FAIR VALUE OF ASSETS AND LIABILITIES

The carrying value and fair value of financial instruments is presented in the summary table below. The fair value of financial instruments held by consolidated investment products is presented in Note 11, “Consolidated Investment Products.”



	June 30, 2012					December 31, 2011
$ in millions	Footnote Reference	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents		718.4		718.4		727.4		727.4
Available for sale investments	3	118.2		118.2		63.5		63.5
Assets held for policyholders		1,065.4		1,065.4		1,243.5		1,243.5
Trading investments	3	204.6		204.6		187.5		187.5
Foreign time deposits*	3	30.0		30.0		32.2		32.2
Support agreements*	10,11	(1.0	)	(1.0	)	(1.0	)	(1.0	)
Policyholder payables		(1,065.4	)	(1,065.4	)	(1,243.5	)	(1,243.5	)
Put option contracts		1.3		1.3		—		—
Financial instruments sold, not yet purchased		(1.2	)	(1.2	)	(1.0	)	(1.0	)
Note payable		(12.6	)	(12.6	)	(16.8	)	(16.8	)
Total debt*	4	(1,341.6	)	(1,363.0	)	(1,284.7	)	(1,307.5	)


*	These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Cash equivalents

Cash equivalents include cash investments in money market funds and time deposits. Cash investments in money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the net asset value of the underlying funds, and are classified within level 1 of the valuation hierarchy.

Available-for-sale investments

Available-for-sale investments include amounts seeded into affiliated investment products, investments in affiliated CLOs, and investments in other debt securities. Seed money investments are investments held in Invesco managed funds with the purpose of providing capital to the funds during their development periods. Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments. CLO assets are valued based on price quotations provided by an independent third-party pricing source, in which case they are classified as level 2, or using an income approach through the use of certain observable and unobservable inputs. Due to current liquidity constraints within the market for CLO products that require the use of unobservable inputs, these investments are classified within level 3 of the valuation hierarchy. Other debt securities are valued using a cost valuation technique due to the lack of available cash flow and market data and are accordingly also classified within Level 3 of the valuation hierarchy.

Assets held for policyholders

Assets held for policyholders represent investments held by one of the company’s subsidiaries, which is an insurance entity that was established to facilitate retirement savings plans in the U.K. The assets held for policyholders are accounted for at fair value pursuant to ASC Topic 944, “Financial Services — Insurance,” and are comprised primarily of affiliated unitized funds. The assets are measured at fair value under the market approach based on the quoted prices of the underlying funds in an active market and are classified within level 1 of the valuation hierarchy. The policyholder payables are indexed to the value of the assets held for policyholders.

Put option contracts

In the three months ended June 30, 2012, the company purchased four put option contracts to hedge economically foreign currency risk on the translation of a portion of its pound sterling-denominated earnings into U.S. dollars. The economic hedge is predominantly triggered upon the impact of a significant decline in the pound sterling/U.S. dollar foreign exchange rate, which could arise from a Greek Euro exit or other major European economic events. Open put option contracts are marked-to-market through earnings, which are recorded in the company's consolidated statement of income in other gains and losses. These derivative contracts are valued using option valuation models and are included in other current assets in the company's consolidated balance sheet. The significant inputs in these models (volatility, forward points and swap curves) are readily available in public markets or can be derived from observable market transactions for substantially the full terms of the contracts and are classified within level 2 of the valuation hierarchy. The cost to the company of these contracts was $2.5 million at their inception date, which represents the company's maximum exposure to loss from the contracts over the 12-month cumulative contract period, and contract maturity ranges from September 25, 2012 to June 25, 2013. These were the only contracts entered into during the period to hedge economically foreign currency risk. The company recognized a loss of $1.2 million in the six months ended June 30, 2012 related to the change in market value of these put option contracts.

Trading investments

Trading investments include investments held to hedge economically against costs the company incurs in connection with certain deferred compensation plans in which the company participates, as well as trading and investing activities in equity and debt securities entered into in its capacity as sponsor of unit investment trusts (UITs).


•	Investments related to deferred compensation plans

Investments related to deferred compensation plans are primarily invested in affiliated funds that are held to hedge economically current and non-current deferred compensation liabilities. Investments related to deferred compensation plans are valued under the market approach through the use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy.


•	UIT-related equity and debt securities

At June 30, 2012, UIT-related equity and debt securities consisted of investments in corporate stock, corporate bonds, UITs, U.S. state and political subdivisions. Each is discussed more fully below.


•	Corporate stock

The company temporarily holds investments in corporate stock for purposes of creating a UIT. Corporate stocks are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.


•	Corporate bonds

The company temporarily holds investments in corporate bonds for purposed of creating a UIT. Corporate bonds are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.


•	UITs

The company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.


•	Municipal securities

Municipal securities are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.

UIT-related financial instruments sold, not yet purchased, and derivative instruments

The company uses U.S. Treasury futures, which are types of derivative financial instruments, to hedge economically fixed income UIT inventory and securities in order to mitigate market risk. Open futures contracts are marked-to-market daily through earnings, which are recorded in the company’s consolidated statement of income in other revenue, along with the mark-to-market on the underlying trading securities held. Fair values of derivative contracts in an asset position are included in other current assets in the company’s consolidated balance sheet. Fair values of derivative contracts in a liability position are included in other liabilities in the company’s consolidated balance sheet. These derivative contracts are valued under the market approach through use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy. At June 30, 2012, there were 7 open futures contracts with a notional value of $0.9 million (December 31, 2011: 10 open futures contracts with a notional value of $1.3 million). Additionally, to hedge economically the market risk associated with equity and debt securities and UITs temporarily held as trading investments, the company will hold short corporate stock, exchange-traded fund, or U.S. treasury security positions. These transactions are recorded as financial instruments sold, not yet purchased and are included in other current liabilities in the company’s consolidated balance sheet. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.

Note payable

The note payable represents a payable associated with Invesco’s acquired ownership interest in two consolidated real estate funds. As the underlying investments in the funds are carried at fair value (and are disclosed as level 3 assets in the fair value hierarchy table included in Note 11, “Consolidated Investment Products”), management elected the fair value option for the note payable in order to offset the fair value movements recognized from the funds and has recorded the note payable as a level 3 liability. The fair value of the note payable is measured by reference to the value of the company's ownership interest in the equity of the funds, as this is the contractual amount payable at the reporting date. The value of the funds' equity is driven by the value of the underlying investments of the funds, as these investments make up the majority of the funds' equity. See Note 11, "Consolidated Investment Products," for additional information regarding the valuation of the underlying investments of the funds.

The following table presents, for each of the hierarchy levels described above, the carrying value of the company’s assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the face of the statement of financial position as of June 30, 2012.



	As of June 30, 2012
$ in millions	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Current assets:
Cash equivalents:
Money market funds	210.6		210.6		—	—
Investments:*
Available-for-sale:
Seed money	109.4		100.2		9.2	—
Trading investments:
Investments related to deferred compensation plans	200.2		200.2		—	—
UIT-related equity and debt securities:
Corporate stock	1.5		1.5		—	—
UITs	1.6		1.6		—	—
Municipal securities	1.3		—		1.3	—
Assets held for policyholders	1,065.4		1,065.4		—	—
Put option contracts	1.3		—		1.3	—
Total current assets	1,591.3		1,579.5		11.8	—
Non-current assets:
Investments — available-for-sale*:
CLOs	2.5		—		—	2.5
Other debt securities	6.3		—		—	6.3
Total assets at fair value	1,600.1		1,579.5		11.8	8.8
Current liabilities:
Policyholder payables	(1,065.4	)	(1,065.4	)	—	—
UIT-related financial instruments sold, not yet purchased:
Corporate equities	(1.2	)	(1.2	)	—	—
Note payable	(12.6	)	—		—	(12.6	)
Total liabilities at fair value	(1,079.2	)	(1,066.6	)	—	(12.6	)


*	Current foreign time deposits of $30.0 million and other current investments of $0.5 million are excluded from this table. Non-current equity method and other investments of $198.2 million and $11.8 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

The following table presents, for each of the hierarchy levels described above, the carrying value of the company’s assets and liabilities that are measured at fair value as of December 31, 2011:



	As of December 31, 2011
$ in millions	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Current assets:
Cash equivalents:
Money market funds	257.7		257.7		—	—
Investments:*
Available-for-sale:
Seed money	63.5		63.5		—	—
Trading investments:
Investments related to deferred compensation plans	184.4		184.4		—	—
UIT-related equity and debt securities:
Corporate stock	1.1		1.1		—	—
UITs	0.9		0.9		—	—
Municipal securities	1.1		—		1.1	—
Assets held for policyholders	1,243.5		1,243.5		—	—
Total current assets	1,752.2		1,751.1		1.1	—
Current liabilities:
Policyholder payables	(1,243.5	)	(1,243.5	)	—	—
UIT-related financial instruments sold, not yet purchased:
Corporate equities	(1.0	)	(1.0	)	—	—
Non-current liabilities:
Note payable	(16.8	)	—		—	(16.8	)
Total liabilities at fair value	(1,261.3	)	(1,244.5	)	—	(16.8	)


*	Current foreign time deposits of $32.2 million and other current investments of $0.5 million are excluded from this table. Non-current equity method and other investments of $193.1 million and $7.7 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three and six months ended June 30, 2012 and June 30, 2011, which are valued using significant unobservable inputs:



	Three months ended June 30, 2012					Six months ended June 30, 2012
$ in millions	CLOs		Other Debt Securities	Note Payable		CLOs		Other Debt Securities	Note Payable
Beginning balance	2.8		6.3	(12.3	)	—		—	(16.8	)
Deconsolidation of consolidated investment products	—		—	—		2.5		—	—
Purchases, sales, issuances	(0.1	)	—	—		(0.1	)	1.7	—
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*	(0.2	)	—	—		0.1		—	—
Net unrealized gains and losses included in earnings*	—		—	—		—		—	3.5
Reclassification	—		—	—		—		4.6	—
Foreign exchange movements included in earnings	—		—	(0.3	)	—		—	0.7
Ending balance	2.5		6.3	(12.6	)	2.5		6.3	(12.6	)



	Three months ended June 30, 2011				Six months ended June 30, 2011
$ in millions	CLOs		Note Payable		CLOs		Note Payable
Beginning balance	0.7		(18.5	)	0.5		(18.9	)
Purchases, sales, issuances	(0.1	)	2.9		(0.1	)	2.9
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*	(0.2	)	—		—		—
Foreign exchange movements included in earnings	—		(0.5	)	—		(0.1	)
Ending balance	0.4		(16.1	)	0.4		(16.1	)

Of these net unrealized gains and losses included in accumulated other comprehensive income/(loss), $0.2 million loss and $0.1 million gain for the three and six months ended June 30, 2012 is attributed to the change in unrealized gains and losses related to assets still held at June 30, 2012 (three and six months ended June 30, 2011: $0.2 million and none unrealized gains and losses related to assets still held at June 30, 2011). Of these net unrealized gains and losses included in earnings, none and $3.5 million for the three and six months ended June 30, 2012 is attributed to the change in unrealized gains and losses related to the note payable still held at June 30, 2012 (three and six months ended June 30, 2011: none and none).

Quantitative Information about Level 3 Fair Value Measurements

The following table shows significant unobservable inputs used in the fair value measurement of level 3 assets and liabilities:



Assets and Liabilities *	Fair Value at June 30, 2012 ($ in millions)	Valuation Technique	Unobservable Inputs	Range (Weighted Average)
CLOs	2.5	Discounted Cash Flow- Euro	Probability of Default	1% - 5%
			Spread over Euribor	2150 - 2850 bps
		Discounted Cash Flow- USD	Probability of Default	1% - 4%
			Spread over Libor	1350 - 1800 bps


*	Other debt securities of $6.3 million are not included in the table above as they are valued using a cost valuation technique. The note payable of $12.6 million is also not included in the table above as its value is linked to the underlying value of consolidated funds. Both items are more fully discussed in the "Available-for-sale investments" and "Note payable" disclosures above.

For CLO Notes, a change in the assumption used for spreads is generally accompanied by a directionally similar change in default rate. Significant increases in any of these inputs in isolation would result in a significant lower fair value measurements. A directionally-opposite impact would apply for significant decreases in these inputs.