Invesco - 20-F annual report

AMVESCAP is a leading independent global investment manager, dedicated to helping people worldwide build their financial security. Operating under the AIM, AIM Trimark, Atlantic Trust, INVESCO, Invesco Perpetual, PowerShares and WL Ross & Co. brands, AMVESCAP strives to deliver outstanding products and services through a comprehensive array of enduring investment solutions for our retail, institutional and private wealth management clients around the world.

AIM Investments is dedicated to providing exceptional products and services through multiple management styles and a broad range of investments including mutual funds, exchange-traded funds, and cash management products. AIM draws on the strength of AMVESCAP’s worldwide resources to deliver best-in-class capabilities from specialized investment teams. Our products are offered through financial advisors in the belief that investors can significantly benefit from the advice and guidance a professional can provide.

AIM Trimark is a premier provider of enduring solutions for Canadian investors and their advisors. AIM Trimark has become one of Canada’s largest and most successful investment management firms by adhering to proven investment disciplines that build and protect investors’ wealth and by putting investors’ interests first.

Atlantic Trust provides integrated wealth management and investment counseling services for high net worth individuals, families and foundations. Atlantic Trust’s experienced professionals deliver a broad range of offerings, including proprietary investment solutions, open architecture through traditional and alternative managers, as well as estate, trust and related advisory services.

INVESCO has earned the trust of investors around the world. With investment capabilities that span traditional and alternative asset classes, INVESCO is one of the world’s leading names in investment management for institutions and individuals.

As one of the largest investment managers in the U.K., Invesco Perpetual manages assets on behalf of consumers, intermediaries and professional investors through a broad product range. Invesco Perpetual is one of the most admired and recognized brands in the U.K. investment industry, trusted to achieve superior, long-term results for investors through truly active investment management.

PowerShares offers over 70 compelling investment opportunities through style, industry, commodities, currencies, specialty access and broad market exchange-traded funds (ETFs). PowerShares is “Leading the Intelligent ETF Revolution,” providing investment advisers with exceptional asset management tools and market exposure through the replication of enhanced indexes. PowerShares delivers this sophisticated asset management in one of the more benefit-rich investment vehicles available today, the ETF.

WL Ross & Co. manages alternative assets for institutional investors in the U.S., Europe and Asia. It was formed in April 2000 by Wilbur Ross as an independent organization dedicated to private investments and fund management for institutional investors and family offices across the globe. The company has sponsored alternative investments including private equity funds, co-investment vehicles and hedge funds in the steel, textile, coal, automotive and financial services industries in the U.S., U.K., France, Germany, China, Japan, Korea, Vietnam, India, Brazil and Bermuda.

Dear Fellow Shareholder: There is no question our world is evolving. Economic and demographic trends across the globe are transforming our business in ways that present both challenges and opportunities.

Expansion of the global economy is resulting in tremendous prosperity, creating a growing middle class that increasingly seeks professional support to reach its financial goals. Global assets under management (AUM) are expected to grow to more than $60.0 trillion by 2010 from less than $50.0 trillion today, and markets outside the U.S. will increasingly gain market share over the next few years. In addition, the asset management industry is becoming increasingly competitive. We believe that successful asset managers of the future must have the scale and global reach to compete effectively.

Positioned for success. These developments favor firms with global expertise and diversified investment capabilities. Our company benefits from a broad global footprint and a full range of investment capabilities that few organizations can match. With this unique foundation, we believe that our company is well-positioned to succeed in this evolving world.

Only a small number of asset managers approach our global reach and capabilities. In fact, of more than 30,000 money managers around the world, fewer than 10 are independent organizations with our scale and depth of investment capabilities. This represents a meaningful competitive advantage for us.

Our global reach spans nine of the world’s 10 largest markets, and we have a strong local presence in 19 countries. With more than 500 investment professionals in key markets across the globe, we are able to offer specialized capabilities backed by a global infrastructure.

Diversification is another one of our core strengths. We are diversified by client location, distribution channel and asset class. This diversification enables us to weather different market cycles and is a source of strength for our company that benefits our clients, our shareholders and our business.

Investors, institutions and intermediaries increasingly seek investment managers that offer strong, core traditional products as well as alternative solutions. Our broad range of investment capabilities extends from traditional equity and fixed income investments to sophisticated structured products and private capital.

During 2006, we expanded our broad lineup of established investment solutions with the acquisitions of PowerShares’ distinctive line of exchange-traded funds (ETFs) and the respected financial restructuring expertise of WL Ross & Co. With these additions we now offer our clients one of the industry’s most robust and comprehensive sets of investment products. These distinctive worldwide investment management capabilities, combined with our global distribution, are powerful differentiators in a competitive marketplace.

Delivering on our powerful strategy. At the beginning of 2006, we announced a set of strategic initiatives that recognize the dynamic environment in which we operate and seek to leverage our many strengths to build our success over the long term. With a disciplined focus on the successful execution of these initiatives, we have made significant progress in strengthening our business and delivering against this multi-year strategy.

AMVESCAP:

Throughout 2006 we aligned our leadership and organizational structure to help us work more effectively as an integrated, global investment management business. Early in the year, we organized our management structure to further sharpen the focus on our business and our clients. We also took steps to align our worldwide Legal, Compliance, Finance and Human Resource areas along functional lines to ensure greater collaboration and increased efficiency.

Early in 2006 we launched a three-year transformation program for our Operations and Technology group. The program will improve efficiency by creating an integrated global technology platform, with a unified organizational and management structure, and common policies, procedures and practices. As one measure of success, during 2006 we reduced the number of software applications supported across the company by 20%.

As we entered 2007, we opened pilot global enterprise support centers in Hyderabad, India and Prince Edward Island, Canada. As they are developed, these centers will provide operations and technology support for our businesses around the world. The new centers promise to give us greater flexibility across time zones, lower costs for our fund shareholders and improved efficiency for our clients.

As another important part of our commitment to integrate our operations, we also announced plans to take a unified approach to our business across North America. We believe we can strengthen our business considerably by managing our U.S. and Canadian retail activities as a single line of business that transcends borders.

As one of our most important internal initiatives in 2006, we completed the first all-inclusive survey of employees across the company. The results showed that our employees wanted further information about our strategic direction and an increased focus on people development. Their candid input was an important step in our ongoing efforts to strengthen our business. One outcome of the survey was a talent management process that will improve our ability to identify high performers in our organization with strong leadership potential.

Strong results for 2006. As a result of our focus on executing our strategy, we are pleased to report strong results for the year. AUM ended 2006 at a record level of $462.6 billion, an improvement of $76.3 billion over the prior year. Operating profit rose to $785.4 million, up 57.0% over the prior year before the 2005 restructuring charge. Improving operating leverage and our focus on expense discipline was reflected in an expansion of our margin, which increased to 32.5% for 2006 from 23.0% in 2005 before the restructuring charge. Diluted earnings per share improved 76.5% from $0.34 in 2005 before the restructuring charge to $0.60 in 2006. As a result, consistent with our goal of steadily increasing our rewards to shareholders, our Board of Directors is recommending a final dividend of $0.104.

Unifying our culture. As we worked to better integrate our business, we launched an intensive effort to understand the shared elements of our culture across the company. More than 2,500 of our employees, our corporate Board members and senior leaders provided input regarding the culture of our firm and the business principles that should guide our interactions with clients and our

colleagues. The result was a set of principles that form the foundation of our efforts to create a shared culture across our company:

Throughout 2007 and beyond, we will build on these principles to further unify our culture, ensuring a positive environment for our employees and a consistent, superior experience for our clients.

As we operate and compete as a single, global investment management organization, there are compelling reasons for moving to a new company name that leverages the strengths of one of our existing business brands. We are therefore proposing to shareholders that we replace the AMVESCAP name with INVESCO. We have chosen INVESCO from among our other strong brands because it is the only brand used in every market in which we operate and because being an investment management company is embedded in the name. This does not mean we will be eliminating our other strong brands. Our long-term plan is to build on the power of these brands to enhance awareness of our company.

Focus on the future. We believe that our company has everything it takes to succeed in our evolving world. Our financial performance definitely has us heading in the right direction. To ensure our continued success, our strategy recognizes the dynamic environment in which we operate and positions us for long-term growth.

Going forward, we will build on our momentum to drive continued improvements in our financial performance and generate the resources we need to compete. We will work to further unlock the power of our global organization to provide enduring investment solutions for our clients and add real value for our shareholders. And we will continue to make meaningful progress toward our goal of becoming a premier global investment management organization.

AMVESCAP CARES

AMVESCAP is committed to responsible corporate citizenship and encourages employees to play active roles in the growth and development of the communities in which they live and work. By donating time, energy and other resources, the AMVESCAP team supports a variety of local and international programs for the arts, education, sports, the environment and charitable organizations. Highlights from the past year include:

The growing financial strength of our company during 2006 was demonstrated by record assets under management of $462.6 billion and a 57.0% increase in operating profits over the previous year before the restructuring charge. ^(a)

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

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

The following important factors, and other factors described elsewhere or incorporated by reference in this report or in our other filings with the U.S. Securities and Exchange Commission (SEC), among others, could cause our results to differ materially from any results that we may describe in any such forward- looking statements: (1) variations in demand for our investment products or services, including termination or non-renewal of our investment advisory agreements (2) significant changes in net cash flows into or out of the accounts we manage or declines in market value of the assets in, or redemptions or other withdrawals from, those accounts; (3) significant fluctuations in the performance of debt and equity markets worldwide; (4) the effect of political or social instability in the countries in which we invest or do business; (5) the effect of terrorist attacks in the countries in which we invest or do business and the escalation of hostilities that could result therefrom; (6) enactment of adverse state, federal or foreign legislation or changes in government policy or regulation (including accounting standards) affecting our operations or the way in which our profits are taxed; (7) war and other hostilities in or involving countries in which we invest or do business; (8) adverse results in litigation, including private civil litigation related to market timing, mutual fund fees and mutual fund sales practices, and any similar potential regulatory or other proceedings; (9) exchange rate fluctuations, especially as against the U.S. dollar; (10) the effect of economic conditions and interest rates in the U.K., U.S. or globally; (11) our ability to compete in the investment management business; (12) the effect of consolidation in the investment management business; (13) limitations or restrictions on access to distribution channels for our products; (14) our ability to attract and retain key personnel, including investment management professionals; (15) the investment performance of our investment products and our ability to retain our accounts; (16) 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; (17) changes in regulatory capital requirements; (18) our substantial debt and the limitations imposed by our credit facility; (19) the effect of failures or delays in support systems or customer service functions, and other interruptions of our operations; (20) the occurrence of breaches and errors in the conduct of our business, including any failure to properly safeguard confidential and sensitive information; and (21) the execution risk inherent in our current company-wide transformational initiatives. 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, as well as other factors, may also cause actual results to differ materially from those projected. For more discussion of the risks affecting us, please refer to the section entitled “Financial Overview-Risk Factors” below.

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. Except for our ongoing obligations to disclose material information under applicable securities laws, we undertake no obligation to release publicly any revisions to forward looking statements, to report events or to report the occurrence of unanticipated events. For all forward- looking statements, we claim the “safe harbor” provided by Section 27A of the U.S. Securities Act and Section 21E of the Securities Exchange Act of 1934.

Introduction

AMVESCAP provides retail, institutional and high-net-worth clients with a distinctive array of investment management capabilities through a variety of brands across the globe. AMVESCAP’s sole business is asset management. At December 31, 2006, AMVESCAP managed $462.6 billion in assets under management (AUM) around the world under the AIM, AIM Trimark, Atlantic Trust, INVESCO, Invesco Perpetual, PowerShares and WL Ross & Co. brands.

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

Our registered office is located at 30 Finsbury Square, London, United Kingdom, and our principal executive offices are in leased office space at 1360 Peachtree Street N.E., Atlanta, Georgia, U.S.A. Our telephone number is +1-404-479-1095. We are a public limited company under the U.K. Companies Act, domiciled in the U.K., and our shares, American Depositary Shares and Exchangeable Shares are listed on the London Stock Exchange, the New York Stock Exchange and the Toronto Stock Exchange, respectively, under the symbol “AVZ.” We maintain a Web site at www.amvescap.com. (Information contained on our Web site shall not be deemed to be part of, or to be incorporated into, this document.)

AMVESCAP PLC was originally incorporated on December 19, 1935 under the laws of England and Wales. Although our constituent corporate entities are significantly older, AMVESCAP in its modern form was created by the 1997 combination of two asset management businesses: INVESCO and AIM, both of which had been founded in the 1970s. Envisioning a broad international market for asset management, our Chairman Emeritus Charles W. Brady and eight partners in Atlanta, Georgia had purchased the pension management department from their employer, a large regional U.S. bank, in 1978, naming the new business “INVESCO.” In the same spirit, AIM-founders Charles T. Bauer, Robert H. Graham, and Gary T. Crum had separately left the asset management department of a major U.S. insurance company in 1976 and had formed a mutual fund company which they called “A I M Management Group.” In subsequent years, INVESCO continued to pursue growth through a program of targeted acquisitions, establishing or strengthening its retail and institutional businesses in key locations around the world.

The merger of INVESCO and AIM in 1997 resulted in the name change to AMVESCAP PLC and created one of the first truly global independent retail and institutional investment managers, with approximately $200 billion in AUM. AMVESCAP increased its global scope further with the acquisition of LGT Asset Management, Trimark Financial Corporation in Canada, Perpetual PLC in the United Kingdom and additional businesses in Australia and Taiwan. In 2001 AMVESCAP formed Atlantic Private Wealth Management, a business focused on serving the needs of high-net-worth individuals and their families. Atlantic Trust was built by the successive acquisitions of Boston-based Pell Rudman, New York-based Whitehall Asset Management and Chicago-based Stein Roe Investment Counsel.

In 2003 AMVESCAP became the first global asset management company to enter the market in China, forming a joint venture with Great Wall Securities. In 2005 we opened an office in Shenzhen and became the first non-Chinese firm authorized by the government to increase its joint venture ownership stake from 33.0% to 49.0%.

Recent Developments

On August 1, 2005, AMVESCAP appointed Martin L. Flanagan as president and chief executive officer. Under Mr. Flanagan’s leadership, the company developed and began to implement a comprehensive operating plan designed to strengthen the business, build renewed momentum and identify the most promising opportunities for future growth. During 2006 we also simplified our management structure to streamline decision-making and sharpen the focus on our clients and our business. Our primary senior management team consists of the chief executive officer and eight senior managing directors, each of whom has responsibility for a core element of our global business.

On September 18, 2006, we acquired PowerShares, a leading provider of exchange-traded funds (ETFs). As of year end 2006, PowerShares managed approximately $8.5 billion in assets and offered investors 69 distinctive ETF products.

On October 3, 2006, we acquired WL Ross & Co., one of the industry’s leading financial restructuring groups, expanding the range of high-quality alternative investment offerings for our clients. Led by Wilbur Ross and his team, WL Ross & Co. assumed responsibility for the direct private equity business of AMVESCAP, with $3.4 billion in combined assets as of year end 2006.

We are continuing to implement our comprehensive operating plan, which is designed to leverage AMVESCAP’s core strengths — our people, our investment expertise, our diversification across asset classes, clients and channels, and our global presence.

During the year, AMVESCAP made significant improvements in investment and operating performance. Net operating margins increased from below 25.0% to above 30.0%, relative investment performance levels rose to their highest in five years, year-over-year net flows improved, and the price of AMVESCAP shares rose approximately 35.0% during 2006.

Industry Trends

Demographic and economic trends around the world are transforming the asset management industry and our business:

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

Description of Our Business

AMVESCAP is a leading independent global asset manager with offices in 19 countries. As of December 31, 2006, AMVESCAP managed $462.6 billion in assets for retail, institutional and private wealth investors around the world. Our investment products are sold under the brand names AIM, AIM Trimark, Atlantic Trust, INVESCO, Invesco Perpetual, PowerShares and WL Ross & Co. AMVESCAP shares are traded publicly on the London, New York and Toronto stock exchanges under the symbol “AVZ.” As of December 31, 2006, AMVESCAP had a market capitalization of approximately $10.0 billion.

Our aspiration is to take advantage of our world of opportunity to become a premier global investment management organization. Supported by a global operating platform, AMVESCAP delivers a broad array of investment products and services to retail, institutional and high-net-worth investors on a domestic, international and global basis. We have a significant presence in the institutional and retail segments of the investment management industry in North America, Europe and Asia-Pacific, with clients in more than 100 countries.

We are committed to delivering the combined power of our distinctive worldwide investment management capabilities globally. We believe that our discipline-specific teams provide us with a competitive advantage. In addition, we offer multiple investment objectives within the various asset classes and products that we manage. Our asset classes include equity, balanced, fixed income, stable value, money market and alternatives. Approximately 47.0% of our AUM as of December 31, 2006 was invested in equities, with the balance invested in fixed income and other securities.

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

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

The following tables present a breakdown of AUM by client domicile, distribution channel and asset class as of December 31, 2006:

Prior to 2006 AMVESCAP operated as a collection of diverse business units. During 2006 AMVESCAP began to better leverage the individual strengths of these business units by working more effectively as a unified global organization. We realigned management of our various global support functions (Legal, Compliance, Finance, Human Resources, Operations and Technology) under single senior executives. In addition, our institutional business is now under unified global management. Since we now take a unified approach to our business, we are presenting our financial statements and other disclosures under the single operating segment “asset management,” and will no longer segregate our presentation along the historical business division lines.

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

Retail
AMVESCAP is a significant provider of retail investment solutions to clients through our distribution channels: AIM in the U.S., AIM Trimark in Canada, Invesco Perpetual in the U.K., INVESCO in Europe and Asia, and PowerShares (for our ETF products). Collectively the retail product management teams manage $234.0 billion as of December 31, 2006. We offer retail products within all of the major asset classes (equity, fixed income, balanced, money market and alternatives) in the form of mutual funds, separately managed accounts, variable annuities, collective trusts and ETFs. Our retail products are primarily distributed through third-party financial intermediaries, including traditional broker-dealers, fund “supermarkets,” retirement platforms, financial advisors, insurance companies and trust companies.

The U.S., Canadian and U.K. retail businesses rank among the largest, by AUM, in their respective regions: as of year end 2006, AIM was the 14th largest non-proprietary mutual fund complex in the U.S., AIM Trimark was the fourth largest fund manager in Canada and Invesco Perpetual was the second largest fund provider in the U.K. In addition, our joint venture in China, Great Wall, was the second largest Sino-foreign manager in China, with AUM of approximately $4.0 billion. Our recent acquisition of PowerShares adds a leading set of ETF products (with $8.5 billion in assets and 69 funds as of December 31, 2006) to the extensive choices available to our retail investors. We now provide our retail clients with one of the industry’s most robust and comprehensive product lines.

AMVESCAP’s North American retail distribution channel offers mutual funds invested in the U.S., Canada and international markets, including funds that target particular market sectors. We offer equity, balanced, fixed income, real estate and money market funds.

Through our AIM and AIM Trimark brands, we also provide investment management services to mutual funds managed by companies unaffiliated with us. In addition to our sales of fund products through financial intermediaries, third-party pension plans and insurance companies use our funds as investment options under their own separate accounts. Similarly, we sub-advise funds sponsored by third parties, typically for use as investment options under insurance company separate accounts. AIM has also developed a managed account business, which tailors individual, privately managed portfolios to clients’ investment needs. AIM also provides retirement products and state-sponsored college savings plans.

Through our Invesco Perpetual brand, we are one of the largest independent investment managers in the U.K., currently managing assets on behalf of consumers, intermediaries and professional investors through a broad product range that includes ICVCs, investment trusts, PEPs, ISAs, pension products, offshore funds and other specialist mandates. Invesco Perpetual actively manages products that include U.K., European, U.S., Asian, emerging market and other international equities, as well as fixed interest funds.

In Europe and Asia we market our products under the INVESCO brand, which includes locally managed investment products as well as a diversified offshore fund range.

AMVESCAP provides investment solutions to institutional investors globally, with a major presence in the U.S., Canada, U.K., Continental Europe and Asia-Pacific regions under the INVESCO and AIM brands ($211.8 billion in AUM as of December 31, 2006). We offer a broad suite of domestic and global products, including traditional equities, structured equities, fixed income, real estate, private equity (recently expanded through our acquisition of WL Ross & Co.), financial structures, and absolute return strategies. Global and regional sales forces distribute our products and provide services to clients and intermediaries around the world. Our investment teams are organized by investment specialty and operate with key hubs in New York, Atlanta, Dallas, Louisville, Houston, London, Frankfurt, Hong Kong, Tokyo and Melbourne.

We have a diversified client base that includes major public entities, corporate, union, non-profit, endowments and foundations, as well as investment consultants and financial institutions. Customers of AIM’s institutional money market funds included 17 of the 20 largest U.S. banks, 8 of the Fortune 50 U.S. corporations, and 6 of the top 20 Fortune Global Corporations as of December 31, 2006.

We believe that having our investment professionals working in and investing from many of the world’s financial markets is one of our core strengths. AMVESCAP both coordinates the construction of global portfolios and markets our global investment management services.

Under the Atlantic Trust brand, AMVESCAP provides high-net-worth individuals and their families with a broad range of personalized and sophisticated wealth management services, including financial counseling, estate planning, asset allocation, investment management (including sale of third party-managed investment products), private equity, trust, custody and family office services. We also provide asset management services to foundations and endowments in the U.S. Atlantic Trust obtains new clients primarily through referrals from existing clients and recommendations from a network of attorneys and accountants. Atlantic Trust has offices in 16 U.S. cities and manages $16.8 billion as of December 31, 2006 for a diverse set of clients.

Employees

As of December 31, 2006, we had 5,574 employees, of whom approximately 62% were located in North America. As of December 31, 2005 and 2004, we had 5,798 and 6,693 employees, respectively. The decreases in headcount were due to reductions in force we made during those years. None of our employees is covered under collective bargaining agreements.

Competition

The investment management business is highly competitive, with points of differentiation including investment performance, the range of products offered, brand recognition, business reputation, financial strength, the depth and continuity of relationships, quality of service and the level of fees charged for services. We compete with a large number of investment management firms, commercial banks, investment banks, broker dealers, insurance companies and other financial institutions. We believe that the diversity of our investment styles, product types and channels of distribution enable us to compete effectively in the investment management business.

Management Contracts

We derive substantially all of our revenues from investment management contracts with clients. Fees vary with the type of assets being managed, with higher fees earned on actively managed equity and balanced accounts, along with real estate and alternative asset products, and lower fees earned on fixed income and stable return accounts. Investment management contracts are generally terminable upon thirty or fewer days’ notice. Typically, mutual fund and unit trust investors may withdraw their funds at any time without prior notice. Institutional clients may elect to terminate their relationship with us or reduce the aggregate amount of assets under management upon very short-notice periods. Individual clients and fund shareholders may elect to close their accounts or redeem their shares in our mutual funds, or shift their funds to other types of accounts with different rate structures, for any of a number of reasons, including changes in investment strategy, investment performance, changes in prevailing interest rates and financial market performance.

Government Regulation

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

We conduct substantial business operations in the U.S. Various of our subsidiaries and/or products and services offered by such subsidiaries are regulated by the SEC, the National Association of Securities Dealers (NASD), the National Futures Association, the Commodity Futures Trading Commission and the Office of the Comptroller of the Currency (OCC). Federal statutes that regulate the products and services we offer in the U.S. include the Securities Act of 1933, the Securities Exchange Act of 1934 (Exchange Act), the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the Employee Retirement Income Security Act of 1974.

Various of our subsidiaries are regulated in the United Kingdom by the Financial Services Authority (FSA). Our operations elsewhere in the world are regulated by similar regulatory organizations. Other regulators who potentially exert a significant impact on our businesses around the world include the Ministry of Finance and the Financial Services Agency in Japan, the Federal Financial Supervisory Authority in Germany, the Canadian securities administrators (including the Ontario Securities Commission), the Central Bank of Ireland, the Banque de France and the Autorité des Marchs Financiers in France, the

Securities and Futures Commission of Hong Kong, the Belgian Banking and Finance Commission, the Australian Securities & Investments Commission, the Securities and Futures Commission of the Ministry of Finance and the Investment Commission of the Ministry of Economic Affairs of the Republic of China, the Commissione Nazionale per le Società e la Borsa (CONSOB) in Italy, the Netherlands Authority for the Financial Markets, the Swiss Federal Banking Commission, La Comisión Nacional del Mercado de Valores (CNMV) in Spain, the Monetary Authority of Singapore, the Jersey Financial Services Commission and the Pension Fund Supervisions Office (UNFE) in Poland.

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. There have been recent changes to regulatory capital requirements applying to investment firms operating within the European Economic Area (EEA). After consultation with the U.K. Financial Services Authority (FSA), it has been determined that, for the purposes of prudential supervision, AMVESCAP PLC is not subject to regulatory consolidated capital requirements under current European Union (EU) Directives. A sub-group, however, including all of our EU subsidiaries, is subject to these consolidated capital requirements, and capital is maintained within this sub-group to satisfy these regulations. Complying with our regulatory commitments may result in an increase in the capital requirements applicable to the European sub-group. As a result of corporate restructuring and the regulatory undertakings that we have given, certain of these EU subsidiaries may be required to limit their distributions. We cannot guarantee that further corporate restructuring will not be required to comply with applicable legislation. See “Financial Overview — Risk Factors” included elsewhere herein.

As a foreign private issuer (FPI) for SEC reporting purposes, we are currently exempt from significant provisions of the U.S. federal securities laws. To retain our FPI status, U.S. residents must hold less than 50% of our voting securities (ordinary and exchangeable shares). At January 1, 2007, the most recent measurement date prior to the publication of this annual report, the proportion of our voting securities held by U.S. residents was 44%. If the company were to lose its status as an FPI, our accounting and public reporting burdens would increase and would become more complex. It is also likely that our compliance and corporate governance costs would increase.

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

Summary

AMVESCAP ended 2006 with record AUM of $462.6 billion, a 19.8% increase over 2005 resulting from a combination of market gains and acquisitions, partially offset by net outflows of $1.4 billion. Larger AUM and higher performance fees increased net revenues to $2,414.6 million, an 11.1% increase over the previous year. Operating expenses fell 2.6% year over year compared to operating expenses before the restructuring charge in 2005. This combination of growing revenues and falling expenses produced operating profits of $785.4 million in 2006, an increase of 57.0% over operating profit before the restructuring charge in 2005, and a significant expansion of net operating margin to 32.5%. Diluted earnings per share improved 76.5%, from $0.34 in 2005 before the restructuring charge to $0.60 in 2006. See page 22 for a reconciliation of total operating expenses before the restructuring charge to total operating expenses. See “Five-Year Summary” for a reconciliation of operating profit before the restructuring charge to operating profit and important additional disclosures.

During 2006, AMVESCAP made two important acquisitions. In September, the acquisition of PowerShares added $6.3 billion in AUM, and in October, the company completed the acquisition of WL Ross & Co. with $2.6 billion in AUM. The addition of PowerShares’ distinctive line of exchange traded funds (ETFs) and the recognized financial restructuring expertise of WL Ross & Co. to our broad line of established investment solutions provides our global clients with one of the industry’s most robust and comprehensive ranges of investment capabilities.

Investment performance strengthened during the year in most of our asset categories. Within our retail products, our U.K., U.S. and Canadian investment teams each improved their relative performance over 2005. Our U.K. business continued to outpace many of its competitors throughout 2006, and we experienced steady improvement in our U.S. retail business and a significant turnaround in our Canadian performance in 2006. Our institutional business showed improvement year over year across asset classes, with our fixed income and money market businesses once again delivering consistent outstanding performance relative to their benchmarks.

Assets Under Management

AUM at the end of 2006 were $462.6 billion (2005: $386.3 billion). Average AUM for 2006 were $424.2 billion, compared to $377.6 billion in 2005. Net outflows for the year ended December 31, 2006, were $1.4 billion, with inflows of $85.8 billion and outflows of $87.2 billion. Net inflows in the first half of the year were slightly positive offset by relatively small net outflows in the second half, although our investment performance has generally strengthened throughout the year. Our retail net inflows for 2006 were $0.5 billion, compared to net outflows of $12.1 billion in 2005. Institutional net outflows were $1.2 billion in 2006 versus net outflows of $4.5 billion in 2005. Our Private Wealth Management (PWM) business had net outflows of $0.7 billion in 2006 compared to net inflows of $0.4 billion in 2005. Changes in AUM were as follows:

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

The company began documenting and presenting AUM by client domicile in 2006. Prior to 2006, the company was organized into seven operating divisions, and AUM data was tracked and presented by these divisions. The company operates under one business segment, asset management. See Note 4 to the Consolidated Financial Statements for geographical segmental disclosures.

In our U.S. retail channel, we have seen an improvement on a one-, three- and five-year basis relative to both Lipper and Morningstar peer groups. Within U.S. retail, 7 of 12 of our global and international funds had 4- or 5-star Morningstar ratings, with 9 of these funds in the top quartile on a Lipper one-year basis. We have seen inflows in these and other products. During 2006 we evaluated, rationalized and merged 15 funds in the U.S. retail product line to ensure we are delivering the best possible investment solutions to our clients.

Our Canadian retail business has seen a turnaround in its investment performance at the end of 2006. Certain of its portfolios have been underweight in the energy sector, which contributed to performance lagging its peers during much of 2006 as that sector’s valuation increased. Performance has improved as energy sector valuations lessened in the second half of 2006.

81% of the Canadian retail AUM remains in the top half of peers on a five-year basis. The U.K. retail business has produced particularly strong results across all measured time frames. In Continental Europe and Asia more than 51% of AUM are performing in the top of peer groups on a one-year basis.

In our institutional business, over 96% of our fixed income and money market assets beat their benchmarks over the one-, three- and five-year periods. Although measuring our investment performance against benchmarks is an important criterion, our institutional business is also evaluated against peer groups and consultant perception. Equity performance improved year over year on a one-, three- and five-year basis.

Revenues

Net revenues (total revenues less third-party distribution, service and advisory fees) increased by 11.1% in 2006 to $2,414.6 million (2005: $2,173.2 million). The main categories of revenues, and the percentage change between the periods, are as follows:

Management fee revenues are derived from providing professional services to manage client accounts and include fees received from retail mutual funds, unit trusts, investment companies with variable capital (ICVCs), investment trusts and institutional advisory contracts. 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. Management fees for products offered in the institutional distribution channel are calculated in accordance with the underlying investment management contracts and also vary in relation to the level of client assets managed, and in certain cases are also based upon investment performance.

Management revenues increased 17.9% from 2005, due to market appreciation on fund assets, investment performance and increased sales in Europe of the Dublin-based offshore fund range and the U.K. onshore fund range. Performance fees, which are included in management revenues, increased 145.4% in 2006 over 2005, from $33.5 million to $82.2 million, as several institutional products, primarily in our structured products group, exceeded performance hurdles. In the U.K., the addition of the Real Estate Opportunity fund and strong investment performance contributed to the increase in performance fees.

Management fee revenues in 2005 increased 7.8% over 2004. Performance fees increased from $9.4 million in 2004 to $33.5 million in 2005 due to improved comparative performance against benchmarks.

In 2006, service and distribution revenues decreased 0.6% over 2005. Service revenue is generated through fees charged to cover several types of expenses, including fund accounting fees, SEC filings and other maintenance costs for mutual funds and unit trusts, and administrative fees received from closed-ended funds. Service revenues also include transfer agent fees, which are fees charged to cover the expense of transferring shares of a mutual fund or units of a unit trust into the investor’s name. Distribution revenues include

20

12b-1 fees received from certain mutual funds to cover allowable sales and marketing expenses for those funds and also include asset-based sales charges paid by certain mutual funds for a period of time after the sale of those funds. Distribution revenues typically vary in relation to the amount of client assets managed. In 2006, increases in service revenues in the U.K., in line with higher AUM, were offset by decreases in distribution and transfer agent revenues. Distribution revenues declined due to the full year of 12b-1 rate reductions on certain U.S. retail products. The decline in transfer agent fee revenues arose primarily in U.S. Retail from a change in the sub-transfer agent methodology, account fee rate changes, and fewer open accounts. Distribution and transfer agent revenues in 2005 included revenues from AMVESCAP Retirement, which was sold in the second half of 2005, thereby further contributing to the decline in revenues in 2006.

Service and distribution revenues in 2005 declined $55.1 million, or 9.3%, from 2004. The sale of the AMVESCAP Retirement business accounted for $30.0 million of this decline, as this business was included for the full 12 months in 2004 but only six and a half months in 2005. The remainder of the difference is a result of lower distribution and transfer agency fees in our U.S. Retail channel.

Other revenues include fees derived primarily from transaction commissions received upon the closing of new investments into certain of our retail funds and fees received upon the closing of real estate investment transactions in our real estate group. In 2005, prior to the outsourcing of our banking operations and the sale of our German banking license in January 2006, other revenues included fees earned from this banking business, such as interest earned from balances available on demand from clients and credit institutions and commissions earned from derivative instruments. In 2006, other revenues decreased 24.0% from 2005, primarily due to lower real estate transaction commissions and reduced transaction commissions following the sale of the German banking license.

Other revenues increased 14.2% in 2005 over 2004, primarily due to the increase in transaction commissions in our real estate group. Real estate transaction fees vary from year to year as properties are bought and sold over the lifecycle of each portfolio.

Third-party distribution, service and advisory fees are passed through to external parties and are presented separately from total revenues to arrive at net revenues. These fees include renewal commissions paid to independent financial advisors for as long as the clients’ assets are invested and are payments for the servicing of the client accounts. Renewal commissions are calculated based upon a percentage of the AUM value. Distribution fees also include the amortization of upfront commissions paid to broker/dealers for sales of fund shares with a contingent deferred sales charge (a charge levied to the investor for client redemption of AUM within a certain contracted period of time). The distribution commissions are amortized over the contractual AUM-retention period. Also included in third-party distribution, service and advisory fees are transfer agency fees that are paid to a third party for transferring shares of a mutual fund or units of a unit trust into the investor’s name. Third-party distribution, service and advisory fees increased 17.1% from 2005 due primarily to increases in renewal commissions, partially offset by declines in third-party distribution fees.

In 2005, third-party distribution, service and advisory fees increased by $73.0 million, due to an increase in trail and renewal commissions driven by higher AUM levels.

Expenses

During 2006 we continued to make progress toward our aspiration of becoming a premier global investment management firm. The company finalized its 2007 operating plan to build on the momentum created by execution against its 2006 strategic objectives. With the exception of variances caused by market movements, foreign exchange fluctuations, acquisitions, and expensing of the 2003 share options (discussed below), the company ended 2006 with $125.0 million in expense savings, $5.0 million ahead of the 2006 expense guidance of $120.0 million.

The main categories of operating expenses are as follows:

These cost categories can be analyzed as a percentage of net revenues and total expenses as follows:

Compensation continues to be the largest component of total operating expenses, accounting for 65.2% of costs for 2006 (2005: 62.5% before the restructuring charge, 2004: 59.5% before the U.S. regulatory settlement). Competitive compensation is critical for the success of the company in attracting and retaining the highest caliber employees. Compensation expenses increased $17.0 million from 2005, due primarily to $84.2 million in incremental non-cash amortization of share-related compensation programs, including a charge of $44.7 million ($0.04 per share, net of tax) taken in the third and fourth quarters relating to the cumulative previously unrecognized cost to the company of performance-based share options granted in 2003 that vested in February 2007. No expense for these options was recorded in 2004 or 2005 as it was not expected in these years that the awards would vest. An increase of $15.5 million in staff bonuses and smaller increases in sales incentive bonuses also contributed to the overall rise in compensation costs. The increases in share-based payment and bonus costs were offset by decreases in base salary and pension costs in 2006, reflecting lower headcount levels.

Compensation expenses in 2005 increased $77.9 million from 2004, with $34.3 million in incremental amortization of share-related compensation programs, $11.8 million related to one-time executive recruiting costs, and the remainder due to staff salaries, bonus and benefit costs.

Marketing expenses include marketing support payments, which are payments made to distributors of certain of our retail products over and above the 12b-1 distribution payments. These fees are contracted separately with each distributor. Marketing expenses also include the cost of direct advertising of our products through trade publications, television and other media. Public relations costs, such as the costs of securing prospective distributors and the marketing of the company’s products through conference or other sponsorship, are also included in marketing costs, as well as the cost of marketing-related employee travel. In 2006, marketing expenses were relatively at versus 2005.

In 2005, marketing expenses increased 8.1% from 2004, largely due to increased advertising in the U.K. and U.S.

Property and office expenses include rent costs for our various leased facilities around the company, depreciation of company-owned property, utilities and other consumable costs. In 2006 these costs decreased 15.8% from 2005, reflecting the reduction in office space around the company.

In 2005 property and office costs decreased $39.0 million from 2004, due to the $37.0 million provision taken in 2004 for unused office space.

Technology and telecommunications costs include expenses related to minor non-capitalized computer equipment, software purchases and related maintenance payments, depreciation of capitalized computer equipment costs, costs related to externally provided computer, record-keeping and portfolio management services, and telephone systems. These costs decreased 11.4% from 2005, driven by decreased levels of software and telephone system purchases and lower hardware depreciation levels stemming from declines in overall hardware purchases.

In 2005 technology and telecommunications costs decreased 6.6% from 2004, driven by the sale of the AMVESCAP Retirement business and generally lower headcount.

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. These costs decreased 11.6% over 2005. In 2006 legal costs, which included a $6.0 million settlement, were offset by a $24.0 million insurance recovery related to market timing litigation in prior years. Professional insurance costs declined in 2006 due to reduced premiums, and general recruitment costs declined in 2006. These declines were partially offset by increases in external consulting costs related to various strategic initiatives.

In 2005 general and administrative expenses increased 4.5% from 2004, primarily due to a $16.6 million goodwill impairment charge recognized in the Private Wealth Management part of our business.

The net operating margin (operating profit divided by net revenues) was 32.5% in 2006, up from 23.0% in 2005 before the restructuring charge. The increase in operating margin reflects the impact of increased revenues and cost controls arising from the restructuring initiatives and other efforts to control costs.

In 2005 the net operating margin decreased to 23.0% from 23.6% in 2004, primarily due to increases in compensation, marketing and general and administrative expenses, partially offset by higher net revenues.

Other non-operating income and expenses include interest income and expense, gains and losses on disposal of property and equipment assets, gains and losses from the disposal of investments, profits of associated companies and foreign exchange gains and losses. In 2006, these net costs decreased 52.2% over 2005 due to realization of gains from our investments in collateralized debt obligations and fund seed money and foreign exchange gains. The decrease in net non-operating costs was partially offset by a decrease in gain on sale of business due to the recognition of a $32.6 million gain on the sale of the AMVESCAP Retirement business in 2005.

In 2005, these net costs increased 33.5% over 2004, due to a capital infusion into our Taiwan bond funds, foreign exchange revaluations, and a loss on the outsourcing of our defined contribution platform in the U.K..

Our subsidiaries operate in several taxing jurisdictions around the world, each with its own statutory income tax rate. As a result, the blended average statutory income tax rate will vary from year to year depending on the mix of the profits and losses of our subsidiaries. The majority of our profits are earned in the U.S., Canada and the U.K. The current U.K. statutory tax rate is 30%, the Canadian statutory tax rate is 36% and the U.S. statutory tax rate can range from 36%-42% depending upon the applicable state tax rate(s).

Our blended average statutory tax rate for 2006 was 33.01%, down from 35.12% in 2005 due to a larger percentage of our profits being taxed at the 30% U.K. tax rate in 2006. In 2005, our blended average statutory tax rate increased to 35.12% from 33.42% in 2004, primarily due to the U.S. having a loss in 2004 as a result of the U.S. regulatory settlement.

Our effective tax rate for 2006 was 35.0%, down from 37.7% in 2005 before the restructuring charge primarily due to the increased profits in the U.K. The effective tax rate was higher than our blended average statutory tax rate due primarily to additional taxes on subsidiary dividends and the write down of previously recognized deferred tax assets. In 2005, our effective tax rate was 37.7% before the restructuring charge which was flat versus 2004 of 37.5% before the U.S. regulatory settlement charge. The effective tax rates were higher than our blended average statutory tax rates in both 2005 and 2004 due primarily to nondeductible tax losses and nondeductible investment write-downs.

In 2006, increases in net deferred tax assets of $71.7 million comprise a deferred tax benefit in the Consolidated Income Statement of $28.3 million less foreign exchange and other reclasses of $5.2 million plus $48.6 million reflected in the Consolidated Statement of Changes in Equity. In 2005, decreases in net deferred tax assets of $6.4 million comprise a deferred tax expense in the Consolidated Income Statement of $17.2 million less foreign exchange and other reclasses of $5.8 million and $5.0 million reflected in the Consolidated Statement of Changes in Equity.

The existing capital structure of the company, together with the cash flow from operations and borrowings under the credit facility, should provide the company with sufficient resources to meet present and future cash needs. We believe that our cash flow from operations and credit facilities, together with our ability to obtain alternative sources of financing, will enable us to meet debt and other obligations as they come due and anticipated future capital requirements.

The ability to consistently generate cash from operations in excess of capital expenditure and dividend requirements is one of our company’s fundamental financial strengths. Operations continue to be financed from retained profits, share capital and borrowings. Our principal uses of cash flow, other than for operating expenses, include dividend payments, capital expenditures, acquisitions, purchase of shares in the open market and investments in certain new investment products.

Cash flows for the years ended December 31, 2006, 2005 and 2004 are summarized as follows:

Operating cash flows are the result of receipts of investment management and other fees generated from AUM offset by operating expenses. Cash flows generated from operating activities in 2006 were $506.7 million, an increase of 17.8% over 2005. The increase was reduced by the decline in customer and counterparty payables, a component of current liabilities, resulting from one depository account sponsored by our banking subsidiary being replaced by an unaffiliated investment fund.

Operating cash flows in 2005 increased 109.4% over 2004 largely the result of payments associated with the U.S. regulatory settlement incurred in 2004.

In our institutional business, we periodically invest in both our collateralized debt obligation structures and our private equity funds, as is customary in the industry. At December 31, 2006, we had $82.5 million (2005: $68.2 million; 2004: $64.7 million) invested in these products and a further $94.6 million (2005: $90.3 million; 2004: $85.3 million) committed to fund our obligations under these programs. We received $13.3 million (2005: $13.4 million; 2004: $0.3 million) in return of capital from such investments. We also make seed investments in affiliated funds to assist in the launch of new funds. During 2006, we invested $88.8 million in new funds and recaptured $45.1 million from redemptions of prior investments.

During the fiscal years ended December 31, 2006, 2005 and 2004, our capital expenditures were $37.7 million, $38.2 million and $51.6 million, respectively. These 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 these costs related to leasehold improvements made to the various buildings and workspaces used in our offices. (See Note 4 to our Consolidated Financial Statements for information on the geographic distribution of capital expenditure.) These projects have been funded with proceeds from our operating cash flows. During the fiscal years ended December 31, 2006, 2005 and 2004, our capital divestitures were not significant relative to our total fixed assets.

The acquisitions of PowerShares and WL Ross & Co. resulted in net cash outflows of $198.8 million in 2006. In 2005, we received net cash inflows of $53.6 million from business dispositions, primarily related to the sale of the retirement business.

Net cash outflow from financing activities of $183.9 million, decreased $103.0 million from 2005, as the increase in net inflows from share issuances and borrowings offset the increase in dividends paid and purchase of shares to meet the requirements of sharebased compensation awards. A summary of shares purchased by month is presented on page 29.

Our practice has been to pay an interim dividend and a final dividend in respect of each financial year. The interim dividend is generally payable in October of each year by resolution of our Board of Directors, and the final dividend is payable after approval of such dividend by our shareholders at the Annual General Meeting in the year following the financial year to which it relates. The declaration, payment and amount of any future dividends will be recommended 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 and overall debt levels. Under the U.K. Companies Act, our ability to declare dividends is restricted to the amount of our distributable profits and reserves, which is the current and retained earnings of the Parent, on an unconsolidated basis. At December 31, 2006, distributable profits and reserves amounted to $537.2 million. See General Shareholders’ Information included elsewhere herein, for further discussion of our dividend policy and taxes applicable to dividends.

Cash dividends on Ordinary Shares are declared in U.S. dollars. The sterling conversion rate is announced on the declaration date as a guide only, with the final conversion rate being set on the dividend record date. Interim dividends are declared upon Board approval and recorded when paid, while the final dividend is declared at the company’s Annual General Meeting of shareholders and is paid at a subsequent date. The default payment for the dividend will be in sterling unless shareholders elect to receive their dividends in U.S. dollars. Therefore, holders of our Ordinary Shares that receive sterling will be exposed to currency fluctuations from the date of declaration of the dividend to the record date. AMVESCAP is exposed to currency risk between the time of the record date and the payment date for dividends paid in sterling.

Prior to the interim dividend declaration for 2006, cash dividends on Ordinary Shares were declared in pounds sterling. Therefore, holders of our American Depositary Shares were exposed to currency fluctuations from the date of declaration of the dividend to the date when the pounds sterling were converted to U.S. dollars by the Depositary for distribution to holders of American Depositary Shares.

Our Board of Directors has recommended a 2006 final dividend of $0.104 per share, resulting in a total dividend of $0.181 per share for 2006. The 2006 final dividend will be paid, subject to approval by shareholders, on May 30, 2007. The ex-dividend date will be April 25, 2007.

The following table sets forth the interim, final and total dividends paid per Ordinary Share in respect of each year indicated and translated into U.S. cents per American Depositary Share:

Our total indebtedness at December 31, 2006 is $1,272.7 million. See Note 19 to the Consolidated Financial Statements for a maturity profile of our total indebtedness. Debt proceeds have been used by the company to form part of the consideration paid for acquisitions and also for the integration of the acquired businesses over time. In December 2004, we issued and sold $500.0 million in new senior notes: $300.0 million of five-year notes with a coupon of 4.5% due in 2009 and $200.0 million of 10-year notes with a coupon of 5.375% due in 2014. Also in December 2004, we completed a tender offer for $320.5 million of our original $400.0 million 6.6% senior notes. In May 2005, we repaid the $79.5 million remaining on these notes. At December 31, 2006, we also had outstanding $300.0 million of our 5.9% notes due 2007 and $350.0 million of our 5.375% notes due 2013. On January 16, 2007, $300.0 million of our 5.9% senior notes matured and was paid using a draw on our credit facility.

On March 31, 2005, we entered into a five-year $900.0 million credit facility with a group of lenders. The company draws and repays its credit facility balances and utilizes the credit facility for working capital and other cash needs. The financial covenants under our credit agreement include a leverage ratio of not greater than 3.25:1.00 (debt/EBITDA, as defined in the credit facility) and an interest coverage ratio of not less than 4.00:1.00 (EBITDA as defined in the credit facility/interest payable for the four consecutive fiscal quarters). The breach of any covenant would result in a default under the credit facility, which could lead to lenders requiring all balances under the credit facility, together with accrued interest and other fees, to be immediately due and payable. 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, transfer assets, merge, make loans and other investments and create liens. The coverage ratios, as defined in our credit facility, were as follows during 2006, 2005 and 2004:

Net debt (total debt less cash and cash equivalents balances, excluding client cash) at December 31, 2006, amounted to $486.5 million, compared with $733.7 million at December 31, 2005. Changes in our net debt position in 2006 are shown below.

We have received credit ratings of A3 and BBB+ from Moody’s and Standard & Poor’s credit rating agencies, respectively. Standard & Poor’s has a “negative” outlook for the rating. Moody’s has a “stable” outlook for the rating. Rating agency concerns focus on two primary issues: our ability to earn our share of industry net inflows in light of inconsistent historical performance and our higher-thanpeer levels of debt. Material deterioration of these factors (among others defined by each rating agency) could result in downgrades to our credit ratings, thereby limiting our ability to generate additional financing or receive mandates. Because credit facility borrowing rates are not tied to credit ratings, and interest rates on outstanding senior notes are fixed, there is no direct correlation between changes in ratings and interest expense of the company. 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.

Financial commitments are as follows (payments due by period):

We generally lease space in the locations where we conduct business, except that we own property at Perpetual Park, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom. Our registered office is located in leased office space at 30 Finsbury Square, London, EC2A 1AG, United Kingdom. Our principal executive offices are located in leased office space at 1360 Peachtree Street N.E., Atlanta, Georgia 30309, U.S.A. We also lease significant office space in the U.S. at 11 Greenway Plaza, Houston, Texas 77046 and 4350 South Monaco Street, Denver, Colorado 80237, and in Canada at 5140 Yonge Street, Toronto, Ontario M2N 6X7. We have not entered into commitments to construct, significantly expand or improve our facilities.

The company maintains approximately $40.0 million in letters of credit from a variety of banks. The letters of credit are generally one-year automatically-renewable facilities and are maintained for various reasons. Approximately $28.7 million of the letters of credit support office lease obligations.

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, 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 with 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.

The company is exposed to liquidity risk through $1,272.7 million in total long-term debt, which the company actively manages by monitoring projected cash flow forecasts, maintaining a committed credit facility, scheduling significant gaps between major debt maturities and engaging external finance sources in regular dialog.

Market risks include both interest rate and foreign currency risks and risks associated with the general securities market. The company is exposed to interest rate risk primarily through its external debt. On December 31, 2006, the interest rates on 89.9% of the company’s borrowings were fixed for an average period of four years. The remainder were floating. As a global investment manager, we are exposed to movements in foreign exchange rates, which impact the income statement. The company has not changed its financial instruments policies in the current year and does not hedge its operational foreign exchange exposures. As a result, the company’s financial statements may be particularly impacted by movements in foreign exchange rates, such as sterling, the Canadian dollar and the Euro compared to the U.S. dollar. The company does not actively manage its currency exposures except as described in Note 29 to the Consolidated Financial Statements, which provides quantitative information about financial instruments and related credit, liquidity, and market risks (interest rate and foreign currency risks) that the company faces.

The company has certain deferred compensation liabilities that fluctuate with the general securities market. These exposures are effectively hedged by assets held by the company.

From time to time, the trustees of the AMVESCAP Global Stock Plan (GSP) and the AMVESCAP Employee Share Option Trust purchase ordinary shares in the open market. These trusts were established to satisfy our obligations to issue ordinary shares under the GSP, and our stock option and other stock-based schemes. During 2006, the company contributed $155.9 million to these trusts, which, in turn, purchased ordinary shares in the amounts and at the average prices specified below. At December 31, 2006, the company owed the trusts $32.3 million for unsettled share purchase transactions.

International Financial Reporting Standards (IFRS)

Effective January 1, 2005, the company began recording its results of operations under IFRS. The date of the transition to IFRS is January 1, 2004; this being the start of the earliest period of comparative information required in the U.K., and accordingly the 2004 comparative period has been restated to apply IFRS on a consistent basis. Prior to this date, the company prepared its consolidated financial statements under U.K. Generally Accepted Accounting Practice (U.K. GAAP).

During 2004, the company carried out a review of IFRS to identify the changes to accounting
policies that were necessary to comply
with the new standards. The most significant changes affecting the company due to the IFRS
transition were:

These changes, along with reconciliations from U.K. GAAP to IFRS, are detailed in the company’s 2005 Annual Report and Form 20-F.

We prepare our financial statements in accordance with IFRS, which differs in certain respects from U.S. GAAP. The principal differences between IFRS and U.S. GAAP, as applied to us, relate to acquisition accounting. Prior to 1998, goodwill was charged directly to other reserves. Upon transition to IFRS, this pre-1998 goodwill was not required to be restated as an asset on the balance sheet, and it will not be included subsequently in determining any profit or loss upon disposal of the acquired entity. Under U.S. GAAP, this pre-1998 goodwill is reflected as an asset. Also upon transition to IFRS, the company ceased amortization of goodwill at the transition date, January 1, 2004. Under U.S. GAAP, the company ceased amortization of goodwill on January 1, 2002, in accordance with U.S. accounting rules. Certain other differences between IFRS and U.S. GAAP exist related to the timing of recording of redundancy and reorganization accruals, acquisition earn-out provisions, pension costs and obligations and certain related tax differences. See Note 32 to our Consolidated Financial Statements for a reconciliation of operating results from IFRS to U.S. GAAP.

Our significant accounting policies are disclosed in Note 1 to our Consolidated Financial Statements. These policies address such matters as accounting for goodwill and investments, revenue recognition, taxation, and share-based payment. Below is a description of certain critical accounting policies that require management to make its best estimates and judgments, which should be read in conjunction with the discussion of risk factors facing the company. (See “Risk Factors” below.)

Revenue is measured at the fair value of consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Revenue is recognized when services have been provided, it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. Revenue represents management, distribution, transfer agent and other fees. Revenue is generally accrued over the period for which the service is provided, or in the case of performance-based management fees, when the contractual performance criteria have been met. Management fee revenues are derived from providing professional expertise to manage client accounts and include fees received from institutional advisory contracts and retail mutual funds, unit trusts, investment companies with variable capital and investment trusts.

Management fees vary in relation to the level of client assets managed, and in certain cases are also based on investment performance. Distribution fees include 12b-1 fees received from certain mutual funds to cover allowable 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. Transfer agent fees are service fees charged to cover the expense of transferring shares of a mutual fund or units of a unit trust into the investor’s name. Other fees include trading fees derived from generally non-recurring security or investment transactions. Distribution fees, service fees and advisory fees that are passed through to external parties are presented separately from total revenues to arrive at Net Revenues on the income statement.

Our revenues would be adversely affected by any reduction in assets under management as a result of either a decline in market value of such assets or continued net outflows, which would reduce the investment management fees we earn. Additionally, our business is dependent on investment advisory agreements that are subject to termination or non-renewal, and our mutual funds and other investors may withdraw their funds at any time. Demand for our mutual fund products may decline. Competitive pressures may force us to reduce or waive temporarily the fees we charge to clients, and changes in the distribution channels on which we depend could reduce our revenues and hinder our growth.

The company has issued equity-settled share-based awards to certain employees, which are measured at fair value at the date of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the company’s estimate of shares that will eventually vest. Fair value is measured by use of a stochastic valuation model. The expected life of sharebased payment awards used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations. In accordance with the transition provisions of IFRS, the company has applied this policy to all grants after November 7, 2002 that were unvested as of January 1, 2005.

Changes in the assumptions used in the stochastic valuation model, as well as changes in the company’s estimates of vesting (including the company’s evaluation of performance conditions associated with certain share-based payment awards and assumptions used in determining award lapse rates) could have a material impact on the share-based payment charge recorded in each year.

After compensation and related costs, our provision for income taxes on our earnings is our largest annual expense. 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 which represent our filing positions with 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. From time to time, we may also provide for estimated liabilities associated with uncertain tax return filing positions that are subject to, or in the process of, being audited by various tax authorities.

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.

Deferred tax liabilities are recognized for taxes that would be payable on the unremitted earnings of the company’s non-U.K. subsidiaries, associates, and joint ventures except where there is no intention to distribute subsidiary earnings in the foreseeable future or for associates and joint ventures where profits cannot be distributed without the consent of the parent company. The temporary difference associated with our investment in Canada for which deferred tax liabilities have not been recognized is estimated to be $600.2 million (2005: $500.0 million). If distributed as a dividend, Canadian withholding tax of 5.0% would be due. Changes to our policy of distributing subsidiary earnings may have a significant effect on our financial condition and results of operation.

Net deferred tax assets have been recognized in the U.S., U.K., and Canada based on management’s belief that operating income and capital gains will, more likely than not, be sufficient to realize the benefits of these assets over time. In the event that actual results differ from these estimates, 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 operation.

Goodwill represents the excess of the cost over the identifiable net assets of businesses acquired and is recorded in the functional currency of the acquired entity. Estimates are used upon acquisition of subsidiaries to initially value goodwill. Goodwill is recognized as an asset and is reviewed for impairment annually. The recoverable amounts of each cash generating unit (the lowest group of identifiable assets that generate independent cash flows) are compared to its carrying amount to determine if impairment results. The recoverable amount of a cash generating unit is the higher of the fair value less costs to sell of the cash generating unit or its value-in-use (VIU).

Transaction data for similar assets within the asset management industry are obtained from an external valuations consultant and are used to assess the fair value less costs to sell as part of the annual goodwill impairment test. Key assumptions made in determining the fair value less costs to sell include an analysis of the purchase prices paid for similar acquisitions in the asset management industry as a multiple of the revenue streams acquired. These key assumptions reflect past acquisition experiences within the company and are applied to the cash generating units to arrive at an estimate of the fair value less costs to sell of the cash generating units. Changes in these assumptions could result in inadequate fair value less costs to sell amounts, which could trigger the need to perform a VIU analysis.

VIU is calculated by first determining the estimate of future cash flows to be generated by the cash generating unit and then applying a discount rate equivalent to the company’s weighted average cost of capital, adjusted for risks specific to the cash generating unit. VIU calculations are based on the cash generating unit’s most recent budgets and (up to) five-year projections. Extrapolations are then made to the projections assuming declining growth rates on cash flow throughout the estimated life of the goodwill. Variances in any of the VIU assumptions could have a significant impact on the amount of goodwill impairment recorded. Any impairment is recognized in the income statement and is not subsequently reversed.

On disposal of a business, the attributable amount of goodwill is included in the determination of profit or loss. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous U.K. GAAP amounts. Prior to 1998, goodwill was charged directly to other reserves. The goodwill has not been restated, and will not be included in determining any subsequent profit or loss on disposal.

No goodwill impairment charge was recorded in 2006; however as a result of the 2005 goodwill impairment review, the company recognized a non-cash goodwill impairment charge of $16.6 million ($10.4 million after tax, or $0.01 per share) related to the Private Wealth Management cash generating unit. The key assumptions used to determine the fair value of the Private Wealth Management cash generating unit included (a) cash flow periods of 20 years; and (b) a discount rate of 12.0%, which was based upon the company’s weighted average cost of capital adjusted for the risks associated with the operations. A variance in the discount rate could have had a significant impact on the amount of the goodwill impairment charge recorded. For example, a 1.0% increase in the discount rate would have caused an increase in the goodwill impairment charge by approximately $31.0 million. A 1.0% decrease in the discount rate would have resulted in no impairment.

The company cannot predict the occurrence of future events that might adversely affect the reported value of goodwill that totaled $5,006.6 million at December 31, 2006. 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 a material negative change in assets under management and related management fees.

All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the company commits to buy or sell the asset. The company has not applied IAS 32, “Financial Instruments: Disclosure and Presentation,” and IAS 39, “Financial Instruments: Recognition and Measurement,” to the 2004 comparative financial statements included herein.

Long-term investments, including partnership investments, are stated at cost less provisions for any impairment in value. Investments held as current assets are stated at the lower of cost or net realizable value. Gains and losses on investments are recorded within other income and expense in the income statement in the period in which they arise.

Investments are initially recognized at fair value, adjusted by transaction costs, and are then classified as fair value through profit and loss (FVTPL), available-for-sale, or held-to-maturity. FVTPL and available-for-sale investments are measured at fair value. FVTPL investments are designated as FVTPL upon initial recognition. Criteria for designating FVTPL investments include evaluating the purpose for holding such investments. Investments held as FVTPL are usually matched with an offsetting FVTPL related liability. Both the FVTPL asset and liability are accounted for and evaluated consistently; otherwise a measurement inconsistency would arise. Criteria for designating investments as available-for-sale include assessing the purpose of holding the investment. If investments cannot be classified as held-to-maturity or FVTPL, then they are included as available-for-sale investments. Gains or losses arising from changes in the fair value of FVTPL investments are included in income, and gains or losses arising from changes in the fair value of available-for-sale investments are recognized in a separate component of equity until the investment is sold or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in income. Held-to-maturity investments are measured at amortized cost, taking into account any discounts or premiums. Gains or losses on held-to-maturity investments are recognized in income when the investments are amortized or impaired. Management applies judgment in the process of applying its accounting policy on investments in selecting the classification of the investment as fair value through profit and loss, available-for-sale or held-to-maturity.

Fair value is determined by reference to an active trading market, using quoted bid prices as of each reporting period end. When a readily as certainable market value does not exist for an investment (such as the company’s collateralized debt obligations) 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, the actual value realized upon the sale of these investments could differ from the current carrying values.

The carrying amounts of assets excluding goodwill are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. At each reporting date, an assessment is made for any indication of impairment. If an indication of impairment exists, and if the recoverable amounts (the higher of the fair value less costs to sell or value-in-use) are estimated to be less than the carrying amounts, then the carrying amounts are reduced to their recoverable amounts, and an impairment charge is recognized immediately. The company uses the fair value less costs to sell in determining recoverable amounts. Where an impairment subsequently reverses, the carrying amounts of the assets and equity are increased to the revised estimate of their recoverable amounts, limited to the original carrying amounts less subsequent amortization or depreciation. Different assumptions related to the net selling price calculation could result in different impairment results.

Transactions in foreign currencies (currencies other than the functional currencies of the operation) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Gains and losses arising on retranslation are included in the income statement, with the exception of differences on foreign currency borrowings that provide an effective designated hedge against a net investment in a foreign entity. These differences are taken directly to equity until the disposal of the net investment, at which time they are recognized in the income statement. In the Parent’s 2005 financial statements, a fair value hedge was utilized to revalue certain foreign currency investments in subsidiaries, allowing the revaluation of these assets to offset the revaluation of external foreign currency debt in the Parent’s income statement.

The presentation currency and the functional currency of the Parent is U.S. dollars. On consolidation, the assets and liabilities of company subsidiary operations whose functional currencies are currencies other than the U.S. dollar (“foreign operations”) are translated at the rates of exchange ruling at the balance sheet date. Income statement figures are translated at the weighted average rates for the year, which approximate actual exchange rates. Exchange differences arising on the translation of foreign operations’ accounts are taken directly to equity. Goodwill and other fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at rates of exchange ruling at the balance sheet date.

The presentation currency of the company changed from sterling to U.S. dollars effective December 8, 2005. The comparative figures have been presented in U.S. dollars applying the exchange rates outlined in Note 31 to the Consolidated Financial Statements, included elsewhere herein. On December 8, 2005, the Parent redenominated its share capital from sterling to U.S. dollars and changed its functional currency from sterling to U.S. dollars. The U.S. dollar more accurately reflects the currency of the underlying operations and financing of the Parent. Since a large number of the company’s subsidiaries are located outside of the United States and have functional currencies that are not the U.S. dollar, fluctuations in these exchange rates to the U.S. dollar may affect our reported financial results from one period to the next. We do not actively manage our exposure to such effects.

Provisions are recognized when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Changes to situations that impact the probability of settlement of provisions, or changes in discount rates, could have an impact on the reported value of a provision and could require adjustment to the balance through the income statement.

IFRS comprise standards and interpretations approved by the International Accounting Standards Board and its predecessors. As of December 31, 2006, all issued IFRS were also adopted by the European Commission, with the exception of IFRS 8, “Operating Segments,” which is effective for periods commencing January 1, 2009, but which is not expected to result in changes to the company’s single-segment approach. IFRS 7, “Financial Instruments: Disclosures,” and the related amendment to IAS 1, “Presentation of Financial Statements, Capital Disclosures,” are effective for periods commencing January 1, 2007. The disclosure requirements of these standards will be reflected in the company’s 2007 Annual Report. During 2006, the International Financial Reporting Interpretations Committee issued several interpretations which are relevant to the company: IFRIC 8, “Scope of IFRS 2”, which has been approved by the European Commission, and IFRIC 10, “Interim Financial Reporting and Impairment,” which has not yet been approved by the European Commission. The issuance of these interpretations did not have a material effect on the company’s financial statements. IFRIC 11, “Group and Treasury Share Transactions,” is effective for periods commencing March 1, 2007, and has provided additional guidance for accounting for share-based payment transactions upon award vesting between the Parent and its subsidiaries. The application of IFRIC 11 will also not have a material impact on the company’s consolidated financial statements.

The company has reflected the implementation of FAS 123(R), “Share-Based Payment” in its reconciliation from IFRS to U.S. GAAP for the year ended December 31, 2006, which requires the recognition in U.S. GAAP net income of a charge for share-based payment plans. Previously, the company’s reconciliation to U.S. GAAP reflected accounting for share-based payment transactions under U.S. Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees,” which resulted in expense recognition under U.S. GAAP related to its share-based payment programs calculated using the intrinsic value method. The company currently accounts for share-based payment programs under IFRS 2, “Share-based payment.” The share-based payment expense recognized in 2006 under U.S. GAAP is the same as the expense recognized under IFRS.

The company adopted FASB 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statement No. 87, 88, 106 and 132(R),” in 2006. FASB 158 requires that the net funded status of defined benefit plans be recognized on the U.S. GAAP balance sheet and that unrecognized net actuarial gains and losses and prior service costs be recorded directly to other comprehensive income. The adoption of FASB 158 resulted in $7.1 million greater defined benefit plan expense under U.S. GAAP than under IFRS, and the recognition of $28.7 million in additional defined benefit obligation under IFRS than under U.S. GAAP.

In June 2006, the FASB issued interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). The interpretation prescribes a consistent recognition threshold and measurement attribute, as well as clear criteria for subsequently recognizing, derecognizing and measuring such tax positions for financial statement purposes. FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48 is effective for the company as of January 1, 2007. The Company is currently assessing the potential impact on its reconciliation from IFRS to U.S. GAAP upon adoption.

FASB 157, “Fair Value Measurements” (FASB 157) and 159, “The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of FASB Statement No. 115” (FASB 159) are effective for the company beginning January 1, 2008. FASB 157 establishes a framework for measuring fair value, and FASB 159 permits companies the choice of measuring certain financial instruments and certain other items at fair value. The company is currently evaluating the impact of these new U.S. GAAP accounting standards but does not expect that their adoption will have a material impact on the company’s reconciliation from IFRS to U.S. GAAP.

Risk Factors

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

Declines in the Market Value of the Assets in the Funds and Accounts Managed. These could be caused by price declines in the securities markets generally or by price declines in the market segments in which those assets are concentrated. Approximately 47.4% of our total assets under management were invested in equity securities and approximately 52.6% were invested in fixed income and other securities at December 31, 2006. The effect of market price declines will be compounded if the funds and accounts managed underperform the applicable market or segment.

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 AMVESCAP focuses; investors taking profits from their investments; poor investment performance of the funds and accounts managed by AMVESCAP; 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. During 2006, we experienced net outflows of approximately $1.4 billion. 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 these lower fee accounts.

Substantially all of our revenues are derived from investment advisory agreements with mutual funds and other separate and private accounts. Investment management contracts are generally terminable upon 30 or fewer days’ notice. With respect to agreements with U.S. mutual funds, these investment advisory agreements may be terminated with notice, or terminated in the event of an “assignment” (as defined in the Investment Company Act of 1940, as amended), and must be renewed annually by the disinterested members of each fund’s board of directors or trustees, as required by law. In addition, the board of trustees or directors of certain other funds accounts of AMVESCAP or our subsidiaries generally may terminate these investment advisory agreements upon written notice for any reason. Mutual fund and unit trust investors may generally withdraw their funds at any time without prior notice. Institutional clients may elect to terminate their relationships with us or reduce the aggregate amount of assets under our management, and individual clients may elect to close their accounts, redeem their shares in our funds, or shift their funds to other types of accounts with different rate structures. Any termination of or failure to renew a significant number of these agreements, or any other loss of a significant number of our clients or assets under management, would adversely affect our revenues and profitability.

In late 2005 we embarked upon a multi-year program designed to strategically realign our resources as an integrated global investment manager. This initiative, which is a key component of our global business strategy, will include increasing efficiency through a disciplined approach to employee staffing and compensation, discretionary spending and facilities management, transitioning to a functionalized enterprise support model (whereby our finance, human resources and legal and compliance functions are managed on a global departmental basis), and moving to a low cost operational processing and information technology structure. We are also taking steps to realign our management structures in order to focus on the core elements of our global business. We may encounter difficulties, delays or unexpected costs in connection with these initiatives, which could result in our not realizing the anticipated benefits or in our incurring additional unbudgeted costs or experiencing lost opportunities. Further, we cannot predict whether we will realize expected benefits and improved operating performance as a result of any strategic realignment or streamlining of operations. We also cannot predict whether any such measures will adversely affect our ability to retain key employees, which in turn could adversely affect our operating results. In addition, we are subject to the risk of business disruption in connection with our initiatives, which could have a material adverse effect on our business, financial condition and operating results.

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

Our subsidiaries are subject to regulatory capital requirements in most jurisdictions where we operate. There have been recent changes to regulatory capital requirements applying to investment firms operating within the EEA. After consultation with the UK Financial Services Authority (FSA), it has been determined that, for the purposes of prudential supervision, AMVESCAP PLC is not subject to regulatory consolidated capital requirements under current European Union Directives. A sub-group, however, including all of our EU subsidiaries, is subject to these consolidated capital requirements, and capital is maintained within this sub-group to satisfy these regulations. Complying with our regulatory commitments may result in an increase in the capital requirements applicable

to the European sub-group. As a result of corporate restructuring and the regulatory undertakings that we have given, certain of these EU subsidiaries may be required to limit their distributions. We cannot assure you that further corporate restructuring will not be required to comply with applicable legislation.

Regulatory and legislative actions and reforms may significantly increase our costs of doing business and/or negatively affect our revenues.

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.

AMVESCAP and certain related entities are subject to various legal proceedings arising from normal business operations and/or matters that have been the subject of previous regulatory actions. We have been named in civil lawsuits relating to a variety of issues, including but not limited to the previously-settled market timing investigations. AMVESCAP cannot predict the outcome of any of these actions with certainty but is vigorously defending them. Although there can be no assurances, at this time management believes, based on information currently available, 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 of the company. Nonetheless, the lawsuits and investigations described in Note 28 to the Consolidated Financial Statements may adversely affect investor and/or client confidence, which could result in a decline in our assets under management. Any such decline in assets under management would have an adverse effect on future financial results and our ability to grow the business.

Additional lawsuits or regulatory enforcement actions may in the future be filed against AMVESCAP and related entities and individuals in the U.S. and other jurisdictions in which we operate. Any such future lawsuits or regulatory enforcement actions could result in a decline in assets under management, increase costs and negatively affect our profitability and future financial results.

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 level of the markets has continued to rise and 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. The departure of a manager could cause the loss of client accounts, which could have a material adverse effect on the results of operations and financial condition of AMVESCAP. Our policy has been to provide our investment management professionals with compensation and benefits that we believe are competitive with other leading investment management firms. However, we may not be successful in retaining our key personnel, and the loss of a significant portion, either in quality or quantity, of our investment management personnel could reduce the attractiveness of our products to potential and current clients and could, therefore, have a material adverse effect on our revenues and profitability.

The investment management business is highly competitive, and we compete based on a variety of factors, including investment performance, the range of products offered, brand recognition, business reputation, financing strength, the strength and continuity of institutional management and producer relationships, quality of service, the 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 compete in every market in which we operate with a large number of investment management firms, commercial banks, investment banks, broker-dealers, insurance companies and other financial institutions. Some of these institutions have greater capital and other resources, and offer more comprehensive lines of products and services, than we do. The recent trend toward consolidation within the investment management industry has served to increase the strength of a number of our competitors. These strengthened competitors seek to expand their market share in many of the products and services we offer. If these competitors are successful, our profitability would 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 lines of business around the world, including major banks, insurance companies and other financial institutions, have also resulted in increased competition.

We have a significant amount of indebtedness. As of December 31, 2006, we had outstanding total long-term debt of $1,272.2 million, net debt of $486.5 million and shareholders’ funds of $4,275.1 million. The significant amount of indebtedness we carry could limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, increase our vulnerability to adverse economic and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business or industry, and place us at a disadvantage in relation to our competitors that have lower debt levels. Any or all of the above factors could materially adversely affect our financial position.

In 2005 we entered into a new five-year revolving credit facility. Our 2005 credit facility requires us to maintain specified financial ratios, including maximum debt-to-earnings and minimum interest coverage ratios. This credit facility also contains customary affirmative operating covenants and negative covenants that, among other things, restrict certain of our subsidiaries’ ability to incur debt and restrict our ability to transfer assets, merge, make loans and other investments and create liens. The breach of any covenant would result in a default under the credit facility. In the event of any such default, lenders that are party to the credit facility could refuse to make further extensions of credit to us and require all amounts borrowed under the credit facility, together with accrued interest and other fees, to be immediately due and payable. If any indebtedness under the credit facility were to be accelerated, we might not have sufficient liquid assets to repay such indebtedness in full.

We sell a portion of our investment products through a variety of financial intermediaries, including major wire houses, regional broker-dealers, banks and financial planners in North America, and independent brokers and financial advisors, banks and financial organizations in Europe and Asia. Increasing competition for these distribution channels could cause our distribution costs to rise, which would lower our net revenues. Additionally, certain of the intermediaries upon whom we rely to distribute our investment products also sell their own competing proprietary funds and investment products, which could limit the distribution of our products. In addition, some investors rely on third-party financial planners, registered investment advisers, and other consultants or financial professionals to advise them on the choice of investment adviser and investment portfolio. These professionals and consultants could favor a competing investment portfolio as better meeting their particular client’s needs. We cannot assure you that our investment products will be among their recommended choices in the future. Further, their recommendations could change over time and we could lose their recommendation and the related client assets under management. Additionally, if one of our major distributors were to cease operations, it could have a significant adverse effect on our revenues and earnings. Moreover, any failure to maintain strong business relationships with these distribution sources would impair our ability to sell our products, which could have a negative effect on our level of assets under management, related revenues and overall business and financial condition.

We maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations as part of our regular operations. Our systems could be attacked by unauthorized users or corrupted by computer viruses or other

malicious software code, or authorized persons could inadvertently or intentionally release confidential or proprietary information.

Such disclosure could, among other things:

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

The majority of our net assets, revenues and expenses, as well as our assets under management, are presently derived from the United States. However, we have a large number of subsidiaries outside of the United States whose functional currencies are not the U.S. dollar. As a result, fluctuations in the exchange rates to the U.S. dollar may affect our reported financial results from one period to the next. We do not actively manage our exposure to such effects. Consequently, changes in exchange rates to the U.S. dollar could have a material negative impact on our reported financial results.

Cash dividends on Ordinary Shares were historically declared in sterling; we now declare dividends in U.S. dollars. Therefore, although interim dividends are declared upon Board approval and recorded when paid, holders of our ordinary shares who continue to receive final dividend payments in sterling will be exposed to currency fluctuations from the date of declaration of the dividend to the date when U.S. dollars are converted to sterling for distribution to such holders.

We have goodwill on our balance sheet that is subject to an annual impairment review. Goodwill totaled $5,006.6 million at December 31, 2006. We may not realize the value of such goodwill. We perform impairment reviews of the book values of goodwill on an annual basis. A variety of factors could cause such book values to become impaired. Should valuations be deemed to be impaired, a writedown of the related asset would occur, adversely affecting our results of operations for the period.

The following table identifies our current directors.

Note: Country listed denotes citizenship.

Rex Adams became chairman of the company on April 27, 2006. He has served as a non-executive director of our company since November 2001 and as chairman of the Nomination and Corporate Governance Committee since January 2007. Mr. Adams was dean of the Fuqua School of Business at Duke University from 1996 to 2001 following a 30-year career with Mobil Corporation. He joined Mobil International in London in 1965 and served as vice president of administration for Mobil Corporation from 1988 to 1996. Mr. Adams received a B.A. magna cum laude from Duke University. He was selected as a Rhodes Scholar in 1962 and studied at Merton College, Oxford University. Mr. Adams serves on the Board of Directors of Alleghany Corporation and formerly served as chairman of the Public Broadcasting Service (PBS) and a trustee of Duke University.

Sir John Banham (66) Non-Executive Director (U.K.) ^(a,b,c)

Sir John Banham has served as a non-executive director of our company since 1999 and as chairman of the Remuneration Committee since January 2007. Sir John was director general of the Confederation of British Industry from 1987 to 1992, a director of National Power and National Westminster Bank from 1992 to 1998, chairman of Tarmac PLC from 1994 to 2000, chairman of Kingfisher PLC from 1995 to 2001, chairman of Whitbread PLC from 2000 to 2005 and chairman of Geest plc from 2002 to 2005. He is currently the chairman of Johnson Matthey plc and Spacelabs Healthcare Inc. Sir John is a graduate of Cambridge University and has been awarded honorary doctorates by four leading U.K. universities.

Joseph Canion has served as a non-executive director of our company since 1997 and was a director of AIM Investments from 1991 to 1997, when AIM merged with INVESCO. Mr. Canion has been a leading figure in the technology industry after co-founding Compaq Computer Corporation in 1982 and serving as its chief executive officer from 1982 to 1991. He also founded Insource Technology Group in 1992 and continues to serve as its chairman. Mr. Canion received a B.S. and M.S. in electrical engineering from the University of Houston. He is chairman of Questia Media, Inc. and of Insource Technology Corp., and is on the board of directors of BlueArc Corporation, ChaCha Search, Inc. and the Houston Technology Center.

Martin L. Flanagan is president and chief executive officer of AMVESCAP, a position he has held since August 2005. He is also a member of the Board of Directors of AMVESCAP and a trustee of the AIM Family of Funds. Mr. Flanagan joined AMVESCAP from Franklin Resources, Inc., where he was president and co-chief executive officer from January 2004 to July 2005. Previously he had been Franklin’s co-president from May 2003 to January 2004, chief operating officer and chief financial officer from November 1999 to May 2003, and senior vice president and chief financial officer from 1993 until November 1999. Mr. Flanagan served as director, executive vice president and chief operating officer of Templeton, Galbraith & Hansberger, Ltd. before its acquisition by Franklin in 1992. Before joining Templeton in 1983, he worked with Arthur Andersen & Co. Mr. Flanagan received a B.A. and BBA from Southern Methodist University (SMU). He is a chartered financial analyst and certified public accountant. He is chairman of the Investment Company Institute. He also serves as a member of the executive board at the SMU Cox School of Business and a member of the Board of Councilors of the Carter Center in Atlanta.

Robert Graham has served as vice chairman of the Board of Directors of our company since February 2001, a director of our company since 1997, and as chief executive officer of the managed products business from 1997 to 2001. Mr. Graham co-founded AIM Investments in 1976. Mr. Graham received a B.S., an M.S. and an MBA from the University of Texas at Austin and has been in the investment business since 1972. He has served as a member of the Board of Governors and the Executive Committee of the Investment Company Institute and currently serves as chairman of ICI Mutual Insurance Company.

Denis Kessler has served as a non-executive director of our company since March 2002. A noted economist, Mr. Kessler is chairman and chief executive officer of SCOR. He is chairman of the Boards of Directors of SCOR U.S. Corporation, SCOR LIFE U.S. Re Insurance Company and SCOR Reinsurance Company, and serves as a member of the Boards of Directors of Dexia SA, BNP Paribas SA, Bollore Investissement SA, Dassault Aviation and Cogedim SAS. Mr. Kessler received a diplôme from the Paris Business School (HEC) and Doctorat d’État in economics from the University of Paris.

Edward Lawrence has served as a non-executive director of our company since October 2004. He is a partner at Ropes & Gray, a Boston law firm, where he also heads the investment committee of the firm’s trust department. Mr. Lawrence is a graduate of Harvard College and earned a J.D. from Columbia University Law School. He serves on the Board of the Attorneys’ Liability Assurance Society, Ltd., is chairman of the Board of the Massachusetts General Hospital and is a trustee of Partners Healthcare System, Inc. in Boston and McLean Hospital in Belmont, MA.

Thomas Presby has served as a non-executive director of our company since November 2005 and as chairman of the Audit Committee since April 2006. Prior to his retirement in 2002, Mr. Presby was deputy chairman and chief operating officer with Deloitte Touche Tohmatsu. He is presently a director of Tiffany & Co., TurboChef Technologies, Inc., World Fuel Services, American Eagle Outfitters, First Solar, Inc. and The German Marshall Fund of the USA. He received a B.S. in electrical engineering from Rutgers and an M.S. in industrial administration from Carnegie Mellon University Graduate School of Business. Mr. Presby is a certified public accountant.

James Robertson has served as a member of the Board of Directors of our company since April 2004. He was chief financial officer from April 2004 to October 2005. Mr. Robertson joined our company as director of finance and corporate development for INVESCO’s Global division in 1993 and repeated this role for the Pacific division in 1995. Mr. Robertson became managing director of global strategic planning in 1996 and served as chief executive officer of AMVESCAP Group Services, Inc. from 2001 to 2005. He holds an M.A. from Cambridge University and is a member of the Institute of Chartered Accountants in England and Wales.

In addition to Messrs. Flanagan, Graham, and Robertson, the following table identifies our current members of senior management.*

Note: Country listed denotes citizenship.

Mark Armour has served as senior managing director and head of AMVESCAP’s Worldwide Institutional business since January 2007. Most recently, Mr. Armour served as head of sales & service for the institutional business. He was appointed chief executive officer of INVESCO Australia in September 2002. Prior to joining INVESCO, Mr. Armour held significant leadership roles in the funds management business in both Australia and Hong Kong. He previously served as chief investment officer for ANZ Investments and spent almost 20 years with the National Mutual/AXA Australia Group, where he was chief executive, Funds Management, from 1998 to 2000. Mr. Armour received a bachelor of economics (honors) from La Trobe University in Melbourne, Australia.

Kevin Carome has served as general counsel of our company since January 2006. Previously, he was senior vice president and general counsel of A I M Management Group Inc. from 2003 to 2005. Prior to joining AIM, Mr. Carome worked with Liberty Financial Companies, Inc. (LFC) in Boston where he was senior vice president and general counsel from August 2000 through December 2001. He joined LFC in 1993 as associate general counsel and, from 1998 through 2000, was general counsel of certain of its investment management subsidiaries. Mr. Carome began his career as an associate at Ropes & Gray in Boston. He received a B.S. in political science and a J.D. from Boston College.

Jack Markwalter has served as chief executive officer and president of Atlantic Trust, our private wealth management business, since January 2004. He joined Atlantic Trust as head of business development in 2002 and has 20 years of experience in private wealth management, having previously worked at Morgan Stanley since 1986. Mr. Markwalter received a B.S. with highest honors from Georgia Institute of Technology and an MBA from Harvard Business School. Among numerous areas of community involvement, Mr. Markwalter serves on the Board of Trustees for the Georgia Tech Foundation, the Board of Trustees for Pace Academy and the Board of Directors for St. Joseph’s Hospital Mercy Foundation.

Colin Meadows joined our company as chief administrative officer in May 2006, with responsibility for business strategy, human resources, communications, facilities and internal audit. Mr. Meadows came to AMVESCAP from GE Consumer Finance where he was senior vice president of business development and mergers & acquisitions. Prior to that role, he served as senior vice president of strategic planning and technology at Wells Fargo Bank. From 1996 to 2003, Mr. Meadows was an associate principal with McKinsey & Company, focusing on the financial services and venture capital industries, with an emphasis in the banking and asset management sectors. Mr. Meadows received a B.A. cum laude in economics and English literature from Andrews University and a J.D. from Harvard Law School.

Loren Starr has served as senior vice president and chief financial officer of our company since October 2005. Previously, he served from 2001 to 2005 as senior vice president and chief financial officer of Janus Capital Group Inc., after working as head of corporate finance from 1998 to 2001 at Putnam Investments. Prior to these positions, Mr. Starr held senior corporate finance roles with Lehman Brothers and Morgan Stanley & Co. He received a B.A. in chemistry and B.S. in industrial engineering, summa cum laude, from Columbia University, as well as an MBA, also from Columbia, and M.S. in operations research from Carnegie Mellon University. Mr. Starr is a certified treasury professional and serves as chairman of the Association for Financial Professionals.

Philip Taylor has served as chief executive officer of AIM Trimark Investments since January 2002, also becoming chief executive officer of AIM Investments in April 2006, to head AMVESCAP’s North American Retail business. Mr. Taylor also heads the global shareholder servicing (transfer agency) operations. He joined AIM Trimark in 1999 as senior vice president of operations and client services and later became executive vice president and chief operating officer. Mr. Taylor was president of Canadian retail broker Investors Group Securities from 1994 to 1997 and managing partner of Meridian Securities, an execution and clearing broker, from 1989 to 1994. He held various management positions with Royal Trust, now part of Royal Bank of Canada, from 1982 to 1989. Mr. Taylor began his career in consumer brand management in the U.S. and Canada with Richardson-Vicks, now part of Procter & Gamble. He received an Honors B. Comm. degree from Carleton University and an MBA from the Schulich School of Business at York University.

Bob Yerbury has served Invesco Perpetual as chief executive officer since September 2004 and as chief investment officer since October 1997. He began his investment career in 1969, initially as an analyst and later fund manager for Equity & Law Life Assurance Society, and joined our company in 1983. Mr. Yerbury has over 36 years of investment experience, holds an M.A. in mathematics from Cambridge University and is a Fellow of the Institute of Actuaries.

The directors present their annual report and the audited financial statements for the year ended December 31, 2006.

AMVESCAP’s principal activity is asset management. The principal subsidiaries of the Parent are identified in the Company Directory. The business review is included in the “Letter to Shareholders” and the sections entitled “Business Overview” and “Financial Overview.” The financial risk management objectives and policies of the company are included in the “Financial Overview — Liquidity and Capital Resources” section and in Notes 1 and 29 to the Consolidated Financial Statements, which include disclosures related to the exposure of the company to credit, liquidity and market risks. A description of the principal risks and uncertainties facing the company is provided in the “Financial Overview — Risk Factors” section. References throughout this report to the company’s Web site refer to www.amvescap.com (company Web site).

AMVESCAP’s results for the year are shown in the Consolidated Income Statement included elsewhere herein. The business is a going concern. An interim ordinary dividend of $0.077 per ordinary share was paid on October 11, 2006, and a final ordinary dividend of $0.104 per ordinary share will be submitted for the approval of shareholders at the Annual General Meeting to be held on May 23, 2007. If approved, this dividend will be paid on May 30, 2007, to shareholders on the register as of April 27, 2007, which is the record date.

The company negotiates payment terms individually with suppliers. The Parent itself has no trade creditors, and creditor days disclosures are not applicable.

See the section entitled “Shareholder Information — Major Shareholders.” The authority granted by shareholders, approved at the 2006 AGM, to purchase up to a maximum of 82.0 million ordinary shares remained valid at December 31, 2006.

During the year, AMVESCAP’s subsidiaries and their employees contributed to numerous charities. The company made charitable donations of $1.3 million during 2006 (2005: $1.8 million). Among these, U.K. entities within the company made charitable donations of $0.2 million in 2006 and 2005. In addition, AMVESCAP employees volunteered their time to many charitable organizations during the year, and several subsidiaries sponsored local charitable events in support of educational, civic and cultural activities. No political donations were made by the company during 2006, as it is our policy not to make political donations in any country.

The biographies for the current directors are included elsewhere herein. Mr. Charles Brady did not seek re-election to the Board and stepped down on April 27, 2006. Mr. Bevis Longstreth and Dr. Thomas Fischer retired from the board on April 27, 2006. Mr. John Rogers resigned from the board on January 12, 2007. A resolution will be proposed to shareholders at the 2007 Annual General Meeting to re-elect Messrs. Canion, Robertson and Lawrence as members of the Board. Directors’ share interests are outlined in the Remuneration Report. Full details of the directors who are retiring from the Board and those who are subject to election are contained in the separate Notice of Annual General Meeting that is being distributed to shareholders with this report. During 2006, the company purchased and maintained directors’ and officers’ liability insurance as permitted by Section 233 of the Companies Act 2006.

A separate circular has been sent to shareholders containing the Notice of Annual General Meeting for 2007 and the business to be proposed thereat. The Annual General Meeting will be held on May 23, 2007, at 11:00 a.m., at Perpetual Park, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom.

A resolution to reappoint Ernst & Young LLP as auditors will be proposed for a vote of the shareholders at the Annual General Meeting.

Directors’ Statement as to Disclosure of Information to Auditors

The directors who were members of the board at the time of approving the directors’ report are listed on page 40.

The directors are aware of various measures the company’s management takes in an effort to ensure that the auditors are made aware of relevant financial information. The directors also oversee the company’s management structure and are aware of the company’s overall reporting structure and related financial and disclosure controls. Furthermore, the Board’s audit committee meets regularly with the auditors and has received a presentation from the auditors regarding their audit. Based upon the foregoing, and having made enquiries of fellow directors and of the company’s auditors, each of the directors confirms that:

This confirmation is given and should be interpreted in accordance with the provisions of Schedule 234ZA of the Companies Act 1985.

By Order of the Board
Michael S. Perman, FCIS
Company Secretary
March 23, 2007

Statement of Corporate Governance Policy

The Board seeks to maintain the highest standards of integrity and accountability in the stewardship of the company’s affairs and recognizes that proper and effective corporate governance is important to shareholders and other stakeholders. The Board has approved and adopted a set of Corporate Governance Guidelines (Guidelines), Terms of Reference for our chairman and chief executive officer, and charters for the Board’s Audit Committee, Nomination and Corporate Governance Committee and Remuneration Committee. Each of these documents is available on our Web site (www.amvescap.com).

The Company’s ordinary shares are listed in the U.K. on the London Stock Exchange. As a result, the company is required to make disclosure concerning its application of the principles of, and compliance with the provisions of, the revised U.K. Combined Code on corporate governance (the “Combined Code”). The Board believes that the company complies substantially with the Combined Code, and the manner in which we comply with the individual principles thereof is set forth in this section of our Annual Report.

Our ordinary shares are also listed on the NYSE in the form of American Depositary Shares. Where required by the SEC or NYSE, the company (as a “foreign private issuer”) has also adopted the corporate governance requirements of the Sarbanes-Oxley Act of 2002. Although as a foreign private issuer the Company is permitted to follow U.K. practice in lieu of most of the corporate governance rules of the NYSE, we are nevertheless required to disclose any significant ways in which our corporate governance practices differ from those followed by NYSE-listed U.S. companies. These differences are disclosed on our Web site.

Composition. The Board consists of three executive and six non-executive directors at March 23, 2007. (The terms “non-executive” and “independent” are used interchangeably throughout this report to refer to non-executive members of our Board.) The Guidelines require that a majority of directors be “independent,” as that term is defined in each of the Combined Code, the Listing Rules and Disclosure Rules issued by the U.K. Financial Services Authority and the listing standards of the NYSE (Applicable Standards). In addition, at least three directors must also satisfy the additional independence requirements for audit committee members under the Applicable Standards. The Board periodically evaluates the size of the Board and makes any changes it deems appropriate in accordance with the Memorandum of Association and Articles of Association of the company (collectively, the “Articles”).

The Board does not believe that it should establish term limits for its members. The Board recognizes the value of continuity of directors who have experience with the company that enables them to make a significant contribution to the deliberations of the Board without, in the case of non-executive Board members, any ongoing impairment to their independence. The Guidelines nevertheless provide that director candidates are not eligible to be recommended for a term commencing on or after their 72nd birthday, and that incumbent directors will stand for re-election annually once they reach the age of 70.

Responsibilities. The Board is elected by the shareholders to oversee management and to ensure that the long-term interests of the shareholders are being served. As such, the Board provides general oversight of management and also performs a number of specific functions, including:

The Board also periodically reviews with management the company’s long-term strategic plans. The Board oversees succession planning for the management of the company, including policies for the selection and performance review of the chief executive officer.

The Board and each of its committees has full access to the company’s independent advisors and has the power to retain legal, accounting, financial or other advisors as it deems appropriate at the expense of the company, without the need to obtain the prior approval of any officer of the company. The Board is supplied with appropriate information to allow it to perform its duties, and it receives briefings on its responsibilities.

Meetings. The Board currently meets in person at least five times per year and holds additional meetings as circumstances require. Where appropriate, the Board and its committees also hold meetings by telephone conference call. Meetings of the Audit Committee, the Nomination and Corporate Governance Committee and the Remuneration Committee are held at least four times per year, usually in conjunction with regularly scheduled Board meetings. The Audit Committee also holds meetings by telephone conference call in order to review the company’s quarterly earnings announcements in advance of their publication.

The Company Secretary maintains a record of the number of Board and Board committee meetings and of director attendance. The 2006 attendance record for all Board meetings and meetings of the Audit, Remuneration and Nomination and Corporate Governance Committees (including specially-convened meetings) is set forth in the table below (in each case during such individual’s Board or committee tenure).

Directors are required to seek re-election by shareholders in the third calendar year following the year in which they were elected or last re-elected. Directors generally stand for election upon the recommendation of the Board, although our Articles provide that shareholders may nominate individuals for Board membership in certain circumstances.

The Board regularly reviews financial statements and forecasts to ensure that a going-concern basis for their preparation is appropriate. The Board’s assessment of the company’s position as of December 31, 2006 is set out in the “Letter to Shareholders” and the sections entitled “Business Overview” and “Financial Overview.”

Non-Executive Directors. The Board is composed of a majority of non-executive directors who bring strong, independent judgment, knowledge and experience to its deliberations. In the opinion of the Board and each of the independent directors, this structure, and the policies and practices described herein, ensure that a sufficient balance of power and authority exists within the company. The Board has identified Sir John Banham as the senior independent director available for communications from shareholders directly with our Board.

Non-executive directors serve pursuant to letters of appointment which set out the terms and conditions of their appointment and their expected time commitment. Appointments of non-executive directors are terminable by three months’ notice by either the company or the director. Copies of these letters of appointment are available for inspection at the Annual General Meeting and, upon request, during normal business hours. In addition, the form of non-executive directors’ letter of appointment is contained in an exhibit to our Form 20-F, as filed with the SEC.

Although the company permits non-executive directors to serve on the Board beyond their 70th birthday, any director (whether executive or non-executive) over the age of 70 years is required to stand for re-election on an annual basis. It is the policy of the Board that directors should retire at the next Annual General Meeting following their having attained the age of 72 years.

It is the Board’s policy that non-executive directors have no ongoing direct financial or contractual interests in the company other than their fees and shareholdings as disclosed in this report. The Board has determined that each non-executive director is “independent” of the company under the definitions contained in the Applicable Standards. The Board made this determination based upon its consideration of all facts and circumstances known to it, including the responses of nonexecutive directors to a questionnaire. The Board has also determined that, notwithstanding Mr. Presby’s simultaneous service on the audit committees of more than three public companies, his service on our Audit Committee is not impaired. In this connection, the Board considered the fact that board service constitutes substantially all of Mr. Presby’s current professional and business activities. Mr. Canion has served on the Board for more than nine years, however it is the opinion of the Nomination and Corporate Governance Committee and of the Board that he continues to be independent from management and that there are no relationships or circumstances which could affect, or appear to affect, his judgment.

Executive Directors. Executive directors (other than Mr. Flanagan) are employed under continuing contracts of employment that can be terminated by either party under notice provisions of up to one year.

Upon the appointment of Mr. Flanagan as chief executive officer on August 1, 2005, the roles of chairman and chief executive officer were separated. The Terms of Reference for each of the chairman and chief executive officer are available on our Web site. Mr. Adams, our Chairman, is a director of one other public company, but otherwise has no significant commitments beyond those relating to the business of the company.

The Board delegates specific responsibilities to its Audit Committee, Remuneration Committee and Nomination and Corporate Governance Committee. All members of the Audit and Remuneration Committees, and a majority of the members of the Nomination and Corporate Governance Committee, are “independent” directors as defined in the Applicable Standards. The charters of each committee were revised by the Board on March 23, 2007. They are summarized below, and the full texts are available on our Web site. Each committee meets on a regular basis, but not less frequently than quarterly, and holds special meetings as circumstances require.

Audit Committee. The Audit Committee is chaired by Mr. Presby and consists additionally of Messrs. Adams, Banham, Kessler and Lawrence. This committee is responsible for assisting the Board in fulfilling its responsibility to oversee the company’s financial reporting, auditing and internal control activities, including the integrity of the company’s financial statements, compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence and the performance of the company’s internal audit function and

Annual Report 2006           47

independent auditor. The committee is responsible for making recommendations to the Board regarding appointment of the independent auditor and pre-approval of its engagement to provide any audit or permitted non-audit services under agreed policies and procedures. The committee is also responsible for establishing hiring policies for current or former employees of its independent auditor. It annually reviews the independent auditor’s report and evaluates its qualifications, performance and independence. The committee is also responsible for monitoring and reviewing the effectiveness of the company’s internal audit function. In connection with financial reporting, the committee is responsible for reviewing and discussing with management and the independent auditor (i) the company’s audited financial statements and related disclosures, (ii) its earnings press releases, (iii) its critical accounting policies, (iv) the quality and adequacy of its internal controls over financial reporting, disclosure controls and procedures, and accounting procedures, (v) any audit problems or difficulties, and (vi) procedures with respect to enterprise risk assessment and management. Finally, the committee is responsible for assisting the Board in overseeing the company’s legal and regulatory compliance.

The Audit Committee charter describes the authority and responsibilities of the committee, which are summarized immediately above. The committee is comprised of at least three members of the Board, each of whom is “independent” of the company under the Applicable Standards and is also “financially literate.” At least one member must have recent and relevant financial experience. Committee members are appointed and removed by the Board. The committee is required to meet at least quarterly, and also periodically meets with the Director of Internal Audit and the independent auditor in separate executive sessions without members of senior management present. The committee has the authority to retain independent advisors, at the company’s expense, wherever it deems appropriate to fulfill its duties. It reports to the Board regularly and annually reviews its own performance and the terms of its charter and recommends any proposed changes to the Board.

The Audit Committee approves all non-audit services rendered by the independent auditors only after concluding that performance of such service by the auditor will not impair the auditor’s independence and will serve the company’s interests better than performance of such service by other providers. The Audit Committee ensures that such services are consistent with applicable national rules on auditor independence.

The Board has determined that Mr. Presby is an “audit committee financial expert” (as defined under the SEC’s rules and regulations), that he has “accounting or related financial management expertise” and that he is “independent” of the company under the Applicable Standards.

Remuneration Committee. The Remuneration Committee is chaired by Sir John Banham and consists additionally of Messrs. Adams, Kessler and Lawrence. This committee is responsible for annually evaluating the performance of the chief executive officer and approving the corporate goals relevant to, and determining the amount of, his or her compensation. The committee also reviews and makes recommendations to the Board concerning the company’s overall remuneration philosophy. It further annually approves the remuneration structure for, and the remuneration of, senior officers, and it oversees management’s decisions concerning their performance. It further oversees the company’s equity-based and other incentive remuneration plans, assists the Board with executive succession planning, and determines the remuneration, including deferred remuneration arrangements, for the company’s nonexecutive directors. The committee is also responsible for preparing a remuneration report containing all required public disclosures regarding director and management remuneration and share ownership.

The committee is comprised of at least three members of the Board, each of whom is “independent” of the company under the Applicable Standards. Committee members are appointed and removed by the Board. The committee is required to meet at least quarterly. It also has the authority to retain independent advisors, at the company’s expense, wherever it deems appropriate to fulfill its duties, including any remuneration consulting firm.

Nomination and Corporate Governance Committee. The Nomination and Corporate Governance Committee is chaired by Mr. Adams and consists additionally of the chief executive officer, Mr. Flanagan, as well as Messrs. Banham, Canion, Kessler, Lawrence and Presby. The committee is responsible for establishing a policy setting forth the specific, minimum qualifications that the committee believes must be met by a nominee recommended for a position on the Board, and describing any specific qualities or skills that the committee believes are necessary for one or more of the directors to possess. Such qualifications shall include the requirements under the Applicable Standards as well as consideration of the individual skills, experience and perspectives that will help create an effective Board. The committee is responsible for establishing procedures for identifying and evaluating potential nominees for directors and for recommending to the Board potential nominees for election. Candidates for election to the Board are considered in light of their background and experience using the extensive personal knowledge of current directors or through the recommendations of various advisors to the company. The committee is also required to periodically review and reassess the adequacy of the Guidelines to determine whether any changes are appropriate and recommend any such changes to the Board for its approval.

The Guidelines require the Board, with the assistance of its Nomination and Corporate Governance Committee, to annually review its own performance to determine whether the Board and its committees are functioning effectively. Such an evaluation was conducted by the senior independent director, Sir John Banham, who utilized the services of outside legal advisors to the company to conduct confidential interviews with each director. The resulting report was considered by the Nomination and Corporate Governance Committee at their meeting in March 2007, and this committee has made recommendations to the Board. As part of the evaluation process, the committee considered the performance, including time commitments, of each individual director.