IVZ

1. Top 5 Material Risks

• Market Value and Outflows: Invesco’s revenues are primarily derived from investment management fees based on the market value of assets under management (AUM). A decline in market value—compounded by poor performance relative to peers—or net outflows (which totaled $1.4 billion in 2006) directly reduces these fees. Because certain expenses remain fixed, profit margins may decline by a greater proportion than revenues.
• Contract Termination: Substantially all revenues are derived from investment advisory agreements that are generally terminable upon 30 or fewer days’ notice. The loss of a significant number of these agreements, or the failure to renew them, would have a material adverse effect on revenues and profitability.
• Strategic Realignment: Invesco is executing a multi-year program to integrate its global operating platform. Invesco faces risks of difficulties, delays, or unexpected costs that could prevent the realization of anticipated benefits or result in lost opportunities and business disruption.
• Competitive Pressures: The investment management industry is highly competitive, with rivals including commercial banks, investment banks, and other financial institutions that may have greater resources. Market pressures regarding fee levels and the need to increase commissions paid to financial intermediaries could force Invesco to reduce its fees or increase costs, thereby reducing profitability.
• Substantial Indebtedness: As of December 31, 2006, Invesco carried $1,272.2 million in total long-term debt. This leverage limits the ability to obtain additional financing for capital expenditures or acquisitions and increases vulnerability to adverse industry conditions.

2. Company-Specific Risks

• Key Personnel Retention: The loss of investment management professionals could lead to the loss of client accounts, as the industry is characterized by the movement of managers among firms.
• Distribution Channel Dependency: Invesco relies on third-party financial intermediaries to sell its products. If these intermediaries favor competing proprietary funds or if major distributors cease operations, Invesco’s growth and AUM levels could be hindered.
• Goodwill Impairment: Invesco held $5,006.6 million in goodwill on its balance sheet as of December 31, 2006. An annual impairment review could result in a write-down, which would adversely affect results of operations.
• Currency Fluctuations: Because a large number of subsidiaries operate with functional currencies other than the U.S. dollar, exchange rate fluctuations can materially impact reported financial results.

3. Regulatory/Legal Risks

• Regulatory Capital Requirements: While Invesco PLC is not subject to consolidated capital requirements under current EU Directives, a sub-group including all EU subsidiaries is subject to them. Complying with these commitments may increase capital requirements and limit the ability of certain EU subsidiaries to make distributions.
• Civil Litigation and Enforcement: Invesco is subject to various legal proceedings, including civil lawsuits related to previously settled market timing investigations. While management does not believe these will have a material adverse effect, future lawsuits or regulatory enforcement actions could result in a decline in AUM and increased costs.
• Regulatory Discretion: Governmental agencies have broad administrative discretion, including the power to revoke licenses, impose fines, or restrict business activities. Amendments to laws governing investment products could negatively affect revenues.

4. Financial Impact Map

Market Value and Outflows → Management Revenues → Fees are based on the market value of assets under management. Contract Termination → Management Revenues → Substantially all revenues are derived from terminable advisory agreements. Competitive Pressures → Net Revenues → Increased commissions paid to financial intermediaries lower net revenues. Substantial Indebtedness → Interest Expense → High debt levels require ongoing interest payments and limit capital for other purposes. Goodwill Impairment → Results of Operations → A write-down of the $5,006.6 million goodwill balance would directly reduce earnings.