gains and losses/reinvestment
    54.7       42.1       6.5       6.0             0.1  
Foreign currency translation
    11.2       6.7       1.4       2.0       0.3       0.8  
 
                                   
December 31, 2009 AUM
    459.5       192.7       76.1       39.9       83.5       67.3  
 
                                   
 
                                               
January 1, 2008 AUM(2)
    529.3       269.6       69.1       45.9       75.3       69.4  
Long-term inflows
    136.5       93.2       14.8       8.9       3.9       15.7  
Long-term outflows
    (156.8 )     (109.4 )     (17.5 )     (10.2 )     (3.6 )     (16.1 )
 
                                   
Long-term net flows
    (20.3 )     (16.2 )     (2.7 )     (1.3 )     0.3       (0.4 )
Net flows in institutional money market funds
    8.4                         8.4        
Market gains and losses/reinvestment
    (113.0 )     (94.7 )     (2.5 )     (8.5 )     0.7       (8.0 )
Foreign currency translation
    (27.3 )     (18.0 )     (2.5 )     (4.4 )     (0.5 )     (1.9 )
 
                                   
December 31, 2008 AUM
    377.1       140.7       61.4       31.7       84.2       59.1  
 
                                   
 
    See accompanying notes to these AUM tables on the following page.

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     ETF, UIT and Passive AUM by Asset Class(3)
                                                 
                    Fixed           Money    
$ in billions   Total   Equity   Income   Balanced   Market   Alternatives(4)
January 1, 2010 AUM
    53.0       31.1       4.0                   17.9  
Long-term inflows
    70.1       56.5       7.4                   6.2  
Long-term outflows
    (65.8 )     (56.3 )     (1.4 )                 (8.1 )
 
                                               
Long-term net flows
    4.3       0.2       6.0                   (1.9 )
Net flows in institutional money market funds
                                   
Market gains and losses/reinvestment
    7.6       5.6       0.6                   1.4  
Acquisitions/dispositions, net
    14.4       4.5       9.2                   0.7  
Foreign currency translation
    1.5       1.4                         0.1  
 
                                               
December 31, 2010 AUM
    80.8       42.8       19.8                   18.2  
 
                                               
 
                                               
January 1, 2009 AUM(2)
    30.5       21.6       0.9                   8.0  
Long-term inflows
    40.4       26.4       2.5                   11.5  
Long-term outflows
    (29.6 )     (25.7 )                       (3.9 )
 
                                               
Long-term net flows
    10.8       0.7       2.5                   7.6  
Net flows in institutional money market funds
                                   
Market gains and losses/reinvestment
    11.4       8.8       0.6                   2.0  
Foreign currency translation
    0.3                               0.3  
 
                                               
December 31, 2009 AUM
    53.0       31.1       4.0                   17.9  
 
                                               
 
                                               
January 1, 2008 AUM(2)
    45.3       37.3       0.1                   7.9  
Long-term inflows
    70.5       61.8       0.9                   7.8  
Long-term outflows
    (66.9 )     (61.1 )                       (5.8 )
 
                                               
Long-term net flows
    3.6       0.7       0.9                   2.0  
Net flows in institutional money market funds
                                   
Market gains and losses/reinvestment
    (17.8 )     (16.4 )     (0.1 )                 (1.3 )
Foreign currency translation
    (0.6 )                             (0.6 )
 
                                               
December 31, 2008 AUM
    30.5       21.6       0.9                   8.0  
 
                                               
 
    See accompanying notes to these AUM tables on the following page.

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    Total AUM by Client Domicile(6)
                                                 
                                    Continental    
$ in billions   Total   U.S.   Canada   U.K.   Europe   Asia
January 1, 2010 AUM
    459.5       294.1       29.0       84.9       24.4       27.1  
Long-term inflows
    154.7       94.1       2.1       16.2       15.7       26.6  
Long-term outflows
    (149.2 )     (88.8 )     (6.8 )     (14.1 )     (12.3 )     (27.2 )
 
                                               
Long-term net flows
    5.5       5.3       (4.7 )     2.1       3.4       (0.6 )
Net flows in institutional money market funds
    (15.5 )     (16.5 )           (1.5 )     3.5       (1.0 )
Market gains and losses/reinvestment
    43.9       30.0       2.2       7.0       2.0       2.7  
Acquisitions/dispositions, net
    121.5       102.6       0.1       1.8       2.9       14.1  
Foreign currency translation
    1.6       (0.1 )     1.3       (2.2 )     (0.9 )     3.5  
 
                                               
December 31, 2010 AUM
    616.5       415.4       27.9       92.1       35.3       45.8  
 
                                               
 
                                               
January 1, 2009 AUM(2)
    377.1       252.7       23.8       57.1       22.3       21.2  
Long-term inflows
    106.1       68.7       1.9       18.4       9.9       7.2  
Long-term outflows
    (89.5 )     (58.3 )     (5.3 )     (7.5 )     (10.8 )     (7.6 )
 
                                               
Long-term net flows
    16.6       10.4       (3.4 )     10.9       (0.9 )     (0.4 )
Net flows in institutional money market funds
    (0.1 )     2.8       (0.1 )           (1.4 )     (1.4 )
Market gains and losses/reinvestment
    54.7       28.2       4.4       11.2       3.8       7.1  
Foreign currency translation
    11.2             4.3       5.7       0.6       0.6  
 
                                               
December 31, 2009 AUM
    459.5       294.1       29.0       84.9       24.4       27.1  
 
                                               
 
                                               
January 1, 2008 AUM(2)
    529.3       318.8       46.3       90.9       36.2       37.1  
Long-term inflows
    136.5       99.9       3.0       17.0       10.7       5.9  
Long-term outflows
    (156.8 )     (108.4 )     (9.7 )     (10.0 )     (17.1 )     (11.6 )
 
                                               
Long-term net flows
    (20.3 )     (8.5 )     (6.7 )     7.0       (6.4 )     (5.7 )
Net flows in institutional money market funds
    8.4       4.1             (0.7 )     2.1       2.9  
Market gains and losses/reinvestment
    (113.0 )     (61.7 )     (8.5 )     (21.5 )     (8.1 )     (13.2 )
Foreign currency translation
    (27.3 )           (7.3 )     (18.6 )     (1.5 )     0.1  
 
                                               
December 31, 2008 AUM
    377.1       252.7       23.8       57.1       22.3       21.2  
 
                                               
 
    See accompanying notes to these AUM tables on the following page.

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    ETF, UIT and Passive AUM by Client Domicile(6)
                                                 
                                    Continental    
$ in billions   Total   U.S.   Canada   U.K.   Europe   Asia(7)
January 1, 2010 AUM
    53.0       50.4                   1.0       1.6  
Long-term inflows
    70.1       54.1                   0.2       15.8  
Long-term outflows
    (65.8 )     (46.9 )                 (0.3 )     (18.6 )
 
                                               
Long-term net flows
    4.3       7.2                   (0.1 )     (2.8 )
Net flows in institutional money market funds
                                   
Market gains and losses/reinvestment
    7.6       6.2                   0.2       1.2  
Acquisitions/dispositions, net
    14.4       13.7                         0.7  
Foreign currency translation
    1.5                               1.5  
 
                                               
December 31, 2010 AUM
    80.8       77.5                   1.1       2.2  
 
                                               
 
                                               
January 1, 2009 AUM(2)
    30.5       29.0                   0.5       1.0  
Long-term inflows
    40.4       40.0                   0.4        
Long-term outflows
    (29.6 )     (29.5 )                 (0.1 )      
 
                                               
Long-term net flows
    10.8       10.5                   0.3        
Net flows in institutional money market funds
                                   
Market gains and losses/reinvestment
    11.4       10.8                   0.2       0.4  
Foreign currency translation
    0.3       0.1                         0.2  
 
                                               
December 31, 2009 AUM
    53.0       50.4                   1.0       1.6  
 
                                               
 
                                               
January 1, 2008 AUM(2)
    45.3       42.9                   0.3       2.1  
Long-term inflows
    70.5       69.9                   0.6        
Long-term outflows
    (66.9 )     (66.5 )                 (0.4 )      
 
                                               
Long-term net flows
    3.6       3.4                   0.2        
Net flows in institutional money market funds
                                   
Market gains and losses/reinvestment
    (17.8 )     (17.2 )                       (0.6 )
Foreign currency translation
    (0.6 )     (0.1 )                       (0.5 )
 
                                               
December 31, 2008 AUM
    30.5       29.0                   0.5       1.0  
 
                                               
 
(1)   Channel refers to the distribution channel from which the AUM originated. Retail AUM arose from client investments into funds available to the public with shares or units. Institutional AUM originated from individual corporate clients, endowments, foundations, government authorities, universities, or charities. Private Wealth Management AUM arose from high net worth client investments.
 
(2)   The beginning balances were adjusted to reflect certain asset reclassifications, including the previously discussed AUM reporting alignment to include ETF, UIT and passive AUM.
 
(3)   Asset classes are descriptive groupings of AUM by common type of underlying investments.
 
(4)   See Part I, Item 1, “Business — Objectives by Asset Class” for a description of the investment objectives included within the Alternatives asset class.
 
(5)   Ending Money Market AUM includes $64.2 billion in institutional money market AUM and $4.1 billion in retail money market AUM.
 
(6)   Client domicile disclosure groups AUM by the domicile of the underlying clients.
 
(7)   Net flows in Asia in 2010 were driven by an inflow of $15.8 billion in the three months ended June 30, 2010 and an outflow of $18.6 billion in the three months ended December 31, 2010 related to a passive mandate in Japan which was a post-close direct consequence of the acquired business.

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Results of Operations for the Year Ended December 31, 2010, compared with the Year Ended December 31, 2009
Adoption of Guidance now encompassed in Accounting Standards Codification (ASC) Topic 810, “Consolidation”
     The company provides investment management services to, and has transactions with, various private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and other investment entities sponsored by the company for the investment of client assets in the normal course of business. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of the products. Certain of these entities are consolidated under variable interest or voting interest entity consolidation guidance. See Part II, Item 8, Financial Statements and Supplementary Data — Note 1, “Accounting Policies” and Note 20, “Consolidated Investment Products,” for additional details.
     The guidance now encompassed in ASC Topic 810, which was effective January 1, 2010, had a significant impact on the presentation of the company’s financial statements in 2010, as its provisions required the company to consolidate certain CLOs that were not previously consolidated. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs.
     The majority of the company’s consolidated investment products balances were CLO-related as of December 31, 2010. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company’s minimal direct investments in, and management fees generated from, the CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Additionally, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability. The discussion that follows will separate consolidated investment product results of operations from the company’s investment management operations through the use of non-GAAP financial measures. See “Schedule of Non-GAAP Information” for additional details and reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures.

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Condensed Consolidating Statements of Income
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation(1)   Products(2)   Adjustments(1)(3)   Total
Year ended December 31, 2010
                               
Total operating revenues
    3,532.7       0.3       (45.3 )     3,487.7  
Total operating expenses
    2,887.8       55.3       (45.3 )     2,897.8  
 
                               
Operating income
    644.9       (55.0 )           589.9  
Equity in earnings of unconsolidated affiliates
    40.8             (0.6 )     40.2  
Interest and dividend income
    10.4       246.0       (5.1 )     251.3  
Other investment income/(losses)
    15.6       107.6       6.4       129.6  
Interest expense
    (58.6 )     (123.7 )     5.1       (177.2 )
 
                               
Income before income taxes, including gains and losses attributable to noncontrolling interests
    653.1       174.9       5.8       833.8  
Income tax provision
    (197.0 )                 (197.0 )
 
                               
Net income, including gains and losses attributable to noncontrolling interests
    456.1       174.9       5.8       636.8  
(Gains)/losses attributable to noncontrolling interests in consolidated entities, net
    (0.2 )     (170.8 )     (0.1 )     (171.1 )
 
                               
Net income attributable to common shareholders
    455.9       4.1       5.7       465.7  
 
                               
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation(1)   Products(2)   Adjustments(3)   Total
Year ended December 31, 2009
                               
Total operating revenues
    2,633.3       1.9       (7.9 )     2,627.3  
Total operating expenses
    (2,139.5 )     (11.4 )     7.9       (2,143.0 )
 
                               
Operating income
    493.8       (9.5 )           484.3  
Equity in earnings of unconsolidated affiliates
    24.5             2.5       27.0  
Interest and dividend income
    9.8                   9.8  
Other investment income/(losses)
    7.8       (106.9 )           (99.1 )
Interest expense
    (64.5 )                 (64.5 )
 
                               
Income before income taxes, including gains and losses attributable to noncontrolling interests
    471.4       (116.4 )     2.5       357.5  
Income tax provision
    (148.2 )                 (148.2 )
 
                               
Net income, including gains and losses attributable to noncontrolling interests
    323.2       (116.4 )     2.5       209.3  
(Gains)/losses attributable to noncontrolling interests in consolidated entities, net
    (0.7 )     113.9             113.2  
 
                               
Net income attributable to common shareholders
    322.5       (2.5 )     2.5       322.5  
 
                               
 
(1)   The Before Consolidation column includes Invesco’s equity interests in the investment products accounted for as equity method (private equity and real estate partnership funds) and available-for-sale investments (CLOs). Upon consolidation of the CLOs, the company’s and the CLOs’ accounting policies were effectively aligned, resulting in the reclassification of the company’s gain for the year ended December 31, 2010 of $6.4 million (representing the increase in the market value of the company’s holding in the consolidated CLOs) from other comprehensive income into other gains/losses. The company’s gain on its investment in the CLOs (before consolidation) eliminates with the company’s share of the offsetting loss on the CLOs’ debt. The net income arising from consolidation of CLOs is therefore completely attributed to other investors in these CLOs, as the company’s share has been eliminated through consolidation. The Before Consolidation column does not include any other adjustments related to non-GAAP financial measure presentation.
 
(2)   The company adopted guidance now encompassed in ASC Topic 810 on January 1, 2010 resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs.
 
(3)   Adjustments include the elimination of intercompany transactions between the company and its consolidated investment products, primarily the elimination of management fees expensed by the funds and recorded as operating revenues (before consolidation) by the company.

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Operating Revenues and Net Revenues
     The main categories of revenues, and the dollar and percentage change between the periods, are as follows:
                                 
$ in millions   2010   2009   $ Change   % Change
Investment management fees
    2,720.9       2,120.2       600.7       28.3 %
Service and distribution fees
    645.5       412.6       232.9       56.4 %
Performance fees
    26.1       30.0       (3.9 )     (13.0 )%
Other
    95.2       64.5       30.7       47.6 %
 
                               
Total operating revenues
    3,487.7       2,627.3       860.4       32.7 %
Third-party distribution, service and advisory expenses
    (972.7 )     (693.4 )     279.3       40.3 %
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
    42.2       44.7       (2.5 )     (5.6 )%
Management fees earned from consolidated investment products
    45.3       8.0       37.3       N/A  
Other revenues recorded by consolidated investment products
    (0.3 )     (2.0 )     1.7       85.0 %
 
                               
Net revenues
    2,602.2       1,984.6       617.6       31.1 %
 
                               
     Operating revenues increased by 32.7% in 2010 to $3,487.7 million (year ended December 31, 2009: $2,627.3 million). Net revenues increased by 31.1% in 2010 to $2,602.2 million (year ended December 31, 2009: $1,984.6 million). Net revenues are operating revenues less third-party distribution, service and advisory expenses, plus our proportional share of net revenues from joint venture arrangements. See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues. A significant portion of our business and managed AUM are based outside of the U.S. The income statements of foreign currency subsidiaries are translated into U.S. dollars, the reporting currency of the company, using average foreign exchange rates. The impact of foreign exchange rate movements accounted for $18.0 million (2.1%) of the increase in operating revenues, and was 0.5% of total operating revenues, during the year ended December 31, 2010 when compared to the year ended December 31, 2009. Additionally, our revenues are directly influenced by the level and composition of our AUM as more fully discussed below. Movements in global capital market levels, net new business inflows (or outflows) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period.
     As discussed in the company’s Form 10-Q filings for the June 30, 2010 and September 30, 2010 periods, the company acquired Morgan Stanley’s retail asset management business, including Van Kampen Investments (the “acquired business” or the “acquisition”) on June 1, 2010. The acquisition had a significant impact on our results for the 2010 period. The operating results for the year ended December 31, 2010 include the operating results of the acquired business from the purchase date of June 1, 2010 through December 31, 2010. The integration of the acquired business is largely complete; as such, accurate segregated expense information for the acquired business is not available. Prior to any significant product mergers, revenues associated with the acquired business can be separately identified, and as a result, the impact can be estimated. Operating revenues of the acquired business for the year ended December 31, 2010 were approximately $468 million, which represents the incremental impact of the acquired business and does not represent the stand-alone results of the acquired business.
Investment Management Fees
     Investment management fees are derived from providing professional services to manage client accounts and include fees earned from retail mutual funds, unit trusts, investment companies with variable capital (ICVCs), exchange-traded funds, investment trusts and institutional and private wealth management 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 over contractually determined periods in relation to the level of client assets managed.
     Investment management fees increased by $600.7 million (28.3%) in the year ended December 31, 2010, to $2,720.9 million (year ended December 31, 2009: $2,120.2 million) due to the acquisition, increases in average AUM, primarily retail AUM, changes in the mix of AUM between asset classes and foreign exchange rate movement. The acquisition contributed to the increase in investment management fees with an estimated $257 million in these fees during the year ended December 31, 2010. Average long-term AUM, which generally earn higher fee rates than money market AUM, increased 41.0% to $463.5 billion for the year ended December 31, 2010 from $328.8 billion for the year ended December 31, 2009, while average institutional money market AUM decreased 20.9% to $68.8 billion for the year ended December 31, 2010 from $87.0 billion for the year ended December 31, 2009. The increase in average

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long-term AUM includes the impact of the acquired business. See the company’s disclosures regarding the changes in AUM during the year ended December 31, 2010 in the “Assets Under Management” section above for additional information regarding the movements in AUM. Foreign exchange rate movements led to an increase in investment management fees of $17.0 million (2.8%) during the year ended December 31, 2010 as compared to the year ended December 31, 2009.
     Additionally, the change in investment management fee revenues reflects the adoption of guidance now encompassed in ASC Topic 810 on January 1, 2010. As part of the consolidation, management fees earned from consolidated CLOs and other products of $45.3 million were eliminated from the company’s operating revenues for the year ended December 31, 2010. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. The company uses a non-GAAP financial measure, net revenues, to add back these eliminated management fees as part of net revenues, as the company has earned them for providing investment management services to the consolidated investment products. See “Schedule of Non-GAAP Information” for the reconciliation of operating revenues to net revenues.
Service and Distribution Fees
     Service fees are generated through fees charged to cover several types of expenses, including fund accounting fees and other maintenance costs for mutual funds, unit trusts and ICVCs, and administrative fees earned from closed-ended funds. Service fees also include transfer agent fees, which are fees charged to cover the expense of processing client share purchases and redemptions, call center support and client reporting. U.S. distribution fees include 12b-1 fees earned 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. Generally, 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.
     In 2010, service and distribution fees increased by $232.9 million (56.4%) to $645.5 million (year ended December 31, 2009: $412.6 million). The acquisition contributed an estimated $172 million of the increase in service and distribution fees in the year ended December 31, 2010. The remaining increase is largely attributable to the increase in average AUM during the year.
Performance Fees
     Performance fee revenues are generated on certain management contracts when performance hurdles are achieved. Such fee revenues are recorded in operating revenues as of the performance measurement date, when the contractual performance criteria have been met and when the outcome of the transaction can be measured reliably in accordance with Method 1 of ASC Topic 605-20-S99, “Revenue Recognition — Services — SEC Materials.” Cash receipt of earned performance fees occurs after the measurement date. The performance measurement date is defined in each contract in which incentive and performance fee revenue agreements are in effect. We have performance fee arrangements that include monthly, quarterly and annual measurement dates. Given the uniqueness of each transaction, performance fee contracts are evaluated on an individual basis to determine if revenues can and should be recognized. Performance fees are not recorded if there are any future performance contingencies. If performance arrangements require repayment of the performance fee for failure to perform during the contractual period, then performance fee revenues are recognized no earlier than the expiration date of these terms. 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 by absolute performance. Of our $616.5 billion in AUM at December 31, 2010, only approximately $36.8 billion, or 5.9%, could potentially earn performance fees. Of the $114.6 billion AUM acquired on June 1, 2010 through the acquisition, $2.7 billion, or 2.4%, are eligible to earn performance fees.
     In the year ended December 31, 2010, performance fees decreased by $3.9 million (13.0%) to $26.1 million (year ended December 31, 2009: $30.0 million). The performance fees generated in 2010 arose primarily due to products managed by the European Real Estate group ($4.3 million), Invesco Perpetual ($3.4 million), and Atlantic Trust ($11.8 million). The performance fees generated in 2009 arose primarily due to products managed by the Invesco Global Strategies group ($2.4 million), Invesco Perpetual ($13.4 million), and Atlantic Trust ($5.7 million).
Other Revenues
     Other revenues include fees derived from our UIT operations, transaction commissions earned upon the sale of new investments into certain of our funds, and fees earned upon the completion of transactions in our direct real estate and private equity asset groups. Real estate transaction fees are derived from commissions earned through the buying and selling of properties. Private equity

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transaction fees include commissions associated with the restructuring of, and fees from providing advice to, portfolio companies held by the funds. These transaction fees are recorded in our financial statements on the date when the transactions are legally closed. Other revenues also include the revenues of consolidated investment products.
     Following the acquisition, the company is the sponsor of UITs. In its capacity as sponsor of UITs, the company earns other revenues related to transactional sales charges resulting from the sale of UIT products and from the difference between the purchase or bid and offer price of securities temporarily held to form new UIT products. These revenues are recorded as other revenues net of concessions to dealers who distribute UITs to investors.
     In the year ended December 31, 2010, other revenues increased by $30.7 million (47.6%) to $95.2 million (year ended December 31, 2009: $64.5 million). Increases in other revenues included $38.9 million in UIT revenues during the year, a result of the acquired business, and higher real estate acquisition and disposition fees of $2.4 million which were offset by a $5.2 million decline in transaction commissions.
Third-Party Distribution, Service and Advisory Expenses
     Third-party distribution, service and advisory expenses include periodic “renewal” commissions paid to brokers and independent financial advisors for their continuing oversight of their clients’ assets, over the time they are invested, and are payments for the servicing of client accounts. Renewal commissions are calculated based upon a percentage of the AUM value. Third-party distribution expenses 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 redemption period. Also included in third-party distribution, service and advisory expenses are sub-transfer agency fees that are paid to third parties for processing client share purchases and redemptions, call center support and client reporting. Third-party distribution, service and advisory expenses 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 expenses 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 expenses increased by $279.3 million (40.3%) in the year ended December 31, 2010 to $972.7 million (year ended December 31, 2009: $693.4 million), which is consistent with the increase in investment management and service and distribution fee revenues. Foreign exchange rate movements increased third-party distribution, service and advisory expenses by $5.3 million (1.9%) during the year ended December 31, 2010 as compared to the year ended December 31, 2009.
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
     Management believes that the addition of our proportional share of revenues, net of third-party distribution expenses, 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 is our 49.0% investment in Invesco Great Wall Fund Management Company Limited (the “Invesco Great Wall” joint venture).
     The 5.6% decrease in our proportional share of revenues, net of third-party distribution expenses, to $42.2 million in 2010 (year ended December 31, 2009: $44.7 million), is driven by the decline in average AUM of the Invesco Great Wall joint venture. Our share of the Invesco Great Wall joint venture’s average AUM for the year ended December 31, 2010, was $3.6 billion, a 2.7% decline in average AUM from $3.7 billion for the year ended December 31, 2009.
Management fees earned from consolidated investment products
     Management believes that the consolidation of investment products may impact a reader’s analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues for the impact of consolidated investment products in calculating net revenues. As management and performance fees earned by Invesco from the consolidated products are eliminated upon consolidation of the investment products, management believes that it is appropriate to add these operating revenues back in the calculation of net revenues. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues.

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     Management fees earned from consolidated investment products increased by $37.3 million to $45.3 million in the year ended December 31, 2010 (year ended December 31, 2009: $8.0 million). The increase reflects the adoption of guidance now encompassed in ASC Topic 810 on January 1, 2010. CLO management fees of $35.4 million were eliminated from the company’s operating revenues for the year ended December 31, 2010. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs.
Other revenues recorded by consolidated investment products
     Operating revenues of consolidated investment products are included in U.S. GAAP operating revenues resulting from the consolidation of investment products into the company’s results of operations. Management believes that this consolidation could impact a reader’s analysis of our underlying results of operations. Therefore, management believes that it is appropriate to deduct operating revenues of consolidated investment products in calculating net revenues. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues.
Operating Expenses
     The main categories of operating expenses are as follows:
                                 
$ in millions   2010   2009   $ Change   % Change
Employee compensation
    1,114.9       950.8       164.1       17.3 %
Third-party distribution, service and advisory
    972.7       693.4       279.3       40.3 %
Marketing
    159.6       108.9       50.7       46.6 %
Property, office and technology
    238.4       212.3       26.1       12.3 %
General and administrative
    262.2       166.8       95.4       57.2 %
Transaction and integration
    150.0       10.8       139.2       N/A  
 
                               
Total operating expenses
    2,897.8       2,143.0       754.8       35.2 %
 
                               
     The table below sets forth these expense categories as a percentage of total operating expenses and operating revenues, which we believe provides useful information as to the relative significance of each type of expense.
                                                 
            % of Total   % of           % of Total   % of
            Operating   Operating           Operating   Operating
$ in millions   2010   Expenses   Revenues   2009   Expenses   Revenues
Employee compensation
    1,114.9       38.5 %     32.0 %     950.8       44.4 %     36.2 %
Third-party distribution, service and advisory
    972.7       33.6 %     27.9 %     693.4       32.3 %     26.4 %
Marketing
    159.6       5.5 %     4.6 %     108.9       5.1 %     4.1 %
Property, office and technology
    238.4       8.2 %     6.8 %     212.3       9.9 %     8.1 %
General and administrative
    262.2       9.0 %     7.5 %     166.8       7.8 %     6.3 %
Transaction and integration
    150.0       5.2 %     4.3 %     10.8       0.5 %     0.4 %
 
                                               
Total operating expenses
    2,897.8       100.0 %     83.1 %     2,143.0       100.0 %     81.5 %
 
                                               
     During 2010, operating expenses increased by $754.8 million (35.2%) to $2,897.8 million (year ended December 31, 2009: $2,143.0 million), reflecting increases in all cost categories from 2009 expense levels. As discussed above, the Morgan Stanley acquisition took place on June 1, 2010, which increased expenses across all categories. As the integration of the acquired business is largely complete, segregated expense data is not available.
     In addition to the acquired business, foreign exchange differences have a large impact on our expenses. A significant portion of our business and managed AUM are based outside of the U.S. The income statements of foreign currency subsidiaries are translated into U.S. dollars, the reporting currency of the company, using average foreign exchange rates. The impact of foreign exchange rate movements accounted for $13.2 million (1.7%) of the increase in operating expenses, and was 0.5% of total operating expenses, during the year ended December 31, 2010.
Employee Compensation
     Employee compensation includes salary, cash bonuses and share-based payment plans designed to attract and retain the highest caliber employees. Employee staff benefit plan costs and payroll taxes are also included in employee compensation.

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     Employee compensation increased $164.1 million (17.3%) to $1,114.9 million in the year ended December 31, 2010 (year ended December 31, 2009: $950.8 million). Base salaries and variable compensation increased $114.3 million during the year ended December 31, 2010 from the year ended December 31, 2009 due to incremental costs associated with the acquisition, the impact of annual merit increases, and the increase in variable compensation accruals to reflect the overall earnings growth of the company, including improving operating results and sales. Included in compensation expenses during the year ended December 31, 2010 are share-based costs of $114.1 million compared to $90.8 million during the year ended December 31, 2009, also due to the incremental impact of the acquisition and to the additional amortization of share awards granted February 28, 2010 as part of the company’s annual share award cycle. Foreign exchange rate movement led to an increase in employee compensation expenses of $6.3 million (3.9%) in the year ended December 31, 2010 compared to the year ended December 31, 2009. Additionally, employee compensation costs for the year ended December 31, 2010 and 2009 included $20.0 million of prepaid compensation amortization expenses related to the 2006 acquisition of W.L. Ross & Co. This acquisition-related asset will be fully amortized by the third quarter of 2011.
     Headcount at December 31, 2010 was 5,617 (year ended December 31, 2009: 4,890). The acquisition added 580 employees at June 1, 2010. Formal hiring of staff in our Hyderabad, India, facility commenced with 83 individuals becoming our employees in late 2010. An additional 474 individuals became our employees by the date of this Report.
Third-Party Distribution, Service and Advisory Expenses
     Third-party distribution, service and advisory expenses 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 calculated based on a percentage of assets and/or sales, will generally vary based on movements in the markets or actual sales, and 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, and public relations costs, such as the marketing of the company’s products through conferences or other sponsorships, and the cost of marketing-related employee travel.
     Marketing expenses increased by $50.7 million (46.6%) in 2010 to $159.6 million (year ended December 31, 2009: $108.9 million) due primarily to the increase in marketing support payments of $37.4 million as compared to year ended December 31, 2009. Additionally, travel/client events and sales literature/research expenses increased $11.3 million and $4.3 million, respectively, during the year ended December 31, 2010 from the year ended December 31, 2009, offset by a decrease in advertising expenses of $3.2 million during the year ended December 31, 2010 as compared to the year ended December 31, 2009.
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 operations, technology, and other back office management services.
     Property, office and technology costs increased by $26.1 million (12.3%) to $238.4 million in 2010 from $212.3 million in 2009. Increases in property, office and technology costs include increases in outsourced administration expense and depreciation expense of $14.7 million and $7.1 million, respectively, along with other additional costs resulting from the acquisition.
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.

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     General and administrative expenses increased by $95.4 million (57.2%) to $262.2 million in 2010 from $166.8 million in 2009, due to several factors, including an increase in amortization of certain intangible assets related to the acquisition of $18.0 million, a charge recorded in the three months ended December 31, 2010, relating to a levy from the UK Financial Services Compensation Scheme of $15.3 million to cover claims resulting from failures of non-affiliated investment firms, a charge representing reimbursement costs from the correction of historical foreign exchange allocations in the fund accounting process that impacted the reporting of fund performance of certain funds of $8.9 million, an increase in non-marketing travel and entertainment costs of $10.4 million and an increase in market information services of $10.1 million for increased services across the business. Additionally, general and administrative expenses increased in 2010 from 2009 due to an insurance recovery received in 2009 related to legal costs associated with the market-timing regulatory settlement which offset 2009 expenses by $9.5 million.
Transaction and integration
     Transaction and integration expenses include acquisition-related charges incurred during the period to effect a business combination, including legal, regulatory, advisory, valuation, integration-related employee incentive awards and other professional or consulting fees, general and administrative costs, including travel costs related to the transaction and the costs of temporary staff involved in executing the transaction, and post-closing costs of integrating the acquired business into the company’s existing operations. Additionally, transaction and integration expenses include legal costs related to the defense of auction rate preferred securities complaints raised in the pre-acquisition period with respect to various closed-end funds included in the acquisition. See Item 3, “Legal Proceedings” for additional information.
     Transaction and integration charges were $150.0 million in 2010, as compared to $10.8 million in 2009 ($26.7 million of these costs were recorded in the three months ended December 31, 2010) and relate primarily to the acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. The acquisition was announced in October 2009 and closed on June 1, 2010. Transaction and integration charges incurred during the year ended December 31, 2010 include $39.1 million of staff costs, $53.4 million of technology contractor and related costs, and $57.5 million of professional services, principally legal, proxy solicitation, consultancy and insurance.
Operating Income, Adjusted Operating Income, Operating Margin and Adjusted Operating Margin
     Operating income increased 21.8% to $589.9 million in 2010 from $484.3 million in 2009, driven by the increase in operating revenues from increased AUM. Operating margin (operating income divided by operating revenues) was 16.9% in 2010, down from 18.4% in 2009. Adjusted operating margin increased to 34.5% in 2010 from 28.5% in 2009. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues, a reconciliation of operating income to adjusted operating income and additional important disclosures regarding net revenues, adjusted operating income and adjusted operating margin.
Other Income and Expenses
     The main categories of other income and expenses, and the dollar and percentage changes between periods are as follows:
                                 
    Year ended        
    December 31,        
$ in millions   2010   2009   $ Change   % Change
Equity in earnings of unconsolidated affiliates
    40.2       27.0       13.2       48.9 %
Interest and dividend income
    10.4       9.8       0.6       6.1 %
Interest income of consolidated investment products
    240.9             240.9       N/A  
Gains/(losses) of consolidated investment products, net
    114.0       (106.9 )     220.9       N/A  
Interest expense
    (58.6 )     (64.5 )     5.9       9.1 %
Interest expense of consolidated investment products
    (118.6 )           (118.6 )     N/A  
Other gains and losses, net
    15.6       7.8       7.8       100.0 %
 
                               
Total other income and expenses
    243.9       (126.8 )     370.7       N/A  
 
                               

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Equity in earnings of unconsolidated affiliates
     Equity in earnings of unconsolidated affiliates increased by $13.2 million (48.9%) to $40.2 million in the year ended December 31, 2010 (year ended December 31, 2009: $27.0 million). Included in equity in earnings from affiliates is our share of the income from our joint ventures in China, which declined by $5.5 million to $23.9 million in the year ended December 31, 2010 from $29.4 million earned during the year ended December 31, 2009. Declines in equity in earnings from our joint ventures are due to declines in average AUM in those entities during the year. Earnings from our affiliate in Poland also decreased by $1.1 million to $1.1 million in year ended December 31, 2010 from $2.2 million earned in the year ended December 31, 2009. These declines were more than offset by our share of the market-driven valuation changes in the underlying holdings of certain partnership investments which increased by $19.6 million to $15.1 million earned in the year ended December 31, 2010 from $4.5 million of losses during the year ended December 31, 2009.
Interest and dividend income and interest expense
     Interest and dividend income increased by $0.6 million (6.1%) to $10.4 million in the year ended December 31, 2010 (year ended December 31, 2009: $9.8 million). The year ended December 31, 2010 includes dividend income of $2.7 million on investments held to hedge economically deferred compensation plans. This dividend income is passed through to employee participants in the deferred compensation plans. See “Schedule of Non-GAAP Information” for additional details. Higher yields during the year ended December 31, 2010 offset lower average cash and cash equivalent balances. Interest expense decreased by $5.9 million (9.1%) to $58.6 million in the year ended December 31, 2010 (year ended December 31, 2009: $64.5 million). Higher average debt balances were more than offset by lower average cost of debt during the year ended December 31, 2010 following the restructuring of our debt versus the comparative period.
Interest income and interest expense of consolidated investment products
     Interest income of consolidated investment products results from interest generated by the collateral assets held by consolidated CLOs, which is used to satisfy the interest expenses of the notes issued by the consolidated CLOs and other CLO operating expense requirements, including the payment of the management and performance fees to the company as investment manager. See Part II, Item 8, Financial Statements and Supplementary Data — Note 20, “Consolidated Investment Products,” for additional details.
     In the year ended December 31, 2010, interest income and interest expense of consolidated investment products were $240.9 million and $118.6 million, respectively. The balances reflect the adoption of guidance now encompassed in ASC Topic 810 on January 1, 2010. In accordance with the standard, prior periods have not been restated to reflect the consolidation.
  Gains and losses of consolidated investment products, net income impact of consolidated investment products, and noncontrolling interests in consolidated entities
     Included in other income and expenses are gains and losses of consolidated investment products, net, which are driven by realized and unrealized gains and losses of underlying investments held by consolidated investment products. In the year ended December 31, 2010 other gains and losses of consolidated investment products were a net gain of $114.0 million, as compared to a net loss of $106.9 million in the year ended December 31, 2009. The net gain in the period is primarily due to changes in market values of investments held by consolidated private equity funds.
     As illustrated in the Condensed Consolidating Statements of Income for the year ended December 31, 2010 and 2009 at the beginning of this Results of Operations section, the consolidation of investment products during the year ended December 31, 2010 resulted in an increase to net income of $180.7 million before attribution to noncontrolling interests. Invesco invests in only a portion of these products, and as a result this net gain is offset by noncontrolling interests of $170.9 million, resulting in a net increase in net income of the company of $9.8 million. Consolidated investment products had no material net income impact to the company for the year ended December 31, 2009.
     Noncontrolling interests in consolidated entities represent the profit or loss amounts attributed to third party investors in consolidated investment products. Movements in amounts attributable to noncontrolling interests in consolidated entities on the company’s Consolidated Statements of Income generally offset the gains and losses, interest income and interest expense of consolidated investment products.

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Other gains and losses, net
     Other gains and losses, net were a net gain of $15.6 million in the year ended December 31, 2010 as compared to a net gain of $7.8 million in the year ended December 31, 2009. Included in other gains and losses is a net gain of $14.2 million as a result of the appreciation of assets held for our deferred compensation plans (year ended December 31, 2009: none), together with $9.2 million of net realized gains from seed investments (year ended December 31, 2009: $3.7 million net realized gains). The 2010 other gains and losses also included $6.6 million in other-than-temporary impairment charges related to other seed money in affiliated funds (year ended December 31, 2009: $3.0 million) and $0.4 million in other-than-temporary impairment charges related to the valuations of investments in certain of our CLO products (year ended December 31, 2009: $5.2 million). In the year ended December 31, 2010, we incurred $0.2 million in net foreign exchange losses (year ended December 31, 2009: $8.4 million in net foreign exchange gains) on the revaluation of intercompany foreign currency denominated loans into the various functional currencies of our subsidiaries. In addition, included in the 2009 net gain is a gross gain generated upon a debt tender offer of $4.3 million ($3.3 million net of related expenses).
Income Tax Expense
     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 28%, the Canadian statutory tax rate is 31% and the U.S. Federal statutory tax rate is 35%.
     On December 14, 2007, legislation was enacted to reduce the Canadian income tax rate over five years, which changed the rate to 33.5% in 2008 and 33.0% in 2009. The legislation was revised in December 2009, further reducing the rate to 31.0% in 2010, 28.25% in 2011, 26.25% in 2012, 25.5% in 2013, and 25% thereafter. On July 27, 2010, legislation was introduced to reduce the UK income tax rate to 27% on April 1, 2011. Further reductions to the rate are proposed to reduce the rate by 1% per year to 24% by April 1, 2014. These reductions are expected to be introduced in future Finance Bills for each annual reduction.
     Our effective tax rate, excluding noncontrolling interests in consolidated entities, for 2010 was 29.7%, down from 31.5% for 2009. The rate decrease was primarily due to the mix of pre-tax income and favorable adjustments to reconcile our tax provisions to reflect actual tax returns filed. The rate decrease was partially offset by non-deductible transaction and integration costs related to the acquired business and a smaller benefit from the release of provisions for uncertain tax positions in 2010 versus 2009.
     The inclusion of income from noncontrolling interests in consolidated entities decreased our effective tax rate to 23.6% in 2010 and increased it to 41.5% in 2009. The 2009 rate was higher than 2008 due to a larger impact from losses in non-controlling interests.

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Results of Operations for the Year Ended December 31, 2009, compared with the Year Ended December 31, 2008
Condensed Consolidating Statements of Income
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation(1)   Products(2)   Adjustments(3)   Total
Year ended December 31, 2009
                               
Total operating revenues
    2,633.3       1.9       (7.9 )     2,627.3  
Total operating expenses
    (2,139.5 )     (11.4 )     7.9       (2,143.0 )
 
                               
Operating income
    493.8       (9.5 )           484.3  
Equity in earnings of unconsolidated affiliates
    24.5             2.5       27.0  
Interest and dividend income
    9.8                   9.8  
Other investment income/(losses)
    7.8       (106.9 )           (99.1 )
Interest expense
    (64.5 )                 (64.5 )
 
                               
Income before income taxes, including gains and losses attributable to noncontrolling interests
    471.4       (116.4 )     2.5       357.5  
Income tax provision
    (148.2 )                 (148.2 )
 
                               
Net income, including gains and losses attributable to noncontrolling interests
    323.2       (116.4 )     2.5       209.3  
(Gains)/losses attributable to noncontrolling interests in consolidated entities, net
    (0.7 )     113.9             113.2  
 
                               
Net income attributable to common shareholders
    322.5       (2.5 )     2.5       322.5  
 
                               
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation(1)   Products(2)   Adjustments(3)   Total
Year ended December 31, 2008
                               
Total operating revenues
    3,308.4       5.5       (6.3 )     3,307.6  
Total operating expenses
    (2,555.3 )     (10.8 )     6.3       (2,559.8 )
 
                               
Operating income
    753.1       (5.3 )           747.8  
Equity in earnings of unconsolidated affiliates
    45.9             0.9       46.8  
Interest and dividend income
    37.2                   37.2  
Other investment income/(losses)
    (39.9 )     (58.0 )           (97.9 )
Interest expense
    (76.9 )     0             (76.9 )
 
                               
Income/(loss) before income taxes, including gains and losses attributable to noncontrolling interests
    719.4       (63.3 )     0.9       675.0  
Income tax provision
    (236.0 )                 (236.0 )
 
                               
Net income/(loss), including gains and losses attributable to noncontrolling interests
    483.4       (63.3 )     0.9       421.0  
(Gains)/losses attributable to noncontrolling interests in consolidated entities, net
    (1.7 )     62.4             60.7  
 
                               
Net income attributable to common shareholders
    481.7       (0.9 )     0.9       481.7  
 
                               
 
(1)   The Before Consolidation column includes Invesco’s equity interest in the investment products, accounted for as equity method and available-for-sale investments and does not include any other adjustments related to non-GAAP financial measure presentation.
 
(2)   The company adopted guidance now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs.
 
(3)   Adjustments include the elimination of intercompany transactions between the company and its consolidated investment products, primarily the elimination of management fees expensed by the funds and recorded as operating revenues (before consolidation) by the company.

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Operating Revenues and Net Revenues
     The main categories of revenues, and the dollar and percentage change between the periods, were as follows:
                                 
    Year ended        
    December 31,        
$ in millions   2009   2008   $ Change   % Change
Investment management fees
    2,120.2       2,617.8       (497.6 )     (19.0 )%
Service and distribution fees
    412.6       512.5       (99.9 )     (19.5 )%
Performance fees
    30.0       75.1       (45.1 )     (60.1 )%
Other
    64.5       102.2       (37.7 )     (36.9 )%
 
                               
Total operating revenues
    2,627.3       3,307.6       (680.3 )     (20.6 )%
Third-party distribution, service and advisory expenses
    (693.4 )     (875.5 )     182.1       (20.8 )%
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
    44.7       57.3       (12.6 )     (22.0 )%
Management fees earned from consolidated investment products
    8.0       6.2       1.8       29.0 %
Other revenues recorded by consolidated investment products
    (2.0 )     (5.4 )     3.4       (63.0 )%
 
                               
Net revenues
    1,984.6       2,490.2       (505.6 )     (20.3 )%
 
                               
     Operating revenues decreased by 20.6% in 2009 to $2,627.3 million (2008: $3,307.6 million). Net revenues decreased by 20.3% in 2009 to $1,984.6 million (2008: $2,490.6 million). Net revenues are operating revenues less third-party distribution, service and advisory expenses, plus our proportional share of net revenues from joint venture arrangements, plus management fees earned from, less other revenue recorded by, consolidated investment products. See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues. A significant portion of our business and managed AUM are based outside of the U.S. The income statements of foreign currency subsidiaries are translated into U.S. dollars, the reporting currency of the company, using average foreign exchange rates. The impact of foreign exchange rate movements accounted for $152.0 million (22.3%) of the decline in operating revenues during the year ended December 31, 2009. Additionally, our revenues are directly influenced by the level and composition of our AUM as more fully discussed in “Assets Under Management.” Movements in global capital market levels, net new business inflows (or outflows) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period.
Investment Management Fees
     Investment management fees decreased by $497.6 million (19.0%) in the year ended December 31, 2009, to $2,120.2 million (year ended December 31, 2008: $2,617.8 million) due a decrease in average AUM, changes in the mix of AUM between asset classes, and the impact of foreign exchange rate movement. Average AUM for the year ended December 31, 2009 were $415.8 billion, down $53.1 billion (11.3%) from $468.9 billion for 2008. Average long-term AUM, which generally earn higher fee rates than money market AUM, for the year ended December 31, 2009 decreased 25.4% to $328.8 billion from $440.6 billion for the year ended December 31, 2008, while average institutional money market AUM decreased 3.1% to $87.0 billion for the year ended December 31, 2009, from $79.8 billion for the year ended December 31, 2008. See the company’s disclosures regarding the changes in AUM during the year ended December 31, 2009 in the “Assets Under Management” section above for additional information regarding the movements in AUM. Foreign exchange rate movements led to a decrease in investment management fees of $124.8 million during the year ended December 31, 2009, compared to the year ended December 31, 2008.
Service and Distribution Fees
     In 2009, service and distribution fees decreased 19.5% to $412.6 million (2008: $512.5 million) primarily due to decreases in average AUM during the year. Included in the decline in service and distribution fees in the three months ended December 31, 2009, was a reduction of $5.4 million reflecting the full-year impact of a reduction in transfer agency and administrative revenues in Canada, as certain fund expense recovery limits were reached.
Performance Fees
     Of our $459.5 billion in AUM at December 31, 2009, only approximately $30.0 billion, or 6.5%, could potentially earn performance fees. In 2009, performance fees decreased 60.1% to $30.0 million (2008: $75.1 million). The performance fees generated in 2009 arose primarily due to products managed by the Invesco Global Strategies group ($2.4 million), Invesco Perpetual ($13.4 million), and Atlantic Trust ($5.7 million). The performance fees generated in 2008 arose primarily due to products managed by the Invesco Global Strategies ($22.3 million) and Real Estate ($14.5 million) groups, as well as by Invesco Perpetual ($21.1 million).

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Other Revenues
     In 2009, other revenues decreased 36.9% to $64.5 million (2008: $102.2 million), driven by decreases in transaction commissions of $17.7 million, due to the tightening of the credit markets and fewer real estate transactions, and foreign exchange rate movements $0.5 million.
Third-Party Distribution, Service and Advisory Expenses
     Third-party distribution, service and advisory expenses decreased 20.8% in 2009 to $693.4 million (2008: $875.5 million), consistent with the declines in investment management and service and distribution fee revenues.
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
     The 21.8% decrease in our proportional share of revenues, net of third-party distribution expenses, to $44.8 million in 2009 (2008: $57.3 million), is driven by the declines in average AUM of the Invesco Great Wall joint venture. Our share of the Invesco Great Wall joint venture’s average AUM at December 31, 2009, was $3.7 billion, a 17.8% decline in average AUM from $4.5 billion at December 31, 2008.
Operating Expenses
     The main categories of operating expenses are as follows:
                                 
$ in millions   2009   2008   $ Change   % Change
Employee compensation
    950.8       1,055.8       (105.0 )     (9.9 )%
Third-party distribution, service and advisory
    693.4       875.5       (182.1 )     (20.8 )%
Marketing
    108.9       148.2       (39.3 )     (26.5 )%
Property, office and technology
    212.3       214.3       (2.0 )     (0.9 )%
General and administrative
    166.8       266.0       (99.2 )     (37.3 )%
Transaction and integration
    10.8             10.8       N/A  
 
                               
Total operating expenses
    2,143.0       2,559.8       (416.8 )     (16.3 )%
 
                               
     The table below sets forth these expense categories as a percentage of total operating expenses and operating revenues, which we believe provides useful information as to the relative significance of each type of expense.
                                                 
            % of Total   % of           % of Total   % of
            Operating   Operating           Operating   Operating
$ in millions   2009   Expenses   Revenues   2008   Expenses   Revenues
Employee compensation
    950.8       44.4 %     36.2 %     1,055.8       41.2 %     31.9 %
Third-party distribution, service and advisory
    693.4       32.3 %     26.4 %     875.5       34.2 %     26.5 %
Marketing
    108.9       5.1 %     4.1 %     148.2       5.8 %     4.5 %
Property, office and technology
    212.3       9.9 %     8.1 %     214.3       8.4 %     6.5 %
General and administrative
    166.8       7.8 %     6.3 %     266.0       10.4 %     8.0 %
Transaction and integration
    10.8       0.5 %     0.4 %                  
 
                                               
Total operating expenses
    2,143.0       100.0 %     81.5 %     2,559.8       100.0 %     77.4 %
 
                                               
     During 2009, operating expenses decreased 16.3% to $2,143.0 million (2008: $2,559.8 million), reflecting declines in all cost categories from 2008 expense levels. As discussed above, a significant portion of our business and managed AUM are based outside of the U.S. The income statements of foreign currency subsidiaries are translated into U.S. dollars, the reporting currency of the company, using average foreign exchange rates. The impact of foreign exchange rate movements accounted for $108.0 million (25.9%) of the decline in operating expenses during the year ended December 31, 2009. Additionally, operating expenses were lower in 2009 as compared to 2008 reflecting the impact of general cost containment measures and costs that move in line with revenues.

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Employee Compensation
     Employee compensation decreased $105.0 million, or 9.9%, in 2009 from 2008 due predominantly to overall decreases in base salaries and variable compensation of $86.3 million, including decreases in discretionary and investment performance-based staff bonuses, decreases in base salary costs resulting from decreases in headcount, and foreign exchange rate movements of $36.4 million. Headcount declined 8.2% to 4,890 at December 31, 2009 from 5,325 at December 31, 2008. Included in compensation expenses during the year ended December 31, 2009 are share-based payment costs of $90.8 million, compared to $97.7 million during the year ended December 31, 2008. Additionally, employee compensation costs for the years ended December 31, 2009 and 2008 included $20.0 million of prepaid compensation amortization expenses related to the 2006 acquisition of W.L. Ross & Co.
     Compensation expenses in the three months ended December 31, 2009, included a $4.1 million increase in pension costs related to the plans’ actuarial annual valuation updates and a $4.3 million increase in payroll taxes associated with the vesting of share-based payment awards.
Third-Party Distribution, Service and Advisory Expenses
     Third-party distribution, service and advisory expenses are discussed above in the operating and net revenues section.
Marketing
     Marketing expenses decreased 26.5% in 2009 to $108.9 million (2008: $148.2 million) due to a decrease in marketing support payments of $12.2 million related to the decline in average AUM in the U.S., a lower level of advertising of $7.7 million, and a reduction in travel/client events and sales literature/research expenses of $8.8 million and $2.8 million, respectively. Additionally, foreign exchange rate movement decreased marketing expenses by $4.5 million (11.5%) for the year ended December 31, 2009 compared to December 31, 2008.
Property, Office and Technology
     Property, office and technology costs decreased 0.9% to $212.3 million in 2009 from $214.3 million in 2008. Decreases in technology costs resulting from general disciplined expense management measures and foreign exchange rate movement were offset by increases in property and office costs during the year. Property and office expenses for the year ended December 31, 2009, included $12.0 million in charges relating to vacating leased property, including our Denver, Colorado, operations facility. Property and office expenses during 2008 included a $5.1 million rent charge related to vacating leased property, offset by downward adjustments in rent costs for sublet office property of $8.2 million.
General and Administrative
     General and administrative expenses decreased by $99.2 million (37.3%) to $166.8 million in 2009 from $266.0 million in 2008, due to a focus on expense reduction and management during 2009. During 2009, the most significant decrease in this area was a decrease of $50.2 million in professional services expenses, which included an insurance recovery of $9.5 million related to legal costs associated with the market-timing regulatory settlement. General disciplined expense management measures also led to a reduction in travel and entertainment expenses of $14.2 million during the year ended December 31, 2009. Foreign exchange rate movement decreased general and administrative expenses by $6.9 million during 2009 as compared to 2008.
Transaction and Integration
     Transaction and integration charges were $10.8 million in 2009 ($9.8 million of these costs were recorded in the three months ended December 31, 2009) and relate to the acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. The acquisition was announced in October 2009 and closed on June 1, 2010. There were no transaction and integration changes for the year ended December 31, 2008.
Operating Income, Adjusted Operating Income, Operating Margin and Adjusted Operating Margin
     Operating income decreased 35.2% to $484.3 million in 2009 from $747.8 million in 2008, driven by the declines in operating revenues from reduced AUM. As a result of the decline in our operating revenues, adjusted operating income, operating margin and adjusted operating margin also declined. Operating margin was 18.4% in 2009, down from 22.6% in 2008. Adjusted operating income

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decreased 31.5% to $565.6 million in 2009 from $826.1 million in 2008. Adjusted operating margin was 28.5% in 2009, down from 33.2% in 2008. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues, a reconciliation of operating income to adjusted operating income, and additional important disclosures regarding net revenues, adjusted operating income and adjusted operating margin.
Other Income and Expenses
     The main categories of other income and expenses, and the dollar and percentage changes between periods are as follows:
                                 
    Year ended        
    December 31,        
$ in millions   2009   2008   $ Change   % Change
Equity in earnings of unconsolidated affiliates
    27.0       46.8       (19.8 )     (42.3 )%
Interest and dividend income
    9.8       37.2       (27.4 )     (73.7 )%
Gains/(losses) of consolidated investment products, net
    (106.9 )     (58.0 )     (48.9 )     84.3 %
Interest expense
    (64.5 )     (76.9 )     12.4       (16.1 )%
Other gains and losses, net
    7.8       (39.9 )     47.7       N/A  
 
                               
Total other income and expenses
    (126.8 )     (90.8 )     (36.0 )     39.6 %
 
                               
Equity in earnings of unconsolidated affiliates
     Equity in earnings of unconsolidated affiliates decreased by $19.8 million (42.3%) to $27.0 million in the year ended December 31, 2009 (December 31, 2008: $46.8 million), due primarily from declines in our share of the pre-tax earnings of our joint venture investments in China of $11.9 million, as well as, net losses in certain of our partnership investments of $7.8 million.
Interest and dividend income and interest expense
     Interest and dividend income decreased by $27.4 million to $9.8 million in 2009 (2008: $37.2 million), as a result of the combination of lower interest rates and lower average cash and cash equivalents balances in 2009. The decrease in yields was consistent with market movement from 2008 to 2009. Interest expense decreased 16.1% to $64.5 million in 2009 from $76.9 million in 2008 due to decreases in the average debt balance in 2009.
Gains and losses of consolidated investment products
     Included in other income and expenses are net realized and unrealized gains of consolidated investment products. In 2009, the net losses of consolidated investment products were $106.9 million, compared to net losses of $58.0 million in 2008, reflecting the changes in market values of the investments held by consolidated investment products. Invesco invests in only a small equity portion of these products, and as a result these losses are offset by noncontrolling interests of $113.2 million.
Other gains and losses, net
     Other gains and losses, net were a net gain of $7.8 million in 2009, compared to a net loss of $39.9 million in 2008. Included in the 2009 net gain is a gross gain generated upon a debt tender offer of $4.3 million ($3.3 million net of related expenses) and net gains of $4.3 million realized upon the disposal of other investments (2008: $7.4 million gain on maturity of a CLO investment, offset by a loss of $4.1 million realized upon the disposal of a private equity investment). The 2009 net gain also included $5.2 million in other-than-temporary impairment charges related to the valuations of investments in certain of our CLO products (2008: $22.7 million) and $3.0 million in other-than-temporary impairment charges related to other seed money in affiliated funds (2008: $8.5 million). The CLO impairments arose principally from adverse changes in the timing of estimated cash flows used in the valuation models. In the year ended December 31, 2009, we also benefited from $8.4 million in net foreign exchange gains whereas in 2008, we incurred $13.0 million in net foreign exchange losses. See Item 8, Financial Statements and Supplementary Data — Note 15, “Other Gains and Losses, Net,” for additional details related to other gains and losses.

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Income Tax Expense
     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 2009 U.K. statutory tax rate was 28%, the Canadian statutory tax rate was 33% and the U.S. Federal statutory tax rate was 35%. On December 14, 2007, legislation was enacted to reduce the Canadian income tax rate over five years, which changed the rate to 33.5% in 2008, 33.0% in 2009, 31% in 2010, 28.25% in 2011, 26.25% in 2012, 25.5% in 2013, and 25% thereafter.
     Our effective tax rate, excluding noncontrolling interests in consolidated entities, for 2009 was 31.5%, down from 32.9% for 2008. The rate decrease was primarily due to the mix of pre-tax income and a larger benefit from the release of provisions for uncertain tax positions in 2009 versus 2008. The rate decrease was partially offset by an increase in the net valuation allowance for subsidiary operating losses and additional state taxes.
     The inclusion of income from noncontrolling interests in consolidated entities increased our effective tax rate to 41.5% in 2009 and to 35.9% in 2008. The 2009 rate was higher than 2008 due to a larger impact from losses in non-controlling interests.
Schedule of Non-GAAP Information
     Beginning with the presentation of the company’s results for the three months ended March 31, 2010, the company has expanded its use of non-GAAP measures to include reconciling items primarily relating to guidance now encompassed in the Accounting Standards Codification Topic 810 (discussed in Part II, Item 8, Financial Statements and Supplementary Data — Note 1, “Accounting Policies”) and the acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments (the “acquired business” or the “acquisition”). We are presenting the following non-GAAP measures: net revenue (and by calculation, net revenue yield on AUM), adjusted operating income (and by calculation, adjusted operating margin), adjusted net income (and by calculation, adjusted earnings per share (EPS)). Prior to June 30, 2010, adjusted operating income, adjusted operating margin, adjusted net income, and adjusted earnings per share were described as “adjusted cash operating income,” “adjusted cash operating margin,” “adjusted cash net income,” and “adjusted cash earnings per share,” respectively. We believe these non-GAAP measures provide greater transparency into our business and allow more appropriate comparisons with industry peers. Management uses these performance measures to evaluate the business, and they are consistent with internal management reporting. Effective June 30, 2010, the company removed “cash” from the names of these measures to emphasize that these measures are performance measures and not liquidity measures. The most directly comparable U.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income (and by calculation, operating margin), net income (and by calculation, diluted EPS). Each of these measures is discussed more fully below.
     Also beginning with the presentation of the company’s results for the three months ended March 31, 2010, the net revenue measure has been redefined from that previously used to adjust for the impact of consolidating certain investment products. The presentation of net revenue in this Report for the years ended December 31, 2006, 2007, 2008 and 2009 have been restated to conform the calculation to the current period’s methodology.
     These non-GAAP measures 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. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate.

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     The following are reconciliations of operating revenues, operating income (and by calculation, operating margin), and net income (and by calculation, diluted EPS) on a U.S. GAAP basis to net revenues, adjusted operating income (and by calculation, adjusted operating margin), and adjusted net income (and by calculation, adjusted EPS):
                                         
$ in millions, except per share data   2010   2009   2008   2007   2006
Operating revenues, U.S. GAAP basis
    3,487.7       2,627.3       3,307.6       3,878.9       3,246.7  
Third-party distribution, service and advisory expenses(1)
    (972.7 )     (693.4 )     (875.5 )     (1,051.1 )     (826.8 )
Proportional share of net revenues from joint venture arrangements(2)
    42.2       44.7       57.3       60.6       8.1  
Management fees earned from consolidated investment products eliminated upon consolidation(3)
    45.3       8.0       6.2       8.7       11.3  
Other revenues recorded by consolidated investment products(3)
    (0.3 )     (2.0 )     (5.4 )     (15.2 )     (26.5 )
 
                                       
Net revenues
    2,602.2       1,984.6       2,490.2       2,881.9       2,412.8  
 
                                       
 
                                       
Operating income, U.S. GAAP basis
    589.9       484.3       747.8       994.3       759.2  
Proportional share of operating income from joint venture investments(2)
    22.9       28.4       39.7       45.5       2.9  
Transaction and integration charges(4)
    150.0       10.8                    
Amortization of acquisition-related prepaid compensation(4)
    20.0       20.0       20.0       25.0        
Amortization of other intangibles(4)
    30.3       12.6       13.3       12.0       10.0  
Change in contingent consideration estimates
    (3.8 )                        
Compensation expense related to market valuation changes in deferred compensation plans(5)
    9.3                          
Consolidation of investment products(3)
    54.9       9.5       5.3       1.8       (5.9 )
Other reconciling items(6)
    24.2                          
 
                                       
Adjusted operating income
    897.7       565.6       826.1       1,078.6       766.2  
 
                                       
Operating margin*
    16.9 %     18.4 %     22.6 %     25.6 %     23.4 %
Adjusted operating margin**
    34.5 %     28.5 %     33.2 %     37.4 %     31.8 %
 
                                       
Net income attributable to common shareholders, U.S. GAAP basis
    465.7       322.5       481.7       673.6       482.7  
Transaction and integration charges, net of tax(4)
    103.1       8.9                    
Amortization of acquisition-related prepaid compensation(4)
    20.0       20.0       20.0       25.0        
Amortization of other intangibles, net of tax(4)
    27.4       12.3       13.0       11.7       9.8  
Change in contingent consideration estimates, net of tax
    (2.5 )                        
Deferred compensation plan market valuation changes and dividend income less compensation expense, net of tax(5)
    (5.3 )                        
Deferred income taxes on intangible assets(4)
    21.1       14.4       12.4       7.9       7.2  
Consolidation of investment products(3)
    (6.8 )                        
Other reconciling items, net of tax(6)
    17.0                          
 
                                       
Adjusted net income
    639.7       378.1       527.1       718.2       499.7  
 
                                       
 
                                       
Average shares outstanding — diluted
    463.2       423.6       399.1       411.9       406.1  
Diluted EPS
  $ 1.01     $ 0.76     $ 1.21     $ 1.64     $ 1.19  
Adjusted EPS***
  $ 1.38     $ 0.89     $ 1.32     $ 1.74     $ 1.23  
 
*   Operating margin is equal to operating income divided by operating revenues.
 
**   Adjusted operating margin is equal to adjusted operating income divided by net revenues.
 
***   Adjusted EPS is equal to adjusted net income divided by the weighted average shares outstanding amount used in the calculation of diluted EPS.

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(1)   Third-party distribution, service and advisory expenses
 
    Third-party distribution, service and advisory expenses include renewal commissions, management fee rebates and distribution costs paid to brokers and independent financial advisors. While the terms used for these types of expense vary by geography, they are all expense items that are closely linked to the value of AUM and the revenue earned by Invesco from AUM.
 
    Renewal commissions are paid to independent financial advisors for as long as the clients’ assets remain invested and are payments for the servicing of client accounts. These commissions, similar to our management fee revenues, are based upon a percentage of the AUM value and apply to much of our non-U.S. retail business. They can also take the form of management fee rebates, particularly outside of the U.S.
 
    The revenues of our U.S. business include distribution fees earned from mutual funds, principally 12b-1 fees, which are passed through to brokers who sell our funds. Distribution costs are expenses paid to third-party brokers of our U.S. business. These include the amortization over the redemption period of upfront commissions paid to brokers for sales of fund shares with a contingent deferred sales charge (a charge levied on investors for redemptions within a certain contracted period of time). Both the revenues and the costs are dependent on the underlying AUM of the brokers’ clients.
 
    Also included in third-party distribution, service and advisory expenses are sub-transfer agency fees that are paid to third parties for processing client share purchases and redemptions, call center support and client reporting. These costs are reimbursed by the related funds.
 
    Since the company has been deemed to be the principal in the third-party arrangements, the company must reflect these expenses gross of operating revenues under U.S. GAAP. Management believes that the deduction of third-party distribution, service and advisory expenses from operating revenues in the computation of net revenues (and by calculation, net revenue yield on AUM) and the related computation of adjusted operating income (and by calculation, adjusted operating margin), is useful information for investors and other users of the company’s financial statements because such presentation appropriately reflects the nature of these expenses as revenue-sharing activities, as these costs are passed through to external parties who perform functions on behalf of the company’s managed funds. Further, these expenses vary extensively by geography due to the differences in distribution channels. The net presentation assists in identifying the revenue contribution generated by the business, removing distortions caused by the differing distribution channel fees and allowing for a fair comparison with U.S. peer investment managers and within the company. Additionally, management evaluates net revenue yield on AUM, which is equal to net revenues divided by average AUM during the reporting period. This financial measure is an indicator of the basis point net revenues we receive for each dollar of AUM we manage and is useful when evaluating the company’s performance relative to industry competitors and within the company for capital allocation purposes.
 
(2)   Proportional share of net revenues and operating income from joint venture investments
 
    The company has two joint venture investments in China. The Invesco Great Wall joint venture is one of the largest Sino-foreign managers of equity products in China, with AUM of approximately $7.2 billion as of December 31, 2010. The company has a 49.0% interest in Invesco Great Wall. The company also has a 50% joint venture with Huaneng Capital Services to assess private equity investment opportunities in power generation in China through Huaneng Invesco WLR Investment Consulting Company Ltd. Enhancing our operations in China is one effort that we believe could improve our competitive position over time. Accordingly, we believe that it is appropriate to evaluate the contribution of our joint venture investments to the operations of the business.
 
    Management believes that the addition of our proportional share of revenues, net of distribution expenses, 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 adjusted operating income and adjusted operating margin also provide useful information to investors and other users of the company’s financial statements, as management considers it appropriate to evaluate the contribution of its joint ventures to the operations of the business. It is also consistent with the presentation of AUM and net flows (where our proportional share of the ending balances and related activity are reflected) and therefore provides a more meaningful calculation of net revenue yield on AUM.
 
(3)   Consolidated investment products
 
    In June 2009, the FASB issued guidance now encompassed in ASC Topic 810 which was effective January 1, 2010. It has had a significant impact on the presentation of the company’s financial statements. The company’s Consolidated Statement of Income for the year ended December 31, 2010 reflects the elimination of management and performance fees earned from these CLOs and other consolidated investment products. See Part II, Item 8, Financial Statements and Supplementary Data — Note 20,

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    “Consolidated Investment Products” for a detailed analysis of the impact to the company’s Consolidated Financial Statements from the consolidation of investment products.
 
    Management believes that the consolidation of investment products may impact a reader’s analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues, operating income and operating margin for the impact of consolidated investment products in calculating the respective net revenues, adjusted operating income and adjusted operating margin. The reconciling items add back the management and performance fees earned by Invesco from the consolidated products and remove the revenues and expenses recorded by the consolidated products that have been included in the U.S. GAAP Consolidated Statements of Income.
 
(4)   Acquisition-related reconciling items
 
    Acquisition-related adjustments include transaction and integration expenses and intangible asset amortization related to acquired assets, amortization of prepaid compensation related to the 2006 acquisition of W.L. Ross & Co., and tax cash flow benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets. These charges reflect the legal, regulatory, advisory, valuation, integration-related employee incentive awards and other professional or consulting fees, general and administrative costs, including travel costs related to the transaction and the costs of temporary staff involved in executing the transaction, and the post closing costs of integrating the acquired business into the company’s existing operations including incremental costs associated with achieving synergy savings. Additionally, transaction and integration expenses include legal costs related to the defense of auction rate preferred securities complaints raised in the pre-acquisition period with respect to various closed-end funds included in the acquisition. See Item 3, “Legal Proceedings” for additional information.
 
    The acquisition will result in additional future amortization expenses of approximately $23 million per year for the first 2 years following June 1, 2010. The expense then reduces in future years as the acquired finite-lived intangible assets become fully expensed. The U.S. GAAP to non-GAAP reconciling items also include acquisition-related amortization charges related to previous business combinations. The tax benefit is recorded on a portion of the intangible amortization expense that does not generate a cash tax benefit. The W.L. Ross & Co. prepaid compensation expense will continue through 2010, and the acquisition-related asset will be fully amortized by the third quarter of 2011.
 
    Management believes it is useful to investors and other users of our financial statements to adjust for the transaction and integration charges and the amortization expenses in arriving at adjusted operating income, adjusted operating margin and adjusted EPS, as this will aid comparability of our results period to period, and aid comparability with peer companies that may not have similar acquisition-related charges.
 
    While finite-lived intangible assets are amortized under U.S. GAAP, there is no amortization charge on goodwill and indefinite-lived intangibles. In certain qualifying situations, these can be amortized for tax purposes, generally over a 15-year period, as is the case in the U.S. These cash flows (in the form of reduced taxes payable) represent tax benefits that are not included in the Consolidated Statements of Income absent an impairment charge or the disposal of the related business. We believe it is useful to include these tax cash flow benefits in arriving at the adjusted EPS measure. The company receives these cash flow benefits but does not anticipate a sale or impairment of these assets in the foreseeable future, and therefore the deferred tax liability recognized under U.S. GAAP is not expected to be used either through a credit in the Consolidated Statements of Income or through settlement of tax obligations.
 
(5)   Market movement on deferred compensation plan liabilities
 
    In 2009, Invesco introduced an incentive plan whereby certain of our investment team members can receive deferred cash compensation linked in value to the investment products being managed by the team. This is in lieu of share-based awards which were largely the only prior form of deferred compensation used by Invesco.
 
    These awards involve a return to the employee linked to the appreciation (depreciation) of specified investments, typically the funds managed by the employee. Invesco hedges economically the exposure to market movements by holding these investments on its balance sheet. U.S. GAAP requires the appreciation (depreciation) in the compensation liability to be expensed over the award vesting period in proportion to the vested amount of the award as part of compensation expense. The full value of the investment appreciation (depreciation) is immediately recorded below operating income in other gains and losses. This creates a timing difference between the recognition of the compensation expense and the investment gain or loss impacting net income attributable to common shareholders and diluted EPS which will reverse over the life of the award and net to zero at the end of the multi-year vesting period. During periods of high market volatility these timing differences impact compensation expense, operating income and operating margin in a manner which, over the life of the award, will ultimately be offset by gains and losses recorded below operating income on the Consolidated Statements of Income.

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    Since these plans are hedged economically, management believes it is useful to reflect the offset ultimately achieved from hedging the investment market exposure in the calculation of adjusted operating income (and by calculation, adjusted operating margin) and adjusted net income (and by calculation, adjusted EPS), to produce results that will be more comparable period to period. The related fund shares will have been purchased on or around the date of grant, eliminating any ultimate cash impact from market movements that occur over the vesting period. The non-GAAP measures therefore exclude the mismatch created by differing U.S. GAAP treatments of the market movement on the liability and the investments.
 
    Additionally, dividend income from investments held to hedge economically deferred compensation plans is recorded as dividend income and as compensation expense on the company’s Consolidated Statements of Income on the record dates. This dividend income is passed through to the employee participants in the plan and is not retained by the company. The non-GAAP measures exclude this dividend income and related compensation expense.
 
    No adjustments are being made for the prior period comparative non-GAAP measures presented above due to the relative insignificance of the amounts in those periods.
 
(6)   Other reconciling items
 
    Included within general and administrative expenses is a charge of $8.9 million ($6.0 million net of tax) for the year ended December 31, 2010, representing reimbursement costs from the correction of historical foreign exchange allocations in the fund accounting process that impacted the reporting of fund performance in certain funds. Also included within general and administrative expenses is a charge of $15.3 million ($11.0 million net of tax) recorded in the three months ended December 31, 2010, relating to a levy from the U.K. Financial Services Compensation Scheme. Assessments were levied upon all Financial Services Authority (FSA)-registered investment management companies in proposition to their “eligible income” (as defined by the FSA) to cover claims resulting from failures of non-affiliated investment firms. Management does not include these costs in internal reporting and these costs do not form part of the overall evaluation of the business. Management therefore believes that the exclusion of these costs, due to their unique character and magnitude, from total operating expenses provides useful information to investors, as this view is consistent with how management evaluates the performance of the business. Exclusion of these costs will aid in comparability of our results from period to period and the comparability of our results with those of peer investment managers.

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Balance Sheet Discussion
     Condensed Consolidating Balance Sheets are presented below and reflect the consolidation of investment products, including the adoption of guidance now encompassed in ASC Topic 810 on January 1, 2010. The majority of the company’s consolidated investment products were CLOs as of December 31, 2010. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company’s minimal direct investments in, and management fees generated from, CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Additionally, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability.
Condensed Consolidating Balance Sheets
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation(1)   Products(2)   Adjustments(3)   Total
As of December 31, 2010
                               
Current assets
    3,480.0       816.8       (22.3 )     4,274.5  
Non-current assets
    9,025.1       7,205.5       (61.0 )     16,169.6  
 
                               
Total assets
    12,505.1       8,022.3       (83.3 )     20,444.1  
 
                               
Current liabilities
    2,777.9       508.9       (22.3 )     3,264.5  
Long-term debt of consolidated investment products
          5,888.2       (22.8 )     5,865.4  
Other non-current liabilities
    1,953.3                   1,953.3  
 
                               
Total liabilities
    4731.2       6,397.1       (45.1 )     11,083.2  
 
                               
Retained earnings appropriated for investors in consolidated investment products
          495.5             495.5  
Other equity attributable to common shareholders
    7,769.1       38.2       (38.2 )     7,769.1  
Equity attributable to noncontrolling interests in consolidated entities
    4.8       1,091.5             1,096.3  
 
                               
Total liabilities and equity
    12,505.1       8,022.3       (83.3 )     20,444.1  
 
                               
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation(1)   Products(2)   Adjustments(3)   Total
As of December 31, 2009
                               
Current assets
    3,089.8       31.2             3,121.0  
Non-current assets
    7,111.8       685.0       (8.2 )     7,788.6  
 
                               
Total assets
    10,201.6       716.2       (8.2 )     10,909.6  
 
                               
Current liabilities
    2,293.6       4.8             2,298.4  
Non-current liabilities
    990.4                   990.4  
 
                               
Total liabilities
    3,284.0       4.8             3,288.8  
 
                               
Total equity attributable to common shareholders
    6,912.9       8.2       (8.2 )     6,912.9  
Equity attributable to noncontrolling interests in consolidated entities
    4.7       703.2             707.9  
 
                               
Total liabilities and equity
    10,201.6       716.2       (8.2 )     10,909.6  
 
                               
 
(1)   The Before Consolidation column includes Invesco’s equity interest in the investment products, accounted for as equity method and available-for-sale investments and does not include any other adjustments related to non-GAAP financial measure presentation.
 
(2)   The company adopted guidance now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs.
 
(3)   Adjustments include the elimination of intercompany transactions between the company and its consolidated investment products, primarily the elimination of the company’s equity at risk recorded as investments by the company (before consolidation) against either equity (private equity and real estate partnership funds) or subordinated debt (CLOs) of the funds.

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     The following table presents a comparative analysis of significant detailed balance sheet line items:
                                 
$ in millions   2010   2009   $ Change   % Change
Cash and cash equivalents
    740.5       762.0       (21.5 )     (2.8 )%
Unsettled fund receivables
    513.4       383.1       130.3       34.0 %
Current investments
    308.8       182.4       126.4       69.3 %
Assets held for policyholders
    1,295.4       1,283.0       12.4       1.0 %
Non-current investments
    164.4       157.4       7.0       4.4 %
Investments of consolidated investment products
    7,206.0       685.0       6,521.0       N/A  
Goodwill
    6,980.2       6,467.6       512.6       7.9 %
Policyholder payables
    1,295.4       1,283.0       12.4       1.0 %
Long-term debt
    1,315.7       745.7       570.0       76.4 %
Long-term debt of consolidated investment products
    5,865.4             5,865.4       N/A  
Retained earnings appropriated for investors in consolidated investment products
    495.5             495.5       N/A  
Equity attributable to common shareholders
    8,264.6       6,912.9       1,351.7       19.6 %
Equity attributable to noncontrolling interests in consolidated entities
    1,096.3       707.9       388.4       54.9 %
Cash and cash equivalents
     Cash and cash equivalents decreased by $21.5 million from $762.0 million at December 31, 2009 to $740.5 million at December 31, 2010. Significant cash activity in 2010 included the utilization of cash balances to partly fund business acquisitions, to purchase treasury shares and to pay quarterly dividends. During the year, the company paid $775.9 million net cash on business acquisitions, and treasury share purchases during the year utilized $192.2 million of cash. Dividend payments totaled $197.9 million during 2010. The company initially borrowed $650.0 million from the credit facility in June 2010 to partly fund acquisition payments, this credit facility balance reducing to $570.0 million by the end of 2010. The balance of cash outflows has been funded from improved cash flows generated from operating activities. See “Cash Flows” in the following section within this Management’s Discussion and Analysis for addition discussion regarding the movements in cash flows during the periods.
     Invesco has local capital requirements in several jurisdictions, as well as regional requirements for entities that are part of the European sub-group. These requirements mandate the retention of liquid resources in those jurisdictions, which we meet in part by holding cash and cash equivalents. This retained cash can be used for general business purposes in the European sub-group or in the countries where it is located. Due to the capital restrictions, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences that may substantially limit such activity. At December 31, 2010, the European sub-group had cash and cash equivalent balances of $456.2 million, much of which is used to satisfy these regulatory requirements. We are in compliance with all regulatory minimum net capital requirements.
     In addition, the company is required to hold cash deposits with clearing organizations or to otherwise segregate cash to maintain compliance with federal and other regulations in connection with its UIT broker dealer entity, which was part of the acquired business. At December 31, 2010 these cash deposits totaled $14.9 million.
Unsettled fund receivables
     Unsettled fund receivables increased by $130.3 million from $383.1 million at December 31, 2009 to $513.4 million at December 31, 2010, due to $60.3 million of unsettled balances associated with the UIT products that formed part of the acquired business together with higher transaction activity between funds and investors in late December 2010 when compared to late December 2009 in our offshore funds. In the company’s capacity as sponsor of UITs, the company records receivables from brokers, dealers, and clearing organizations for unsettled sell trades of securities and UITs in addition to receivables from customers for unsettled trades of securities. In our U.K. and offshore activities, unsettled fund receivables are created by the normal settlement periods on transactions initiated by certain clients. The presentation of the unsettled fund receivables and substantially offsetting payables ($504.8 million at December 31, 2010) at trade date reflects the legal relationship between the underlying investor and the company.

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Investments (current and non-current)
     As of December 31, 2010 we had $473.2 million in investments, of which $308.8 million were current investments and $164.4 million were non-current investments. Included in current investments are $99.5 million of seed money investments in affiliated funds used to seed funds as we launch new products, and $165.5 million of investments related to assets held for deferred compensation plans, which are also held primarily in affiliated funds. Seed investments increased by $24.7 million during the year, primarily due to the $53.9 million of seed investments included in the acquired business at the closing on June 1. Subsequently we have liquidated over half of these acquired business seed investments as the related funds achieved the necessary third-party funding levels. Investments held to hedge deferred compensation awards increased by $80.8 million during the year as we purchased additional investments in affiliated funds to hedge economically new employee plan awards. Included in non-current investments are $156.9 million in equity method investments in our Chinese joint ventures and in certain of the company’s private equity, real estate and other investments (December 31, 2009: $134.7 million). The increase of $22.2 million in equity method investments includes an increase of $21.6 million in partnership investments due to capital calls, valuation improvements exceeding distributions, capital returns and partnerships acquired through acquisitions during the period. The value of the joint venture investments and other non-controlling equity method investments increased by $0.6 million during the year as a result of current year earnings of $19.4 million, foreign exchange rate movements which added $1.8 million to the value, offset by annual dividends paid of $20.6 million to the company.
Assets held for policyholders and policyholder payables
     One of our subsidiaries, Invesco Perpetual Life Limited, is an insurance company that was established to facilitate retirement savings plans in the U.K. The entity holds assets that are managed for its clients on its balance sheet with an equal and offsetting liability. The increasing balance in these accounts from $1,283.0 million at December 31, 2009, to $1,295.4 million at December 31, 2010, was the result of increases in the market values of these assets and net flows into the funds partially offset by foreign exchange movements.
Investments of consolidated investment products
     Effective January 1, 2010, upon the adoption of guidance now encompassed in ASC Topic 810, the company determined that it was the primary beneficiary of certain CLO variable interest entities. See Part II, Item 8, Financial Statements and Supplementary Data — Note 20, “Consolidated Investment Products,” for additional details. As of December 31, 2010, investments of consolidated investment products totaled $7,206.0 million (December 31, 2009: $685.0 million). These investments are offset primarily in long-term debt of consolidated investment products, noncontrolling interests in consolidated entities, and retained earnings appropriated for investors in consolidated investment products on the Consolidated Balance Sheets, as the company’s equity investment in these structures is not significant. The increase from December 31, 2009, primarily reflects adoption of the guidance on January 1, 2010. In accordance with the guidance, prior periods have not been restated. As a result of various acquisitions, the company consolidated additional CLOs with investments of $762.3 million at June 1, 2010 and an additional $289.9 million in investments at December 31, 2010.
Goodwill
     Goodwill increased from $6,467.6 million at December 31, 2009, to $6,980.2 million at December 31, 2010, primarily due to the acquisition, which added $372.8 million to the company’s goodwill balance on June 1. The increase in goodwill was also due to foreign currency translation for certain subsidiaries whose functional currency differs from that of the parent. The foreign exchange rates at the end of 2010 used to translate the balance sheets of foreign currency subsidiaries into U.S. dollars, the reporting currency of the company, reflect a weaker U.S. dollar at the end of 2010, mainly against the Canadian dollar offset by a stronger U.S. dollar mainly against and Pound Sterling, which resulted in a $71.0 million net increase in goodwill, upon consolidation. Additional goodwill was recorded in 2010 related to other acquisition activity ($26.8 million) and the earn-out on the W.L. Ross & Co. acquisition ($40.4 million). The company’s annual goodwill impairment review is performed as of October 1 of each year. As a result of that analysis, the company determined that no impairment existed at that date. See “Critical Accounting Policies — Goodwill” for additional details of the company’s goodwill impairment analysis process.
Long-term debt
     The non-current portion of our total debt, excluding long-term debt of consolidated investment products, increased from $745.7 million at December 31, 2009, to $1,315.7 million at December 31, 2010, as the company utilized its credit facility to cover a portion

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of the cash consideration paid to Morgan Stanley in connection with the acquisition. As of December 31, 2010 there was $570.0 million outstanding on the credit facility.
Long-term debt of consolidated investment products
     Long-term debt of consolidated investment products relates to notes issued by consolidated CLOs. Collateral assets of the CLOs, which are included in investments of consolidated investment products, are held solely to satisfy the obligations of the CLOs. The investors in the CLO have no recourse to the general credit of the company for the notes issued by the CLOs.
     Long-term debt of consolidated investment products was $5,865.4 million at December 31, 2010, primarily reflecting the adoption of guidance now encompassed in ASC Topic 810 on January 1, 2010. In accordance with the standard, prior periods have not been restated to reflect the consolidation. As a result of the acquisition, the company consolidated additional CLOs with notes issued of $630.2 million at June 1, 2010.
Retained earnings appropriated for investors in consolidated investment products
     The retained earnings appropriated for investors in consolidated investment products relates primarily to the difference in value between the collateral assets held (which are included in investments of consolidated investment products), and the debt issued, by consolidated CLOs. The collateral assets held, and notes issued, by consolidated CLOs are measured at fair value in the Consolidated Balance Sheet.
     Retained earnings appropriated for investors in consolidated investment products was $495.5 million at December 31, 2010, reflecting the adoption gudiance now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, which resulted in the consolidation of certain CLOs with $6.9 billion of assets held and $5.9 billion in debt issued at December 31, 2010. In accordance with the standard, prior periods have not been restated to reflect the consolidation. A beginning balance adjustment of $274.3 million was made as of the beginning of the year to reflect existing equity balances in newly consolidated CLOs. During 2010, increases in the balance resulted from the acquisition ($149.4 million) and from net income earned over the period ($77.1 million).
Equity attributable to noncontrolling interests in consolidated entities
     Equity attributable to noncontrolling interests in consolidated entities increased by $388.4 million from $707.9 million at December 31, 2009, to $1,096.3 million at December 31, 2010. The majority of the increase relates to acquisitions, which added $363.6 million during the year. The remainder of the variance relates to net gains attributable to noncontrolling interests in consolidated entities of $94.0 million, which were offset by $69.2 million of net changes in the partners’ capital of these entities during the period.
     The noncontrolling interests in consolidated entities are generally offset by the net assets of certain consolidated investment products, as the company’s equity investment in the investment products is not significant.
Equity attributable to common shareholders
     Equity attributable to common shareholders increased from $6,912.9 million at December 31, 2009, to $8,264.6 million at December 31, 2010, an increase of $1,351.7 million. $274.3 million of this increase relates to the beginning balance adjustment to retained earnings appropriated for investors in consolidated investment products, as discussed above. Additional increases to equity included $718.6 million as a result of business combinations, net income attributable to common shareholders of $465.7 million, share issuances upon employee option exercises of $19.6 million, a share-based payment credit to capital of $117.8 million representing the accrual of share-based payment expense during the year, and $77.3 million of changes in foreign currency rates. The increase also includes $77.1 million of net income appropriated for investors in consolidated investment products, as discussed above. The increases to equity were partially offset by $197.9 million in dividend payments and $240.1 million in treasury shares acquired through market purchases ($192.2 million) and from staff to meet withholding tax obligations on share award vesting ($47.9 million).
Liquidity and Capital Resources
     The adoption guidance now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, which resulted in the consolidation of $6.9 billion and $5.9 billion of total assets and long-term debt of certain CLO products as of December 31, 2010, respectively, did not impact the company’s liquidity and capital resources. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral

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assets held by the CLOs, beyond the company’s minimal direct investments in, and management fees generated from, these products, which are eliminated upon consolidation. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Additionally, the investors in the CLOs debt tranches have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be an obligation of the company. See Part II, Item 8, Financial Statements and Supplementary Data — Note 20, “Consolidated Investment Products,” for additional details.
     On July 28, 2010 S&P announced an upgrade of our credit rating from BBB+/Positive to A-/Stable. In October 2010, Invesco became one of only four public investment managers with a “Strong” risk management rating from S&P. Standard & Poor’s rates companies’ enterprise risk management capabilities on a scale of Fair, Adequate, Strong, and Excellent.
     We believe that our capital structure, together with available cash balances, cash flows generated from operations, existing capacity under our credit facility, proceeds from the public offering of our shares and further capital market activities, if necessary, should provide us with sufficient resources to meet present and future cash needs, including operating, debt and other obligations as they come due and anticipated future capital requirements. On June 1, 2010, we used a combination of existing cash balances and $650.0 million credit facility borrowing to satisfy the $770.0 million cash consideration related to acquisition. We issued 30.9 million shares of new equity, in the form of common and non-voting common equivalent preferred shares (with economic rights identical to common stock, other than no right to vote such shares) to Morgan Stanley, without holding restrictions, in conjunction with the close. (The preferred shares were subsequently sold, as converted, to unrelated third parties.) The ultimate purchase price for the business was lower than the $1.5 billion previously announced purchase price, due to depreciation of Invesco’s common share price from the announcement date to the June 1, 2010 closing date. During the last two quarters we repurchased 9.4 million common shares in open market transactions utilizing $192.2 million in cash. We believe that the cash flow generated from operations of the combined firm, the remaining $680.0 million in credit facility capacity, and our ability to access the capital markets, will provide sufficient liquidity to meet future capital resource needs.
     The following summary of our recent capital transactions confirms our ability to access capital markets in a timely manner:
    The May 26, 2009 issuance of 32.9 million common shares in a public offering that produced gross proceeds of $460.5 million ($441.8 million net of related expenses);
 
    The June 9, 2009 replacement of our $900.0 million credit facility, which was never fully utilized, with a $500.0 million credit facility (with an option to increase it to $750.0 million, subject to certain conditions), the amount of which was based upon our past and projected working capital needs;
 
    The June 30, 2009 completion of a $100.0 million tender offer to purchase publicly traded debt with a principal value of $104.3 million;
 
    The December 15, 2009 repayment of $294.2 million 4.5% senior notes that matured on that date through the utilization of existing cash balances, having repurchased $3.0 million of these notes earlier in the year;
 
    The May 24, 2010 termination of the $500.0 million credit facility and entrance into a new three-year $1,250.0 million credit facility.
     Our ability to continue to access the capital markets in a timely manner depends on a number of factors including our credit rating, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets. If we are unable to access capital markets in a timely manner, our business could be adversely impacted.
     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. A sub-group of Invesco subsidiaries, including all of our regulated EU subsidiaries, is subject to consolidated capital requirements under applicable European Union (EU) directives, and capital is maintained within this sub-group to satisfy these regulations. These requirements mandate the retention of liquid resources in those jurisdictions, which we meet in part by holding cash and cash equivalents. This retained cash can be used for general business purposes in the European sub-group or in the countries where it is located. Due to the capital restrictions, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences that may substantially limit such activity. At December 31, 2010, the European sub-group had cash and cash equivalent balances of $456.2 million, much of which is used to satisfy these regulatory requirements. We are in compliance with all regulatory minimum net capital requirements.

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     In addition, the company is required to hold cash deposits with clearing organizations or to otherwise segregate cash to maintain compliance with federal and other regulations in connection with its UIT broker dealer entity, which was included in the acquired business. At December 31, 2010 these cash deposits totaled $14.9 million.
Cash Flows Discussion
     The ability to consistently generate cash from operations in excess of capital expenditures and dividend payments is one of our company’s fundamental financial strengths. Operations continue to be financed from current earnings and borrowings. Our principal uses of cash, other than for operating expenses, include dividend payments, capital expenditures, acquisitions, purchase of our shares in the open market and investments in certain new investment products.
     Cash flows of consolidated investment products (discussed in Item 8, Financial Statements and Supplementary Data — Note 20, “Consolidated Investment Products”) are reflected in Invesco’s cash used in operating activities, provided by investing activities and provided by financing activities. Cash held by consolidated investment products is not available for general use by Invesco, nor is Invesco cash available for general use by its consolidated investment products. Accordingly, the table below presents the cash flows of the company separately and before consolidation of investment products, as the cash flows of consolidated investment products do not form part of the company’s cash flow management processes, nor do they form part of the company’s significant liquidity evaluations and decisions for the reasons noted. The discussion that follows the table will focus on the company’s cash flows as presented in the “Before Consolidation” column of the table.
Condensed Consolidating Statements of Cash Flows
     Cash flows for the years ended December 31, 2010, 2009 and 2008 are summarized as follows:
                                 
            Consolidated        
    Before   Investment        
$ in millions   Consolidation   Products(1)   Adjustments(2)   Total
For the year ended December 31, 2010
                               
Net income
    456.1       181.4       (0.7 )     636.8  
Net purchases of trading investments
    (60.4 )                 (60.4 )
Other adjustments to reconcile net income to net cash provided by operating activities
    232.6       (114.0 )     0.7       119.3  
Changes in cash held by consolidated investment products
          (336.2 )           (336.2 )
Other changes in operating assets and liabilities
    (27.1 )     46.8             19.7  
 
                               
Net cash provided by operating activities
    601.2       (222.0 )           379.2  
 
                               
Net proceeds of investments by consolidated investment products
          498.6             498.6  
Purchases of available for sale and other investments
    (109.1 )           5.8       (103.3 )
Proceeds from sales and returns of capital of available for sale and other investments
    134.6             (2.2 )     132.4  
Other investing activities
    (865.5 )                 (865.5 )
 
                               
Net cash (used in)/provided by investing activities
    (840.0 )     498.6       3.6       (337.8 )
 
                               
Net capital distributed by consolidated investment products
          (276.6 )     (3.6 )     (280.2 )
Other financing activities
    214.3                   214.3  
 
                               
Net cash provided by/(used in) financing activities
    214.3       (276.6 )     (3.6 )     (65.9 )
 
                               
Decrease in cash and cash equivalents
    (24.5 )                 (24.5 )
Foreign exchange movement on cash and cash equivalents
    3.0                   3.0  
Cash and cash equivalents, beginning of period
    762.0                   762.0  
 
                               
Cash and cash equivalents, end of period
    740.5                   740.5  
 
                               
 
(1)   The company adopted guidance now encompassed in ASC Topic 810 on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs.
 
(2)   Adjustments include reclassifications to align the presentation of the cash flows of the consolidated investment funds with those of the company.

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            Consolidated    
    Before   Investment    
$ in millions   Consolidation   Products   Total
For the year ended December 31, 2009
                       
Net income
    323.2       (113.9 )     209.3  
Net purchases of trading investments
    (28.8 )           (28.8 )
Other adjustments to reconcile net income to net cash provided by operating activities
    193.6       106.9       300.5  
Changes in cash held by consolidated investment products
          45.0       45.0  
Other changes in operating assets and liabilities
    (162.2 )     (1.1 )     (163.3 )
 
                       
Net cash (used in)/provided by operating activities
    325.8       36.9       362.7  
 
                       
Net proceeds of investments by consolidated investment products
          8.0       8.0  
Other investing activities
    (110.4 )           (110.4 )
 
                       
Net cash (used in)/provided by investing activities
    (110.4 )     8.0       (102.4 )
 
                       
Net capital distributed by consolidated investment products
          (44.9 )     (44.9 )
Other financing activities
    (55.8 )           (55.8 )
 
                       
Net cash provided by/(used in) financing activities
    (55.8 )     (44.9 )     (100.7 )
 
                       
Decrease in cash and cash equivalents
    159.6             159.6  
Foreign exchange movement on cash and cash equivalents
    17.2             17.2  
Cash and cash equivalents, beginning of period
    585.2             585.2  
 
                       
Cash and cash equivalents, end of period
    762.0             762.0  
 
                       
                         
            Consolidated    
    Before   Investment    
$ in millions   Consolidation   Products   Total
For the year ended December 31, 2008
                       
Net income
    483.4       (62.4 )     421.0  
Net purchases of trading investments
    0.3             0.3  
Other adjustments to reconcile net income to net cash provided by operating activities
    224.3       58.0       282.3  
Changes in cash held by consolidated investment products
          (37.1 )     (37.1 )
Other changes in operating assets and liabilities
    (132.2 )     (8.8 )     (141.0 )
 
                       
Net cash (used in)/provided by operating activities
    575.8       (50.3 )     525.5  
 
                       
Net proceeds of investments by consolidated investment products
          175.6       175.6  
Other investing activities
    (274.0 )           (274.0 )
 
                       
Net cash (used in)/provided by investing activities
    (274.0 )     175.6       (98.4 )
 
                       
Net capital distributed by consolidated investment products
          (125.3 )     (125.3 )
Other financing activities
    (541.1 )           (541.1 )
 
                       
Net cash provided by/(used in) financing activities
    (541.1 )     (125.3 )     (666.4 )
 
                       
Decrease in cash and cash equivalents
    (239.3 )           (239.3 )
Foreign exchange movement on cash and cash equivalents
    (91.3 )           (91.3 )
Cash and cash equivalents, beginning of period
    915.8             915.8  
 
                       
Cash and cash equivalents, end of period
    585.2             585.2  
 
                       
Operating Activities
     Operating cash flows are generated by the receipt of investment management and other fees generated from AUM, offset by operating expenses and changes in operating assets and liabilities. Although some receipts and payments are seasonal, particularly bonus payments, in general, after allowing for the change in cash held by consolidated investment products, our operating cash flows move in the same direction as our operating income.

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     In 2010, cash generated by operating activities increased $16.5 million to $379.2 million from $362.7 million in 2009. As shown in the tables above, consolidated investment products used $222.0 million of cash in operating activities in 2010 compared to contributing $36.9 million in 2009. The sum of the operating, investing and financing cash flows of consolidated investment products offsets to a zero impact to the company’s change in cash and cash equivalent balances from period to period. Excluding the impact of consolidated investment products, cash generated by operations was $601.2 million in 2010 compared to $325.8 million in 2009.
     The generation of $601.2 million of cash from operations in 2010 included:
    net purchases of trading investments of $60.4 million. Trading investments are held to provide an economic hedge against staff deferred compensation plan awards together with investments held for a short period, often only a few days, for the purpose of creating a UIT.
 
    net cash generated from the other operating activities of $661.6 million, representing net income as adjusted for non-cash items and the changes in operating assets and liabilities. Annual staff bonus accruals at the end of 2010 exceeded the cash bonus payments made in 2010 by $66.7 million, the payments made in 2010 reflecting staff expenses accrued in 2009. This expense and cash paid timing difference results in operating cash flows in a calendar year differing from operating income reported in the Consolidated Statements of Income. This has contributed to the operating cash generated in 2010 exceeding operating income for the year. Related payroll taxes and annual pension contributions have similar, albeit less significant timing impacts.
     The $325.8 million of cash generated from operations in 2009 included:
    net purchases of trading investments of $28.8 million principally for staff deferred compensation plan awards.
 
    cash generated from the other operating activities of $354.6 million, representing net income as adjusted for non-cash items and the changes in operating assets and liabilities. Cash payments made in 2009 related to staff bonuses exceeded the bonus expense accrual for 2009 by $71.4 million and contributed to operating cash flow being below operating income for the year.
     After excluding the net purchase of trading investments, cash generated from other operating activities in 2010 improved by $307.0 million from $354.6 million in 2009 to $661.6 million in 2010. This reflects the improved operating income together with the timing differences on staff bonus and other staff compensation related payments.
     The 35.2% reduction in operating income for the year ended December 31, 2009, when compared to 2008 is a significant factor in the year-on-year reduced operating cash flows. After excluding the impact of consolidated investment products, cash provided by operating activities in 2009 was $325.8 million, a decrease of $250.0 million or 43.4% over 2008. The timing of the funding of annual bonuses combined with the lower levels of accrued bonus awards at the end of 2009 contributed to operating cash falling by a greater percentage than operating income.
Investing Activities
     Net cash used in investing activities totaled $337.8 million for the year ended December 31, 2010 (2009: net cash used of $102.4 million). As shown in the table above, consolidated investment products, including investment purchases, sales and returns of capital, contributed $498.6 million (2009: $8.0 million contributed). After allowing for these consolidated investment product cash flows, net cash used in investing activities was $840.0 million (2009: net cash used of $110.4 million). The closing of the acquisition on June 1, 2010 resulted in the payment of cash consideration of $770.0 million while the acquired business had cash and cash equivalents on its balance sheet of $57.8 million on that date, giving a net cash outflow of $712.2 million. In 2010, additional net acquisition payments were $37.4 million together with acquisition earn-out payments of $26.3 million (2009: $34.2 million).
     In addition, during the year ended December 31, 2010 the company purchased available-for-sale investments and other investments of $109.1 million (2009: $104.1 million) and had capital expenditures of $89.6 million (2009: $39.5 million). These cash outflows were partly offset from collected proceeds of $134.6 million from sales and returns of capital of investments in 2010 (2009: $60.6 million).

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     The increase in capital expenditure cash outflows in 2010 when compared to 2009 was primarily related to technology and computer hardware needed for the acquired business. Our capital expenditures related principally in each year to technology initiatives, including new platforms from which we maintain our portfolio management systems and fund accounting systems, improvements in computer hardware and software desktop products for employees, new telecommunications products to enhance our internal information flow, and back-up disaster recovery systems. Also, in each year, a portion of total capital expenditures were related to leasehold improvements made to the various buildings and workspaces used in our offices. These projects have been funded with proceeds from our operating cash flows. During the years ended December 31, 2010 and 2009, our capital divestitures were not significant relative to our total fixed assets.
     Net cash used in investing activities totaled $102.4 million for the year ended December 31, 2009 compared to $98.4 million for the year ended December 31, 2008. As shown in the table above, consolidated investment products, including investment purchases, sales and returns of capital, contributed $8.0 million (2008: $175.6 million contributed). After allowing for these consolidated investment product cash flows, net cash used in investing activities was $110.4 million in 2009 compared to net cash used of $274.0 million in 2008. The increased use of investing activity cash in 2008 reflected higher levels of acquisition earn-out payments and capital expenditure. Acquisition earn-out cash payments were $34.2 million in 2009 compared to $174.3 million in 2008, the payments relating to the 2006 acquisitions of PowerShares and WL Ross & Co. Capital expenditure in 2009 was $39.5 million compared to $84.1 million in 2008, the 2008 amount including leasehold improvements related to new headquarters space in Atlanta.
Financing Activities
     Net cash used in financing activities totaled $65.9 million for the year ended December 31, 2010 (2009: $100.7 million). As shown in the table above, the financing activities of the consolidated investment products used cash of $276.6 million during the year (2009: $44.9 million). Excluding the impact of the consolidated investment products, financing activities provided cash of $214.3 million in the year ended December 31, 2010 (2009: cash utilized $55.8 million).
     To provide the cash funding needed to complete the business acquisition in late May 2010, $650.0 million was borrowed from the company’s $1,250.0 million credit facility. The balance on the facility at December 31, 2010 was $570.0 million as $80.0 million of cash generated from operating activities was utilized to partially repay the initial amount borrowed. Financing cash activities in 2009 included an equity issuance generating cash proceeds of $441.8 million and the redemption of senior notes of $397.2 million.
     Other financing cash flows during the year ended December 31, 2010 included $197.9 million of dividend payments for the dividends declared in January, April, July and October 2010 (2009: dividends paid of $168.9 million), the purchase of treasury shares through market transactions totaling $192.2 million (2009: none), cash inflows from the exercise of options of $19.6 million (2009: $80.0 million), and excess tax benefits cash inflows from share-based compensation of $14.8 million (2009: $9.4 million).
     Net cash used by financing activities in 2009 of $100.7 million decreased from $666.4 million utilized in 2008. As shown in the table above, the financing activities of the consolidated investment products used cash of $44.9 million during 2009 (2008: $125.3 million). Excluding the impact of the consolidated investment products, financing activities used cash of $55.8 million in 2009 compared to $541.1 million in 2008. During 2008 the company used $313.4 million of cash for treasury share purchases through market transactions, there being no equivalent purchases in 2009. Dividends paid in 2009 totaled $168.9 million compared to $207.1 million in 2008, the 2008 payments including the annual dividend for 2007 (the company converting to a quarterly dividend payment pattern from 2008). Repayments of $397.2 million and $12.0 million were made to senior notes and the credit facility respectively in 2009 compared to $2.8 million and $114.4 million respectively in 2008. There was no equity issuance in 2008.
Dividends
     Invesco declares and pays dividends on a quarterly basis in arrears. The 2010 quarterly dividend was $0.11 per Invesco Ltd. common share. On October 25, 2010, the company declared a third quarter cash dividend, which was paid on December 8, 2010, to shareholders of record as of November 19, 2010. On January 27, 2011, the company declared a fourth quarter cash dividend, which will be paid on March 9, 2011, to shareholders of record as of February 23, 2011. The total dividend attributable to the 2010 fiscal year of $0.44 per share represented a 7.3% increase over the total dividend attributable to the 2009 fiscal year of $0.41 per share.
     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.

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Share Repurchase Plan
     On April 23, 2008, the board of directors authorized a share repurchase program of up to $1.5 billion with no stated expiration date. During the year ended December 31, 2010, the company repurchased 9.4 million common shares utilizing $192.2 million (December 31, 2009: no purchases), leaving approximately $1.2 billion authorized at the end of the year. Separately, an aggregate of 1.9 million shares were withheld on vesting events during the year ended December 31, 2010, to meet employees’ tax obligations (December 31, 2009: 1.6 million). The carrying value of these shares withheld was $47.9 million (December 31, 2009: $22.9 million).
Debt
     Our total indebtedness at December 31, 2010 was $1,315.7 million (December 31, 2009 is $745.7 million) and was comprised of the following:
                 
    December 31,   December 31,
$ in millions   2010   2009
Unsecured Senior Notes:
               
5.625% — due April 17, 2012
    215.1       215.1  
5.375% — due February 27, 2013
    333.5       333.5  
5.375% — due December 15, 2014
    197.1       197.1  
Floating rate credit facility expiring May 23, 2013
    570.0        
 
               
Total debt
    1,315.7       745.7  
Less: current maturities of total debt
           
 
               
Long-term debt
    1,315.7       745.7  
 
               
     For the three months and year ended December 31, 2010, the company’s weighted average cost of debt was 3.68% and 4.30%, respectively (three months and year ended December 31, 2009: 5.27% and 5.14%, respectively). Total debt increased from $745.7 million at December 31, 2009, to $1,315.7 million at December 31, 2010, due primarily to borrowings under our credit facility.
     On June 2, 2009, the company commenced a tender offer for the maximum aggregate principal amount of the outstanding 5.625% senior notes due 2012, the 5.375% senior notes due 2013, and the 5.375% senior notes due 2014 (collectively, the “Notes”) that it could purchase for $100.0 million at a purchase price per $1,000 principal amount determined in accordance with the procedures of a modified “Dutch Auction” (tender offer). The tender offer expired at midnight on June 29, 2009, and on June 30, 2009, $104.3 million of the Notes had been retired, generating a gross gain of $4.3 million upon the retirement of debt at a discount.
     On June 9, 2009, the company completed a three-year $500.0 million revolving bank credit facility. The new facility replaced the $900.0 million credit facility that was scheduled to expire on March 31, 2010, but was terminated concurrent with the entry into the new credit facility. Financial covenants under the credit facility included: (i) the quarterly maintenance of a debt/EBITDA ratio, as defined in the credit agreement, of not greater than 3.25:1.00 through December 31, 2010, and not greater than 3.00:1.00 thereafter, (ii) a coverage ratio (EBITDA, as defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00, and (iii) maintenance on a monthly basis of consolidated long term assets under management (as defined in the credit agreement) of not less than $194.8 billion, which amount is subject to a one-time reset by the company under certain conditions.
     On May 24, 2010, the company terminated the $500.0 million credit facility and entered into a new $1,250 million credit facility. Amounts borrowed under the credit facility are repayable at maturity on May 23, 2013. Financial covenants under the credit agreement include: (i) the quarterly maintenance of a debt/EBITDA ratio, as defined in the credit agreement, of not greater than 3.25:1.00 through December 31, 2011, and not greater than 3.00:1.00 thereafter, (ii) a coverage ratio (EBITDA, as defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. As of December 31, 2010 we were in compliance with our financial covenants. At December 31, 2010 our leverage ratio was 1.34:1.00 (December 31, 2009: 1.11:1.00), and our interest coverage ratio was 17.27:1.00 (December 31, 2009: 11.01:1.00).

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     The coverage ratios, as defined in our credit facility, were as follows during 2010, 2009 and 2008:
                                 
    2010
    Q1   Q2   Q3   Q4
Leverage Ratio
    0.99       1.60       1.52       1.34  
Interest Coverage Ratio
    13.06       13.03       16.43       17.26  
Long-term AUM
    350.6       N/A *     N/A *     N/A *
                                 
    2009
    Q1   Q2   Q3   Q4
Leverage Ratio
    1.48       1.63       1.77       1.11  
Interest Coverage Ratio
    11.31       9.64       9.12       11.01  
Long-term AUM
    N/A *     299.0       329.7       343.6  
                                 
    2008
    Q1   Q2   Q3   Q4
Leverage Ratio
    1.25       1.11       1.17       1.28  
Interest Coverage Ratio
    16.99       16.53       15.19       12.20  
 
*   Long-term AUM became a debt covenant measure as part of the June 9, 2009 credit facility agreement and was discontinued as a financial covenant measure as part of the May 24, 2010 credit facility agreement. Long-term AUM was not required to be restated as part of the agreement and therefore amounts have not been adjusted from what was previously reported.
     The December 31, 2010, coverage ratio calculations are as follows:
                                         
$ millions   Total   Q4 2010   Q3 2010   Q2 2010   Q1 2010
Net income attributable to common shareholders
    465.7       175.2       154.7       40.8       95.0  
Net income attributable to Consolidated Investment Products
    (9.8 )     (4.2 )     (1.8 )     (2.2 )     (1.6 )
Tax expense
    197.0       55.7       54.5       36.7       50.1  
Amortization/depreciation
    96.7       31.3       26.3       20.8       18.3  
Interest expense
    58.6       16.0       16.1       14.1       12.4  
Share-based compensation expense
    117.8       30.8       31.5       31.3       24.2  
Unrealized gains and losses from investments, net*
    8.9       8.4       (8.8 )     7.7       1.6  
Acquired business proforma EBITDA impact**
    76.9                   35.7       41.2  
 
                                     
EBITDA***
    1,011.8       313.2       272.5       184.9       241.2  
 
                                     
Adjusted debt***
  $ 1,351.2                                  
 
                                     
Leverage ratio (Debt/EBITDA — maximum 3.25:1.00)
    1.34                                  
 
                                     
Interest coverage (EBITDA/Interest Expense — minimum 4.00:1.00)
    17.26                                  
 
                                     
 
*   Adjustments for unrealized gains and losses from investments, as defined in our credit facility, include non-cash gains and losses on investments to the extent that they do not represent anticipated future cash receipts or expenditures.
 
**   The credit facility agreement requires that the company shall calculate EBITDA on a proforma basis including the impact of the acquired business as if the acquisition had occurred on the first day of the EBITDA period.
 
***   EBITDA and Adjusted debt are non-GAAP financial measures; however management does not use these measures for anything other than these debt covenant calculations. The calculation of EBTIDA above (a reconciliation from net income attributable to common shareholders) is defined by our credit agreement, and therefore net income attributable to common shareholders is the most appropriate GAAP measure from which to reconcile to EBITDA. The calculation of adjusted debt is defined in our credit facility and equals total long-term debt of $1,315.7 million plus $35.5 million in letters of credit.

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     We have received credit ratings of A3/Stable and A-/Stable from Moody’s and Standard & Poor’s credit rating agencies, respectively, as of the date of this Annual Report on Form 10-K. According to Moody’s, obligations rated ‘A’ are considered upper medium grade and are subject to low credit risk. Invesco’s rating of A3 is at the low end of the A range (A1, A2, A3), but three notches above the lowest investment grade rating of Baa3. Standard and Poor’s rating of A- is at the lower end of the A rating, with BBB- representing Standard and Poor’s lowest investment grade rating. According to Standard and Poor’s, A obligations exhibit a strong capacity to meet financial commitments, but are somewhat susceptible to adverse economic conditions or changing circumstances. We believe that rating agency concerns include but are not limited to: our revenues are somewhat exposed to equity market volatility, negative tangible equity, potential impact from regulatory changes to the industry, and integration risk related to the acquisition of Morgan Stanley’s retail asset management business. Additionally, the rating agencies could decide to downgrade the entire investment management industry, based on their perspective of future growth and solvency. 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. Our credit facility borrowing rates are tied to our credit ratings. However, 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. Disclosure of these ratings is not a recommendation to buy, sell or hold our debt. These credit ratings may be subject to revision or withdrawal at anytime by Moody’s or Standard & Poor’s. Each rating should be evaluated independently.
     The discussion that follows identifies risks associated with the company’s liquidity and capital resources. The Executive Overview of this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a broader discussion of the company’s overall approach to risk management.
Credit and Liquidity Risk
     Capital management involves the management of the company’s liquidity and cash flows. The company manages its capital by reviewing annual and projected cash flow forecasts and by monitoring credit, liquidity and market risks, such as interest rate and foreign currency risks (as discussed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”), through measurement and analysis. The company is primarily exposed to credit risk through its cash and cash equivalent deposits, which are held by external firms. The company invests its cash balances in its own institutional money market products, as well as with external high credit-quality financial institutions; however, we have chosen to limit the number of firms with which we invest. These arrangements create exposure to concentrations of credit risk.
Credit Risk
     Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The company is subject to credit risk in the following areas of its business:
    All cash and cash equivalent balances are subject to credit risk, as they represent deposits made by the company with external banks and other institutions. As of December 31, 2010, our maximum exposure to credit risk related to our cash and cash equivalent balances is $740.5 million. Of this amount, cash and cash equivalents invested in affiliated money market funds (related parties) totaled $289.6 million at December 31, 2010.
 
    Certain trust subsidiaries of the company accept deposits and place deposits with other institutions on behalf of our customers. As of December 31, 2010, our exposure to credit risk related to these transactions is $2.4 million.
     The company does not utilize credit derivatives or similar instruments to mitigate the maximum exposure to credit risk. The company does not expect any counterparties to its financial instruments to fail to meet their obligations.
Liquidity Risk
     Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with its financial liabilities. The company is exposed to liquidity risk through its $1,315.7 million in total debt. The company actively manages liquidity risk by preparing cash flow forecasts for future periods, reviewing them regularly with senior management, maintaining a committed credit facility, scheduling significant gaps between major debt maturities and engaging external financing sources in regular dialog.

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Effects of Inflation
     Inflation can impact our organization primarily in two ways. First, inflationary pressures can result in increases in our cost structure, especially to the extent that large expense components such as compensation are impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through pricing increases due to the competitive environment, our profitability could be negatively impacted. Secondly, the value of the assets that we manage may be negatively impacted when inflationary expectations result in a rising interest rate environment. Declines in the values of these AUM could lead to reduced revenues as management fees are generally calculated based upon the size of AUM.
Off Balance Sheet Commitments
     The company has transactions with various private equity, real estate and other investment entities sponsored by the company for the investment of client assets in the normal course of business. Many of the company’s investment products are structured as limited partnerships. The company’s investment may take the form of the general partner or a limited partner, and the entities are structured such that each partner makes capital commitments that are to be drawn down over the life of the partnership as investment opportunities are identified. At December 31, 2010, the company’s undrawn capital commitments were $136.4 million (December 31, 2009: $77.6 million).
     The volatility and valuation dislocations that have occurred from 2007 to the date of this Report in certain sectors of the fixed income market have generated pricing issues in many areas of the market. As a result of these valuation dislocations, during the fourth quarter of 2007, Invesco elected to enter into contingent support agreements for two of its investment trusts to enable them to sustain a stable pricing structure. These two trusts are unregistered trusts that invest in fixed income securities and are available only to strictly limited types of investors. In December 2010, the agreements were amended to extend the term through June 30, 2011; further extensions are likely. As of December 31, 2010, the total committed support under these agreements was $36.0 million with an internal approval mechanism to increase the maximum possible support to $66.0 million at the option of the company. The estimated value of these agreements at December 31, 2010 was $2.0 million (December 31, 2009: $2.5 million), which was recorded in other current liabilities on the Consolidated Balance Sheet. The estimated value of these agreements is lower than the maximum support amount, reflecting management’s estimation that the likelihood of funding under the support agreements is low. Significant investor redemptions out of the trusts before the scheduled maturity of the underlying securities or significant credit default issues of the securities held within the trusts’ portfolios could change the company’s estimation of likelihood of funding. No payment has been made under either agreement nor has Invesco realized any loss from the support agreements through the date of this Report. These trusts were not consolidated because the company was not deemed to be the primary beneficiary.

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Contractual Obligations
     We have various financial obligations that require future cash payments. The following table outlines the timing of payment requirements related to our commitments as of December 31, 2010:
                                         
            Within   1-3   3-5   More Than
$ in millions   Total(4)(5)   1 Year   Years   Years   5 Years
Total debt
    1,315.7             1,118.6       197.1        
Estimated interest payments on total debt(1)
    116.0       48.4       57.0       10.6        
Operating leases(2)
    671.6       67.7       128.9       125.5       349.5  
Defined benefit pension and postretirement medical obligations(3)
    388.5       9.0       20.0       23.0       336.5  
 
                                       
Total
    2,604.7       135.0       1,344.4       375.6       749.7  
 
                                       
 
(1)   Total debt includes $745.7 million of fixed rate debt. Fixed interest payments are therefore reflected in the table above in the periods they are due. The credit facility, $570.0 million at December 31, 2010, provides for borrowings of various maturities. Interest is payable based upon LIBOR, Prime, Federal Funds or other bank-provided rates in existence at the time of each borrowing.
 
(2)   Operating leases reflect obligations for leased building space and sponsorship and naming rights agreements. See Item 8, Financial Statements and Supplementary Data — Note 14, “Operating Leases” for sublease information.
 
(3)   The defined benefit obligation of $388.5 million is comprised of $336.1 million related to pension plans and $52.4 million related to a postretirement medical plan. The fair value of plan assets at December 31, 2010, was $286.0 million for the retirement plan and $8.1 million for the medical plan. See Item 8, Financial Statements and Supplementary Data — Note 13, “Retirement Benefit Plans” for detailed benefit pension and postretirement plan information.
 
(4)   Other contingent payments at December 31, 2010, include up to $500.0 million related to the PowerShares acquisition and $40.9 million related to the WL Ross & Co. acquisition, which are excluded until such time as they are probable and reasonably estimable. Additionally, the company has capital commitments into co-invested funds that are to be drawn down over the life of the partnership as investment opportunities are identified. At December 31, 2010, the company’s undrawn capital commitments were $136.4 million. See Note 19, “Commitments and Contingencies” for additional details. Contingent commitments also include an acquired liability for deferred structuring fees of $20.8 million. See Note 2, “Business Combination and Integration” for additional details.
 
(5)   Due to the uncertainty with respect to the timing of future cash flows associated with unrecognized tax benefits at December 31, 2010, the company is unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $27.1 million of gross unrecognized tax benefits have been excluded from the contractual obligations table above. See Item 8, Financial Statements and Supplementary Data, Note 16 — “Taxation” for a discussion on income taxes.
Critical Accounting Policies and Estimates
     Our significant accounting policies are disclosed in Item 8, Financial Statements and Supplementary Data — Note 1, “Accounting Policies” to our Consolidated Financial Statements. The accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition are those that require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made. These accounting policies and estimates are discussed below. Different estimates reasonably could have been used in the current period that would have had a material effect on these financial statements, and changes in these estimates are likely to occur from period-to-period in the future.
     Taxation. We operate in several countries and several states through our various subsidiaries, and must allocate our income, expenses, and earnings under the various laws and regulations of each of these taxing jurisdictions. Accordingly, our provision for income taxes represents our total estimate of the liability that we have incurred for doing business each year in all of our locations. Annually we file tax returns that represent our filing positions within each jurisdiction and settle our return liabilities. Each jurisdiction has the right to audit those returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. Because the determinations of our annual provisions are subject to judgments and estimates, it is possible that actual results will vary from those recognized in our financial statements. As a result, it is likely that additions to, or reductions of, income tax expense will occur each year for prior reporting periods as actual tax returns and tax audits are settled.

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     Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts in the Consolidated Financial Statements, using the statutory tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount that is more likely than not to be realized.
     As a multinational corporation, the company operates in various locations around the world and we generate substantially all of our earnings from our subsidiaries. Under ASC 740-30, deferred tax liabilities are recognized for taxes that would be payable on the unremitted earnings of the company’s subsidiaries, consolidated investment products, and joint ventures, except where it is our intention to and we continue to indefinitely reinvest the undistributed earnings. Our Canadian and U.S. subsidiaries continue to be directly owned by Invesco Holding Company Limited (formerly INVESCO PLC, our predecessor company), which is directly owned by Invesco Ltd. Our Canadian unremitted earnings, for which we are indefinitely reinvested, are estimated to be $1,131 million at December 31, 2010, compared with $1,016 million at December 31, 2009. If distributed as a dividend, Canadian withholding tax of 5.0% would be due. Dividends from our investment in the U.S. should not give rise to additional tax as we are not subject to withholding tax between the U.S. and U.K. Deferred tax liabilities in the amount of $3.1 million (2009: $2.3 million) for additional tax have been recognized for unremitted earnings of certain subsidiaries that have regularly remitted earnings and are expected to continue to remit earnings in the foreseeable future. There is no additional tax on dividends from the U.K. to Bermuda.
     Net deferred tax assets have been recognized in the U.S., U.K., and Canada based on management’s belief that taxable income of the appropriate character, more likely than not, will be sufficient to realize the benefits of these assets over time. In the event that actual results differ from our expectations, or if our historical trends of positive operating income in any of these locations changes, we may be required to record a valuation allowance on deferred tax assets, which may have a significant effect on our financial condition and results of operations.
     The company utilizes a specific recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The prescribed two-step process for evaluating a tax position involves first determining whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities. If it is, the second step then requires a company to measure this tax position benefit as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The company recognizes any interest and penalties related to unrecognized tax benefits on the Consolidated Statements of Income as components of income tax expense.
     Goodwill. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed and is recorded in the functional currency of the acquired entity. Goodwill is tested for impairment at the single reporting unit level on an annual basis, or more often if events or circumstances indicate that impairment may exist. If the carrying amount of the reporting unit exceeds its fair value (the first step of the goodwill impairment test), then the second step is performed to determine if goodwill is impaired and to measure the amount of the impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of goodwill with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to that excess. The company’s annual goodwill impairment review is performed as of October 1 of each year. As a result of that analysis, the company determined that no impairment existed at that date. Our goodwill impairment testing conducted during 2010 and 2009 indicated that the fair value of the reporting unit exceeded its carrying value, indicating that step two of the goodwill impairment test was not necessary.
     We have determined that we have one operating and reportable segment. The company evaluated the components of its business, which are business units one level below the operating segment level, and has determined that it has one reporting unit for purposes of goodwill impairment testing. The company’s components include Invesco Institutional, Invesco North American Retail, Invesco Perpetual, Invesco Continental Europe and Invesco Asia Pacific. The company’s operating segment represents one reporting unit because all of the components are similar due to the common nature of products and services offered, type of clients, methods of distribution, manner in which each component is operated, extent to which they share assets and resources, and the extent to which they support and benefit from common product development efforts. Traditional profit and loss measures are not produced, and therefore not reviewed by component management, for any of the components. Furthermore, the financial information that is available by component is not sufficient for purposes of performing a discounted cash flow analysis at the component level in order to test goodwill for impairment at that level. As none of our components are reporting units, we have determined that our single operating segment, investment management, is also our single reporting unit.

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     The principal method of determining fair value of the reporting unit is an income approach where future cash flows are discounted to arrive at a single present value amount. The discount rate used is derived based on the time value of money and the risk profile of the stream of future cash flows. Recent results and projections based on expectation regarding revenues, expenses, capital expenditures and acquisition earn out payments produce a present value for the reporting unit. While the company believes all assumptions utilized in our assessment are reasonable and appropriate, changes in these estimates could produce different fair value amounts and therefore different goodwill impairment assessments. The most sensitive of these assumptions are the estimated cash flows and the use of a weighted average cost of capital as the discount rate to determine present value. The present value produced for the reporting unit is the fair value of the reporting unit. This amount is reconciled to the company’s market capitalization to determine an implied control premium, which is compared to an analysis of historical control premiums experienced by peer companies over a long period of time to assess the reasonableness of the fair value of the reporting unit.
     The company also utilizes a market approach to provide a secondary and corroborative fair value of the reporting unit by using comparable company and transaction multiples to estimate values for our single reporting unit. Discretion and judgment is required in determining whether the transaction data available represents information for companies of comparable nature, scope and size. The results of the secondary market approach to provide a fair value estimate are not combined or weighted with the results of the income approach described above but are used to provide an additional basis to determine the reasonableness of the income approach fair value estimate.
     The company cannot predict the occurrence of future events that might adversely affect the reported value of goodwill that totaled $6,980.2 million and $6,467.6 million at December 31, 2010 and December 31, 2009, respectively. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the company’s assets under management, or any other material negative change in assets under management and related management fees.
     Due to deteriorating market conditions, interim impairment tests were performed at October 31, 2008, and March 31, 2009, using the most recently available operating information. These interim tests also concluded that no impairment had occurred. Following the March 31, 2009, interim test, the general market conditions improved and the company did not identify the need for further interim tests during 2009 as no indicators of impairment existed. The March 31, 2009, interim impairment test adopted an income approach consistent with the annual 2008 impairment tests, but utilized the company’s updated forecasts for changes in AUM due to market gains and long-term net flows and the corresponding changes in revenues and expenses. The primary assumption changes from the October 31, 2008, valuation test were increases in the anticipated rise in equity markets in the near-term and in net AUM sales. The increase in equity markets was based on an analysis of the Dow Jones Industrial Average for 10 recession events between 1945 and 2001. The October 31, 2008, valuation had assumed an equity market rise in-line with more normal non-recessionary experience. The higher AUM net sales reflects new flows into the equity markets as values stabilize and confidence returns, and also took into account the company’s improved relative investment performance. A discount rate of 13.7% was used for the March 31, 2009, test, similar to the October 31, 2008, rate of 13.6% (October 1, 2008: 11.6%). The discount rates used are estimates of the weighted average cost of capital for the investment management sector reflecting the overall industry risks associated with future cash flows and have been calculated consistently across the various tests dates.
     The October 1, 2009, annual goodwill impairment test was performed using a consistent methodology to that used for the March 31, 2009, interim impairment test, with the exception that adjustments were made to remove the near-term equity market rise assumption, since much of the market rebound had been experienced in the period between March 31, 2009, and October 1, 2009. A discount rate of 12.9% was used for the October 1, 2009, analysis. A 40% decline in the fair value of our reporting unit, or a 500 basis point increase in the discount rate assumption used during our October 1, 2009, goodwill impairment analysis, would have caused the carrying value of our reporting unit to be in excess of its fair value, which would require the second step of the goodwill impairment test to be performed, which would have required a comparison of the implied fair value of goodwill with the carrying amount of goodwill. The second step could have resulted in an impairment loss for goodwill.
     The October 1, 2010 annual goodwill impairment test was performed using a consistent methodology to that used for the 2009 annual impairment test, with assumptions updated for current market conditions. The most significant change in assumptions from 2009 related to an increase in the market risk premium, which resulted in a discount rate of 14.9% for the October 1, 2010 analysis. A 43% decline in market value or a 700 basis point increase in the discount rate assumption used during our October 1, 2010 goodwill impairment analysis would be required to cause the carrying value of the reporting unit to be in excess of the market value, thus triggering step two of the goodwill impairment test. The second step could have resulted in an impairment loss for goodwill.

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     Intangible Assets. Intangible assets identified on the acquisition of a business are capitalized separately from goodwill if the fair value can be measured reliably on initial recognition (transaction date) and, if they are determined to be finite-lived, are amortized and recorded as operating expenses on a straight-line basis over their useful lives, from two to 12 years, which reflects the pattern in which the economic benefits are realized. The company considers its own assumptions, which require management’s judgment, about renewal or extension of the term of the arrangement, consistent with its expected use of the asset. A change in the useful life of an intangible asset could have a significant impact on the company’s amortization expense.
     Where evidence exists that the underlying management contracts have a high likelihood of continued renewal at little or no cost to the company, the intangible asset is assigned an indefinite life and reviewed for impairment on an annual basis. The company reevaluates the useful life determination for intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining useful life or an indication of impairment. The indicators in ASC Topic 350-30 paragraphs 35-23 and 24 were considered in making the determination that the indefinite-lived intangibles that arose from the June 1, 2010, acquisition of Morgan Stanley’s retail asset management business comprise one unit of account for impairment testing purposes. None of the indicators were considered presumptive or determinative; however, due to the fact that the retail fund management contracts are managed under Invesco’s single retail branding strategy and are used by various business components within the organization, the single unit of account was deemed appropriate.
     Definite-lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable (i.e. carrying amount exceeds the sum of the fair value of the intangible). Intangible assets not subject to amortization are tested for impairment annually as of October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Fair value is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount. The income approach includes inputs that require significant management judgment, including discount rates, revenue multiples and AUM growth rates. Changes in these estimates could produce different fair value amounts and therefore different impairment conclusions.
     Investments. Most of our investments are carried at fair value on our balance sheet with the periodic mark-to-market recorded either in accumulated other comprehensive income in the case of available-for-sale investments or directly to earnings in the case of trading assets. Fair value is generally determined by reference to an active trading market, using quoted close or bid prices as of each reporting period end. When a readily ascertainable market value does not exist for an investment, the fair value is calculated based on the expected cash flows of its underlying net asset base, taking into account applicable discount rates and other factors. Since assumptions are made in determining the fair values of investments for which active markets do not exist, the actual value that may be realized upon the sale or other disposition of these investments could differ from the current carrying values. Fair value calculations are also required in association with our quarterly impairment testing of investments. The accuracy of our other-than-temporary impairment assessments is dependent upon the extent to which we are able to accurately determine fair values. Of our $473.2 million total investments at December 31, 2010, those most susceptible to impairment include $99.5 million seed money investments in our affiliated funds. Seed money investments are investments held in Invesco managed funds with the purpose of providing capital to the funds during their development periods. These investments are recorded at fair value using quoted market prices in active markets; there is no modeling or additional information needed to arrive at the fair values of these investments.
     The value of investments may decline for various reasons. The market price may be affected by general market conditions which reflect prospects for the economy as a whole or by specific information pertaining to an industry or individual company. Such declines require further investigation by management, which considers all available evidence to evaluate the realizable value of the investment, including, but not limited to, the following factors:
    The probability that the company will be unable to collect all amounts due according to the contractual terms of a debt security not impaired at acquisition;
 
    The length of time and the extent to which the market value has been less than cost;
 
    The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer;
 
    The intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value;

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    The decline in the security’s value due to an increase in market interest rates or a change in foreign exchange rates since acquisition;
 
    Determination that the security is not realizable; or
 
    An adverse change in estimated cash flows of a beneficial interest.
     Our other-than-temporary impairment analysis of seed money holdings includes a review of the market returns required for each fund portfolio to enable us to recover our original investment. As part of the review, we analyze several scenarios to project the anticipated recovery period of our original investments based on one-, three-, and five-year historical index returns and historical trends in the equity markets. We also analyze the absolute amount of any loss to date, the trend of the losses, and percent declines in values of the seed money investments. Along with intent and ability to hold, all of these scenarios are considered as part of our other-than-temporary impairment analysis of seed money holdings.
     Consolidated Investment Products. The primary beneficiary of variable interest entities (VIEs) consolidate the VIEs. A VIE is an entity that does not have sufficient equity to finance its operations without additional subordinated financial support, or an entity for which the risks and rewards of ownership are not directly linked to voting interests. The company provides investment management services to, and has transactions with, various private equity funds, real estate funds, fund-of-funds, CLOs, and other investment entities sponsored by the company for the investment of client assets in the normal course of business. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of the products. Certain of these entities are considered to be VIEs.
     For all investment funds with the exception of CLOs, if the company is deemed to have a variable interest in these entities, the company is deemed to be the fund’s primary beneficiary if the company has the majority of rewards/risks of ownership. For CLOs, if the company is deemed to have a variable interest in these entities, the company is deemed to be the fund’s primary beneficiary if it has the power to direct the activities of the CLO that most significantly impact the CLO’s economic performance, and the obligation to absorb losses/right to receive benefits from the CLO that could potentially be significant to the CLO.
     Assessing if an entity is a VIE or voting interest entity (VOE) involves judgment and analysis on a structure-by-structure basis. Factors included in this assessment include the legal organization of the entity, the company’s contractual involvement with the entity and any related party or de facto agent implications of the company’s involvement with the entity. Generally, limited partnership entities where the general partner does not have substantive equity investment at risk and where the other limited partners do not have substantive (greater than 50%) rights to remove the general partner or to dissolve the limited partnership are VIEs. Additionally, certain investment products are VOEs and are structured as limited partnerships of which the company is the general partner and is deemed to have control with the lack of substantive kick-out, liquidation or participation rights of the other limited partners. These investment products are also consolidated into the company’s financial statements.
     Determining if the company is the primary beneficiary of a VIE also requires significant judgment, as the calculation of expected losses and residual returns (for investment products other than CLOs) involves estimation and probability assumptions. For CLOs, there is judgment involved to assess if the company has the power to direct the activities that most significantly effect the CLOs economic results and to assess if the company’s interests could be deemed significant. If current financial statements are not available for consolidated VIEs or VOEs, estimation of investment valuation is required, which includes assessing available quantitative and qualitative data. Significant changes in these estimates could impact the reported value of the investments held by consolidated investment products and the related offsetting equity attributable to noncontrolling interests in consolidated entities on the Consolidated Balance Sheets and the other gains and losses of consolidated investment products, net, and related offsetting gains and losses attributable to noncontrolling interests in consolidated entities, net, amounts on the Consolidated Statements of Income.
     As of December 31, 2010 the company consolidated VIEs that held investments of $6,264.2 million (December 31, 2009: $67.9 million) and VOE fund investments of $941.3 million (December 31, 2009: $617.1 million). As circumstances supporting estimates and factors change, the determination of VIE and primary beneficiary status may change, as could the determination of the necessity of consolidation of VOEs.
     Contingencies. Contingencies arise when we have a present obligation (legal or constructive) as a result of a past event that is both probable and reasonably estimable. We must from time to time make material estimates with respect to legal and other contingencies. The nature of our business requires compliance with various state and federal statutes, as well as various contractual obligations, and exposes us to a variety of legal proceedings and matters in the ordinary course of business. While the outcomes of matters such as these are inherently uncertain and difficult to predict, we maintain reserves reflected in other current and other non-current liabilities,

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as appropriate, for identified losses that are, in our judgment, probable and reasonably estimable. Management’s judgment is based on the advice of legal counsel, ruling on various motions by the applicable court, review of the outcome of similar matters, if applicable, and review of guidance from state or federal agencies, if applicable. Contingent consideration payable in relation to a business acquisition is recorded as of the acquisition date as part of the fair value transferred in exchange for the acquired business.
Recent Accounting Standards
     See Part II, Item 8, Financial Statements and Supplementary Data — Note 1, “Accounting Policies — Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
     In the normal course of its business, the company is primarily exposed to market risk in the form of securities market risk, interest rate risk, and foreign exchange rate risk.
AUM Market Price Risk
     The company’s investment management revenues are comprised of fees based on a percentage of the value of AUM. Declines in equity or fixed income security market prices could cause revenues to decline because of lower investment management fees by:
    Causing the value of AUM to decrease.
 
    Causing the returns realized on AUM to decrease (impacting performance fees).
 
    Causing clients to withdraw funds in favor of investments in markets that they perceive to offer greater opportunity and that the company does not serve.
 
    Causing clients to rebalance assets away from investments that the company manages into investments that the company does not manage.
 
    Causing clients to reallocate assets away from products that earn higher revenues into products that earn lower revenues.
     Underperformance of client accounts relative to competing products could exacerbate these factors.
Securities Market Risk
     The company has investments in sponsored investment products that invest in a variety of asset classes. Investments are generally made to establish a track record or to hedge economically exposure to certain deferred compensation plans. The company’s exposure to market risk arises from its investments. The following table summarizes the fair values of the investments exposed to market risk and provides a sensitivity analysis of the estimated fair values of those investments, assuming a 20% increase or decrease in fair values:
                         
            Fair Value   Fair Value
    Carrying   assuming 20%   assuming 20%
$ in millions   Value   increase   decrease
December 31, 2010
                       
Trading investments:
                       
Investments related to deferred compensation plans
    165.5       198.6       132.4  
Available-for-sale investments:
                       
Seed money in affiliated funds
    99.5       119.4       79.6  
Equity method investments
    156.9       188.3       125.5  
Other
    7.5       9.0       6.0  
 
                       
Total market risk on investments
    429.4       515.3       343.5  
 
                       

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            Fair Value   Fair Value
    Carrying   assuming 20%   assuming 20%
$ in millions   Value   increase   decrease
December 31, 2009
                       
Trading investments:
                       
Investments related to deferred compensation plans
    84.6       101.5       67.7  
Available-for-sale investments:
                       
Seed money in affiliated funds
    74.8       89.8       59.8  
Equity method investments
    134.7       161.6       107.8  
Other
    5.3       6.4       4.2  
 
                       
Total market risk on investments
    299.4       359.3       239.5  
 
                       
Interest Rate Risk
     Interest rate risk relates to the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The company is exposed to interest rate risk primarily through its external debt and cash and cash equivalent investments. On December 31, 2010, the interest rates on 56.7% of the company’s borrowings were fixed for a weighted average period of 2.4 years. Borrowings under the credit facility will have floating interest rates. The interest rate profile of the financial assets of the company on December 31, 2010, was:
                         
            Fair Value   Fair Value
            assuming a   assuming a
    Carrying   +1% interest   -1% interest
$ in millions   Value   rate change   rate change
December 31, 2010
                       
Available-for-sale investments:
                       
Collateralized loan obligations
    0.5       0.5       0.5  
Foreign time deposits
    28.2       28.3       28.2  
 
                       
Total investments
    28.7       28.3       28.2  
 
                       
December 31, 2009
                       
Available-for-sale investments:
                       
Collateralized loan obligations
    17.9       18.5       17.3  
Foreign time deposits
    22.5       22.6       22.5  
 
                       
Total investments
    40.4       41.1       39.8  
 
                       
     The interest rate profile of the financial liabilities of the company on December 31 was:
                                         
                            Weighted   Weighted Average
                            Average   Period for Which
                            Interest   Rate is Fixed
$ in millions   Total   Floating Rate   Fixed Rate*   Rate (%)   (Years)
2010
                                       
Currency:
                                       
U.S. dollar
    1,315.7       570.0       745.7       4.3 %     2.4  
 
                                       
 
                                       
2009
                                       
Currency:
                                       
U.S. dollar
    745.7             745.7       5.1 %     3.4  
Japanese yen
    0.1             0.1       9.7 %     1.3  
 
                                       
 
    745.8             745.8       5.1 %     3.4  
 
*   Measured at amortized cost.

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     See Item 8, Financial Statements and Supplementary Data — Note 9, “Debt” for additional disclosures relating to the U.S. dollar floating and fixed rate obligations.
     The company’s only fixed interest financial assets at December 31, 2010, are foreign time deposit investments of $28.2 million (2009: $22.5 million). The weighted average interest rate on these investments is 0.57% (2009: 0.74%) and the weighted average time for which the rate is fixed is 0.4 years (2009: 0.4 years).
Foreign Exchange Rate Risk
     The company has transactional currency exposures that occur when any of the company’s subsidiaries receives or pays cash in a currency different from its functional currency. Such exposure arises from sales or purchases by an operating unit in currencies other than the unit’s functional currency. These exposures are not actively managed.
     The company also has certain investments in foreign operations, whose net assets and results of operations are exposed to foreign currency translation risk when translated into U.S. dollars upon consolidation into Invesco Ltd. The company does not hedge these exposures.
     The company is exposed to foreign exchange revaluation into the income statement on monetary assets and liabilities that are held by subsidiaries in different functional currencies than the subsidiaries’ functional currencies. Net foreign exchange revaluation losses were $1.0 million in 2010 (2009: gains of $7.6 million), and are included in general and administrative expenses and other gains and losses, net on the Consolidated Statements of Income. We continue to monitor our exposure to foreign exchange revaluation.

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Supplementary Quarterly Financial Data
     The following is selected unaudited consolidated data for Invesco Ltd. for the quarters indicated:
                                                                 
$ in millions, except per share data   Q410     Q310     Q210     Q110     Q409     Q309     Q209     Q109  
Operating revenues:
                                                               
Investment management fees
  $ 773.7     $ 725.8     $ 627.9     $ 593.5     $ 611.8     $ 570.3     $ 501.6     $ 436.5  
Service and distribution fees
    202.0       191.6       139.4       112.5       111.4       111.8       100.4       89.0  
Performance fees
    18.7       2.5       3.5       1.4       6.8       4.3       8.0       10.9  
Other
    34.1       33.2       16.2       11.7       17.8       19.4       15.1       12.2  
 
                                               
Total operating revenues
    1,028.5       953.1       787.0       719.1       747.8       705.8       625.1       548.6  
 
                                               
Operating expenses:
                                                               
Employee compensation
    312.7       304.1       260.5       237.6       247.1       238.9       229.0       235.8  
Third-party distribution, service and advisory
    289.9       266.5       220.7       195.6       195.4       183.5       166.3       148.2  
Marketing
    51.3       44.8       35.2       28.3       30.4       27.7       23.9       26.9  
Property, office and technology
    65.6       63.5       55.8       53.5       54.8       63.0       48.6       45.9  
General and administrative
    83.6       64.5       64.1       50.0       49.8       40.1       46.9       30.0  
Transaction and integration
    26.7       26.8       79.3       17.2       9.8       1.0              
 
                                               
Total operating expenses
    829.8       770.2       715.6       582.2       587.3       554.2       514.7       486.8  
 
                                               
Operating Income
    198.7       182.9       71.4       136.9       160.5       151.6       110.4       61.8  
Other income/(expense):
                                                               
Equity in earnings of unconsolidated affiliates
    13.3       10.7       10.4       5.8       9.1       7.9       7.5       2.5  
Interest income
    3.6       3.4       1.8       1.6       2.1       1.7       1.2       4.8  
Interest income of consolidated investment products
    65.0       70.3       53.1       52.5                          
Gains/(losses) of consolidated investment products, net
    (28.0 )     (148.3 )     187.2       103.1       25.9       2.1       (48.4 )     (86.5 )
Interest expense
    (16.0 )     (16.1 )     (14.1 )     (12.4 )     (15.2 )     (16.9 )     (16.5 )     (15.9 )
Interest expense of consolidated investment products
    (36.6 )     (35.6 )     (25.6 )     (20.8 )                        
 
                                               
Other gains and losses, net
    12.4       14.6       (9.3 )     (2.1 )           2.0       10.0       (4.2 )
 
                                               
Income/(loss) before income taxes, including gains and losses attributable to noncontrolling interests
    212.4       81.9       274.9       264.6       182.4       148.4       64.2       (37.5 )
Income tax provision
    (55.7 )     (54.5 )     (36.7 )     (50.1 )     (48.2 )     (43.7 )     (36.0 )     (20.3 )
 
                                               
Net income/(loss), including gains and losses attributable to noncontrolling interests
    156.7       27.4       238.2       214.5       134.2       104.7       28.2       (57.8 )
(Gains)/losses attributable to noncontrolling interests in consolidated entities, net
    18.5       127.3       (197.4 )     (119.5 )     (23.3 )     0.5       47.5       88.5  
 
                                               
Net income attributable to common shareholders
  $ 175.2     $ 154.7     $ 40.8     $ 95.0     $ 110.9     $ 105.2     $ 75.7     $ 30.7  
 
                                               
Earnings per share*:
                                                               
— basic
  $ 0.37     $ 0.32     $ 0.09     $ 0.22     $ 0.26     $ 0.24     $ 0.18     $ 0.08  
— diluted
  $ 0.37     $ 0.32     $ 0.09     $ 0.21     $ 0.25     $ 0.24     $ 0.18     $ 0.08  
Average shares outstanding*:
                                                               
— basic
    470.5       476.6       455.0       439.0       434.1       431.6       410.6       394.1  
— diluted
    473.1       479.1       457.8       442.4       440.1       437.7       416.8       399.9  
Dividends declared per share:
  $ 0.11     $ 0.11     $ 0.11     $ 0.1025     $ 0.1025     $ 0.1025     $ 0.1025     $ 0.10  
 
*   The sum of the quarterly earnings per share amounts may differ from the annual earnings per share amounts due to the required method of computing the weighted average number of shares in interim periods.

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Item 8.   Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
         
    80  
    80  
    81  
    82  
    83  
    84  
    85  
    86  
    88  

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Annual Report of Management on Internal Control over Financial Reporting
     Management of the company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Securities Exchange Act of 1934, Rules 13a-15(f) and 15d-15(f). The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     Under the supervision and with the participation of the chief executive officer and chief financial officer, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2010.
     The company’s independent auditors, Ernst & Young LLP, have issued an audit report on the effectiveness of our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
     There were no changes in the company’s internal control over financial reporting during the fourth quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Invesco Ltd.
     We have audited the accompanying consolidated balance sheets of Invesco Ltd. (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Invesco Ltd. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.
     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Invesco Ltd.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 25, 2011

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Invesco Ltd.
     We have audited Invesco Ltd.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Invesco Ltd.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Annual Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     In our opinion, Invesco Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.
     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Invesco Ltd. as of December 31, 2010 and 2009, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010, of Invesco Ltd. and our report dated February 25, 2011 expressed an unqualified opinion thereon.
/s / Ernst & Young LLP
Atlanta, Georgia
February 25, 2011

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Invesco Ltd.
Consolidated Balance Sheets
<
                 
    As of  
    December 31,     December 31,  
$ in millions, except per share data   2010     2009  
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
    740.5       762.0  
Cash and cash equivalents of consolidated investment products
    636.7       28.0  
Unsettled fund receivables
    513.4       383.1  
Accounts receivable
    424.7       289.3  
Accounts receivable of consolidated investment products
    158.8        
Investments
    308.8       182.4  
Prepaid assets
    64.0       57.6  
Other current assets
    101.8       77.9  
Deferred tax asset, net
    30.4       57.7  
Assets held for policyholders
    1,295.4       1,283.0  
 
           
Total current assets
    4,274.5       3,121.0  
Non-current assets:
               
Investments
    164.4       157.4  
Investments of consolidated investment products
    7,206.0       685.0  
Prepaid assets
    0.9       16.2  
Security deposit assets and receivables
    146.3        
Other non-current assets
    20.0       13.0  
Deferred sales commissions
    42.2       23.8  
Deferred tax asset, net
          65.8  
Property and equipment, net
    272.4       220.7  
Intangible assets, net
    1,337.2       139.1  
Goodwill
    6,980.2