10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2007

OR

o    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-13913

WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 51-0261715
(I.R.S. Employer
Identification No.)

6300 Lamar Avenue
Overland Park, Kansas 66202
913-236-2000
(Address, including zip code, and telephone number of Registrant's principal executive offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

Title of each class	Name of each exchange on which registered
Class A Common Stock, $.01 par value	New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None
(Title of class)

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

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

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

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

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated Filer	ý	Accelerated Filer	o
Non-accelerated Filer	o	Smaller Reporting Company	o
(Do not check if a smaller reporting company)

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

        The aggregate market value of the voting and non-voting common stock equity held by non-affiliates (i.e. persons other than officers, directors and stockholders holding greater than 5% of the registrant's common stock) based on the closing sale price on June 30, 2007 was $1.739 billion.

        Shares outstanding of each of the registrant's classes of common stock as of February 22, 2008 Class A common stock, $.01 par value: 86,222,611

DOCUMENTS INCORPORATED BY REFERENCE

        In Part III of this Form 10-K, portions of the definitive proxy statement for the 2008 Annual Meeting of Stockholders to be held April 9, 2008.

Index of Exhibits (Pages 85 through 89)
Total Number of Pages Included Are 89

WADDELL & REED FINANCIAL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2007

Part I		Page
Item 1.	Business	3
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	48
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	48
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accounting Fees and Services	48
Part IV
Item 15.	Exhibits, Financial Statement Schedules	48
SIGNATURES		49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		50
INDEX TO EXHIBITS		85

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PART I

ITEM 1.    Business

General

        Waddell & Reed Financial, Inc. (hereinafter referred to as the "Company," "we," "our" or "us") is a corporation, incorporated in the state of Delaware in 1981, that conducts business through its subsidiaries. Founded in 1937, we are one of the oldest mutual fund complexes in the United States, having introduced our largest family of mutual funds, the Waddell & Reed Advisors Group of Mutual Funds (the "Advisors Funds") in 1940. We launched our Ivy Funds in 2003 in an effort to expand our distribution to third-party outlets. As of December 31, 2007, we had $64.9 billion in assets under management and approximately 3.3 million mutual fund shareholder accounts owned by individuals, plans or omnibus accounts at third parties.

        We derive our revenues primarily from providing investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds and institutional and separately managed accounts. Investment management fees are based on the amount of average assets under management and are affected by sales levels, financial market conditions, redemptions and the composition of assets. Underwriting and distribution revenues consist of commissions derived from sales of investment and insurance products, Rule 12b-1 asset-based service and distribution fees, distribution fees on certain variable products, fees earned on fee-based asset allocation products, and related advisory services. The products sold have various commission structures and the revenues received from product sales vary based on the type and amount sold.

        We operate our business through three distinct distribution channels. Our retail products are distributed through our sales force of registered financial advisors (the "Advisors channel") or through third-parties such as other broker/dealers, registered investment advisors (including the retirement advisors of the Legend group of subsidiaries ("Legend")) and various retirement platforms, (collectively, the "Wholesale channel"). We also market our investment advisory services to institutional investors, either directly or through consultants (the "Institutional channel").

        In the Advisors channel, our sales force consists of 2,293 financial advisors who focus their efforts primarily on the sale of investment products advised by the Company. We compete primarily with smaller broker/dealers and independent financial advisors, as well as a span of other financial providers. Assets under management acquired through this channel were $34.6 billion at December 31, 2007.

        Our Wholesale channel efforts include retail fund distribution through broker/dealers (the largest method of distributing mutual funds for the industry), registered investment advisors (fee-based financial advisors who generally sell mutual funds through financial supermarkets) and retirement platforms (401(k) platforms using multiple managers). A team of 34 national wholesalers lead the efforts in this channel. Assets under management acquired through this channel were $21.5 billion at the end of 2007.

        Through our Institutional channel we manage assets for defined benefit pension plans, other investment companies (as a subadvisor), defined contribution plans, endowments and high net worth clients. Assets under management acquired through the Institutional channel were $8.8 billion at December 31, 2007.

Organization

        We operate our investment advisory business through our subsidiary companies, primarily Waddell & Reed Investment Management Company ("WRIMCO"), a registered investment adviser and Ivy Investment Management Company ("IICO"), the registered investment adviser for Ivy Funds, Inc. and the Ivy Funds portfolios (collectively, the "Ivy Funds"). Other investment advisory subsidiaries include Legend Advisory Corporation (the registered investment adviser for Legend) and Austin, Calvert & Flavin, Inc. ("ACF").

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        Our underwriting and distribution business operates through three broker/dealers: Waddell & Reed, Inc. ("W&R"), Ivy Funds Distributor, Inc. ("IFDI") and Legend Equities Corporation ("LEC"). W&R is a registered broker/dealer and investment adviser that acts primarily as the national distributor and underwriter for shares of Advisors Funds and the distributor of variable annuities and other insurance products issued by Nationwide Life Insurance Company, a subsidiary of Nationwide Financial Services, Inc. ("Nationwide"), Minnesota Life Insurance Company ("Minnesota Life"), a subsidiary of Securian Financial Group, Inc. ("Securian"), and others. In addition, W&R is the fifth largest distributor of our Ivy Funds. IFDI, a registered broker/dealer, is the distributor and underwriter for the Ivy Funds. LEC is the registered broker/dealer for Legend, a mutual fund distribution and retirement planning subsidiary based in Palm Beach Gardens, Florida. Through its network of 462 financial advisors, Legend serves primarily employees of school districts and other not-for-profit organizations.

        Waddell & Reed Services Company ("WRSCO") provides transfer agency and accounting services to the Advisors Funds, the Ivy Funds, W&R Target Funds, Inc. (the "Target Funds") and Waddell & Reed InvestEd Portfolios, Inc., our college savings plan ("InvestEd"). W&R, WRIMCO, WRSCO, ACF, Legend, IICO and IFDI are hereafter collectively referred to as the "Company," "we," "us" or "our" unless the context requires otherwise.

Investment Management Operations

        Our investment advisory business provides one of our largest sources of revenues and profits. We earn investment management fee revenues by providing investment advisory and management services pursuant to an investment management agreement with each fund within the Advisors Funds family, the Ivy Funds families, the Target Funds family, and InvestEd, (collectively, the "Funds"). While the specific terms of the agreements vary, the basic terms are similar. The agreements provide that we render overall investment management services to each of the Funds, subject to the oversight of each Fund's board of directors/trustees and in accordance with each Fund's fundamental investment objectives and policies. The agreements permit us to enter into separate agreements for shareholder services or accounting services with each respective Fund.

        Each Fund's board of directors/trustees, including a majority of the directors/trustees who are not "interested persons" of the Fund or the Company within the meaning of the Investment Company Act of 1940, as amended (the "ICA") ("disinterested members") and the Fund's shareholders must approve the investment management agreement between the respective Fund and the Company. These agreements may continue in effect from year to year if specifically approved at least annually by (i) the Fund's board, including a majority of the disinterested members, or (ii) the vote of a majority of both the shareholders of the Fund and the disinterested members of each Fund's board, each vote being cast in person at a meeting called for such purpose. Each agreement automatically terminates in the event of its assignment, as defined by the ICA or the Investment Advisers Act of 1940, as amended, (the "Advisers Act"), and may be terminated without penalty by any Fund by giving us 60 days' written notice if the termination has been approved by a majority of the Fund's directors/trustees or the Fund's shareholders. We may terminate an investment management agreement without penalty on 120 days' written notice.

        In addition to performing investment management services for the Funds, we act as an investment adviser for institutional and other private investors and we provide subadvisory services to other investment companies. Our fee for these services is generally based on a percentage of assets under management. Such services are provided pursuant to various written agreements.

        Our investment management effort has a strong foundation based upon its people and resources. We have 67 investment professionals including a team of 30 portfolio managers who average 19 years of industry experience and 13 years of tenure with the Company. They have substantial resources available to them, including the efforts of internal equity and fixed income analysts who conduct primary fundamental research and attend numerous on and off-site meetings annually with management of the companies in which they invest. In addition, we use research provided by brokerage firms and independent outside

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consultants. Portfolio managers participate in a collaborative process that blends their individual accountability with the ideas of their peers which, when backed by an intensive research capability, supports our efforts to deliver consistent, long-term performance. Our investment management team also includes a premier group of subadvisors who bring similar investment philosophies and additional expertise in specific asset classes.

        We have significant experience in virtually all major asset classes, several specialized asset classes and a range of investment styles. Our ending assets under management are summarized below by broad asset class, many of which incorporate multiple investment styles.

Ending Assets Under Management by Broad Asset Class

			December 31, 2007
			Ending Assets		Percentage of Total
			(in millions)
Investment Style:
	Balanced & Flexible		$	14,317	22%
	Narrowly Diversified			13,236	20%
	Large Capitalization Growth Equities			8,965	14%
	Large Capitalization Core Equities			7,019	11%
	International Equities			4,902	8%
	Small Capitalization Growth Equities			4,070	6%
	Taxable Investment Grade Fixed Income			2,836	4%
	Multi-Capitalization Core Equities			2,039	3%
	Value Equities			2,024	3%
	Middle Capitalization Growth Equities			1,655	3%
	High Yield Fixed Income			1,378	2%
	Money Market			1,306	2%
	Tax Exempt Fixed Income			1,038	2%
	Other			83	0%
		Total	$	64,868	100%

        Our investment strategy generally emphasizes investments in companies that the portfolio managers believe can produce above average growth in earnings. Our portfolio managers also strive for consistent long-term performance while seeking to provide downside protection in turbulent markets. Our investment philosophy lends itself well to the financial planning approach used by our Advisors channel while our consistent long-term investment performance record supports the distribution efforts in both our Wholesale and Institutional channels.

Investment Management Products

        Our mutual fund families offer a wide variety of investment options. We are the exclusive underwriter and distributor of 72 registered open-end mutual fund portfolios, including 21 portfolios in the Advisors Funds family, 28 portfolios in the Ivy Funds families, 20 portfolios in the Target Funds family and three portfolios in InvestEd. The Advisors Funds, variable products offering the Target Funds, and InvestEd are offered primarily through our financial advisors and Legend advisors; in some circumstances, certain of these funds are also offered through the Wholesale channel. The Ivy Funds are offered through both our Advisors channel and Wholesale channel. The Funds' assets under management are included in either our Advisors channel or our Wholesale channel depending on who marketed the client account or is the broker of record.

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Other Products

        Pursuant to general agency arrangements with Nationwide and Minnesota Life, we distribute certain of their variable annuity products, which offer the Target Funds as an investment vehicle. We also offer our customers retirement and life insurance products underwritten by Nationwide and Minnesota Life. Through our insurance agency subsidiaries, our financial advisors also sell life insurance and disability products underwritten by various carriers through a general agency arrangement with BISYS Insurance Services, Inc.

        In addition, we offer asset allocation investment advisory products, including Managed Allocation Portfolio ("MAP") and Strategic Portfolio Allocation ("SPA"), which are comprised of our Funds. MAP is comprised of two mutual fund asset allocation programs, MAP and MAP Plus, that offer clients a selection of traditional asset allocation models, as well as features such as systematic rebalancing and client participation in determining (to a limited extent) asset allocation across asset classes. MAP and MAP Plus are fee-based mutual fund asset allocation programs, structured to provide advisors and clients with advisory services, a pricing option competitive with other firms' fee-based products, and flexibility to allow advisors to assist clients in selecting underlying funds based upon their individual needs. MAP Plus was introduced in the second quarter of 2007 along with a reintroduction of MAP, to include additional financial planning modules as a bundled offering. As of December 31, 2007 our clients have over $1 billion invested in the MAP and MAP Plus products. These assets are included in our mutual fund assets under management disclosed elsewhere.

        Using a variety of funds ranging from money market and fixed income funds to domestic and international equity funds, SPA is a predictive, dynamic asset allocation system that reallocates asset classes within model portfolios. Clients investing assets in SPA can choose from five available model portfolios with objectives ranging from conservative to aggressive, based on their investment objectives, goals, risk tolerance and other factors.

        A primary difference between MAP and SPA is that advisors assist clients in selecting the underlying mutual funds within MAP models in accordance with pre-established ranges, whereas for SPA, the Company's Investment Policy Committee determines the model compositions.

Underwriting and Distribution

        We earn underwriting and distribution fee revenues primarily by distributing the Funds pursuant to an underwriting agreement with each Fund (except the Target Funds as explained below) and, to a lesser extent, by distributing mutual funds offered by other companies not affiliated with us. Pursuant to each agreement, we offer and sell the Funds' shares on a continuous basis (open-end funds) and pay certain costs associated with underwriting and distributing the Funds, including the costs of developing and producing sales literature and printing of prospectuses, which may be either partially or fully reimbursed by the Funds. The Funds are sold in various classes that are structured in ways that conform to industry standards (i.e., "front-end load," "back-end load," "level-load" and institutional).

        When a client purchases Class A shares (front-end load), the client pays an initial sales charge of up to 5.75% of the amount invested. The sales charge for Class A shares typically declines as the investment amount increases. In addition, investors may combine their purchases of all fund shares to qualify for a reduced sales charge. Class A shares purchased at net asset value are assessed a 1% contingent deferred sales charge ("CDSC") if the shares are redeemed within 12 months of purchase. When a client purchases Class B shares (back-end load), we do not charge an initial sales charge, but we do charge a CDSC upon early redemption of shares, up to 5% of the lesser of the current market net asset value or the purchase cost of the redeemed shares in the first year and declining to zero for shares held for more than six years. Class B shares convert to Class A shares after eight years. When a client purchases Class C shares (level-load), we do not charge an initial sales charge, but we do charge investors who redeem their Class C

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shares in the first year a CDSC of 1% of the current market net asset value or the purchase cost of the shares redeemed, whichever is less.

        Under a Rule 12b-1 service plan, the Funds may charge a maximum fee of 0.25% of the average daily net assets under management as compensation or reimbursement for expenses paid to broker/dealers and other sales professionals in connection with providing ongoing services to the Funds' shareholders and/or maintaining the Funds' shareholder accounts. The Funds' Class B and Class C shares may charge a maximum of 0.75% of the average daily net assets under management under a Rule 12b-1 distribution plan as either compensation or reimbursement to broker/dealers and other sales professionals for their services in connection with distributing shares of that class. The Rule 12b-1 plans are subject to annual approval by the Funds' board of directors/trustees, including a majority of the disinterested members, by votes cast in person at a meeting called for the purpose of voting on such approval. All Funds may terminate the service plan at any time with approval of fund directors or portfolio shareholders (a majority of either) without penalty.

        We distribute variable products offering the Target Funds as investment vehicles pursuant to general agency arrangements with Nationwide and Minnesota Life and receive commissions, marketing allowances and other compensation as stipulated by such agreements. In connection with these arrangements, the Target Funds are offered and sold on a continuous basis.

        In addition to distributing variable products, we distribute a number of other insurance products through our insurance agency subsidiaries, including individual term life, group term life, whole life, accident and health, long-term care, Medicare supplement and disability insurance. We receive commissions and compensation from various underwriters for distributing these products. We are not an underwriter for any insurance policies.

Distribution Channels

        We distribute our investment products through the Advisors, Wholesale and Institutional channels.

Advisors Channel

        Our advisors sell investment products primarily to middle-income and mass affluent individuals, families and businesses across the country in geographic markets of all sizes. We assist clients on a wide range of financial issues with a significant focus on helping them plan, generally, for long-term investments such as retirement and education and offer one-on-one consultations that emphasize long-term relationships through continued service. As a result of this approach, this channel has developed a loyal customer base with clients maintaining their accounts significantly longer than the industry average. The redemption rate in the Advisors channel for the year ended December 31, 2007 was 9.1%, compared to the industry average of 22.3%, as derived from statistics provided by the Investment Company Institute ("ICI").

        Our sales force consisted of 2,293 financial advisors, including 169 district managers and 176 district supervisors as of December 31, 2007. Eight regional vice presidents and 101 managing principals oversee this sales force, which operates out of 170 offices located throughout the United States. This sales force also occupies 333 individual advisor offices. We believe, based on industry data, that our financial advisors are currently one of the largest sales forces in the United States selling primarily mutual funds, and that W&R, our broker/dealer subsidiary, ranks among the largest independent broker/dealers. As of December 31, 2007, our Advisors channel had approximately 720,000 mutual fund customers with an average investment of $68,000 and approximately 80,000 variable account customers with an average investment of $63,000.

        The following table illustrates commissionable investment product sales by our financial advisors (including InvestEd) for the years ended December 31, 2007, 2006 and 2005. Sales are shown gross of

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commissions and exclude sales by Legend advisors, sales of money market funds, non-proprietary funds, insurance products, and mutual funds sold at net asset value for which we receive no commission.

		2007		2006	2005
		(in millions)
Front-end load sales		$	1,406	1,700	1,370
Variable annuity products			464	331	297
	Front-load product total		1,870	2,031	1,667
Deferred-load sales			134	186	203
Fee-based allocation products			628	59	31
	Total advisor sales	$	2,632	2,276	1,901

        As of December 31, 2007, 40% of our financial advisors have been with us for more than five years and 24% for more than ten years. Our New Advisor Career Transition program(s), designed to meet the needs of the different audiences from which we recruit, such as college graduates, career changers and industry experienced professionals, provide our new advisors with a unique transition experience until they can develop the skills and client base necessary to earn a stable income from commissions alone. These programs have played an important role in advisor retention and have contributed to an increase in the average productivity of our new associates. In addition, the introduction of a Sales Incentive Dashboard to this channel in 2007 has made it easier for field leaders and advisors to keep track of their sales results daily with web based sales data. We also undertook technology initiatives in 2007 that will allow us to provide our clients consolidated statements and more robust brokerage capabilities. We believe this effort will support the retention of existing advisors and our recruiting efforts, including those aimed at experienced advisors. Sales per advisor (investment product sales divided by the average number of advisors) were $1.2 million, $994 thousand and $776 thousand, for the years ended December 31, 2007, 2006 and 2005, respectively. Growth in this metric is important to our company since investment product sales are invested in our Funds' assets.

        Gross production per advisor is an additional method of measuring advisor productivity that is more closely aligned with industry standard methods, which use gross commissions per sales representative to measure productivity. For purposes of this measure, gross production consists of front-end load sales and distribution fee revenues, as it would be received from an underwriter, from sales of both our Funds and other mutual funds. It also includes fee revenues from our asset allocation products and financial plans, and commission revenues earned on insurance products. This measure excludes underwriting fee revenues, Rule 12b-1 service fee revenues, variable annuity distribution fee revenues and all revenues related to Class Y shares, all of which do not relate to the distribution activities of our financial advisors. Gross production per advisor was $64.7 thousand, $61.8 thousand and $53.5 thousand for the years 2007, 2006 and 2005, respectively.

Wholesale Channel

        Our Wholesale channel consists of sales garnered through various third-party distribution outlets and Legend advisors. In an effort to accelerate sales growth, we have focused on expanding our Wholesale distribution efforts over the past four years. Our launch into this channel included acquiring Mackenzie Investment Management Inc. ("MIMI") in 2002 and entering into a strategic alliance agreement with Securian in 2003. MIMI was a Florida-based investment management subsidiary of Toronto-based Mackenzie Financial Corporation ("MFC") and adviser of the Ivy Funds sold in the United States. As part of our strategic alliance with Securian, we agreed to become the investment adviser for substantially all equity assets managed by Advantus Capital Management, Inc. ("Advantus"), a subsidiary of Securian and an affiliate of Minnesota Life, and to acquire the assets of Securian's Advantus Funds.

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        As a result of an increased demand for our funds in our Wholesale channel due to strong investment and sales performance and assets gained through acquisitions, our assets under management from the Wholesale channel have increased from $3.8 billion at December 31, 2003 to $21.5 billion at December 31, 2007, including $9.0 billion in assets that are subadvised by other managers.

        The following table summarizes certain components of the changes in the Wholesale channel's assets under management for the last three fiscal years.

	2007	2006	2005
	(in millions)
Sales (net of commissions)	9,470	4,541	2,347
Redemptions	(2,795)	(1,915)	(1,149)
Net Sales	6,675	2,626	1,198
Market Appreciation	3,894	1,263	738
Ending Assets Under Management	21,537	10,819	6,729

        During 2007, we achieved significant growth in mutual fund sales through wholesale distribution and built on our presence in the wholesale market. We continued to expand our team of national wholesalers, reaching a total of 34 by year-end. Throughout 2007, the Ivy Funds family increased its presence in a number of broker/dealer platforms. These third parties have a client relationship with, and maintain an account for, the investors. Typically, investors purchase our investment products at the suggestion of third parties, thereby expanding our opportunities to gain new investors. Our efforts focus principally on distributing the Ivy Funds through three segments: broker/dealers (the largest method of distributing mutual funds for the industry and for us), retirement platforms (401(k) platforms using multiple managers) and registered investment advisors (fee-based financial advisors who generally sell institutional class mutual funds through financial supermarkets).

        Legend advisors distribute our Funds, along with mutual funds managed by other investment companies, through Legend's retirement advisor sales force. At December 31, 2007, Legend had 462 registered retirement advisors in 95 offices, which are primarily individual advisor offices, located mainly in the eastern part of the United States. These retirement advisors are not included in the discussion of our financial advisors, nor in disclosures of the number of advisors we have licensed. For the years ended December 31, 2007, 2006 and 2005, Legend advisors sold $74.2 million, $74.0 million and $67.7 million of our mutual funds, respectively. For the years ended December 31, 2007, 2006 and 2005, Legend also sold $363.5 million, $382.5 million and $379.7 million, respectively, of unaffiliated mutual funds. Sales per Legend advisor were $890 thousand in 2007 and Legend had $5.1 billion of client assets under administration as of December 31, 2007.

Institutional Channel

        WRIMCO and ACF market their investment advisory services to institutions directly or through consultants that assist with the manager selection process. Most of our institutional business is in defined benefit pension plans and subadvised mutual funds. A significant amount of assets are also managed for defined contribution pension plans, foundations, endowments, Taft-Hartley plans, high-net worth individuals and insurance company general accounts. During the past two years, our institutional asset flows were negatively impacted by underperformance at ACF, although we maintain a solid reputation in the institutional asset management business, built on a good performance record and on our investment style, which over time has brought steady and consistent results.

        Over the past five years, we have expanded our distribution efforts in this channel by entering into additional subadvisory agreements with certain strategic partners. As part of the December 16, 2002 acquisition of MIMI's business, we entered into new subadvisory and marketing agreements extending

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MFC's subadvisory agreements with IICO and providing us with additional investment management opportunities in Canada. Pursuant to these subadvisory agreements, we receive investment management fees covering multiple funds. The subadvisory agreement with MFC expires in 2008 and is renewable on an annual basis.

        Through our strategic alliance agreement with Securian, we agreed to become investment adviser for substantially all equity assets managed by Advantus. In addition, the Company manages as separate accounts certain actively managed equities in the Minnesota Life and Securian Holding Company general accounts.

        We also have a subadvisory relationship with Pictet & Cie of Switzerland, initially established in mid-2006, that employs our large-cap investment style. Assets under management for Pictet & Cie grew to $1.3 billion by December 31, 2007.

Service Agreements

        We earn service fee revenues by providing various services to the Funds and their shareholders pursuant to shareholder servicing and accounting service agreements with each Fund. Pursuant to the shareholder servicing agreements, we perform shareholder servicing functions for which the Funds pay us a monthly fee, including: maintaining shareholder accounts; issuing, transferring and redeeming shares; distributing dividends and paying redemptions; furnishing information related to the Funds; and handling shareholder inquiries. Pursuant to the accounting service agreements, we provide the Funds with bookkeeping and accounting services and assistance for which the Funds pay us a monthly fee, including: maintaining the Funds' records; pricing Fund shares; and preparing prospectuses for existing shareholders, proxy statements and certain other shareholder reports.

        These agreements may be adopted or amended with the approval of the disinterested members of each Fund's board of directors/trustees and have annually renewable terms of one year.

Regulation

        The securities industry is subject to extensive regulation and virtually all aspects of our business are subject to various federal and state laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients and shareholders of registered investment companies. Under such laws and regulations, agencies and organizations that regulate investment advisers, broker/dealers, and transfer agents like us have broad administrative powers, including the power to limit, restrict or prohibit an investment adviser, broker/dealer or transfer agent from carrying on its business in the event that it fails to comply with applicable laws and regulations. In such event, the possible sanctions that may be imposed include, but are not limited to, the suspension of individual employees or agents, limitations on engaging in certain lines of business for specified periods of time, censures, fines and the revocation of investment adviser and other registrations.

        The Securities and Exchange Commission (the "SEC") is the federal agency responsible for the administration of federal securities laws. Certain of our subsidiaries are registered with the SEC as investment advisers under the Advisers Act, which imposes numerous obligations on registered investment advisers including, among other things, fiduciary duties, record-keeping and reporting requirements, operational requirements and disclosure obligations, as well as general anti-fraud prohibitions. Investment advisers are subject to periodic examination by the SEC, and the SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act, ranging from censure to termination of an investment adviser's registration.

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        Our Funds are registered as investment companies with the SEC under the ICA, and various filings are made with states under applicable state rules and regulations. The ICA regulates the relationship between a mutual fund and its investment adviser and prohibits or severely restricts principal transactions and joint transactions. Various regulations cover certain investment strategies that may be used by the Funds for hedging and/or speculative purposes. To the extent the Funds purchase futures contracts, options on futures contracts and foreign currency contracts, they are subject to the commodities and futures regulations of the Commodity Futures Trading Commission.

        We derive a large portion of our revenues from investment management agreements. Under the Advisers Act, our investment management agreements terminate automatically if assigned without the client's consent. Under the ICA, investment advisory agreements with registered investment companies such as the Funds terminate automatically upon assignment. The term "assignment" is broadly defined and includes direct assignments, as well as assignments that may be deemed to occur, under certain circumstances, upon the transfer, directly or indirectly, of a controlling interest in the Company.

        The Company is also subject to federal and state laws affecting corporate governance, including the Sarbanes-Oxley Act of 2002 ("S-OX"), as well as rules adopted by the SEC. As a New York Stock Exchange (the "NYSE") listed company, we are also subject to the rules of the NYSE, including the corporate governance listing standards approved by the SEC.

        Three of our subsidiaries, W&R, LEC and IFDI, are also registered as broker/dealers with the SEC and the states. Much of the regulation of broker/dealers has been delegated by the SEC to self-regulatory organizations, principally the Municipal Securities Rulemaking Board and the Financial Industry Regulatory Authority ("FINRA"), which is the primary regulator of our broker/dealer activities. These self-regulatory organizations adopt rules (subject to approval by the SEC) that govern the industry and conduct periodic examinations of our operations over which they have jurisdiction. Securities firms are also subject to regulation by state securities administrators in those states in which they conduct business. Broker/dealers are subject to regulations that cover all aspects of the securities business, including sales practices, market making and trading among broker/dealers, the use and safekeeping of clients' funds and securities, capital structure, record-keeping, and the conduct of directors, officers and employees. Violation of applicable regulations can result in the revocation of broker/dealer licenses, the imposition of censures or fines, and the suspension or expulsion of a firm, its officers or employees.

        W&R, LEC and IFDI are also each subject to certain net capital requirements pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Uniform Net Capital Rule 15c3-1 of the Exchange Act (the "Net Capital Rule") specifies the minimum level of net capital a registered broker/dealer must maintain and also requires that part of its assets be kept in a relatively liquid form. The Net Capital Rule is designed to ensure the financial soundness and liquidity of broker/dealers. Any failure to maintain the required minimum net capital may subject us to suspension or revocation of our registration or other limitations on our activity by the SEC, and suspension or expulsion by FINRA or other regulatory bodies, and ultimately could require the broker/dealer's liquidation. The maintenance of minimum net capital requirements may also limit our ability to pay dividends. As of December 31, 2007, 2006 and 2005, net capital for W&R, LEC and IFDI exceeded all minimum requirements.

        Pursuant to the requirements of the Securities Investor Protection Act of 1970, W&R and LEC are members of the Securities Investor Protection Corporation (the "SIPC"). IFDI is not a member of the SIPC. The SIPC provides protection against lost, stolen or missing securities (but not loss in value due to a rise or fall in market prices) for clients in the event of the failure of a broker/dealer. Accounts are protected up to $500,000 per client with a limit of $100,000 for cash balances. However, since the Funds, and not our broker/dealer subsidiaries, maintain customer accounts, SIPC protection would not cover mutual fund shareholders.

        On October 26, 2001, President Bush signed the USA PATRIOT Act, aimed at giving the government new powers in the war on terrorism. Title III of this new legislation, the International Money Laundering

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Abatement and Anti-Terrorist Financing Act of 2001, imposes significant new anti-money laundering requirements on all financial institutions, including domestic banks and domestic operations of foreign banks, broker/dealers, futures commission merchants and investment companies.

        In 2004, we implemented compliance with Section 404 of S-OX. Our related report on internal controls over financial reporting for 2007 is included in Part I, Item 9A.

        Our businesses may be materially affected not only by regulations applicable to us as an investment adviser, broker/dealer or transfer agent, but also by law and regulations of general application. For example, the volume of our principal investment advisory business in a given time period could be affected by, among other things, existing and proposed tax legislation and other governmental regulations and policies (including the interest rate policies of the Federal Reserve Board), and changes in the interpretation or enforcement of existing laws and rules that affect the business and financial communities.

Competition

        The financial services industry is a highly competitive global industry. According to the ICI, at the end of 2007 there were more than 8,700 open-end investment companies of varying sizes, investment policies and objectives whose shares are being offered to the public in the United States alone. Factors affecting our business include brand recognition, business reputation, investment performance, quality of service and the continuity of both client relationships and assets under management. A majority of mutual fund sales go to funds that are highly rated by a small number of well-known ranking services that focus on investment performance. Competition is based on distribution methods, the type and quality of shareholder services, the success of marketing efforts and the ability to develop investment products for certain market segments to meet the changing needs of investors, and to achieve competitive investment management performance.

        We compete with hundreds of other mutual fund management, distribution and service companies that distribute their fund shares through a variety of methods, including affiliated and unaffiliated sales forces, broker/dealers and direct sales to the public of shares offered at a low or no sales charge. Many larger mutual fund complexes have significant advertising budgets and established relationships with brokerage houses with large distribution networks, which enable these fund complexes to reach broad client bases. Many investment management firms offer services and products similar to ours, as well as other independent financial advisors. We also compete with brokerage and investment banking firms, insurance companies, commercial banks and other financial institutions and businesses offering other financial products in all aspects of their businesses. Although no single company or group of companies consistently dominates the mutual fund management and services industry, many are larger than us, have greater resources and offer a wider array of financial services and products. We believe that competition in the mutual fund industry will increase as a result of increased flexibility afforded to banks and other financial institutions to sponsor mutual funds and distribute mutual fund shares. Additionally, barriers to entry into the investment management business are relatively few, and thus, we face a potentially growing number of competitors, especially during periods of strong financial and economic markets.

        The distribution of mutual funds and other investment products has undergone significant developments in recent years, which has intensified the competitive environment in which we operate. These developments include the introduction of new products, increasingly complex distribution systems with multiple classes of shares, the development of Internet websites providing investors with the ability to invest on-line, the introduction of sophisticated technological platforms used by financial advisors to sell and service mutual funds for their clients, the introduction of separately managed accounts—previously available only to institutional investors—to individuals, and growth in the number of mutual funds offered. We believe our business model targets customers seeking personal assistance from financial advisors or planners where the primary competition is companies distributing products through a financial advisor or broker/dealer sales force. Our financial advisors compete primarily with large and small broker/dealers, independent financial advisors and insurance representatives. The market for financial planning and advice

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is extremely fragmented, consisting primarily of relatively small companies with fewer than 100 investment professionals. Competition is based on sales techniques, personal relationships and skills, and the quality of financial planning products and services offered.

        We also face competition in attracting and retaining qualified financial advisors and employees. The ability to continue to compete effectively in our business depends in part on our ability to compete effectively in the labor market. In order to maximize this ability, we offer competitive compensation, a wide range of benefits and have several stock-based compensation incentive programs.

Intellectual Property

        We regard our names as material to our business, and have registered certain service marks associated with our business with the United States Patent and Trademark Office.

Employees and Financial Advisors

        At December 31, 2007, we had 1,702 full-time employees, consisting of 937 home office employees, 145 employees of subsidiary companies in Florida and Texas, 101 managing principals, eight regional vice presidents, six associate managers, 160 field office support personnel, and 345 district managers and district supervisors; district managers and supervisors are counted as both employees and financial advisors.

        At December 31, 2007, our sales force was comprised of 2,293 financial advisors, including 1,948 financial advisors who are independent contractors and 345 district managers and district supervisors who are considered employees. In addition, Legend, which is a part of our Wholesale channel, had 462 retirement advisors considered to be independent contractors.

Available Information

        We file reports, proxy statements, and other information with the SEC, copies of which can be obtained from the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

        Reports we file electronically with the SEC via the SEC's Electronic Data Gathering, Analysis and Retrieval system ("EDGAR") may be accessed through the Internet. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at www.sec.gov. The Company makes available free of charge our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports under the "Corporate" section of our internet website at www.waddell.com as soon as it is reasonably practical after such filing has been made with the SEC.

        Also available under the "Corporate" section is information on corporate governance. Stockholders have the ability to view our Corporate Code of Business Conduct and Ethics (the "Code of Ethics"), which applies to directors, officers and all employees of the Company; our Corporate Governance Guidelines; and the charters of key committees (including the Audit, Compensation and Nominating and Corporate Governance Committees). Printed copies of these documents are available to any stockholder upon request by calling the investor relations department at 1-800-532-2757. Any future amendments to or waivers of the Code of Ethics will be posted to our website, as required.

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ITEM 1A. Risk Factors

        An Increasing Percentage Of Our Assets Under Management Are Distributed Through Our Wholesale Channel, Which Reflects Higher Redemption Rates Than Our Traditional Advisors Channel.    In recent years, we have focused on expanding distribution efforts relating to our Wholesale channel. The percentage of our assets under management in the Wholesale channel has increased from 10.4% at December 31, 2003 to 33.2% at December 31, 2007, and the percentage of our total sales represented by the Wholesale channel has increased from 16.5% for the year ended December 31, 2003 to 63.5% for the year ended December 31, 2007. The success of sales in our Wholesale channel depends upon our maintaining strong relationships with institutional accounts, certain strategic partners and our third party distributors. Many of those distribution sources also offer investors competing funds that are internally or externally managed, which could limit the distribution of our products. The loss of any of these distribution channels and the inability to continue to access new distribution channels could decrease our assets under management and adversely affect our results of operations and growth. We cannot assure you that these channels and their client bases will continue to be accessible to us. The loss or diminution of the level of business we do with those providers could have a material adverse effect on our business, especially with the high concentration of assets in certain funds in this channel. In addition, the Wholesale channel had redemption rates of 18.5% and 21.0% for the years ended December 31, 2007 and 2006, respectively, compared to redemption rates of 9.1% and 9.2% for our Advisors channel in the same periods, reflecting the higher rate of transferability of investment assets in the Wholesale channel.

        There May Be An Adverse Effect On Our Revenues And Earnings If Our Investors Remove The Assets We Manage On Short Notice.    Mutual fund investors may redeem their investments in our mutual funds at any time without any prior notice. Additionally, our investment management agreements with institutions and other non-mutual fund accounts are generally terminable upon relatively short notice. Investors can terminate their relationship with us, reduce their aggregate amount of assets under management, or shift their funds to other types of accounts with different rate structures for any number of reasons, including investment performance, changes in prevailing interest rates and financial market performance. The ability of our investors to accomplish this on short notice has increased materially due to the growth of assets in our Wholesale channel, and with the high concentration of assets in certain funds in this channel. The decrease in revenues that could result from any such event could have a material adverse effect on our business and earnings.

        There May Be Adverse Effects On Our Business And Earnings Upon The Termination Of, Or Failure To Renew, Certain Agreements.    A majority of our revenues are derived from investment management agreements with the Funds that, as required by law, are terminable on 60 days' notice. Each investment management agreement must be approved and renewed annually by the disinterested members of each Fund's board of directors/trustees or its shareholders, as required by law. Additionally, our investment management agreements provide for automatic termination in the event of assignment, which includes a change of control, without the consent of our clients and, in the case of the Funds, approval of the Funds' board of directors/trustees and shareholders to continue the agreements. The Company also has co-exclusive arrangements with Nationwide and Minnesota Life/Securian to distribute their variable annuities containing the Target Funds managed by the Company, which are currently set to expire in the fall of 2008, and our subadvisory agreement with MFC, which is renewable annually, expires in December 2008. There can be no assurances that our clients will consent to any assignment of our investment management agreements, or that those and other contracts will not be terminated or will be renewed on favorable terms, if at all, at their expiration and new agreements may not be available. Failure to renew the Minnesota Life/Securian arrangement could have an adverse impact on the strategic alliance agreement with Securian whereby we manage equity assets for their asset management affiliates. See "Business – Distribution Channels – Wholesale Channel, Institutional Channel." The decrease in revenues that could result from any such event could have a material adverse effect on our business and earnings.

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        Our Revenues, Earnings And Prospects Could Be Adversely Affected If The Securities Markets Decline.    Our results of operations are affected by certain economic factors, including the level of the securities markets. The existence of adverse market conditions (which is particularly material to us due to our high concentration of assets under management in the United States domestic stock market) and lack of investor confidence could result in investors withdrawing from the markets or decreasing their rate of investment, either of which could adversely affect our revenues, earnings and growth prospects. Because our revenues are, to a large extent, investment management fees that are based on the value of assets under management, a decline in the value of these assets adversely affects our revenues and earnings. Our growth is dependent to a significant degree upon our ability to attract and retain mutual fund assets, and, in an adverse economic environment, this may prove difficult. Our growth rate has varied from year to year and there can be no assurance that the average growth rates sustained in the recent past will continue. In addition, a decline in the market value of these assets could cause our clients to withdraw funds in favor of investments they perceive as offering greater opportunity or lower risk, which could also negatively impact our revenues and earnings. The combination of adverse markets reducing sales and investment management fees could compound on each other and materially affect earnings.

        There May Be Adverse Effects On Our Revenues And Earnings If Our Funds' Performance Declines.    Success in the investment management and mutual fund businesses is dependent on the investment performance of client accounts relative to market conditions and the performance of competing funds. Good relative performance stimulates sales of the Funds' shares and tends to keep redemptions low. Sales of the Funds' shares in turn generate higher management fees and distribution revenues. Good relative performance also attracts institutional and separate accounts. Conversely, poor relative performance results in decreased sales, increased redemptions of the Funds' shares and the loss of institutional and separate accounts, resulting in decreases in revenues. Failure of our Funds to perform well could, therefore, have a material adverse effect on our revenues and earnings.

        There Is No Assurance That New Information Systems Will be Implemented Successfully.    A number of the Company's key information technology systems were developed solely to handle the Company's particular information technology infrastructure. The Company is in the process of evaluating and implementing new information technology and systems that it believes could facilitate and improve our core businesses and our productivity. There can be no assurance that the Company will be successful in implementing the new information technology and systems or that their implementation will be completed in a timely or cost effective manner. Failure to implement or maintain adequate information technology infrastructure could impede our ability to support business growth.

        Systems Failure May Disrupt Our Business And Result In Financial Loss And Liability To Our Clients.    Our business is highly dependent on financial, accounting and other data processing systems and other communications and information systems, including our mutual fund transfer agency system maintained by a third-party service provider. We process a large number of transactions on a daily basis and rely upon the proper functioning of computer systems of third parties. If any of these systems do not function properly, we could suffer financial loss, business disruption, liability to clients, regulatory intervention or damage to our reputation. If our systems are unable to accommodate an increasing volume of transactions, our ability to expand could be affected. Although we have back-up systems in place, we cannot be sure that any systems failure or interruption, whether caused by a fire, other natural disaster, power or telecommunications failure, acts of terrorism or war or otherwise will not occur, or that back-up procedures and capabilities in the event of any failure or interruption will be adequate.

        Regulatory Risk Is Substantial In Our Business And Non-Compliance With Regulations, Or Changes In Regulations, Could Have A Significant Impact On The Conduct Of Our Business And Our Prospects, Revenues And Earnings.    Our investment management and broker/dealer businesses are heavily regulated, primarily at the federal level. Non-compliance with applicable laws or regulations could result in sanctions being levied against us, including fines and censures, suspension or expulsion from a certain jurisdiction or market, or the revocation of licenses. Non-compliance with applicable laws or regulations could also adversely affect

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our reputation, prospects, revenues and earnings. In addition, changes in current legal, regulatory, accounting, tax or compliance requirements or in governmental policies could adversely affect our operations, revenues and earnings by, among other things, increasing expenses and reducing investor interest in certain products we offer. Additionally, our profitability could be affected by rules and regulations that impact the business and financial communities generally, including changes to the laws governing state and federal taxation.

        In recent years, allegations of late trading, market timing and selective disclosure of portfolio information in the mutual fund industry have prompted various legislative and regulatory proposals, some of which have been adopted by the SEC, the United States Congress, the legislatures in states in which we conduct operations and the various regulatory agencies that supervise our operations. In particular, new rules and regulations adopted by the SEC and FINRA place greater regulatory compliance and administrative burdens on us and could have a substantial impact on the regulation, operation and distribution of mutual funds, and could adversely affect our ability to distribute and retain the assets we manage and our revenues and net income. For example, recently adopted rules require investment advisers and mutual funds to adopt, implement, review and administer written policies and procedures reasonably designed to prevent violation of the federal securities laws. Similarly, public disclosure requirements applicable to mutual funds have become more stringent. We may require additional staff to satisfy these obligations, which would increase our operating expenses.

        Our Business Is Subject To Substantial Risk From Litigation, Regulatory Investigations And Potential Securities Laws Liability.    Many aspects of our business involve substantial risks of litigation, regulatory investigations and/or arbitration, and from time to time, we are involved in various legal proceedings in the course of operating our business. The Company is exposed to liability under federal and state securities laws, other federal and state laws and court decisions, as well as rules and regulations promulgated by the SEC, FINRA and other regulatory bodies. We, our subsidiaries, and/or certain of our past and present officers, have been named as parties in legal actions, regulatory investigations and proceedings, and securities arbitrations in the past and have been subject to claims alleging violation of such laws, rules and regulations, which have resulted in the payment of fines and settlements. An adverse resolution of any lawsuit, legal or regulatory proceeding or claim against us could result in substantial costs or reputational harm to the Company, and have a material adverse effect on the Company's business, financial condition or results of operations, which, in turn, may negatively affect the market price of our Class A common stock (our "common stock") and our ability to pay dividends. In addition to these financial costs and risks, the defense of litigation or arbitration may divert resources and management's attention from operations.

        Our Financial Advisors Are Classified As Independent Contractors, And Changes To Their Classification Costs May Increase Our Operating Expenses.    From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status of independent contractors' classification to employees for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefits available to employees. Currently, most individuals are classified as employees or independent contractors for employment tax purposes based on 20 "common law" factors, rather than any definition found in the Internal Revenue Code or Internal Revenue Service regulations. We classify the majority of our financial advisors as independent contractors for all purposes, including employment tax and employee benefit purposes. There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the independent contractor/employee classification of those financial advisors currently doing business with us. The costs associated with potential changes, if any, with respect to these independent contractor classifications could have a material adverse effect on the Company, including our results of operations and financial condition, if we were unable to reflect them in our compensation arrangements with the financial advisors.

        Regulations Restricting The Use Of "Soft Dollars" Could Result In An Increase In Our Expenses.    On behalf of our mutual fund and investment advisory clients, we make decisions to buy and sell securities for each

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portfolio, select broker/dealers to execute trades, and negotiate brokerage commission rates. In connection with these transactions, we may receive "soft dollar credits" from broker/dealers that we can use to defray certain of our expenses. If regulations are adopted eliminating the ability of asset managers to use "soft dollars," our operating expenses could increase.

        Fee Pressures Could Reduce Our Revenues And Profitability.    There is a trend toward lower fees in some segments of the investment management business. In addition, the SEC has adopted rules that are designed to improve mutual fund corporate governance, which could result in further downward pressure on investment advisory fees in the mutual fund industry. Accordingly, there can be no assurance that we will be able to maintain our current fee structure. Fee reductions on existing or future new business could have an adverse impact on our revenues and profitability.

        Our Ability To Hire And Retain Senior Executive Management And Other Key Personnel Is Significant To Our Success And Growth.    Our continued success depends to a substantial degree on our ability to attract and retain qualified senior executive management and other key personnel to conduct our broker/dealer, fund management and investment advisory businesses. The market for qualified fund managers, investment analysts and financial advisors is extremely competitive. Additionally, we are dependent on our financial advisors and select wholesale distributors to sell our mutual funds and other investment products. Our growth prospects will be directly affected by the quality, quantity and productivity of financial advisors we are able to successfully recruit and retain. There can be no assurances that we will be successful in our efforts to recruit and retain the required personnel.

        We Could Experience Adverse Effects On Our Revenues, Profits And Market Share Due To Strong Competition From Numerous And Sometimes Larger Companies.    We compete with stock brokerage firms, mutual fund companies, investment banking firms, insurance companies, banks, Internet investment sites, and other financial institutions and individual registered investment advisers. Many of these companies not only offer mutual fund investments and services, but also offer an ever-increasing number of other financial products and services. Many of our competitors have more products and product lines, services and brand recognition and may also have substantially greater assets under management. Many larger mutual fund complexes have developed relationships with brokerage houses with large distribution networks, which may enable those fund complexes to reach broader client bases. In recent years, there has been a trend of consolidation in the mutual fund industry resulting in stronger competitors with greater financial resources than us. There has also been a trend toward online Internet financial services. If existing or potential customers decide to invest with our competitors instead of with us, our market share, revenues and income could decline.

        We Have Substantial Intangibles On Our Balance Sheet, And Any Impairment Of Our Intangibles Could Adversely Affect Our Results of Operations And Financial Position.    At December 31, 2007, our total assets were approximately $893.8 million, of which approximately $228.4 million, or 26%, consisted of goodwill and identifiable intangible assets. We complete an ongoing review of goodwill and intangible assets for impairment on an annual basis or more frequently whenever events or a change in circumstances warrant. Important factors in determining whether an impairment of goodwill or intangible assets might exist include significant continued underperformance compared to peers, the likelihood of termination or non-renewal of a mutual fund advisory or subadvisory contract or substantial changes in revenues earned from such contracts, significant changes in our business and products, material and ongoing negative industry or economic trends, or other factors specific to each asset or subsidiary being tested. Because of the significance of goodwill and other intangibles to our consolidated balance sheets, the annual impairment analysis is critical. Any changes in key assumptions about our business and our prospects, or changes in market conditions or other externalities, could result in an impairment charge. Any such charge could have a material effect on our results of operations and financial position.

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        The Terms Of Our Credit Facility Impose Restrictions On Our Operations That May Adversely Impact Our Prospects And The Operations Of Our Business.    There are no assurances that we will be able to raise additional capital if needed, which could negatively impact our liquidity, prospects and operations. We have entered into a three-year revolving credit facility with various lenders providing for total loans of $200.0 million. Under this facility, the lenders may, at their option upon our request, expand the facility to $300.0 million. We also utilize money market loans, which function similarly to commercial paper. At February 22, 2008, there was no balance outstanding under either the revolving credit facility or the money market loan program. The terms and conditions of our revolving credit facility and the money market loans impose restrictions that affect, among other things, our ability to incur additional debt, make capital expenditures and acquisitions, merge, sell assets, pay dividends and create or incur liens. Our ability to comply with the financial covenants set forth in our credit facility could be affected by events beyond our control, and there can be no assurance that we will achieve operating results that will comply with such terms and conditions, a breach of which could result in a default under our credit facility. In the event of a default, the banks could elect to declare the outstanding principal amount of our credit facility, all interest thereon, and all other amounts payable under our credit facility to be immediately due and payable.

        Our ability to meet our cash needs and satisfy our debt obligations will depend upon our future operating performance, asset values, the perception of our creditworthiness and, indirectly, the market value of our stock. These factors will be affected by prevailing economic, financial and business conditions and other circumstances, some of which are beyond our control. We anticipate that any borrowings from our existing credit facility, money market loans and/or cash provided by operating activities will provide sufficient funds to finance our business plans, meet our operating expenses and service our debt obligations as they become due. However, in the event that we require additional capital, there can be no assurance that we will be able to raise such capital when needed or on satisfactory terms, if at all, and there can be no assurance that we will be able to renew or refinance our credit facility upon its maturity or on favorable terms. If we are unable to raise capital or obtain financing, we may be forced to incur unanticipated costs or revise our business plan.

        Potential Misuse Of Funds And Information In The Possession Of Our Employees And/Or Advisors Could Result In Liability To Our Clients, Subject Us To Regulatory Sanctions Or Otherwise Adversely Affect Our Revenues and Profitability.    Our business is based on the trust and confidence of our clients, for whom our financial advisors handle a significant amount of funds, as well as financial and personal information. Although we have implemented a system of controls to minimize the risk of fraudulent taking or misuse of funds and information, there can be no assurance that our controls will be adequate or that a taking or misuse by our employees or financial advisors can be prevented. We could be liable in the event of a taking or misuse by our employees or financial advisors and we could also be subject to regulatory sanctions. Although we believe that we have adequately insured against these risks, there can be no assurance that our insurance will be maintained or that it will be adequate to meet any liability. Any damage to the trust and confidence placed in us by our clients may cause assets under management to decline, which could adversely affect our revenues, financial condition, results of operations and business prospects.

        There Are No Assurances That We Will Pay Future Dividends Which Could Adversely Affect Our Stock Price.     The Waddell & Reed Financial, Inc. Board of Directors (the "Board of Directors") currently intends to continue to declare quarterly dividends on our common stock; however, the declaration and payment of dividends is subject to the discretion of our Board of Directors. Any determination as to the payment of dividends, as well as the level of such dividends, will depend on, among other things, general economic and business conditions, our strategic plans, our financial results and condition, and contractual, legal, and regulatory restrictions on the payment of dividends by us or our subsidiaries. We are a holding company and, as such, our ability to pay dividends is subject to the ability of our subsidiaries to provide us with cash. There can be no assurance that the current quarterly dividend level will be maintained or that we will pay any dividends in any future period(s). Any change in the level of our dividends or the suspension of the payment thereof could adversely affect our stock price.

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        Our Stockholders Rights Plan Could Deter Takeover Attempts Which Some Of Our Stockholders May Believe To Be In Their Best Interest.    Under certain conditions, the rights under our stockholders rights plan entitle the holders of such rights to receive shares of our common stock having a value equal to two times the exercise price of the right. The rights are attached to each share of our outstanding common stock and generally are exercisable only if a person or group acquires 15% or more of the voting power represented by our common stock. Our stockholders rights plan could impede the completion of a merger, tender offer, or other takeover attempt even though some or a majority of our stockholders might believe that a merger, tender offer or takeover is in their best interests, and even if such a transaction could result in our stockholders receiving a premium for their shares of our stock over the then current market price of our stock.

        Provisions Of Our Organizational Documents Could Deter Takeover Attempts Which Some Of Our Stockholders May Believe To Be In Their Best Interest.    Under our Certificate of Incorporation, our Board of Directors has the authority, without action by our stockholders, to fix certain terms and issue shares of our Preferred Stock, par value $1.00 per share. Actions of our Board of Directors pursuant to this authority may have the effect of delaying, deterring or preventing a change in control of the Company. Other provisions in our Certificate of Incorporation and in our Bylaws impose procedural and other requirements that could be deemed to have anti-takeover effects, including replacing incumbent directors. Our Board of Directors is divided into three classes, each of which is to serve for a staggered three-year term after the initial classification and election, and incumbent directors may not be removed without cause, all of which may make it more difficult for a third party to gain control of our Board of Directors. In addition, as a Delaware corporation we are subject to section 203 of the Delaware General Corporation Law. With certain exceptions, section 203 imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our voting stock.

        Our Holding Company Structure Results In Structural Subordination And May Affect Our Ability To Fund Our Operations And Make Payments On Our Debt.    We are a holding company and, accordingly, substantially all of our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to service our debt, including $200 million of our senior notes, are dependent upon the earnings of our subsidiaries and the distribution of earnings, loans or other payments by our subsidiaries to us. Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due on our debt or provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. In addition, any payment of dividends, distributions, loans or advances to us by our subsidiaries could be subject to statutory or contractual restrictions. Payments to us by our subsidiaries will also be contingent upon our subsidiaries' earnings and business considerations. Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the right of the holders of our debt to participate in those assets, would be effectively subordinated to the claims of those subsidiaries' creditors, including trade creditors. In addition, even if we were a creditor of any of our subsidiaries, our rights as a creditor would be effectively subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to that held by us.

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ITEM 1B. Unresolved Staff Comments

        None.

ITEM 2.    Properties

        Our home offices lease approximately 360,000 square feet for Waddell & Reed, Legend, and ACF located in Overland Park, Kansas, Palm Beach Gardens, Florida, and San Antonio, Texas, respectively. This figure does not include office space of 41,000 square feet formerly leased by MIMI in Boca Raton, Florida, which has been sublet. In addition, we lease office space for financial advisors and sales management in various locations throughout the United States totaling approximately 610,000 square feet. In the opinion of management, the office space leased by the Company is adequate for existing operating needs.

ITEM 3.    Legal Proceedings

        The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

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

        During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise.

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PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our Class A common stock ("common stock") is traded on the NYSE under the ticker symbol "WDR." The following table sets forth, for the periods indicated, the high and low sale prices of our common stock, as reported by the NYSE, as well as the cash dividends declared for these time periods:

Market Price

	2007						2006
Quarter	High		Low		Dividends Per Share		High		Low		Dividends Per Share
1	$	27.58	$	21.91	$	0.17	$	23.60	$	20.57	$	0.15
2		27.69		22.74		0.17		24.80		19.65		0.15
3		29.35		21.52		0.17		25.05		19.23		0.15
4		37.65		26.71		0.17		27.80		23.97		0.15

        Year-end closing prices of our common stock for 2007 and 2006, respectively were $36.09 and $27.36. The closing price of our common stock on February 22, 2008 was $32.24.

        According to the records of our transfer agent, we had 4,054 holders of record of common stock as of February 22, 2008. We believe that a substantially larger number of beneficial stockholders hold such shares in depository or nominee form.

Dividends

        The declaration of dividends is subject to the discretion of the Board of Directors. We intend, from time to time, to pay cash dividends on our common stock as our Board of Directors deems appropriate, after consideration of our operating results, financial condition, cash and capital requirements, compliance with covenants in our revolving credit facility and such other factors as the Board of Directors deems relevant. Our current credit facility does not limit our ability to pay cash dividends. To the extent assets are used to meet minimum net capital requirements under the Net Capital Rule, they are not available for distribution to stockholders as dividends. See Part I, Item 1. "Business—Regulation."

        The Board of Directors approved an increase in the quarterly dividend on our common stock from $.17 per share to $.19 per share beginning with our first quarter 2008 dividend, payable on May 1, 2008. We anticipate that quarterly dividends will continue to be paid.

        The Board of Directors approved an increase in the quarterly dividend on our common stock from $.15 per share to $.17 per share beginning with our first quarter 2007 dividend, paid on May 1, 2007.

Common Stock Repurchases

        Our Board of Directors has authorized the repurchase of our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs. During the year ended December 31, 2007, we repurchased (i) 2,350,054 shares in the open market and privately at an aggregate cost, including commissions, of $59.5 million, (ii) 7,121 mature shares from stock incentive plan participants to cover the strike price of options exercised in connection with a Stock Option Restoration Program (the "SORP"), (iii) 1,010 newly issued shares from SORP participants to cover their statutory minimum tax withholdings on option exercises, and (iv) 234,162 shares from related parties to cover their tax withholdings from the vesting of nonvested shares. The aggregate cost of shares obtained from related parties during 2007 was $5.5 million. The purchase price paid by us for private repurchases of our common stock from related parties is the closing market price on the purchase date.

21

        The following table sets forth certain information about the shares of common stock we repurchased during the fourth quarter of 2007.

Period		Total Number of Shares Purchased (1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under The Program
October 1 - October 31		626	$    28.31	626	n/a (1)
November 1 - November 30		155,454	33.00	155,454	n/a (1)
December 1 - December 31		-	-	-	n/a (1)
	Total	156,080	$    32.98	156,080

(1)

On August 31, 1998, we announced that our Board of Directors approved a program to repurchase shares of our common stock on the open market. Under the repurchase program, we are authorized to repurchase, in any seven-day period, the greater of (i) 3% of our outstanding common stock or (ii) $50 million of our common stock. We may repurchase our common stock through the NYSE, other national or regional market systems, electronic communication networks or alternative trading systems such as POSIT, during regular or after-hours trading sessions. POSIT is an alternative trading system that uses passive pricing to anonymously match buy and sell orders. To date, we have not used electronic communication networks or alternative trading systems to repurchase any of our common stock and do not intend to use such networks or systems in the foreseeable future. Our stock repurchase program does not have an expiration date or an aggregate maximum number or dollar value of shares that may be repurchased. Our Board of Directors reviewed and ratified the stock repurchase program in July 2004. During the fourth quarter of 2007, all stock repurchases were made pursuant to the repurchase program, including 626 shares that were purchased in connection with funding employee income tax withholding obligations arising from the vesting of nonvested shares.

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ITEM 6.    Selected Financial Data

        The following table sets forth our selected consolidated financial and other data at the dates and for the periods indicated. Selected financial data should be read in conjunction with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and the Notes thereto appearing elsewhere in this report.

		For the Year Ended December 31,
		2007	2006 (1)	2005 (2)	2004	2003 (3)
		(in thousands, except per share data and number of financial advisors)
Revenues from:
	Investment management fees	$     372,345	311,525	267,681	240,282	203,918
	Underwriting and distribution fees	371,085	317,458	272,590	252,883	231,662
	Shareholder service fees	94,124	89,672	81,809	76,522	70,678
	Total revenues	837,554	718,655	622,080	569,687	506,258
Net income		125,497	46,112	60,121	102,165	54,265
	per common share—basic	1.55	0.57	0.74	1.27	0.67
	per common share—diluted	1.52	0.55	0.73	1.25	0.66
Dividends declared per common share		$           0.68	0.60	0.60	0.60	0.57
Advisor and productivity data (excluding     Legend):
	Investment product sales (4)	$  2,632,411	2,276,405	1,901,356	1,811,960	1,796,244
	Number of financial advisors (end of period)	2,293	2,255	2,409	2,623	2,929
	Average number of financial advisors	2,190	2,290	2,453	2,556	3,049
	Investment product sales per advisor	$         1,189	994	776	709	589
Wholesale channel data:
	Sales (net of commissions)	$  9,469,932	4,541,812	2,346,749	1,375,222	932,600
	Number of wholesalers	34	26	23	19	15
Institutional channel sales		$  1,882,908	968,106	654,333	1,276,614	2,388,881

		As of December 31,
		2007	2006	2005	2004	2003
		(in millions)
Assets under management		$       64,868	48,401	41,863	38,658	36,573
Balance sheet data:
Goodwill and identifiable intangible         assets		228.4	228.4	250.3	250.3	250.1
	Total assets	893.8	662.7	632.3	619.9	565.8
	Short-term debt	-	-	1.7	35.0	25.0
	Long-term debt	200.0	199.9	198.2	202.9	209.7
	Total liabilities	512.1	418.0	384.9	401.0	390.4
	Stockholders' equity	381.7	244.7	247.4	218.9	175.4

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(1)

Includes a pre-tax charge of $55.0 million ($39.4 million net of tax) to recognize our settlement with the SEC, New York Attorney General and Kansas Securities Commissioner related to market-timing allegations; a charge of $20.0 million (not deductible for income tax purposes) to recognize the impairment of goodwill associated with ACF; charges associated with the resolution of the Williams excessive fee litigation; expenses related to prior regulatory settlements; and a pre-tax charge of $1.9 million ($1.3 million net of tax) related to employee separation costs at ACF in response to a decline in investment performance and related loss of assets under management, all recorded in 2006.

(2)

Includes pre-tax charges totaling $47.4 million ($30.8 million net of tax) recorded during 2005 related to settlements of outstanding legal matters with Torchmark for actions in Alabama, California and Kansas, a settlement with the National Association of Securities Dealers ("NASD") and a consortium of states relating to variable annuity sales practices; separation of employment payments to our former chief executive officer; a NASD arbitration settlement with a former financial advisor; and other employee separation payments related to the restructuring of the Advisors channel.

(3)

Includes a pre-tax charge of $32.0 million ($21.5 million net of tax) in 2003 for estimated damages and legal costs in connection with the UILIC litigation; an NASD sales practice exam; ongoing disputes with former sales personnel in our Advisors channel; and a pre-tax charge of $27.1 million ($17.2 million net of tax) related to a stock option tender offer during 2003.

(4)

Investment product sales are commissionable sales by our financial advisors, shown gross of commissions, and do not include mutual funds sold at net asset value or sales of other wholesale mutual funds or insurance products.

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

This Item includes statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. All statements, other than statements of historical fact, included in this Form 10-K regarding our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. All forward-looking statements included in this Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update such forward-looking statements. Although we believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct or that we will take any actions that may presently be planned. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the "Risk Factors" section of this Form 10-K, which include, without limitation, the adverse effect from a decline in securities markets or a decline in our products' performance, failure to renew investment management agreements, adverse results of litigation and/or arbitration, acts of terrorism and/or war, competition, changes in government regulation, and availability and terms of capital. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors.

        The following should be read in conjunction with the "Selected Financial Data" and our Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

Executive Overview

        We are one of the oldest mutual fund and asset management firms in the country, with expertise in a broad range of investment styles and across a variety of market environments. Our earnings and cash flows are heavily dependent on financial market conditions. Significant increases or decreases in the various securities markets, particularly United States equity markets, can have a material impact on our results of operations, financial condition and cash flows.

Revenue Sources

        We derive our revenues primarily from providing investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds and institutional and separately managed accounts. Investment management fees, a substantial source of our revenues, are based on the amount of average assets under management and are affected by sales levels, financial market conditions, redemptions and the composition of assets. Underwriting and distribution revenues, another substantial source of revenues, consist of commissions derived from sales of investment and insurance products, distribution fees on certain variable products, and fees earned on fee-based asset allocation products, as well as advisory services. The products sold have various commission structures and the revenues received from product sales vary based on the type and amount sold. Rule 12b-1 service and distribution fees earned for servicing and/or distributing certain mutual fund shares are based upon assets under management and fluctuate based on sales, redemptions and financial market conditions. Other service fees include transfer agency fees, custodian fees for retirement plan accounts and portfolio accounting.

Our Distribution Channels

        One of our distinctive qualities is that we are a significant distributor of investment products. Our retail products are distributed through our sales force of independent financial advisors (the "Advisors channel") or through third-parties such as other broker/dealers, registered investment advisors (including the retirement advisors of Legend) and various retirement platforms, (the "Wholesale channel"). We also market our investment advisory services to institutional investors, either directly or through consultants (the "Institutional channel").

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        In the Advisors channel, our sales force consists of 2,293 independent financial advisors providing personal financial planning services to our clients across the United States, focusing on investment strategies for retirement, education funding, insurance, estate planning and other specific needs.

        In our Wholesale channel, we distribute retail mutual funds through broker/dealers, registered investment advisors, including Legend, our Florida-based retirement planning subsidiary and various retirement platforms. A team of 34 national wholesalers lead the efforts in this channel.

        Through our Institutional channel we manage assets for defined benefit pension plans, other investment companies (as a subadvisor), defined contribution plans, endowments and high net worth clients.

2007 in Review

•

Assets under management were up 34% to $64.9 billion, driven by a combination of organic growth and market action.



•

We reached record sales levels in the fourth quarter in all three channels.



•

60% of our equity funds and 66% of our equity assets ranked in the top quartile of their respective peer groups for the one-year period ended December 31.



•

Ivy Funds gross sales ranked among the top 20 at each of the five largest wirehouses in the United States and top 10 at two of those five wirehouses.



•

Advisors channel productivity continues to improve.



•

We introduced modified fee-based asset allocation products (MAP and MAP Plus) in April 2007 with invested assets reaching $1 billion as of year-end.



•

Common stock value was up 32% over the prior year.



•

We increased our quarterly dividend on our common stock from $.15 per share to $.17 per share beginning with our first quarter dividend.

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Assets Under Management

        Assets under management of $64.9 billion on December 31, 2007 were 34% higher than the $48.4 billion reported a year earlier primarily due to market appreciation of $10.0 billion and net sales of $6.2 billion. The Wholesale channel was the net sales driver in 2007.

Change in Assets Under Management⁽¹⁾

	Advisors Channel		Wholesale Channel	Institutional Channel	Total
	(in millions)
December 31, 2007
Beginning Assets	$	29,905	10,819	7,677	48,401
Sales (net of commissions)		3,551	9,470	1,883	14,904
Redemptions		(3,829)	(2,795)	(2,128)	(8,752)
Net Sales		(278)	6,675	(245)	6,152
Net Exchanges		(180)	173	-	(7)
Reinvested Dividends and Capital Gains		245	(24)	105	326
Net Flows		(213)	6,824	(140)	6,471
Market Appreciation		4,870	3,894	1,232	9,996
Ending Assets	$	34,562	21,537	8,769	64,868
December 31, 2006
Beginning Assets	$	27,187	6,729	7,947	41,863
Sales (net of commissions)		3,216	4,541	968	8,725
Redemptions		(3,325)	(1,915)	(1,748)	(6,988)
Net Sales		(109)	2,626	(780)	1,737
Net Exchanges		(194)	185	-	(9)
Reinvested Dividends and Capital Gains		232	16	111	359
Net Flows		(71)	2,827	(669)	2,087
Market Appreciation		2,789	1,263	399	4,451
Ending Assets	$	29,905	10,819	7,677	48,401
December 31, 2005
Beginning Assets	$	25,297	4,702	8,659	38,658
Sales (net of commissions)		2,406	2,347	654	5,407
Redemptions		(3,060)	(1,149)	(2,121)	(6,330)
Net Sales		(654)	1,198	(1,467)	(923)
Net Exchanges		(88)	78	-	(10)
Reinvested Dividends and Capital Gains		161	13	114	288
Net Flows		(581)	1,289	(1,353)	(645)
Market Appreciation		2,471	738	641	3,850
Ending Assets	$	27,187	6,729	7,947	41,863

⁽¹⁾

Includes all activity of the Funds and institutional and separate accounts, including money market funds and transactions at net asset value, accounts for which we receive no commissions.

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        Average assets under management, which are generally more indicative of trends in revenue for providing investment management services than the year over year change in ending assets under management, increased by 22% as compared to 2006.

Average Assets Under Management

			2007			2006		2005
			Average		Percentage of Total	Average	Percentage of Total	Average	Percentage of Total
			(in millions)
Distribution Channel:
	Advisors Channel
		Equity	$	27,048	84%	23,821	84%	21,051	82%
		Fixed income		4,154	13%	3,901	14%	3,947	15%
		Money market		1,046	3%	798	2%	684	3%
	Total		$	32,248	100%	28,520	100%	25,682	100%
	Wholesale Channel
		Equity	$	14,395	97%	8,499	95%	5,181	93%
		Fixed income		380	3%	344	4%	325	6%
		Money market		64	0%	70	1%	58	1%
	Total		$	14,839	100%	8,913	100%	5,564	100%
	Institutional Channel
		Equity	$	7,199	92%	7,120	92%	7,589	92%
		Fixed income		614	8%	624	8%	619	8%
		Money market		-	-	-	-	-	-
	Total		$	7,813	100%	7,744	100%	8,208	100%
Total by Asset Class:
		Equity	$	48,642	89%	39,440	87%	33,821	86%
		Fixed income		5,148	9%	4,869	11%	4,891	12%
		Money market		1,110	2%	868	2%	742	2%
	Total		$	54,900	100%	45,177	100%	39,454	100%

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        The following table summarizes our five largest mutual funds as of December 31, 2007 by ending assets under management and investment management fees for the last three years. The assets under management and management fees of our five largest mutual funds are presented as a percentage of our total assets under management and total management fees.

Five Largest Mutual Funds by Ending Assets Under Management and Investment Management Fees

			2007			2006		2005
			Ending		Percentage of Total	Ending	Percentage of Total	Ending	Percentage of Total
			(in millions)
By Assets Under Management:
	Ivy Global Natural Resources		$	8,464	15%	4,519	9%	2,469	6%
	Ivy Asset Strategy			8,419	14%	2,008	4%	312	1%
	Advisors Core Investment			4,240	7%	4,155	9%	4,054	10%
	Advisors Asset Strategy			3,118	5%	1,899	4%	1,110	3%
	Advisors Science & Technology			2,851	5%	2,521	5%	2,502	6%
		Total	$	27,092	46%	15,102	31%	10,447	26%
			(in thousands)
By Management Fees:
	Ivy Global Natural Resources (1)		$	50,944	14%	31,454	10%	14,612	5%
	Advisors Core Investment			25,861	7%	25,635	8%	25,646	10%
	Ivy Asset Strategy			24,802	7%	7,094	2%	1,082	0%
	Advisors Science & Technology			22,310	6%	20,676	7%	19,291	7%
	Advisors Asset Strategy			15,696	4%	10,654	3%	5,663	2%
		Total	$	139,613	38%	95,513	30%	66,294	24%

⁽¹⁾    For the years ended December 31, 2007, 2006 and 2005, we paid subadvisory fees of $25.6 million, $15.8 million and $7.4 million, respectively, to MFC for subadvisory services. The subadvisory agreement with MFC expires in 2008 and is renewable on an annual basis.

29

Results of Operations

Net Income

		For the Year Ended December 31,				Variance
		2007		2006	2005	2007 vs. 2006	2006 vs. 2005
		(in thousands, except percentage data)
Net Income		$	125,497	46,112	60,121	172%	-23%
Earnings per share:
	Basic	$	1.55	0.57	0.74	172%	-23%
	Diluted	$	1.52	0.55	0.73	176%	-25%
Operating Margin			23%	12%	17%	11%	-5%

        We reported net income of $125.5 million, or $1.52 per diluted share, in 2007 compared to $46.1 million, or $0.55 per diluted share in 2006 and $60.1 million, or $.73 per diluted share in 2005. Operating results for 2006 include a charge of $55.0 million related to our settlement with the SEC, the New York Attorney General and the Kansas Securities Commission regarding market timing allegations, $12.0 million of which represented non-deductible penalties. During 2006 we also recorded a goodwill impairment charge of $20.0 million related to our subsidiary ACF based on the negative impact of the continued decline in ACF's assets under management and diminished involvement of ACF's investment staff in mutual fund advisory responsibilities, which adversely impacted its earnings potential. Fiscal 2006 also included a restructuring charge of $1.9 million at ACF for employee separation costs, in response to a decline in investment performance and related loss of assets under management.

        In 2005, we recorded a $35.0 million charge for the settlement of outstanding legal matters with Torchmark for various actions and the NASD and a consortium of states relating to variable annuity sales practices, as well as a $6.1 million charge for additional expenses related to a settlement of an NASD arbitration case with a former advisor and $3.2 million in costs related to the resignation of our former chief executive officer.

Total Revenues

        Total revenues increased 17% and 16% for the fiscal years 2007 and 2006, respectively, attributable to growth in average assets under management of 22% and 15% for the two years.

		For the Year Ended December 31,				Variance
		2007		2006	2005	2007 vs. 2006	2006 vs. 2005
		(in thousands, except percentage data)
Investment management fees		$	372,345	311,525	267,681	20%	16%
Underwriting and distribution fees			371,085	317,458	272,590	17%	16%
Shareholder service fees			94,124	89,672	81,809	5%	10%
	Total revenues	$	837,554	718,655	622,080	17%	16%

Investment Management Fee Revenues

        Investment management fee revenues are earned for providing investment advisory services to the Funds and to institutional and separate accounts. Investment management fee revenues increased $60.8 million, or 20%, in 2007 and $43.8 million, or 16%, in 2006.

30

        Revenues from investment management services provided to our retail mutual funds, which are distributed through the Advisors and the Wholesale channels, were $332.8 million in 2007 and increased $62.6 million, or 23%, compared to 2006, while the related retail average assets increased 26%. Investment management fee revenues increased less than the related retail average assets due to significant sales growth in our Asset Strategy funds, which have lower than average management fee rates. Investment management fee revenues in both 2007 and 2006 were also impacted by the decrease in management fee rates on certain funds in compliance with the New York Attorney General settlement that took place in the fourth quarter of 2006 and has reduced management fees by approximately $5.0 million on an annual basis. Revenues from investment management services provided to our retail mutual funds were $270.2 million, and increased $46.2 million, or 21%, in 2006 compared to 2005, while the related retail average assets increased 20%. Retail sales in 2007 and 2006 were $13.0 billion and $7.8 billion, respectively, representing a 68% and 63% increase over sales in 2006 and 2005, respectively, with the majority of the growth in retail sales occurring in our Wholesale channel.

        Institutional and separate account revenues were $39.5 million, $41.3 million and $43.7 million in 2007, 2006 and 2005, respectively. The decrease in account revenues in 2007 was attributable to a decline in ACF's average assets by 27% and a management fee rate decrease on certain institutional accounts. The decrease in account revenues in 2006 was primarily attributable to ACF, based on a decline in their average assets by 42%.

        Long-term redemption rates (which exclude money market fund redemptions) in the Advisors channel improved to 9.1% in 2007 compared to 9.2% and 9.6% in 2006 and 2005, respectively. In the Wholesale channel, long-term redemption rates were 18.5% in 2007, a decrease from 21.0% in 2006 and 20.3% in 2005. We expect the Advisors channel long-term redemption rate to remain lower than that of the Wholesale channel due to the personal and customized nature in which our financial advisors provide service to our clients. The long-term redemption rate for our Institutional channel was 27.2% in 2007 compared to 22.6% in 2006 and 25.8% in 2005. The higher institutional redemption rate in 2007 compared to 2006, which is based on total redemptions for the period of $2.1 billion, reflected redemptions across multiple investment disciplines, including large cap growth, small cap growth, core equity and international growth. The elevated redemption rate in 2005 is due to the loss of one block of client assets moving to an alternative investment as well as performance driven outflows at ACF. ACF's redemptions were $174.6 million in 2007 compared to $545.4 million in 2006 and $558.9 million in 2005.

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Underwriting and Distribution Revenues and Expenses

        The following table illustrates our underwriting and distribution fee revenues and expenses segregated by distribution channel for the years ended December 31, 2007, 2006 and 2005:

		Total
		2007		2006	2005	2007 vs. 2006	2006 vs. 2005
		(in thousands, expect percentage data)
Revenue		$	371,085	317,458	272,590	17%	16%
Expenses:
	Direct		300,929	244,454	202,162	23%	21%
	Indirect		121,345	112,084	101,175	8%	11%
Total Expenses			422,274	356,538	303,337	18%	18%
Net Underwriting & Distribution		$	(51,189)	(39,080)	(30,747)	-31%	-27%
		Advisors Channel
		2007		2006	2005	2007 vs. 2006	2006 vs. 2005
Revenue		$	238,210	225,313	206,582	6%	9%
Expenses:
	Direct		163,513	154,580	141,102	6%	10%
	Indirect		84,777	82,337	76,001	3%	8%
Total Expenses			248,290	236,917	217,103	5%	9%
Net Underwriting & Distribution		$	(10,080)	(11,604)	(10,521)	13%	-10%
		Wholesale Channel
		2007		2006	2005	2007 vs. 2006	2006 vs. 2005
Revenue		$	132,875	92,145	66,008	44%	40%
Expenses:
	Direct		137,416	89,874	61,060	53%	47%
	Indirect		36,568	29,747	25,174	23%	18%
Total Expenses			173,984	119,621	86,234	45%	39%
Net Underwriting & Distribution		$	(41,109)	(27,476)	(20,226)	-50%	-36%

        The Advisors channel is the largest source of underwriting and distribution revenue, given that a significant amount of Wholesale mutual fund sales are load-waived, with the exception of investment product sales by Legend advisors. The majority of underwriting and distribution fee revenues are derived from sales commissions charged on front-end load products sold by our financial advisors, including mutual fund Class A shares (those sponsored by the Company and those underwritten by other non-proprietary mutual fund companies), variable annuities and financial planning fees. To a lesser extent, underwriting and distribution revenues are received from Rule 12b-1 asset-based distribution and service fees earned on both load and load-waived and deferred-load products sold by our financial advisors and third party intermediaries, asset-based fees earned on our asset allocation products, and commissions earned on the sale of other insurance products.

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        We divide the costs of underwriting and distribution into two components—direct costs and indirect costs. Direct selling costs fluctuate with sales volume, such as advisor commissions and commission overrides paid to field management, advisor incentive compensation, commissions paid to third parties and to our own wholesalers, and related overrides in our Wholesale channel. To a lesser extent, direct selling costs fluctuate with assets under management, such as Rule 12b-1 service and distribution fees paid to the same parties. Indirect selling costs are fixed costs that do not necessarily fluctuate with sales levels. Indirect costs include expenses incurred by our home office and field offices such as wholesaler salaries, marketing costs, promotion and distribution of our products through the Advisors and Wholesale channels, support and management of our financial advisors such as field office overhead, sales programs, technology infrastructure, and costs of managing and supporting our Wholesale efforts through technology infrastructure and personnel. While the Institutional channel does have marketing expenses, those expenses are accounted for in our compensation and related costs and general and administrative expense lines instead of underwriting and distribution because of the channel's integration with our investment management division and its relatively small size. We recover certain of our underwriting and distribution costs through Rule 12b-1 service and distribution fees, which are paid by the Funds. Rule 12b-1 service and distribution fees are received predominantly from the Advisors Funds Class A shares under a sales and servicing reimbursement plan agreement. This agreement allows reimbursement to us from the Advisors Funds Class A shares of certain Rule 12b-1 eligible expenses, not to exceed a maximum of 25 basis points of average daily net assets under management. We also have compensatory or reimbursement Rule 12b-1 service and/or distribution plans for the Ivy Funds, Target Funds, InvestEd and Advisor Funds. All Rule 12b-1 service and distribution fee revenue received from the Funds is recorded on a gross basis.

        We anticipate operating margin pressure in 2008 based on strong sales growth in our Wholesale channel, which has a higher cost to gather assets and requires cash outlays for wholesaler commissions and commissions to third parties on deferred load product sales. The growth we have experienced in our Wholesale channel also requires that we add additional resources and infrastructure to manage this growth. During the fourth quarter of 2007, we had a 70% annualized organic growth rate in this channel.

        Underwriting and distribution revenues increased by $53.6 million, or 17%, when compared with the prior year. A majority of the increase in revenues was due to higher Rule 12b-1 asset-based service and distribution fees of $45.7 million as a result of an increase in average mutual fund assets under management. Additionally, revenues from fee-based asset allocation products increased $3.6 million, primarily attributable to modified fee-based asset allocation products introduced in April 2007. The introduction of these products was a contributing factor to a decline in front-load product sales and a resulting decrease of $2.5 million related to revenue on front-load product sales sold in the Advisors channel. Higher advisory fees, Rule 12b-1 service fee revenues and point of sale commissions earned by Legend added another $6.8 million in revenue compared to the prior year as their assets under administration increased.

        Underwriting and distribution revenues increased by $44.9 million, or 16%, in 2006 compared to 2005. A majority of the increase in revenues was due to higher Rule 12b-1 asset-based service and distribution fees of $31.1 million as a result of an increase in average mutual fund assets under management. Underwriting revenue on front-load product sales sold in the Advisors channel contributed an additional $10.0 million in revenues due to higher sales during 2006. Higher advisory fees, Rule 12b-1 service fee revenues and point of sale commissions earned by Legend added another $6.9 million in revenue compared to the prior year as their assets under administration increased.

        Underwriting and distribution expenses increased by $65.7 million, or 18%, in 2007, when compared with the prior year. A majority of this increase was attributed to higher direct expenses in the Wholesale channel of $47.5 million as a result of higher sales volume and an increase in average Wholesale assets under management. Specifically, we incurred higher Rule 12b-1 asset-based service and distribution expenses, increased dealer compensation paid to third party distributors, higher wholesaler commissions and higher amortization expense of deferred sales commissions. Direct expenses in the Advisors channel

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increased $8.9 million due to higher Rule 12b-1 asset-based service and distribution commissions of $23.3 million, offset by $12.6 million of deferred sales commissions capitalized in 2007 in association with our fee-based asset allocation products and a $1.8 million decrease in financial planning fee expenses. The increase in indirect expenses in the Advisors channel of $2.4 million was due to increased sales support and field office expenses, partially offset by decreases in convention and recruiting expenses. The indirect expenses increase of $6.8 million in the Wholesale channel was driven by higher costs associated with developing our non-proprietary distribution outlets. These costs include a $5.2 million increase for higher marketing costs for promotion and distribution of our products through the Wholesale channel based on higher sales volume and a $1.6 million increase in base salaries and payroll taxes primarily as a result of adding more wholesalers during 2007.

        Underwriting and distribution expenses increased by $53.2 million, or 18%, in 2006 compared to 2005. A majority of this increase was attributed to higher direct expenses in the Wholesale channel of $28.8 million as a result of higher sales volume and an increase in average Wholesale assets under management. Specifically, higher Rule 12b-1 asset-based service and distribution expenses, additional dealer compensation paid to third party distributors, and higher commissions were paid to our wholesalers. Direct expenses in the Advisors channel increased $13.5 million due to an increase in point-of-sale commissions paid on front-load product sales and higher Rule 12b-1 asset-based service and distribution commissions paid. The increase in indirect expenses in the Advisors channel of $6.3 million was due to increased information technology, sales support and convention expenses. The indirect expenses increase of $4.6 million in the Wholesale channel was driven by higher costs associated with developing our non-proprietary distribution outlets. These costs include a $3.6 million increase for higher marketing costs for promotion and distribution of our products through the Wholesale channel based on higher sales volume and higher meeting and travel expenses and a $1.0 million increase in base salaries and payroll taxes primarily as a result of adding more wholesalers during 2006.

Shareholder Service Fee Revenues

        Shareholder service fee revenues primarily include transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees. During 2007 and 2006, shareholder service fee revenue increased by 5% and 10%, respectively, compared to 10% increases each year in the average number of accounts. The average number of shareholder accounts grew to 3.06 million in 2007 compared to 2.79 million in 2006 and 2.53 million in 2005. Effective September 1, 2006, our servicing contract with the Funds was renegotiated, resulting in reduced fees received by us for servicing wholesale accounts. Historically our account growth has mirrored our growth in revenue; however, with this reduced fee structure for wholesale accounts, our future revenue growth will not necessarily be tied to overall account growth. A portion of the fee reduction for wholesale accounts was offset by negotiating a networking fee reimbursement with the Funds for amounts paid to third party broker/dealers.

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Total Operating Expenses

        Operating expenses increased $13.2 million, or 2%, in 2007 compared to 2006 primarily due to increased underwriting and distribution expenses and subadvisory fees, offset by litigation-related charges recorded in 2006 in general and administrative and an impairment charge related to goodwill, also recorded in 2006. Operating expenses increased $111.2 million, or 21%, in 2006 compared to 2005 due to increased underwriting and distribution expenses, subadvisory fees, litigation-related charges recorded in general and administrative in both years and an impairment charge related to goodwill recorded in 2006. Underwriting and distribution expenses are discussed above.

		For the Year Ended December 31,				Variance
		2007		2006	2005	2007 vs. 2006	2006 vs. 2005
		(in thousands, except percentage data)
Underwriting and distribution		$	422,274	356,538	303,337	18%	18%
Compensation and related costs			115,905	110,101	99,673	5%	10%
General and administrative			48,487	100,604	87,029	-52%	16%
Subadvisory fees			43,844	30,758	18,218	43%	69%
Depreciation			12,412	11,725	10,275	6%	14%
Goodwill impairment			-	20,000	-	NM	NM
	Total operating expenses	$	642,922	629,726	518,532	2%	21%

Compensation and Related Costs

        Compensation and related costs in 2007 increased $5.8 million, or 5%, compared to 2006. During 2006, we incurred charges of $1.9 million (which included $1.5 million of share-based compensation expense) at ACF in response to a decline in investment performance and related loss of assets under management. Excluding this charge, compensation and related costs increased by $7.7 million. Base salaries and payroll taxes contributed $3.8 million to the increase, primarily due to an increase in headcount of 4.3% and annual merit increases during the current year. Share-based compensation accounted for $3.3 million of the increase primarily due to higher amortization expense associated with our December 2006 and April 2007 grants of nonvested stock compared to grants which became fully vested in December 2006 and throughout 2007. Incentive compensation also increased $2.0 million during 2007 due to investment performance incentives earned by our investment management division and increased executive management bonuses. These expense increases were offset by increased capitalized software development activities of $1.0 million, primarily due to technology initiatives associated with expansion of our brokerage capabilities.

        Compensation and related costs in 2006 increased $10.4 million, or 10%, compared to 2005. During 2005, we recorded $2.7 million in charges associated with the resignation of our former CEO. Excluding this charge and the ACF charge recorded in 2006 mentioned previously, compensation and related costs increased by $11.2 million. Share-based compensation accounted for $4.8 million of this increase primarily due to higher amortization expense associated with our April 2006 grant of nonvested stock. Fiscal 2006 was the first year in which the expense from four years of grants (all with a four-year vesting period) is reflected in compensation and related costs. Additionally, base salaries and payroll taxes contributed $3.6 million to the increase, primarily due to an increase in headcount of 3.4% and annual merit increases during 2006. Incentive compensation increased $3.7 million during 2006, principally due to a change in the compensation structure for our CEO and investment performance incentives earned by our investment management division.

General and Administrative Expenses

        General and administrative expenses are operating costs other than those related to compensation and to distribution efforts, including, but not limited to, computer services and software costs, telecommunications, facilities costs of our home offices, costs of professional services including legal and accounting, and insurance.

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        General and administrative expenses decreased $52.1 million in 2007 compared to 2006. Fiscal year 2006 included a $55.0 million charge for the settlement with the SEC and state regulators. Excluding this charge, general and administrative expenses increased $2.9 million compared to 2006. Higher costs for computer services and fund expenses were primarily responsible for current year increase.

        General and administrative expenses increased $13.6 million in 2006 compared to 2005. Both years included charges for legal settlements: $55.0 million in 2006 for the settlement with the SEC and state regulators; $35.0 million in 2005 for the settlement of outstanding legal matters with Torchmark for various actions and the NASD and a consortium of states relating to variable annuity sales practices; $6.1 million in 2005 in additional expenses related to a settlement of an NASD arbitration case with a former advisor; and $3.2 million in costs related to the resignation of our former chief executive officer. Excluding charges for litigation, regulatory and other matters, general and administrative expenses increased $2.9 million compared to 2005. Higher costs for computer services contributed to the increase.

Goodwill Impairment

        In 2006, we recorded an impairment charge of $20.0 million related to ACF. Factors that led to this conclusion included, but were not limited to, the negative impact of the continued decline in ACF's assets under management and diminished involvement of ACF's investment staff in mutual fund advisory responsibilities during the second quarter of 2006. Continued asset redemptions placed significant risk on ACF's ability to achieve and maintain profitability, and therefore had adversely impacted its earnings potential.

Subadvisory Fees

        Subadvisory fees represent fees paid to other asset managers for providing advisory services for certain mutual fund portfolios. These expenses reduce our operating margin since we pay out approximately half of our management fee revenue received from subadvised products. Our sales in the Wholesale channel broadened in both 2006 and 2007 to include a larger percentage of sales of our own managed products. The growth trend in sales of our own managed products should help to improve our future operating margin.

        Subadvisory expenses for the years ended 2007, 2006 and 2005 were $43.8 million, $30.8 million and $18.2 million, respectively. Significant sales growth in our Wholesale channel over the past three years, particularly sales of our subadvised specialty mutual fund products, has driven increased expenses. As this expense is a function of sales, redemptions and market action for subadvised assets, a continuation of the growth trend for these assets would likely result in future increases to subadvisory expenses. Subadvised average assets under management were $10.4 billion, $7.1 billion and $4.0 billion for the years ended December 31, 2007, 2006 and 2005, respectively.

Other Income and Expenses

Investment and Other Income

        Investment and other income for 2007 increased by $4.0 million over 2006. The increase was primarily attributable to $2.1 million related to increased interest on cash balances, a $1.0 million write-down of other investments in 2006 and higher earnings of $0.5 million from mutual funds in the trading portfolio.

        Investment and other income for 2006 increased by $5.8 million over 2005, primarily reflecting increased interest on short-term commercial paper investments of $3.3 million due to a combination of higher average balances and interest rates. We also recorded gains from the sale of available-for-sale securities of $3.3 million in 2006. These increases were partially offset by a decrease in mutual fund trading portfolio returns of $1.2 million recorded during 2006.

Interest Expense

        Interest expense decreased $0.3 million in 2007 compared to the prior year due to the refinancing of $200 million in senior notes in January of 2006, which had a lower interest rate than the old notes.

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        Interest expense decreased $2.1 million in 2006 compared to 2005, partially due to interest incurred on short-term borrowings in 2005 of $0.9 million. There were no short-term borrowings in 2006. In 2006, we refinanced $200 million in senior notes at a rate of 5.6%, compared to an average interest rate of 6.25% (including the benefit of our interest rate swap) in 2005, resulting in decreased 2006 interest expense of $1.2 million.

Income Taxes

        Our effective income tax rate was 37.0%, 48.3% and 37.3% in 2007, 2006 and 2005, respectively. The effective tax rate in 2007 decreased compared to 2006 primarily as a result of the non-deductible goodwill impairment charge and non-deductible fines recorded during 2006. Our 2006 effective tax rate, removing the effect of these non-deductible charges and state tax incentives recorded in 2006, would have been 36.4%. The effective tax rate in 2007 has increased slightly from the 2006 rate excluding non-deductible charges and state tax incentives due to changes in state legislation in jurisdictions in which the Company operates. The effective tax rate in 2005 also reflected the effect of non-deductible fines recorded during 2005.

Liquidity and Capital Resources

        The following table summarizes certain key financial data relating to our liquidity and capital resources:

	For the Year Ended December 31,				Variance
	2007		2006	2005	2007 vs. 2006	2006 vs. 2005
	(in thousands, except percentage data)
Balance Sheet Data:
Cash and cash equivalents	$	263,914	163,887	136,694	61%	20%
Cash and cash equivalents - restricted		99,886	32,629	26,081	206%	25%
Investment Securities		50,913	48,129	51,701	6%	-7%
Short-term debt		- -	- -	1,746	NA	NA
Long-term debt		199,955	199,942	198,230	0%	1%
Cash Flow Data:
Operating cash flows		128,111	93,011	100,787	38%	-8%
Investing cash flows		(5,146)	(2,332)	66,140	-121%	-104%
Financing cash flows		(22,938)	(63,486)	(91,487)	64%	31%

        Our operations provide much of the cash necessary to fund our priorities, as follows:

•

Finance internal growth



•

Pay dividends



•

Repurchase our stock

Finance Internal Growth

        We use cash to fund growth in our distribution channels. Our Wholesale channel, which has a higher cost to gather assets, requires cash outlays for wholesaler commissions and commissions to third parties on deferred load product sales. The growth we have experienced in our Wholesale channel also requires that we add additional resources and infrastructure to manage this growth. We also continue to invest in our Advisors channel by providing additional support to our advisors through training, wholesaling efforts and enhanced technology tools.

Pay Dividends

        The Board of Directors approved an increase in the quarterly dividend on our common stock from $.15 per share to $.17 per share beginning with our first quarter 2007 dividend, paid on May 1, 2007.

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Dividends on our common stock resulted in financing cash outflows of over $55.0 million in 2007 and approximately $50.0 million in both 2006 and 2005.

        The Board of Directors approved an increase in the quarterly dividend on our common stock from $.17 per share to $.19 per share beginning with our first quarter 2008 dividend, payable on May 1, 2008.

Repurchase Our Stock

        In 2007, we purchased 2.4 million of our shares, compared to 1.1 million shares and 0.3 million shares in 2006 and 2005, respectively. In the future, we will plan to repurchase shares, at a minimum, to replace those issued for employee share plans (approximately one million shares each year). During 2008, we also expect to repurchase approximately 290,000 shares from employees who elect to tender shares to cover their minimum tax withholdings.

Operating Cash Flows

        Cash from operations is our primary source of funds and increased in the current year. Increased revenues combined with higher non-cash share-based compensation expense, and timing of litigation and regulatory settlement payments in 2006 and 2005, partially offset the impact of considerably lower net earnings in 2006 and 2005 compared to 2007.

        We anticipate that our 2008 contribution to our Pension Plan will be made from cash generated from operations and will be in the range of $5.0 to $10.0 million.

Investing Cash Flows

        Investing activities consist primarily of the purchase and sale of available-for-sale investment securities, as well as capital expenditures. The increase in cash provided by investing activities in fiscal 2005 reflects the return of a $57.4 million cash appeal bond due to a legal settlement with Torchmark and proceeds from sales and maturities of available-for-sale mutual funds and debt securities.

        We expect our 2008 capital expenditures to increase by $10.0 - 12.0 million due to upgrades of our home office facilities and other equipment.

Financing Cash Flows

        As noted previously, dividends and stock repurchases accounted for a majority of our financing cash outflows in 2007. An increase in our stock price during 2007 resulted in substantial stock option exercises, and cash provided by stock option exercises increased to $84.6 million in the current year.

        On January 13, 2006, we issued $200 million in principal amount 5.60% senior notes due 2011 resulting in net proceeds of approximately $198.2 million (net of discounts, commissions and estimated expenses). We used these proceeds, together with cash on hand, to repay the entire $200 million aggregate principal amount outstanding of our 7.50% senior notes due January 18, 2006. The notes represent senior unsecured obligations and are rated "Baa2" by Moody's and "BBB" by Standard & Poor's. Interest is payable semi-annually on January 15 and July 15 at a rate of 5.60% per annum. The Company, at its option, may call these notes at any time pursuant to a make whole redemption provision, which would compensate holders for any changes in interest rate levels of the notes upon early extinguishment. The Company currently has no intention to call these notes.

        In 2005, we entered into a three year revolving credit facility (the "Credit Facility") with various lenders, which provides for initial borrowings of up to $200 million. Borrowings under the Credit Facility bear interest at various rates including adjusted LIBOR or an alternate base rate plus, in each case, an incremental margin based on the Company's credit rating. The Credit Facility also provides for a facility fee on the daily aggregate amount of commitment under the revolving facility (whether or not utilized). The facility fee is also based on the Company's credit rating level. The Credit Facility contains financial covenants with respect to leverage and interest coverage, both of which we were in compliance with throughout fiscal 2007. At December 31, 2007, there were no borrowings outstanding under the Credit Facility.

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        Uses of cash in 2005 included payments on short-term borrowings of $35.0 million.

Short Term Liquidity and Capital Requirements

        Management believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund its short-term operating and capital requirements during 2008. Expected short-term uses of cash include expected dividend payments, interest payments on outstanding debt, income tax payments, share repurchases, payment of deferred commissions to our financial advisors and third parties, capital expenditures, pension funding and home office leasehold improvements and could include strategic acquisitions.

        We pay our financial advisors and third parties upfront commissions on the sale of Class B shares, Class C shares and certain fee-based asset allocation products. Funding of such commissions during the years ended December 31, 2007, 2006 and 2005 totaled $49.6 million, $19.9 million and $11.8 million, respectively. The primary drivers of the increase in 2007 were Class C shares and asset allocation products, for which $26.9 million and $14.4 million of commissions were funded in 2007, respectively. Management expects future cash requirements for sales commissions to exceed the level experienced in previous years due to increased sales in our fee-based asset allocation products and steady sales growth in the sale of Class B and Class C shares.

Long Term Liquidity and Capital Requirements

        Expected long-term capital requirements include indebtedness, operating leases and purchase obligations, and potential recognition of tax liabilities, summarized in the following table as of December 31, 2007. Purchase obligations include amounts that will be due for the purchase of goods and services to be used in our operations under long-term commitments or contracts. The majority of our purchase obligations are reimbursable to us by the Funds.

	Total	2008	2009- 2010	2011- 2012	Thereafter/ Indeterminate
	(in thousands)
Long-term debt obligations, including interest	$  239,155	11,200	22,400	205,555	- -
Non-cancelable operating lease commitments	65,288	15,041	22,840	13,195	14,212
Purchase obligations	160,634	33,126	51,099	50,345	26,064
Unrecognized tax benefits	6,195	1,996	-	-	4,199
	$  471,272	61,363	96,339	269,095	44,475

        Other possible long-term discretionary uses of cash could include capital expenditures for enhancement of technology infrastructure and home office improvements, strategic acquisitions, payment of dividends, income tax payments, seed money for new products, payment of upfront fund commissions for Class B shares, Class C shares and certain fee-based asset allocation products, and repurchases of our common stock.

Off-Balance Sheet Arrangements

        Other than operating leases, which are included in the table above, the Company does not have any off-balance sheet financing. The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating its business.

Critical Accounting Policies and Estimates

        Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

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Accounting for Goodwill and Intangible Assets

        As of December 31, 2007, our total goodwill and intangible assets were $228.4 million, or 26%, of our total assets. Two significant considerations arise with respect to these assets that require management estimates and judgment: (i) the valuation in connection with the initial purchase price allocation, and (ii) the ongoing evaluation of impairment.

        In connection with all of our acquisitions, an evaluation is completed to determine reasonable purchase price allocations. The purchase price allocation process requires management estimates and judgments as to expectations for the various products, distribution channels, and business strategies. For example, certain growth rates and operating margins were assumed for different products and distribution channels. If actual growth rates or operating margins, among other assumptions, differ from the estimates and judgments used in the purchase price allocation, the amounts recorded in the financial statements for identifiable intangible assets and goodwill could be subject to charges for impairment in the future.

        We complete an ongoing review of the recoverability of goodwill and intangible assets using a fair-value based approach on an annual basis or more frequently whenever events occur or circumstances change which would more likely than not reduce the fair value of a reporting unit below its carrying amount. Intangible assets with indefinite lives, primarily acquired mutual fund advisory contracts, are also tested for impairment annually by comparing their fair value to the carrying amount of the asset. We consider mutual fund advisory contracts indefinite lived intangible assets as they are expected to be renewed without significant cost or modification of terms. Factors that are considered important in determining whether an impairment of goodwill or intangible assets might exist include significant continued underperformance compared to peers, the likelihood of termination or non-renewal of a mutual fund advisory or subadvisory contract or substantial changes in revenues earned from such contracts, significant changes in our business and products, material and ongoing negative industry or economic trends, or other factors specific to each asset or subsidiary being evaluated. Because of the significance of goodwill and other intangibles to our consolidated balance sheets, the annual impairment analysis is critical. Any changes in key assumptions about our business and our prospects, or changes in market conditions or other externalities, could result in an impairment charge.

Accounting for Income Taxes

        In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. We adjust our income tax provision in the period in which we determine the actual outcomes will likely be different from our estimates. The recognition or derecognition of income tax expense related to uncertain tax positions is determined under the guidance as prescribed by Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109." During 2007 the Company settled two open tax years that were undergoing audit by a state jurisdiction in which the Company operates. In 2006 the Company settled five open tax years, 2000 through 2004, that were undergoing audit by the United States Internal Revenue Service. These audits were settled in all material respects with no significant adjustments. The Company is currently undergoing audits in various other state jurisdictions which have not yet been settled.

        We recognize an asset or liability for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, including the determination of any valuation allowance that might be required for deferred tax assets. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of assets are recovered or liabilities are settled. As of December 31, 2007, two of the Company's subsidiaries have state net operating loss carryforwards in certain states in which those companies file on a separate company basis. These entities have recognized a deferred tax asset for such carryforwards. As of

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December 31, 2006 and 2005, only one of the Company's subsidiaries has state net operating loss carryforwards and has recognized a deferred tax asset for such loss carryforwards. The carryforwards, if not utilized, will expire between 2009 and 2027. Management believes it is not more likely than not that the subsidiaries will generate sufficient future taxable income in these states to realize the benefit of these state net operating loss carryforwards and, accordingly, a valuation allowance in the full amount of the deferred tax asset has been established at December 31, 2007, 2006 and 2005. We have not recorded a valuation allowance on any other deferred tax assets as of the current reporting period based on our belief that operating income will, more likely than not, be sufficient to realize the benefit of these assets over time. In the event that actual results differ from estimates or if our historical trend of positive operating income changes, we may be required to record a valuation allowance on deferred tax assets, which could have a significant effect on our consolidated financial condition and results of operations. Finally, income taxes are recorded at the rates in effect in the various tax jurisdictions in which we operate. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

Pensions and Other Postretirement Benefits

        Accounting for our pension and postretirement benefit plans requires us to estimate the cost of benefits to be provided well into the future and the current value of our benefit obligations. Three critical assumptions affecting these estimates are the discount rate, the expected return on assets, and the expected health care cost trend rate. The discount rate assumption is based on the Mercer Bond Model which calculates the yield on a theoretical portfolio of high-grade corporate bonds with cash flows that generally match our expected benefit payments. The expected return on plan assets and health care cost trend rates are based upon an evaluation of our historical trends and experience, taking into account current and expected future market conditions. Other assumptions include rates of future compensation increases, participant withdrawals and mortality rates, and participant retirement ages. These estimates and assumptions impact the amount of net pension expense or income recognized each year and the measurement of our reported benefit obligation under the plans.

        To reflect market interest rates, in 2007 we increased the discount rate for our pension and postretirement plans to 6.75% from the 6.0% used in 2006 and the 5.75% used in 2005. We continue to assume long-term asset returns of 7.75% on the assets in our pension plan, the same as our assumption in 2006 and 2005. Plan assets are invested in styles including large cap growth, asset strategy, core plus fixed income and science and technology. Our portfolio mix at year-end was 44% asset strategy, 35% large cap growth, 10% core plus fixed income, 9% science and technology and 2% cash. Our targeted allocation percentages are 40% asset strategy, 35% large cap growth, 13% core plus fixed income, 10% science and technology and 2% cash.

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        The effect of hypothetical changes to selected assumptions on the Company's retirement benefit plans would be as follows:

		December 31, 2007	December 31, 2008
Assumptions	Change	Increase (Decrease) PBO/APBO (1)	Increase (Decrease) Expense (2)
	(in thousands)
Pension
Discount rate	+/-50 bps	$  (4,475)/4,857	$  (187)/199
Expected return on assets	+/-50 bps	N/A	(547)/547
OPEB
Discount rate	+/-50 bps	(186)/201	(28)/31
Health care cost trend rate	+/-100 bps	393/(342)	72/(61)

(1)

Projected benefit obligation ("PBO") for pension plans and accumulated postretirement benefit obligation ("APBO") for Postretirement Benefits Other Than Pension plans.

(2)

Pre-tax impact on expense.

Deferred Sales Commissions

        We pay upfront sales commissions to our financial advisors and third party intermediary broker/dealers in connection with the sale of certain classes of mutual fund shares sold without a front-end sales charge. These costs are capitalized and amortized over the period during which the shareholder is subject to a CDSC, not to exceed five years. We recover these costs through Rule 12b-1 and other distribution plan fees, which are paid by the applicable share classes of the Advisors Funds, Ivy Funds and InvestEd portfolios, along with CDSC's paid by shareholders who redeem their shares prior to completion of the required holding periods. Should we lose our ability to recover such sales commissions through distribution plan payments and CDSCs, the value of these assets would immediately decline, as would future cash flows. We periodically review the recoverability of deferred sales commission assets as events or changes in circumstances indicate that the carrying amount of deferred sales commission assets may not be recoverable and adjust the deferred assets accordingly.

Valuation of Investments

        We record substantially all investments in our financial statements at fair value. Where available, we use prices from independent sources such as listed market prices or broker/dealer price quotations. We evaluate our investments for other than temporary declines in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. As most of our investments are carried at fair value, if an other than temporary decline in value is determined to exist, the unrealized investment loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income, in the period in which the other than temporary decline in value is determined. While we believe that we have accurately estimated the amount of the other than temporary decline in the value of our portfolio, different assumptions could result in changes to the recorded amounts in our financial statements.

Loss Contingencies

        The likelihood that a loss contingency exists is evaluated using the criteria of Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies" through consultation with legal counsel. A loss contingency is recorded if the contingency is considered probable and reasonably estimable as of the date of the financial statements.

42

Accounting Pronouncements

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51." SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for noncontrolling interests in subsidiaries and for the deconsolidation of subsidiaries. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest that should be reported as equity in the consolidated financial statements. The provisions of SFAS No. 160 are effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, and the standard is to be applied prospectively. The Company does not have a non-controlling interest in any of its consolidated reporting entities and therefore this standard does not currently apply. It is not expected that the adoption of this standard on January 1, 2009 will significantly affect our results of operations or financial condition.

        In December 2007, the FASB amended SFAS No. 141, "Business Combinations" which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. These provisions are effective for fiscal years beginning on or after December 15, 2008. Adoption of this standard on January 1, 2009 will affect our results of operations and financial condition only if the Company acquires the assets of another entity subsequent to adoption date.

        In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force ("EITF") in EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." Under the provisions of EITF 06-11, a realized income tax benefit from dividends and dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 is required to be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. It is not expected that the adoption of this standard on January 1, 2008 will significantly affect our results of operations or financial condition.

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115," ("SFAS No. 159"), which provides companies with an option to report select financial assets and liabilities at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. It is not expected that the adoption of SFAS No. 159 on January 1, 2008 will have a material impact on our results of operations or financial condition.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. It is not expected that the adoption of SFAS No. 157 on January 1, 2008 will have a material impact on our results of operations or financial condition.

        In June 2006, the EITF reached a consensus on EITF Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements" ("EITF 06-4") which requires the application of the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106") to split-dollar life insurance

43

arrangements. SFAS No. 106 requires the recognition of a liability for the discounted future benefit obligation that an entity would have to pay upon the death of an underlying insured employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. We have an insurance policy subject to the provisions of this new pronouncement; however, we have evaluated the policy and determined there will be no impact upon the adoption of EITF 06-4 on our results of operations or financial condition.

Seasonality and Inflation

        We do not believe our operations are subject to significant seasonal fluctuations; however, we have historically experienced increased sales activity in the first and fourth quarters of the year due to funding of retirement accounts by our clients. The Company has not suffered material adverse affects from inflation in the past. However, a substantial increase in the inflation rate in the future may adversely affect customers' purchasing decisions, may increase the costs of borrowing, or may have an impact on the Company's margins and overall cost structure.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

        We use various financial instruments with certain inherent market risks, primarily related to interest rates and securities prices. The principal risks of loss arising from adverse changes in market rates and prices to which we are exposed relate to interest rates on debt and marketable securities. Generally, these instruments have not been entered into for trading purposes. Management actively monitors these risk exposures; however, fluctuations could impact our results of operations and financial position. As a matter of policy, we only execute derivative transactions to manage exposures arising in the normal course of business and not for speculative or trading purposes. The following information, together with information included in other parts of Management's Discussion and Analysis of Financial Condition and Results of Operations, which are incorporated herein by reference, describe the key aspects of certain financial instruments that have market risk to us.

Interest Rate Sensitivity

        Our interest sensitive liabilities include our long-term fixed rate senior notes and obligations for any balances outstanding under our credit facility or other short-term borrowings. Increases in market interest rates would generally cause a decrease in the fair value of the senior notes and an increase in interest expense associated with short-term borrowings and borrowings under the credit facility. Decreases in market interest rates would generally cause an increase in the fair value of the senior notes and a decrease in interest expense associated with short-term borrowings and borrowings under the credit facility. We had no short-term borrowings outstanding as of December 31, 2007. On January 13, 2006, we issued $200 million in principal amount of 5.60% fixed rate senior notes due 2011. Proceeds from the new senior notes were used to pay down our $200 million in 7.50% senior notes which matured on January 18, 2006.

        During 2005, the Company entered into two forward starting interest rate swap agreements that had five year fixed swap rates of 4.57% and 4.84%, respectively, on notional amounts of $100 million for each swap. The swaps were put in place to hedge against changes in forecasted interest payments attributable to changes in the LIBOR swap rate between the time we entered into the swap agreement and the time we anticipated refinancing the notes in January 2006. We assessed the effectiveness of the swaps as hedges at their inception and at December 31, 2005, and we consider these swaps to be completely effective cash flow hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." As of December 31, 2007, net unrealized gains attributed to the forward swap cash flow hedges were approximately $0.7 million and were included as a component of other comprehensive income.

        On January 10, 2006, the Company terminated these forward interest rate swap agreements upon the completion of its new offering in January 2006 of $200 million in principal amount 5.60% senior notes due January 2011. In connection with the termination of the swap agreements, the Company received a net cash settlement of $1.1 million. The Company's gain on this transaction will be deferred in accumulated

44

other comprehensive income and will be amortized into earnings as a decrease to interest expense over the five year term of the new notes.

Available for Sale Investments Sensitivity

        We maintain an investment portfolio of various holdings, types and maturities. Our portfolio is diversified and consists primarily of investment grade debt securities and equity mutual funds. A substantial portion of investments are classified as available-for-sale investments. At any time, a sharp increase in interest rates or a sharp decline in the United States stock market could have a significant negative impact on the fair value of our investment portfolio. If a decline in fair value is determined to be other than temporary by management, the cost basis of the individual security or mutual fund is written down to fair value. Conversely, declines in interest rates or a sizeable rise in the United States stock market could have a significant positive impact on our investment portfolio. However, unrealized gains are not recognized on available-for-sale securities until they are sold. We do not currently hedge these exposures.

Securities Price Sensitivity

        Our revenues are dependent on the underlying assets under management in the Funds to which investment advisory services are provided. The Funds include portfolios of investments comprised of various combinations of equity, fixed income and other types of securities. Fluctuations in the value of these securities are common and are generated by numerous factors, including, without limitation, market volatility, the overall economy, inflation, changes in investor strategies, availability of alternative investment vehicles, government regulations and others. Accordingly, declines in any one or a combination of these factors, or other factors not separately identified, may reduce the value of investment securities and, in turn, the underlying assets under management on which our revenues are earned. These declines have an impact in our investment sales, thereby compounding the impact on our earnings.

45

ITEM 8.    Financial Statements and Supplementary Data

        Reference is made to the Consolidated Financial Statements referred to in the Index on page 50 setting forth our consolidated financial statements, together with the report of KPMG LLP dated February 28, 2008 on page 51.

ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

ITEM 9A. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures.    The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report, have concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

(b)

Management's Report on Internal Control Over Financial Reporting.    Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation under the framework in "Internal Control-Integrated Framework," management concluded that, as of December 31, 2007, our internal control over financial reporting was effective. KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, audited the effectiveness of our internal control over financial reporting as of December 31, 2007, as stated in their attestation report which follows.

46

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Waddell & Reed Financial, Inc.:

We have audited Waddell & Reed Financial, Inc.'s (the Company) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Waddell & Reed Financial, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Waddell & Reed Financial, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Waddell & Reed Financial, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders' equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated February 28, 2008 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Kansas City, Missouri
February 28, 2008

47

(c)

Changes in Internal Control over Financial Reporting.    The Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.    Other Information.

        None.

PART III

ITEM 10.    Directors, Executive Officers and Corporate Governance

        Information required by this Item 10. is incorporated herein by reference to our definitive proxy statement for our 2008 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 11.    Executive Compensation

        Information required by this Item 11. is incorporated herein by reference to our definitive proxy statement for our 2008 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        Information required by this Item 12. is incorporated herein by reference to our definitive proxy statement for our 2008 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 13.    Certain Relationships and Related Transactions, and Director Independence

        Information required by this Item 13. is incorporated herein by reference to our definitive proxy statement for our 2008 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 14.    Principal Accounting Fees and Services

        Information required by this Item 14. is incorporated herein by reference to our definitive proxy statement for our 2008 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act.

PART IV

ITEM 15.    Exhibits, Financial Statement Schedules

(a)

(1)   Financial Statements.
Reference is made to the Index to Consolidated Financial Statements on page 47 for a list of all financial statements filed as part of this Report.



(a)

(2)   Financial Statement Schedules.
None.



(b)

Exhibits.
Reference is made to the Index to Exhibits beginning on page 83 for a list of all exhibits filed as part of this Report.

48

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Overland Park, State of Kansas, on February 29, 2008.

WADDELL & REED FINANCIAL, INC.
By:	/s/  HENRY J. HERRMANN Henry J. Herrmann Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Name	Title	Date
/s/  HENRY J. HERRMANN Henry J. Herrmann	Chief Executive Officer and Director (Principal Executive Officer)	February 29, 2008
/s/  DANIEL P. CONNEALY Daniel P. Connealy	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 29, 2008
/s/  BRENT K. BLOSS Brent K. Bloss	Senior Vice President – Finance and Treasurer (Principal Accounting Officer)	February 29, 2008
/s/  ALAN W. KOSLOFF Alan W. Kosloff	Chairman of the Board and Director	February 29, 2008
/s/  DENNIS E. LOGUE Dennis E. Logue	Director	February 29, 2008
/s/  JAMES M. RAINES James M. Raines	Director	February 29, 2008
/s/  RONALD C. REIMER Ronald C. Reimer	Director	February 29, 2008
/s/  WILLIAM L. ROGERS William L. Rogers	Director	February 29, 2008
/s/  JERRY W. WALTON Jerry W. Walton	Director	February 29, 2008

49

WADDELL & REED FINANCIAL, INC.

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	51
Consolidated Balance Sheets at December 31, 2007 and 2006	52
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2007	53
Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2007	54
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2007	55
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2007	56
Notes to Consolidated Financial Statements	57

50

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Waddell & Reed Financial, Inc.:

We have audited the accompanying consolidated balance sheets of Waddell & Reed Financial, Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders' equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Waddell & Reed Financial, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with U.S. generally accepted accounting principles.

As discussed in note 10 to the consolidated financial statements, the Company changed its method of accounting for pension plan and postretirement obligations in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Waddell & Reed Financial, Inc.'s internal control over financial reporting as of December 31, 2007 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2008 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

Kansas City, Missouri
February 28, 2008

51

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2007 and 2006

			2007		2006
			(in thousands)
Assets:
	Cash and cash equivalents		$	263,914	163,887
	Cash and cash equivalents – restricted			99,886	32,629
	Investment securities			50,913	48,129
	Receivables:
		Funds and separate accounts		43,602	38,806
		Customers and other		80,909	59,863
	Deferred income taxes			2,559	2,923
	Prepaid expenses and other current assets			6,165	5,766
		Total current assets		547,948	352,003
	Property and equipment, net			47,984	50,875
	Deferred sales commissions, net			45,290	20,462
	Goodwill and identifiable intangible assets			228,432	228,432
	Pension benefits			14,929	–
	Other assets			9,167	10,942
		Total assets	$	893,750	662,714
Liabilities:
	Accounts payable		$	22,233	16,256
	Payable to investment companies for securities			159,151	75,607
	Accrued compensation			38,310	33,153
	Income taxes payable			271	14,804
	Other current liabilities			52,637	44,710
		Total current liabilities		272,602	184,530
	Long-term debt			199,955	199,942
	Accrued pension and post-retirement costs			7,230	12,663
	Deferred income taxes			15,682	12,082
	Other			16,663	8,797
		Total liabilities		512,132	418,014
	Commitments and Contingencies (Note 18)
Stockholders' equity:
Preferred stock–$1.00 par value: 5,000 shares authorized; none issued				–	–
Class A Common stock – $0.01 par value: 250,000 shares authorized; 99,701 shares issued; 86,630 shares outstanding (84,660 at December 31, 2006)				997	997
Additional paid-in capital				209,210	189,299
Retained earnings				456,499	388,422
Cost of 13,071 shares in treasury (15,041 in 2006)				(291,719)	(327,966)
Accumulated other comprehensive income (loss)				6,631	(6,052)
		Total stockholders' equity		381,618	244,700
Total liabilities and stockholders' equity			$	893,750	662,714

See accompanying notes to consolidated financial statements.

52

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2007, 2006 and 2005

				2007		2006	2005
				(in thousands, except per share data)
Revenues:
	Investment management fees			$	372,345	311,525	267,681
	Underwriting and distribution fees				371,085	317,458	272,590
	Shareholder service fees				94,124	89,672	81,809
		Total			837,554	718,655	622,080
Operating expenses:
	Underwriting and distribution				422,274	356,538	303,337
	Compensation and related costs (including share-based compensation of $23,704, $21,862 and $17,786, respectively)				115,905	110,101	99,673
	General and administrative				48,487	100,604	87,029
	Subadvisory fees				43,844	30,758	18,218
	Depreciation				12,412	11,725	10,275
	Goodwill impairment				–	20,000	–
		Total			642,922	629,726	518,532
	Operating income				194,632	88,929	103,548
	Investment and other income				16,452	12,498	6,680
	Interest expense				(11,924)	(12,227)	(14,278)
	Income before provision for income taxes				199,160	89,200	95,950
	Provision for income taxes				73,663	43,088	35,829
		Net income		$	125,497	46,112	60,121
	Net income per share:
		Basic		$	1.55	0.57	0.74
		Diluted		$	1.52	0.55	0.73
	Weighted average shares outstanding		—basic		80,781	81,353	80,908
			—diluted		82,824	83,212	82,045
	Dividends declared per common share			$	0.68	0.60	0.60

See accompanying notes to consolidated financial statements.

53

WADDELL & REED FINANCIAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2007, 2006 and 2005
(in thousands)

	Common Stock						Accumulated Other Comprehensive Income (Loss)
				Additional Paid-in Capital	Retained Earnings			Total Stockholders' Equity
	Shares	Amount				Treasury Stock
Balance at December 31, 2004	99,701	$	997	204,913	383,155	(365,892)	(4,296)	218,877
Net income	—		—	—	60,121	—	—	60,121
Recognition of equity compensation	—		—	17,926	—	—	—	17,926
Issuance of nonvested shares and other	—		—	(27,655)	—	27,655	—	—
Dividends accrued, $.60 per share	—		—	—	(50,233)	—	—	(50,233)
Exercise of stock options	—		—	(1,542)	—	3,602	—	2,060
Excess tax benefits from share-based payment arrangements	—		—	1,673	—	—	—	1,673
Other stock transactions	—		—	—	—	(2,468)	—	(2,468)
Repurchase of common stock	—		—	—	—	(5,997)	—	(5,997)
Unrealized gain on available for sale investment securities	—		—	—	—	—	1,344	1,344
Reclassification for amounts included in net income	—		—	—	—	—	(648)	(648)
Change in fair value of derivatives	—		—	—	—	—	1,010	1,010
Minimum pension liability adjustment	—		—	—	—	—	3,709	3,709
Balance at December 31, 2005	99,701		997	195,315	393,043	(343,100)	1,119	247,374
Net income	—		—	—	46,112	—	—	46,112
Recognition of equity compensation	—		—	21,854	8		—	21,862
Issuance of nonvested shares and other	—		—	(26,934)	—	26,934	—	—
Dividends accrued, $.60 per share	—		—	—	(50,741)	—	—	(50,741)
Exercise of stock options	—		—	(5,295)	—	21,483	—	16,188
Excess tax benefits from share-based payment arrangements	—		—	4,359	—	—	—	4,359
Other stock transactions	—		—	—	—	(5,640)	—	(5,640)
Repurchase of common stock	—		—	—	—	(27,643)	—	(27,643)
Unrealized gain on available for sale investment securities	—		—	—	—	—	1,569	1,569
Reclassification for amounts included in net income	—		—	—	—	—	(2,199)	(2,199)
Change in fair value of derivatives	—		—	—	—	—	(283)	(283)
Reversal of minimum pension liability	—		—	—	—	—	5,146	5,146
Additional pension and postretirement plan liability	—		—	—	—	—	(11,404)	(11,404)
Balance at December 31, 2006	99,701		997	189,299	388,422	(327,966)	(6,052)	244,700
Net income	—		—	—	125,497	—	—	125,497
Recognition of equity compensation	—		—	23,704	—		—	23,704
Issuance of nonvested shares and other	—		—	(24,517)	—	24,517	—	—
Dividends accrued, $.68 per share	—		—	—	(57,420)	—	—	(57,420)
Exercise of stock options	—		—	7,805	—	76,757	—	84,562
Excess tax benefits from share-based payment arrangements	—		—	12,919	—	—	—	12,919
Other stock transactions	—		—	—	—	(5,539)	—	(5,539)
Repurchase of common stock	—		—	—	—	(59,488)	—	(59,488)
Unrealized gain on available for sale investment securities	—		—	—	—	—	2,345	2,345
Reclassification for amounts included in net income	—		—	—	—	—	(2,428)	(2,428)
Pension and postretirement benefits	—		—	—	—	—	12,766	12,766
Balance at December 31, 2007	99,701	$	997	209,210	456,499	(291,719)	6,631	381,618

See accompanying notes to consolidated financial statements.

54

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31, 2007, 2006 and 2005

	2007		2006	2005
	(in thousands)
Net income	$	125,497	46,112	60,121
Other comprehensive income:
Available-for-sale investments:
Net unrealized appreciation of investments     during the period, net of income taxes of $1,354,     $719 and $789, respectively		2,345	1,569	1,344
Derivatives:
Net unrealized gain (loss) on derivatives during the     period, net of income taxes of $0, $(188) and $593,     respectively		–	(283)	1,010
Pension and postretirement benefits:
Pension and postretirement benefits, net of income     taxes of $7,178, $3,022 and $2,179, respectively		12,766	5,146	3,709
Reclassification adjustments for amounts included in     net income, net of income taxes of $(1,396),     $(1,226) and $(381), respectively		(2,428)	(2,199)	(648)
Comprehensive income	$	138,180	50,345	65,536

See accompanying notes to consolidated financial statements.

55

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2007, 2006 and 2005

			2007		2006	2005
			(in thousands)
Cash flows from operating activities:
	Net income		$	125,497	46,112	60,121
Adjustments to reconcile net income to net cash provided by operating       activities:
	Depreciation and amortization			12,395	11,937	11,497
	Share-based compensation			23,704	21,862	17,786
	Excess tax benefits from share-based payment arrangements			(12,919)	(4,359)	—
	Gain on sale of available-for-sale investment securities			(3,598)	(3,260)	(1,029)
	Net purchases and sales of trading securities			(926)	(749)	1,791
	Unrealized gain on trading securities			(1,001)	(283)	(586)
	Goodwill impairment			—	20,000	—
	Loss on sale and retirement of property and equipment			405	592	175
	Capital gains and dividends reinvested			(2,135)	(1,317)	(784)
	Deferred income taxes			(3,171)	(1,423)	(2,866)
	Changes in assets and liabilities:
		Cash and cash equivalents – restricted		(67,257)	(6,548)	(3,435)
		Receivables from funds and separate accounts		(4,796)	(5,401)	(8,654)
		Other receivables		(21,046)	(16,632)	(5,225)
		Other assets		(23,453)	(4,741)	2,878
		Accounts payable and payable to investment companies		89,523	31,091	4,186
		Other liabilities		16,889	6,130	24,932
	Net cash provided by operating activities			128,111	93,011	100,787
	Cash flows from investing activities:
		Purchases of available-for-sale investment securities		(5,650)	(7,350)	(600)
		Proceeds from sales of available-for-sale investment securities		10,429	14,812	9,096
		Proceeds from maturities of available-for-sale investment securities		—	435	9,275
		Additions to property and equipment		(9,925)	(10,229)	(8,984)
		Cash paid for acquisitions		—	—	(15)
		Appeal bond deposits		—	—	57,368
	Net cash provided by (used in) investing activities			(5,146)	(2,332)	66,140
	Cash flows from financing activities:
		Proceeds from long term debt and interest rate swap termination		—	199,863	—
		Repayment of long term debt		—	(200,000)	—
		Net short term repayments		—	—	(35,000)
		Dividends paid		(55,392)	(50,613)	(50,082)
		Repurchase of common stock		(59,488)	(27,643)	(5,997)
		Exercise of stock options		84,562	16,188	2,060
		Excess tax benefits from share-based payment arrangements		12,919	4,359	—
		Other stock transactions		(5,539)	(5,640)	(2,468)
	Net cash used in financing activities			(22,938)	(63,486)	(91,487)
	Net increase in cash and cash equivalents			100,027	27,193	75,440
	Cash and cash equivalents at beginning of year			163,887	136,694	61,254
	Cash and cash equivalents at end of year		$	263,914	163,887	136,694
	Cash paid for:
		Income taxes (net)	$	74,439	29,922	33,234
		Interest	$	11,200	6,845	12,752

See accompanying notes to consolidated financial statements.

56

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

    

1.     Description of Business

        Waddell & Reed Financial, Inc. and subsidiaries (hereinafter referred to as the "Company," "we," "our" and "us") derive revenues primarily from investment management, investment product underwriting and distribution, and shareholder services administration provided to the Waddell & Reed Advisors Group of Mutual Funds (the "Advisors Funds"), W&R Target Funds, Inc. (the "Target Funds"), Ivy Funds, Inc. and the Ivy Funds portfolios (collectively, the "Ivy Funds"), and Waddell & Reed InvestEd Portfolios, Inc. (collectively, the "Funds"), and institutional and separately managed accounts. The Funds and the institutional and separately managed accounts operate under various rules and regulations set forth by the United States Securities and Exchange Commission (the "SEC"). Services to the Funds are provided under investment management agreements that set forth the fees to be charged for these services. The majority of these agreements are subject to annual review and approval by each Fund's board of directors/trustees and shareholders. Our revenues are largely dependent on the total value and composition of assets under management, which include mainly domestic equity securities, but also include debt securities and international equities. Accordingly, fluctuations in financial markets and composition of assets under management can significantly impact revenues and results of operations.

2.     Summary of Significant Accounting Policies

Basis of Presentation

        The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Amounts in the accompanying financial statements and notes are rounded to the nearest thousand unless otherwise stated. Certain amounts in the prior years' financial statements have been reclassified for consistent presentation.

Use of Estimates

        GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes, and related disclosures of commitments and contingencies. Estimates are used for, but are not limited to, depreciation and amortization, taxes, valuation of assets, pension and postretirement obligations, and contingencies. Actual results could differ from those estimates.

Cash and Cash Equivalents

        Cash and cash equivalents include cash on hand and short-term investments. We consider all highly liquid investments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents – restricted represents cash held for the benefit of customers segregated in compliance with federal and other regulations. Substantially all cash balances are in excess of federal deposit insurance limits.

Disclosures About Fair Value of Financial Instruments

        Fair value of cash and cash equivalents, short-term investments, receivables, payables and long-term debt approximates carrying value. Fair values for investment securities are based on quoted market prices, where available. Otherwise, fair values are based on quoted market prices of comparable instruments.

57

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

Investment Securities and Investments in Affiliated Mutual Funds

        Our investments are comprised of United States, state and government obligations, corporate debt securities and investments in affiliated mutual funds. Investments are classified as available-for-sale or trading. Unrealized holding gains and losses on securities available-for-sale, net of related tax effects, are excluded from earnings until realized and are reported as a separate component of comprehensive income. For trading securities, unrealized holding gains and losses, net of related tax effects, are included in earnings. Realized gains and losses are computed using the specific identification method for investment securities, other than mutual funds. For mutual funds, realized gains and losses are computed using the average cost method.

        Our available-for-sale investments are reviewed and adjusted for other than temporary declines in value. When a decline in fair value of an available for sale investment is determined to be other than temporary, the unrealized loss recorded net of tax in other comprehensive income is realized as a charge to net income and a new cost basis is established for financial reporting purposes.

Property and Equipment

        Property and equipment are carried at cost. The costs of improvements that extend the life of a fixed asset are capitalized, while the costs of repairs and maintenance are expensed as incurred. Depreciation and amortization are calculated and recorded using the straight-line method over the estimated useful life of the related asset (or lease term if shorter), generally three to ten years for furniture, fixtures, data processing equipment and computer software; three to 20 years for equipment and machinery; and up to 15 years for leasehold improvements.

Software Developed for Internal Use

        Certain internal costs incurred in connection with developing or obtaining software for internal use are capitalized in accordance with the American Institute of Certified Public Accountants' Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The costs of designing and implementing software are expensed as incurred. Internal costs capitalized are included in "Property and equipment, net" on the consolidated balance sheets, and were $9.3 million and $8.5 million as of December 31, 2007 and 2006, respectively. Amortization begins when the software project is complete and ready for its intended use and continues over the estimated useful life, generally five to ten years.

Goodwill and Identifiable Intangible Assets

        Goodwill represents the excess of the cost of the Company's investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the dates of acquisition. Goodwill is not amortized, but is tested at least annually for impairment.

        Identifiable intangible assets with indefinite useful lives are not amortized. Indefinite life intangible assets represent advisory and subadvisory management contracts for managed assets obtained in acquisitions. We consider these contracts to be indefinite lived intangible assets as they are expected to be renewed without significant cost or modification of terms. We complete an ongoing review of the recoverability of identifiable intangible assets on an annual basis or more frequently whenever events occur or circumstances change that would more likely than not reduce their fair value.

        Factors that are considered important in determining whether an impairment of goodwill or intangible assets might exist include significant continued underperformance compared to peers, the likelihood of

58

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

termination or non-renewal of a mutual fund advisory or subadvisory contract or substantial changes in revenues earned from such contracts, significant changes in our business and products, material and ongoing negative industry or economic trends, or other factors specific to each asset or subsidiary being evaluated. Because of the significance of goodwill and other intangible assets to our consolidated balance sheet, any changes in key assumptions about our business or prospects, or changes in market conditions or other externalities, could result in an impairment charge and such a charge could have a material effect on our financial condition and results of operations. Based on our annual review of goodwill in the second quarter of 2006, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142") we recorded an impairment charge of $20.0 million related to our subsidiary, Austin Calvert & Flavin, Inc. ("ACF"). The impairment charge is described in Note 6. It was determined that no impairment existed during our annual reviews of goodwill during 2007 or of identifiable intangible assets during 2007 or 2006.

Deferred Sales Commissions

        We defer certain costs, principally sales commissions and related compensation, which are paid to financial advisors and broker/dealers in connection with the sale of certain mutual fund shares sold without a front-end load sales charge. The costs incurred at the time of the sale of shares for certain asset allocation products are deferred and amortized on a straight-line basis, not to exceed three years. The costs incurred at the time of the sale of Class B shares are also deferred and then amortized on a straight-line basis over five years which approximates the expected life of the shareholders' investments. The costs incurred at the time of the sale of Class C shares are deferred and amortized on a straight-line basis over 12 months. We recover these deferred costs through Rule 12b-1 and other distribution fees, which are paid on the Class B and Class C shares of the Advisors Funds and Ivy Funds, along with contingent deferred sales charges ("CDSCs") paid by shareholders who redeem their shares prior to completion of the required holding period (three years for shares of certain asset allocation products, six years for a Class B share and 12 months for a Class C share). Should we lose our ability to recover such sales commissions through distribution fees or CDSCs, the value of these assets would immediately decline, as would future cash flows. We periodically review the recoverability of the deferred sales commission assets as events or changes in circumstances indicate that their carrying amount may not be recoverable and adjust them accordingly.

Revenue Recognition

        We recognize investment management fees as earned over the period in which services are rendered. We charge the Funds daily based upon average daily net assets under management in accordance with investment management agreements between the Funds and the Company. In general, the majority of investment management fees earned from institutional and separate accounts are charged either monthly or quarterly based upon an average of net assets under management in accordance with such investment management agreements.

        Shareholder service fees are recognized monthly and are calculated based on the number of accounts or assets under management as applicable. Other administrative service fee revenues are recognized when contractual obligations are fulfilled or as services are provided.

        Underwriting and distribution commission revenues resulting from the sale of investment products are recognized on the trade date.

59

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

        We also recognize distribution revenues monthly for certain types of investment products, primarily variable annuity products which are generally calculated based upon average daily net assets under management.

Advertising and Promotion

        We expense all advertising and promotion costs as incurred. Advertising expense was $4.8 million, $2.9 million and $3.5 million, for the years ended December 31, 2007, 2006 and 2005, respectively.

Share-Based Compensation

        Prior to January 1, 2006, the Company used the intrinsic value method as described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") to measure employee stock-based compensation as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under this method, compensation expense related to stock options was measured as the difference between the exercise price and the fair value of the shares on the grant date, if any, and was recognized over the vesting period, which approximated the anticipated service period.

        Had compensation cost for the Company's stock-based compensation plans been determined using the fair value method as described in SFAS No. 123, the Company's net income and earnings per share for the year ended December 31, 2005 would have been reduced to the following pro forma amounts (amounts in thousands, expect per share data):

Net income, as reported		$	60,121
Add: Total stock option expense included in reported net income, net of related     tax effects			1,137
Deduct: Total stock option expense determined under fair-value based method for     all awards, net of related tax effects			(1,558)
Pro forma net income		$	59,700
Basic earnings per share
	As reported	$	0.74
	Pro forma		0.74
Diluted earnings per share
	As reported		0.73
	Pro forma		0.73

        The weighted-average fair value of each stock option included in the preceding pro forma information was estimated using a Black-Scholes option pricing model and was amortized over the vesting period of the underlying options.

        Effective January 1, 2006, the Company adopted SFAS No. 123R, "Share-Based Payment, (revised 2004)" ("SFAS No. 123R"). The revised standard eliminated the intrinsic value method of accounting required under APB 25. The Company adopted SFAS No. 123R using the modified prospective transition method of adoption, which did not require restatement of prior periods. Under that transition method, compensation expense recognized in 2006 and 2007 for all share-based awards granted after December 31, 2005 is based on the grant date fair value of the awards, net of estimated forfeitures.

        In its computation of stock-based compensation expense under APB 25, the Company recognized actual forfeitures when they occurred. Under SFAS No. 123R, the Company is required to estimate forfeitures at the grant date. The Company recognized a cumulative effect of change in accounting

60

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

principle of $503 thousand ($321 thousand increase to net income after tax) upon adoption, in order to adjust for expected forfeitures on all nonvested stock awards outstanding on January 1, 2006. This cumulative effect of change in accounting principle is classified in compensation and related costs in the consolidated statement of income for the year ended December 31, 2006.

Accounting for Income Taxes

        Income tax expense is based on pre-tax financial accounting income, including adjustments made for the recognition or derecognition related to uncertain tax positions. The recognition or derecognition of income tax expense related to uncertain tax positions is determined under the guidance as prescribed by Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). Deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

Derivatives and Hedging Activities

        Derivative instruments are recorded on the balance sheet at fair value. The Company periodically uses interest rate swaps to manage risks associated with interest rate volatility. All derivative instruments have been designated as hedges, in accordance with GAAP. If the underlying hedged transaction ceases to exist, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings or amortized over the term of the hedged transaction. Derivatives that do not qualify for hedge accounting are marked to market with changes recognized in current earnings. The Company does not hold or issue derivative financial instruments for trading purposes and is not a party to leveraged derivatives.

3.     Accounting Pronouncements

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51" ("SFAS No. 160"), which amends ARB No. 51 to establish accounting and reporting standards for noncontrolling interests in subsidiaries and for the deconsolidation of subsidiaries. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest that should be reported as equity in the consolidated financial statements. The provisions of SFAS No. 160 are effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years and the standard is to be applied prospectively. The Company does not have a non-controlling interest in any of its consolidated reporting entities and therefore this standard does not currently apply. It is not expected that the adoption of this standard on January 1, 2009 will significantly affect our results of operations or financial condition.

        In December 2007, the FASB amended SFAS No. 141, "Business Combinations" ("SFAS No. 141"). SFAS No. 141, as amended, establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The provisions of SFAS No. 141, as amended, are effective for fiscal years beginning on or after December 15, 2008. Adoption of this standard on January 1, 2009 will affect our results of operations and financial condition only if the Company acquires the assets of another entity subsequent to adoption date.

61

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

        In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force ("EITF") in EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards" ("EITF No. 06-11"). Under the provisions of EITF 06-11, a realized income tax benefit from dividends and dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 is required to be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. It is not expected that the adoption of this standard on January 1, 2008 will significantly affect our results of operations or financial condition.

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115" ("SFAS No. 159"), which provides companies with an option to report select financial assets and liabilities at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. It is not expected that the adoption of SFAS No. 159 on January 1, 2008 will have a material impact on our results of operations or financial condition.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. It is not expected that the adoption of SFAS No. 157 on January 1, 2008 will have a material impact on our results of operations or financial condition.

        In June 2006, the EITF reached a consensus on EITF Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements" ("EITF 06-4"), which requires the application of the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106") to split-dollar life insurance arrangements. SFAS No. 106 requires the recognition of a liability for the discounted future benefit obligation that an entity would have to pay upon the death of an underlying insured employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. We have an insurance policy subject to the provisions of this new pronouncement; however we have evaluated the policy and determined there will be no impact upon the adoption of EITF 06-4 on our results of operations or financial condition.

62

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

4.     Investment Securities

        Investment securities at December 31, 2007 and 2006 are as follows:

2007	Amortized cost	Unrealized gains	Unrealized (losses)	Fair value
	(in thousands)
Available-for-sale securities:
Mortgage-backed securities	$           11	1	–	12
Municipal bonds	6,991	128	(73)	7,046
Affiliated mutual funds	22,912	7,596	(121)	30,387
	29,914	7,725	(194)	37,445
Trading securities:
Mortgage-backed securities	118	–	–	118
Municipal bonds	502	–	–	502
Corporate bonds	156	–	–	156
Common stock	74	–	–	74
Affiliated mutual funds	12,618	–	–	12,618
	13,468	–	–	13,468
Total investment securities	$    43,382	7,725	(194)	50,913

2006	Amortized cost	Unrealized gains	Unrealized (losses)	Fair value
	(in thousands)
Available-for-sale securities:
Mortgage-backed securities	$           12	1	–	13
Municipal bonds	6,985	199	–	7,184
Affiliated mutual funds	22,486	7,346	(116)	29,716
	29,483	7,546	(116)	36,913
Trading securities:
Mortgage-backed securities	124	–	–	124
Municipal bonds	510	–	–	510
Corporate bonds	340	–	–	340
Common stock	46	–	–	46
Affiliated mutual funds	10,196	–	–	10,196
	11,216	–	–	11,216
Total investment securities	$    40,699	7,546	(116)	48,129

63

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

        A summary of debt securities and affiliated mutual funds with market values below carrying values at December 31, 2007 is as follows:

	Less than 12 months			12 months or longer		Total
	Fair value		Unrealized (losses)	Fair value	Unrealized (losses)	Fair value	Unrealized (losses)
	(in thousands)
Municipal bonds	$	2,983	(73)	–	–	2,983	(73)
Affiliated mutual funds		1,301	(121)	–	–	1,301	(121)
Total temporarily impaired securities	$	4,284	(194)	–	–	4,284	(194)

        We assess the carrying value of investments in debt and equity securities each quarter to determine whether an other than temporary decline in fair value exists. We consider factors affecting the issuer and the industry the issuer operates in, general market trends including interest rates, and our ability and intent to hold an investment until it has recovered. Consideration is given to the length of time an investment's market value has been below carrying value and prospects for recovery to carrying value. Based upon our assessment of these municipal bonds and affiliated mutual funds, our intent to hold the affiliated mutual funds until they have recovered and our history of holding bonds until maturity, we determined that a write-down was not appropriate at this time.

        Mortgage-backed securities and municipal bonds accounted for as available-for sale and held as of December 31, 2007 mature as follows:

	Amortized cost	Fair value
	(in thousands)
After ten years	$    7,002	7,058
	$    7,002	7,058

        Mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading and held as of December 31, 2007 mature as follows:

	Amortized cost	Fair value
	(in thousands)
After ten years	$       776	776
	$       776	776

        Investment securities with fair value of $10.9 million, $15.5 million and $68.7 million were sold during 2007, 2006 and 2005, respectively. A net gain of $3.6 million was recognized during 2007 from the sale of $10.4 million in available-for-sale securities. During 2006, a net gain of $3.3 million was recognized from the sale of $14.8 million in available-for-sale securities. During 2005, $59.6 million of trading securities were sold, of which approximately $57.4 million were proceeds from the sale of certificates of deposit

64

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

previously held as an appeal bond related to a legal matter. A net gain of $1.0 million was recognized during 2005 from the sale of $9.1 million in available-for-sale securities.

        The aggregate carrying amount of our equity method investments, classified in other assets, was $3.6 million at December 31, 2007 and 2006. At December 31, 2007, our investment consists of a limited partnership interest in venture capital funds. During 2005, we sold our interest in another venture capital fund for approximately $2.0 million and recognized a gain on the sale of $0.6 million.

5.     Acquisitions

Securian Strategic Alliance Agreement

        In 2003, the Company entered into a Strategic Alliance Agreement with Securian Financial Group, Inc. ("Securian"), through which we agreed to become investment adviser of substantially all managed equity assets of Advantus Capital Management, Inc. ("Advantus"). Advantus is a subsidiary of Securian and is an affiliate of Minnesota Life Insurance Company.

        In 2003, we paid $31.8 million (inclusive of acquisition costs) to purchase the rights to manage nine actively managed equity funds of the Advantus Series Funds, a mutual fund family used within variable insurance products and 11 actively managed retail funds of the Advantus Funds. As a result of this purchase, we recorded $31.8 million of indefinite life intangible assets.

        The purchase agreements contained provisions whereby the initial purchase price may be reduced based upon a calculation using certain levels of assets under management determinations made no later than 30 days after each of the first, second and third anniversaries of the closing date of each transaction. Assets at each anniversary date were at levels that did not require a reduction to the purchase price.

6.     Goodwill and Identifiable Intangible Assets

        Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business. Gross goodwill was $212.0 million at December 31, 2007 and 2006 and accumulated amortization of goodwill was $38.6 million at December 31, 2007 and 2006. Our goodwill is not deductible for tax purposes.

        Goodwill is not amortized, but instead is reviewed annually and when events or circumstances occur which indicate that goodwill might be impaired. Impairment of goodwill is tested at the Company's reporting unit level. To determine fair value, our review process uses the income and market approaches. In performing the analysis, we use the best information available under the circumstances, including reasonable and supportable assumptions and projections. If the carrying amount of the reporting unit exceeds its implied fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.

        Based on our annual review of goodwill in the second quarter of 2006, in accordance with SFAS No. 142, we recorded an impairment charge of $20.0 million related to our subsidiary, ACF. Factors that led to this conclusion included, but were not limited to, the negative impact of the decline in ACF's assets under management and diminished involvement of ACF's investment staff in mutual fund advisory responsibilities. Asset redemptions significantly impacted ACF's ability to achieve and maintain profitability, and therefore adversely impacted its earnings potential. ACF's remaining unamortized goodwill balance at December 31, 2007 was $7.2 million.

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December 31, 2007, 2006 and 2005

        The goodwill impairment charge was not deductible for income tax purposes and as a result, no tax benefit has been recognized for the goodwill impairment charge.

        The carrying value of identifiable intangible assets (all considered indefinite lived) at December 31, 2007 and 2006 are summarized as follows:

		2007	2006
		(in thousands)
Unamortized intangible assets:
Mutual fund management advisory contracts		$    38,699	38,699
Mutual fund subadvisory management contracts		16,300	16,300
	Total	$    54,999	54,999

7.     Property and Equipment

        A summary of property and equipment at December 31, 2007 and 2006 is as follows:

	2007	2006	Estimated useful lives
	(in thousands)
Leasehold improvements	$        7,337	5,481	1 - 15 years
Furniture and fixtures	23,726	22,795	3 - 10 years
Equipment and machinery	21,675	21,431	3 - 20 years
Data processing equipment and computer software	58,853	53,923	3 - 10 years
Property and equipment, at cost	111,591	103,630
Accumulated depreciation	(63,607)	(52,755)
Property and equipment, net	$      47,984	50,875

        Depreciation expense was $12.4 million, $11.7 million and $10.3 million during the years ended December 31, 2007, 2006 and 2005, respectively.

8.     Indebtedness

        On August 15, 2000, the Company filed a $400.0 million shelf registration, whereby proceeds received could be used for general corporate purposes, including the repayment of short-term debt outstanding. On January 18, 2001, the Company issued $200.0 million in principal amount 7.50% senior notes due in January 2006 (the "7.50% Notes"), resulting in net proceeds of approximately $197.6 million (net of discounts, commissions and expenses). Interest was payable semi-annually on January 18 and July 18 at a fixed rate of 7.50% per annum.

        On March 12, 2002, the 7.50% Notes were effectively converted to variable rate debt by entering into an interest rate swap agreement whereby we agreed with another party to exchange, at specified intervals, the difference between the fixed-rate and various floating-rate interest amounts, calculated using a notional amount of $200.0 million. The difference in the floating-rate interest paid and the 7.50% fixed-rate interest received was recorded as an adjustment to interest expense during the period that the

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December 31, 2007, 2006 and 2005

related debt was outstanding. The change in the fair value of the interest rate swap was recorded on the consolidated balance sheet by adjusting the carrying amounts of the 7.50% Notes by an offsetting amount for the swap.

        Under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), we accounted for the interest rate swap as a fair value hedge of the Notes. This interest rate swap was considered 100% effective in hedging the changes in the fair value of the 7.50% Notes arising from changes in interest rates, and accordingly, there was no impact on earnings resulting from any ineffectiveness associated with this transaction. No fair value adjustment was necessary for the swap at December 31, 2005 as the term of the swap expired on January 18, 2006.

        During 2005, the Company entered into two forward starting interest rate swap agreements that had five year fixed swap rates of 4.57% and 4.84%, respectively, on notional amounts of $100 million for each swap. The swaps were put in place to hedge against changes in forecasted interest payments attributable to changes in the LIBOR swap rate between the time the Company entered into the swap agreement and the time we anticipated refinancing the 7.50% Notes in January 2006. The Company assessed the effectiveness of the swaps as hedges at their inception and at December 31, 2005, and we considered those swaps to be completely effective cash flow hedges under SFAS No. 133. As of December 31, 2005, net unrealized gains attributed to the forward swap cash flow hedges were approximately $1.6 million and were included as a component of other comprehensive income.

        On January 13, 2006, the Company issued $200 million in principal amount 5.60% senior notes due 2011 (the "New Notes") resulting in net proceeds of approximately $198.2 million (net of discounts, commissions and estimated expenses). The Company used these proceeds, together with cash on hand, to repay the entire $200 million aggregate principal amount outstanding of its 7.50% Notes. The New Notes represent senior unsecured obligations and are rated "Baa2" by Moody's and "BBB" by Standard & Poor's. Interest is payable semi-annually on January 15 and July 15 at a fixed rate of 5.60% per annum. The Company may, at its option, call the New Notes at any time pursuant to a make whole redemption provision, which would compensate holders for any changes in interest rate levels of the notes upon early extinguishment. The Company currently has no intention to call the New Notes.

        On January 10, 2006, the Company terminated the two 2005 forward interest rate swap agreements upon the closing of the New Notes. In connection with the termination of the swap agreements, the Company received a net cash settlement of $1.1 million. The Company's gain on these transactions was deferred in accumulated other comprehensive income and is being amortized into earnings as a reduction to interest expense over the five year term of the New Notes. As of December 31, 2007, the remaining unamortized amount was approximately $0.7 million.

        The Company entered into a three-year revolving credit facility (the "Credit Facility") with various lenders, effective October 7, 2005, which initially provides for borrowings of up to $200 million and replaced the Company's previous 364-day revolving credit facility. At December 31, 2007 and 2006, there were no borrowings outstanding under the Credit Facility. Borrowings under the Credit Facility bear interest at various rates including adjusted LIBOR or an alternate base rate plus, in each case, an incremental margin based on the Company's credit rating. The Credit Facility also provides for a facility fee on the daily aggregate amount of commitment under the revolving facility (whether or not utilized). The facility fee is also based on the Company's credit rating level. The most restrictive provisions of the credit agreement require the Company to maintain a consolidated leverage ratio not to exceed 3.0 to 1.0

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December 31, 2007, 2006 and 2005

for four consecutive quarters and a consolidated interest coverage ratio of not less than 4.0 to 1.0 for four consecutive quarters. The Company was in compliance with these covenants and similar covenants in prior facilities for all years presented.

        The following is a summary of long-term debt at December 31, 2007 and 2006:

	2007	2006
	(in thousands)
Principal amount unsecured 5.60% senior notes due in 2011	$    200,000	200,000
Discount on unsecured 5.60% senior notes due in 2011	(45)	(58)
Total long-term debt	$    199,955	199,942

9.     Income Taxes

        The provision for income taxes for the years ended December 31, 2007, 2006 and 2005 consists of the following:

		2007	2006	2005
		(in thousands)
Currently payable:
	Federal	$      72,760	39,770	35,362
	State	5,092	3,823	3,333
		77,852	43,593	38,695
Deferred taxes		(4,189)	(505)	(2,866)
	Provision for income taxes	$      73,663	43,088	35,829

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December 31, 2007, 2006 and 2005

        The following table reconciles the statutory federal income tax rate with our effective income tax rate for the years ended December 31, 2007, 2006 and 2005:

	2007	2006	2005
Statutory federal income tax rate	35.0%	35.0%	35.0%
State income taxes, net of federal tax benefits	2.1	1.7	1.4
Favorable resolution of outstanding income tax matters	—	—	(2.4)
State tax incentives	(0.1)	(1.2)	—
Nondeductible fines	—	4.7	0.8
Nondeductible goodwill impairment expense	—	7.8	—
Other items	—	0.3	2.5
Effective income tax rate	37.0%	48.3%	37.3%

        The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at December 31, 2007 and 2006 are as follows:

		2007	2006
		(in thousands)
Deferred tax liabilities:
	Unrealized pension benefits	$       (785)	—
	Deferred sales commissions	(6,754)	(5,711)
	Property and equipment	(8,794)	(10,319)
	Benefit plans	(3,037)	(2,867)
	Identifiable intangible assets	(8,374)	(8,306)
	Unrealized gains on derivatives	(248)	(324)
	Unrealized gains on available for sale investment securities	(2,753)	(2,660)
	Purchase of fund assets	(3,423)	(2,629)
	Prepaid expenses	(1,413)	(1,349)
	Other	(242)	(249)
Total gross deferred liabilities		(35,823)	(34,414)
Deferred tax assets:
	Acquisition lease liability	1,029	1,026
	Additional pension and postretirement liability	—	6,392
	Accrued expenses	6,753	7,276
	Unrealized losses on investment securities	676	705
	Nonvested stock	11,240	9,593
	Unused state tax credits	174	263
	State net operating loss carryover	3,527	2,908
	Other	2,828	—
Total gross deferred assets		26,227	28,163
Valuation allowance		(3,527)	(2,908)
Net deferred tax liability		$  (13,123)	(9,159)

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December 31, 2007, 2006 and 2005

        Certain of the Company's subsidiaries have net operating loss carryforwards in certain states in which these companies file on a separate company basis. The deferred tax asset, net of federal tax effect, relating to the carryforwards as of December 31, 2007 and 2006 is approximately $3.5 million and $2.9 million, respectively. The carryforwards, if not utilized, will expire between 2008 and 2027. Management believes it is not more likely than not that these subsidiaries will generate sufficient future taxable income in these states to realize the benefit of the net operating loss carryforwards and, accordingly, a valuation allowance in the amount of $3.5 million and $2.9 million has been established at December 31, 2007 and 2006, respectively. The Company generated state tax credits in 2006 and 2007 of $263 thousand and $174 thousand that will expire between 2016 and 2029, respectively, if not utilized. The Company anticipates these credits will be fully utilized prior to their expiration dates.

        In June 2006, the FASB issued FIN 48 to clarify certain aspects of accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax provision is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 on January 1, 2007.

        As of January 1, 2007, the Company had unrecognized tax benefits, including penalties and interest, of $5.1 million ($3.5 million net of federal benefit) that, if recognized, would impact the Company's effective tax rate. As of December 31, 2007, the Company had unrecognized tax benefits, including penalties and interest, of $6.2 million ($4.2 million net of federal benefit) that, if recognized, would impact the Company's effective tax rate. The unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the accompanying consolidated balance sheet; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable. The Company had no cumulative effect of adopting FIN 48, and therefore, no adjustment was recorded to retained earnings upon such adoption.

        The following table summarizes the Company's reconciliation of unrecognized tax benefits for the year ended December 31, 2007:

		Unrecognized Tax Benefits
		(in thousands)
Balance at January 1, 2007		$      3,242
Increases during the year:
	Gross increases - tax positions in prior periods	1,069
	Gross increases - current-period tax positions	1,782
Decreases during the year:
	Decreases due to settlements with taxing authorities	(1,476)
	Decreases due to lapse of statute of limitations	(122)
Balance at December 31, 2007		$      4,495

        The Company's historical accounting policy with respect to interest and penalties related to tax uncertainties has been to classify these amounts as income taxes, and the Company continued this classification upon the adoption of FIN 48. As of January 1, 2007, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $1.9 million ($1.3 million net of federal benefit). The total amount of penalties and interest, net of federal benefit,

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December 31, 2007, 2006 and 2005

related to tax uncertainties recognized in the statement of income for the year ended December 31, 2007 was $423 thousand. The total amount of accrued penalties and interest related to uncertain tax positions at December 31, 2007 of $1.7 million ($1.3 million net of federal benefit) is included in the total unrecognized tax benefits described above.

        In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. During 2006, the Company settled five open tax years, 2000 through 2004, that were undergoing audit by the United States Internal Revenue Service. The 2005 and 2006 federal income tax returns are the only open tax years that remain subject to potential future audit. In late 2007, the Company settled two open tax years that were undergoing audit by a state jurisdiction in which the Company operates. State income tax returns for all years after 2002 are subject to potential future audit by tax authorities in the Company's major state tax jurisdictions.

        The Company is currently being audited in three other state jurisdictions. It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period. It is estimated that the Company's FIN 48 liability could decrease by approximately $1.8 million to $2.5 million ($1.2 million to $1.6 million net of federal benefit) upon settlement of these audits. Such settlements are not anticipated to have a significant impact on reported income.

10.   Pension Plan and Postretirement Benefits Other Than Pensions

        We provide a non-contributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the "Pension Plan"). Benefits payable under the Pension Plan are based on employees' years of service and compensation during the final ten years of employment. We also sponsor an unfunded defined benefit postretirement medical plan that covers substantially all employees, including Waddell & Reed and Legend advisors. The medical plan is contributory with retiree contributions adjusted annually. The medical plan does not provide for post age 65 benefits with the exception of a small group of employees that were grandfathered when such plan was established.

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December 31, 2007, 2006 and 2005

        A reconciliation of the funded status of these plans and the assumptions related to the obligations at December 31, 2007, 2006 and 2005 follows:

		Pension Benefits			Other Postretirement Benefits
		2007	2006	2005	2007	2006	2005
		(in thousands)
Change in projected benefit obligation:
Net benefit obligation at         beginning of year		$    88,320	86,530	82,829	4,174	3,715	5,441
	Service cost	5,718	5,446	5,598	292	299	422
	Interest cost	5,490	4,830	4,824	244	209	306
	Plan amendments	—	—	—	—	165	—
	Benefits and expenses paid	(3,690)	(3,496)	(6,604)	(313)	(244)	(144)
	Actuarial gain	(945)	(4,990)	(117)	(570)	(107)	(2,418)
	Retiree contributions	—	—	—	148	137	108
	Net benefit obligation at end of year	$    94,893	88,320	86,530	3,975	4,174	3,715

        The accumulated benefit obligation for the Pension Plan was $81.3 million and $77.1 million at December 31, 2007 and 2006, respectively.

			Pension Benefits (1)				Other Postretirement Benefits (1)
			2007		2006	2005	2007	2006	2005
			(in thousands)
Change in plan assets:
	Fair value of plan assets at beginning of year		$	82,889	74,445	68,629	—	—	—
	Actual return on plan assets			23,622	4,940	5,420	—	—	—
	Employer contributions			7,000	7,000	7,000	165	107	36
	Retiree contributions			—	—	—	148	137	108
	Benefits paid			(3,689)	(3,496)	(6,604)	(313)	(244)	(144)
		Fair value of plan assets at end of year	$	109,822	82,889	74,445	—	—	—
Funded status at end of year			$	14,929	(5,431)	(12,085)	(3,975)	(4,174)	(3,715)
Unrecognized transition obligation				NA	NA	67	NA	NA	—
Unrecognized prior service cost				NA	NA	4,585	NA	NA	258
Unrecognized net actuarial loss				NA	NA	19,333	NA	NA	(889)
		Net asset (liability) recognized at end of year		NA	NA	11,900	NA	NA	(4,346)

(1)

NA refers to not applicable under SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Retirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132-R" ("SFAS No. 158"), adopted in 2006.

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December 31, 2007, 2006 and 2005

		Pension Benefits (1)				Other Postretirement Benefits (1)
		2007		2006	2005	2007	2006	2005
		(in thousands)
Amounts recognized in the statement of financial position prior to SFAS No. 158:
	Accrued benefit cost		NA	NA	(920)	NA	NA	(4,346)
	Intangible asset		NA	NA	4,652	NA	NA	–
	Accumulated other comprehensive income		NA	NA	8,168	NA	NA	–
	Net asset (liability) recognized at end of year		NA	NA	11,900	NA	NA	(4,346)
Amounts recognized in the statement of financial position under SFAS No. 158:
	Noncurrent assets	$	14,929	–	NA	–	–	NA
	Current liabilities		–	–	NA	(192)	(209)	NA
	Noncurrent liabilities		–	(5,431)	NA	(3,783)	(3,965)	NA
	Net amount recognized at end of year	$	14,929	(5,431)	NA	(3,975)	(4,174)	NA
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income:
	Transition obligation	$	(57)	(62)	NA	–	–	NA
	Prior service cost		(3,714)	(4,149)	NA	(362)	(400)	NA
	Accumulated gain (loss)		4,792	(14,143)	NA	1,489	958	NA
	Accumulated other comprehensive income		1,021	(18,354)	NA	1,127	558	NA
	Cumulative employer contributions in excess of net periodic benefit cost		13,908	12,923	NA	(5,102)	(4,732)	NA
	Net amount recognized at end of year	$	14,929	(5,431)	NA	(3,975)	(4,174)	NA
Weighted average assumptions used to determine benefit obligation at December 31:
	Discount rate		6.75%	6.00%	5.75%	6.75%	6.00%	5.75%
	Rate of compensation increase		3.86%	3.86%	3.86%	Not applicable

(1)

NA refers to not applicable under SFAS No. 158, adopted in 2006.

        The discount rate assumptions used to determine the postretirement obligations at December 31, 2007 and 2006 and the postretirement expenses in 2007 were based on the Mercer Bond Model. This model was designed by Mercer Human Resource Consulting to provide a means for plan sponsors to value the liabilities of their postretirement benefit plans. The Mercer Bond Model calculates the yield on a theoretical portfolio of high-grade corporate bonds (rated "Aa" or better) with cash flows that generally match our expected benefit payments. To the extent scheduled bond proceeds exceed the estimated benefit payments in a given period, the yield calculation assumes those excess proceeds are reinvested at the one-year forward rates implied by the Citigroup Pension Discount Curve.

        We adopted SFAS No. 158 for the fiscal year ended December 31, 2006. SFAS No. 158 requires employers to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its statement of financial position, measured as the difference between the fair value of plan assets and the benefit obligation. Further, this statement requires employers to recognize changes in that funded status in the year in which the changes occur through comprehensive income.

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December 31, 2007, 2006 and 2005

        Our Pension Plan asset allocation at December 31, 2007 and 2006 and our target allocation for 2008 are as follows:

Plan assets by investment style		Target Allocation at January 1, 2008	Percentage of Plan Assets at December 31, 2007
Asset Strategy		40%	44%
Large Cap Growth		35%	35%
Core Plus Fixed Income		13%	10%
Science and Technology		10%	9%
Cash Reserves		2%	2%
	Total	100%	100%

Plan assets by category		Percentage of Plan Assets at December 31, 2007	Percentage of Plan Assets at December 31, 2006
Equity securities		75%	62%
Debt securities		15%	26%
Cash		10%	12%
	Total	100%	100%

        The primary investment objective is to maximize growth of the Pension Plan assets to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the Company's earnings strength and risk tolerance. Asset allocation is the most important decision in managing the assets and it is reviewed regularly. The asset allocation policy considers the Company's financial strength and long-term asset class risk/return expectations since the obligations are long-term in nature. The target allocations for pension assets are as summarized in the table above. The assets are well diversified and are managed by our in-house investment professionals.

        Large Cap Growth consists of a diversified portfolio of common stocks issued by higher-quality growth-oriented large to medium sized domestic and, to a lesser extent, foreign companies. Asset Strategy invests in most any domestic or foreign market that is believed to offer the greatest probability of return or, alternatively, that provides the highest degree of safety in uncertain times. Although this style may allocate its assets among stocks, bonds and short-term investments, the allocation is typically weighted toward stocks. Core Plus Fixed Income invests primarily in investment-grade debt securities issued in the United States. Science and Technology concentrates its investments primarily in equity securities of domestic and foreign companies that benefit by the application of science and technological discoveries.

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December 31, 2007, 2006 and 2005

        The 7.75% expected long-term rate of return on Pension Plan assets reflects management's expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligations. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy.

        The components of net periodic pension and other postretirement costs and the assumptions related to those costs consisted of the following for the years ended December 31, 2007, 2006 and 2005.

		Pension Benefits				Other Postretirement Benefits
		2007		2006	2005	2007	2006	2005
		(in thousands)
Components of net periodic benefit cost:
	Service cost	$	5,718	5,446	5,598	292	299	422
	Interest cost		5,490	4,830	4,824	244	209	306
	Expected return on plan assets		(6,442)	(5,694)	(5,208)	—	—	—
Actuarial (gain) loss     amortization			808	954	1,434	(39)	(38)	88
	Prior service cost amortization		436	436	436	38	23	23
Transition obligation     amortization			5	5	5	—	—	—
	Net periodic benefit cost	$	6,015	5,977	7,089	535	493	839
Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:
	Discount rate		6.00%	5.75%	5.75%	6.00%	5.75%	5.75%
	Expected return on plan assets		7.75%	7.75%	7.75%	Not applicable
	Rate of compensation increase		3.86%	3.86%	3.86%	Not applicable

        We expect the following benefit payments to be paid which reflect future service, as appropriate:

	Pension Benefits		Other Postretirement Benefits
	(in thousands)
2008	$	5,075	192
2009		5,318	223
2010		5,219	277
2011		7,029	308
2012		8,231	331
2013 through 2017		50,795	1,876
	$	81,667	3,207

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December 31, 2007, 2006 and 2005

        Our policy with respect to funding the Pension Plan is to fund at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not more than the maximum amount deductible for tax purposes. All contributions made to the Pension Plan for 2007 and 2006 were voluntary. We anticipate that the 2008 contribution will be made from cash generated from operations and will be in the range of $5.0 to $10.0 million.

        All Company contributions to other postretirement medical benefits are voluntary, as the postretirement medical plan is not funded, and is not subject to any minimum regulatory funding requirements. The contributions for each year represent claims paid for medical expenses, and we anticipate making the 2008 expected contribution with cash generated from operations. Contributions by participants to the postretirement plan were $148 thousand and $137 thousand for the years ending December 31, 2007 and 2006, respectively.

        For measurement purposes, the initial health care cost trend rate was 10% for 2008, 2007 and 2006. The health care cost trend rate reflects anticipated increases in health care costs. The initial assumed growth rate of 10% in the first year is assumed to gradually decline over the next five years to a rate of 5% in the fifth year. The effect of a 1% annual increase in assumed cost trend rates would increase the December 31, 2007 accumulated postretirement benefit obligation by approximately $393 thousand, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2007 by approximately $72 thousand. The effect of a 1% annual decrease in assumed cost trend rates would decrease the December 31, 2007 accumulated postretirement benefit obligation by approximately $342 thousand, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2007 by approximately $61 thousand.

        We also sponsor the Waddell & Reed Financial, Inc. Supplemental Executive Retirement Plan, as amended and restated (the "SERP"), a non-qualified deferred compensation plan covering eligible employees. The SERP provides certain benefits for Company officers that the Pension Plan is prevented from providing because of compensation and benefit limits in the Internal Revenue Code.

        The SERP was adopted to supplement the annual pension paid to certain senior executive officers. Each calendar year, the Compensation Committee of the Board of Directors (the "Compensation Committee") credits participants' SERP accounts with (i) an amount equal to 4% of the executive's base salary, less the amount of the maximum employer matching contribution available under our 401(k) plan, and (ii) a non-formula award, if any, as determined by the Compensation Committee in its discretion. There were no discretionary awards made to participants during 2007. Additionally, each calendar year, participants' accounts are credited (or charged) with an amount equal to the performance of certain hypothetical or investment vehicles since the last preceding year. Upon a participant's separation, or at such other time based on a pre-existing election by a participant, benefits accumulated under the SERP are payable in installments or in a lump sum. As of December 31, 2007 and 2006, the aggregate liability to participants was $3.4 million and $3.3 million, respectively.

        At December 31, 2007, the accrued pension and postretirement liability recorded on the balance sheet was comprised of an accrued liability for SERP benefits of $3.4 million and a liability for postretirement benefits in the amount of $3.8 million. The current portion of postretirement liability of $0.2 million is included in other current liabilities on the balance sheet. At December 31, 2006, the accrued pension and postretirement liability recorded on the balance sheet was comprised of accrued pension costs of

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

$5.4 million, an accrued liability for SERP benefits of $3.3 million, and a liability for postretirement benefits in the amount of $4.0 million. The current portion of postretirement liability of $0.2 million is included in other current liabilities on the balance sheet.

11.   Employee Savings Plan

        We sponsor a defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code to provide retirement benefits to substantially all of our employees following the completion of an eligibility period. As allowed under Section 401(k), the plan provides tax-deferred salary deductions for eligible employees. Our matching contributions to the plan for the years ended December 31, 2007, 2006 and 2005 were $3.7 million, $3.4 million and $3.1 million, respectively.

12.   Stockholders' Equity

Earnings per Share

        For the years ended December 31, 2007, 2006 and 2005 earnings per share were computed as follows:

		2007		2006	2005
		(in thousands, except per share amounts)
Net income		$	125,497	46,112	60,121
Weighted average shares outstanding — basic			80,781	81,353	80,908
Dilutive potential shares from stock options and certain nonvested stock awards			2,043	1,859	1,137
Weighted average shares outstanding — diluted			82,824	83,212	82,045
Earnings per share:
	Basic	$	1.55	0.57	0.74
	Diluted	$	1.52	0.55	0.73

Anti-dilutive Securities

        Options to purchase 659 thousand shares, 2.79 million shares and 2.81 million shares of Class A common stock ("common stock") were excluded from the dilutive earnings per share calculation for years ended December 31, 2007, 2006 and 2005, respectively because they were anti-dilutive. Also excluded from the diluted earnings per share calculation were approximately 265 thousand shares, 236 thousand shares and 40 thousand shares of anti-dilutive nonvested stock for the years ended December 31, 2007, 2006 and 2005, respectively.

Dividends

        We declared dividends on our common stock of $.68 per share, $.60 per share and $.60 per share for the years ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007 and 2006, other current liabilities included $14.7 million and $12.7 million, respectively, for dividends payable to stockholders.

        The Board of Directors approved an increase in the quarterly dividend on our common stock from $.17 per share to $.19 per share beginning with our first quarter 2008 dividend, payable on May 1, 2008.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

Common Stock Repurchases

        The Board of Directors has authorized the repurchase of our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs. There were 2,350,054 shares, 1,139,116 shares and 292,600 shares repurchased in the open market or privately during the years ended December 31, 2007, 2006 and 2005, respectively.

13.   Share-Based Compensation

        The Company has three stock-based compensation plans: the Company 1998 Stock Incentive Plan, as amended and restated (the "SI Plan"), the Company 1998 Executive Stock Award Plan, as amended and restated (the "ESA Plan") and the Company 1998 Non-Employee Director Stock Award Plan, as amended and restated (the "NED Plan") (collectively, the "Stock Plans").

        The SI Plan allows us to grant equity compensation awards, including, among other awards, non-qualified stock options and nonvested stock as part of our overall compensation program to attract and retain key personnel and encourage a greater personal financial investment in the Company. The Stock Plans also allow us to grant non-qualified stock options and/or nonvested stock to promote the long-term growth of the Company. A maximum of 30,000,000 shares of common stock are authorized for issuance under the SI Plan. A maximum of 3,750,000 and 1,200,000 shares of common stock are authorized for issuance under the ESA Plan and NED Plan, respectively. In total, 14,155,951 shares of common stock are available for issuance as of December 31, 2007 under these plans. In addition, we make incentive payments under the Company 2003 Executive Incentive Plan, as amended and restated (the "EIP") in the form of cash, stock options, nonvested stock or a combination thereof. Incentive awards paid under the EIP in the form of stock options or nonvested stock are issued out of shares reserved for issuance under the SI and ESA Plans. Generally, shares of common stock covered by terminated, surrendered or cancelled options, by forfeited nonvested stock, or by the forfeiture of other awards that do not result in issuance of shares of common stock are again available for awards under the plan from which they were terminated, surrendered, cancelled or forfeited.

        Under our Stock Plans, the exercise price of a stock option is equal to the closing market price of Company common stock on the date of grant. The maximum term of non-qualified options granted under the SI Plan is ten years and two days and the options generally vest in 33¹/3% increments on the second, third and fourth anniversaries of the grant date. The maximum term of non-qualified options granted under the ESA Plan and NED Plan is 11 years and the options generally vest 10% each year, beginning on the first anniversary of the grant date. Our Stock Plans include a Stock Option Restoration Program feature (the "SORP") that allows, on the first trading day of August, a holder to pay the exercise price on vested in-the-money options by surrendering common stock of the Company that has been owned for at least six months. This feature also permits a holder exercising an option to be granted new options in an amount equal to the number of common shares used to satisfy both the exercise price and withholding taxes due upon exercise. New options are granted with an expiration date equal to that of the original option and vest six months after the grant date. The SORP results in a net issuance of shares of common stock and fewer stock options outstanding. We receive a current income tax benefit for stock option exercises.

        Nonvested stock awards are valued on the date of grant, have no purchase price and generally vest over four years in 33¹/3% increments on the second, third and fourth anniversaries of the grant date.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

Restricted shares issued in the stock option tender offer were fully vested upon issuance, but remained subject to transfer restrictions that lapsed in 33¹/3% increments annually beginning March 14, 2005. The Company also issues nonvested stock awards to our financial advisors (our sales force) who are considered independent contractors. These awards have the same terms as awards issued to employees; however, changes in the Company's share price result in variable compensation expense over the vesting period. Under the Stock Plans, nonvested shares are forfeited upon the termination of employment with the Company or service on the Board, dependent upon the circumstances of termination. Except for restrictions placed on the transferability of nonvested stock, holders of nonvested stock have full stockholders' rights during the term of restriction, including voting rights and the rights to receive cash dividends.

        On April 25, 2005, the Compensation Committee of the Board approved the accelerated vesting of all then outstanding unvested options previously awarded to employees, financial advisors, officers and directors. This resulted in the accelerated vesting of 624,267 options. Of these options, 447,497 were "in-the-money" options having an exercise price less than the then current market price of the Company's common stock and a weighted average exercise price of $13.90 per share. In order to prevent unintended personal benefits to directors and executive officers, the Board of Directors imposed restrictions on any shares received through the exercise of accelerated options held by those individuals. These restrictions prevent the sale of any stock obtained through exercise of an accelerated option prior to its original vesting date, other than the disposition of stock as payment for the exercise price of options and associated income taxes, if any.

        The Board approved the accelerated vesting of these options based on the belief that it was in the best interest of the stockholders to reduce future compensation expense that the Company would otherwise be required to report in its statement of operations upon adoption of SFAS No. 123R on January 1, 2006. We anticipate that holders of "in-the-money" accelerated options will remain employed with the Company throughout the original vesting term of such options, and therefore, no expense will be recorded for these options unless option holders are able to exercise an option that would have expired unexercisable pursuant to its original terms. Subsequent to the Compensation Committee's decision to accelerate the vesting of outstanding options, the separation of employment of the Company's former chief executive officer triggered the remeasurement of compensation cost. This remeasurement resulted in additional compensation cost of $1.4 million during 2005.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

(a)

Stock Options

        A summary of stock option activity and related information for the year ended December 31, 2007 follows:

	Options	Weighted average exercise price		Weighted average remaining contractual term (in years)
Outstanding at December 31, 2006	6,118,559	$	23.22	2.32
Granted	—		—
Exercised	(3,447,723)		24.53
Granted in restoration	8,131		24.88
Exercised in restoration	(9,959)		17.78
Terminated/Canceled	(23,342)		19.46
Outstanding at December 31, 2007	2,645,666	$	21.58	2.10
Exercisable at December 31, 2007	2,637,535	$	21.57	2.10

        The aggregate intrinsic value of outstanding options and exercisable options as of December 31, 2007 was $38.4 million and $38.3 million, respectively. The total intrinsic value (on date of exercise) of options exercised during the years ended December 31, 2007, 2006 and 2005 was $31.9 million, $8.7 million and $2.6 million, respectively. The related income tax benefit recognized was $11.5 million, $3.1 million and $1.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.

        SORP options with vesting periods of six months were the only options granted during 2007, 2006 and 2005. Compensation expense related to options issued under the SORP of $19 thousand and $157 thousand was recorded for the years ended December 31, 2007 and December 31, 2006, respectively. There was no compensation expense recorded in 2005. The weighted average fair value of options granted during the years ended December 31, 2007, 2006 and 2005 were $2.76, $2.94 and $3.01, respectively.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

        The grant date fair value of options granted in 2007, 2006 and 2005 have been calculated using a Black-Scholes option-pricing model with assumptions as follows:

	2007	2006	2005
Dividend yield	2.70%	2.80%	3.10%
Risk-free interest rate	4.57%	4.92%	4.03%
Expected volatility	24.50%	22.50%	27.10%
Expected life (in years)	1.21	2.09	2.24

(b)

Nonvested Stock

        A summary of nonvested share activity and related fair value for the year ended December 31, 2007 follows:

	Nonvested Stock Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2006	3,209,573	$	22.46
Granted	1,145,459		26.52
Vested	(887,403)		21.66
Forfeited	(40,708)		22.63
Nonvested at December 31, 2007	3,426,921	$	24.02

        For the years ended December 31, 2007, 2006 and 2005, compensation expense related to nonvested stock totaled $23.7 million, $21.7 million and $17.8 million, respectively. The related income tax benefit recognized was $8.6 million, $7.9 million and $6.6 million for the years ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007, the remaining unamortized expense of $51.6 million is expected to be recognized over a weighted average period of 2.3 years.

        The total fair value of shares vested (at vest date) during the years ended December 31, 2007, 2006 and 2005 was $21.0 million, $16.9 million and $6.5 million, respectively. The Company permits employees the right to tender a portion of their vested shares to the Company to satisfy the minimum tax withholding obligations of the Company with respect to vesting of the shares. During 2008, we expect to repurchase approximately 290,000 shares from employees who elect to tender shares to cover their minimum tax withholdings.

        For nonvested stock awards granted prior to the adoption of SFAS No. 123R, the Company will continue to recognize compensation expense over the contractual vesting period. Had compensation expense for nonvested stock awards issued prior to January 1, 2006 been determined based on the date a participant first becomes eligible for retirement, the Company's net income would have been decreased by $45 thousand for the year ended December 31, 2007, increased by $280 thousand for the year ended December 31, 2006 and decreased by $206 thousand for the year ended December 31, 2005.

14.   Uniform Net Capital Rule Requirements

        Three of our subsidiaries, Waddell & Reed, Inc. ("W&R"), Legend Equities Corporation ("LEC"), and Ivy Funds Distributor, Inc. ("IFDI") are registered broker/dealers and members of the Financial

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

Industry Regulatory Authority. Broker/dealers are subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15.0 to 1.0. The primary difference between net capital and stockholders' equity is the non-allowable assets that are excluded from net capital. Net capital and aggregated indebtedness information for our broker/dealer subsidiaries is presented in the following table as of December 31, 2007 and 2006 (in thousands):

	2007				2006
	W&R		LEC	IFDI	W&R	LEC	IFDI
Net capital	$	41,187	2,136	12,328	45,748	893	8,159
Required capital		13,117	173	1,333	7,756	243	674
Excess of required capital	$	28,070	1,963	10,995	37,992	650	7,485
Ratio of aggregate indebtedness to net capital		4.78 to 1.0	1.22 to 1.0	1.62 to 1.0	2.54 to 1.0	4.07 to 1.0	1.24 to 1.0

15.   Rental Expense and Lease Commitments

        We lease our home office buildings and certain sales and other office space under long-term operating leases. Rent expense was $18.6 million, $18.3 million and $18.0 million, for the years ended December 31, 2007, 2006 and 2005, respectively. Future minimum rental commitments under non-cancelable operating leases are as follows (in thousands):

2008	$	15,041
2009		12,639
2010		10,201
2011		7,692
2012		5,503
Thereafter		14,212
	$	65,288

        New leases are expected to be executed as existing leases expire. Thus, future minimum lease commitments are not expected to be less than those in 2007.

16.   Related Party Transactions

        We earn investment management fees from the Funds for which we also act as an investment adviser, pursuant to an investment management agreement with each Fund. In addition, we have agreements with the Funds pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, pursuant to which distribution and service fees are collected from the Funds for distribution of mutual fund shares for costs such as advertising and commissions paid to broker/dealers and for providing ongoing services to shareholders of the Funds and/or maintaining shareholder accounts. We also earn service fee revenues by providing various services to the Funds and their shareholders pursuant to a shareholder servicing agreement with each Fund (except the Target Funds) and an accounting service agreement with each Fund. Certain of our officers and directors are also officers, directors and/or trustees for the various Funds for

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

which we act as an investment adviser. These agreements are approved or renewed on an annual basis by each Fund's board of directors/trustees, including a majority of the disinterested members. Funds and separate accounts receivable includes amounts due from the Funds for aforementioned services.

17.   Litigation and Regulatory Settlements

SEC/New York Attorney General/Kansas Securities Commission

        During 2006, we recorded a charge of $55.0 million related to settlement with the SEC, the New York Attorney General and the Kansas Securities Commission regarding market timing allegations, $12 million of which represented non-deductible penalties. The charge is included in general and administrative expenses.

Williams Excessive Fee Litigation

        On May 30, 2006, the investment advisor and underwriter subsidiaries of the Company for the Ivy Funds were dismissed from the case with prejudice. On September 25, 2006, the remainder of this case was dismissed with prejudice. The negotiations and discussions leading up to, and the terms of, the dismissal are confidential.

Torchmark Corporation and National Association of Securities Dealers Enforcement Action

        During 2005, we recorded a charge of $38.2 million related to settlements of outstanding litigation, including matters with the Enforcement Department of the National Association of Securities Dealers and Torchmark Corporation ("Torchmark"). The charge is included in general and administrative expenses.

        During 2006, the Arbitration Panel adjudicating the Torchmark matter ruled against the Company and determined that the Company owed Torchmark $7.4 million. A reserve previously established largely covered this exposure and the remaining amount was immaterial to the Company's 2006 earnings.

Sawtelle Arbitration

        During 2005, the Company settled this matter in its entirety for $7.9 million and recorded a pre-tax charge of $6.1 million in 2005 related thereto.

18.   Contingencies

        The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007, 2006 and 2005

19.   Selected Quarterly Information (Unaudited)

			Quarter
			First		Second	Third	Fourth
			(in thousands)
2007
	Total revenues		$	189,499	201,286	210,652	236,117
	Net income			28,727	29,706	31,967	35,097
	Earnings per share:
		Basic	$	0.36	0.37	0.40	0.43
		Diluted	$	0.35	0.36	0.39	0.42

			Quarter
			First		Second	Third	Fourth
			(in thousands)
2006
	Total revenues		$	173,070	181,311	178,582	185,692
	Net income (loss)			24,592 (1)	(33,022) (2)	24,591 (3)	29,951
	Earnings (loss) per share:
		Basic	$	0.30 (1)	(0.40) (2)	0.30 (3)	0.37
		Diluted	$	0.30 (1)	(0.40) (2)	0.30 (3)	0.36

(1)

Includes a pre-tax charge of $1.9 million ($1.3 million net of tax) related to employee separation costs at ACF in response to a decline in investment performance and related loss of assets under management.

(2)

Includes a pre-tax charge of $55.0 million ($39.4 million net of tax) to recognize our settlement with the SEC, New York Attorney General and Kansas Securities Commissioner related to market-timing allegations and a charge of $20.0 million (not deductible for income tax purposes) to recognize the impairment of goodwill associated with ACF.

(3)

Includes charges associated with the resolution of the Williams litigation and expenses related to prior regulatory settlements.

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WADDELL & REED FINANCIAL, INC.
Index to Exhibits

Exhibit No.	Exhibit Description
3.1	Restated Certificate of Incorporation of Waddell & Reed Financial, Inc. Filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended June 30, 2006 and incorporated herein by reference.
3.2	Amended and Restated Bylaws of Waddell & Reed Financial, Inc. Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K, File No. 333-43687, filed December 14, 2007 and incorporated herein by reference.
4.1	Specimen of Class A Common Stock Certificate, par value $0.01 per share. Filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1/A, File No. 333-43687, on February 27, 1998 and incorporated herein by reference.
4.2	Rights Agreement, dated as of April 28, 1999, by and between Waddell & Reed Financial, Inc. and Computershare Trust Company, N.A., as successor to First Chicago Trust Company of New York, which includes the Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company, as filed on May 13, 1999 with the Secretary of State of Delaware, as Exhibit A and the form of Rights Certificate as Exhibit B. Filed as Exhibit 4 to the Company's Quarterly Report on Form 10-Q, File No. 001-13913, for the quarter ended June 30, 1999 and incorporated herein by reference.
4.3	First Amendment to Rights Agreement, dated as of February 14, 2001, by and between Waddell & Reed Financial, Inc. and Computershare Trust Company, N.A., as successor to First Chicago Trust Company of New York. Filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K, File No. 001-13913, for the year ended December 31, 2000 and incorporated herein by reference.
4.4	Indenture, dated as of January 18, 2001, by and between Waddell & Reed Financial, Inc. and JPMorgan Chase Bank, National Association. Filed as Exhibit 4.1(a) to the Company's Current Report on Form 8-K, File No. 001-13913, on February 5, 2001 and incorporated herein by reference.
4.5	First Supplemental Indenture, dated as of January 18, 2001 by and between Waddell & Reed Financial, Inc. and JPMorgan Chase Bank, National Association, including the form of the 7.50% notes due January 2006 as Exhibit A. Filed as Exhibits 4.1(b) and 4.2 to the Company's Current Report on Form 8-K, File No. 333-43687, on February 5, 2001 and incorporated herein by reference.
4.6	Second Supplemental Indenture, dated as of January 13, 2006, between Waddell & Reed Financial, Inc. and JP Morgan Trust Company, National Association, as trustee, and the form of the Global Note for the Company's 5.60% Notes due 2011 as Exhibit A. Filed as Exhibits 4.1 and 4.2 to the Company's Current Report on Form 8-K, File No. 333-43687, on January 13, 2006 and incorporated herein by reference.

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WADDELL & REED FINANCIAL, INC.
Index to Exhibits

4.7	Form of Indenture to be used in connection with the issuance of the Subordinated Debt Securities. Filed as Exhibit 4.7 to the Company's Form S-3/A, File No. 333-43682, on September 7, 2000 and incorporated herein by reference.
10.1	General Agent Contract, dated as of October 20, 2000, by and among Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company and Waddell & Reed, Inc. and its affiliated insurance companies. Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K, File No. 001-13913, for the year ended December 31, 2000 and incorporated herein by reference.
10.2	Fund Participation Agreement, dated as of December 1, 2000, by and among Nationwide Life Insurance Company and/or Nationwide Life and Annuity Insurance Company, Waddell & Reed Services Company and Waddell & Reed, Inc. Filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K, File No. 001-13913, for the year ended December 31, 2000 and incorporated herein by reference.
10.3	Fund Participation Agreement, dated as of September 19, 2003, by and among Minnesota Life Insurance Company, Waddell & Reed, Inc. and the Target Funds.
10.4	Variable Products Distribution Agreement, dated as of December 12, 2003, by and among Minnesota Life Insurance Company, Securian Financial Services, Inc. and Waddell & Reed, Inc. and its affiliated insurance companies. Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2004 and incorporated herein by reference.
10.5	Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended June 30, 2007 and incorporated herein by reference.*
10.6	Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended September 30, 2005 and incorporated herein by reference.*
10.7	Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as amended and restated. Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended September 30, 2005 and incorporated herein by reference.*
10.8	Credit Agreement, dated as of October 7, 2005 by and among Waddell & Reed Financial, Inc., the Lenders, JPMorgan Chase Bank and Bank of America, N.A. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, File No. 333-43687, on October 11, 2005 and incorporated herein by reference.

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WADDELL & REED FINANCIAL, INC.
Index to Exhibits

10.9	Fixed Rate Promissory Note for Multiple Loans dated as of August 15, 2000, by and between Waddell & Reed Financial, Inc. and Chase Manhattan Bank. Filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K, File No. 001-13913, for the year ended December 31, 2000 and incorporated herein by reference.
10.10	Waddell & Reed Financial, Inc. Supplemental Executive Retirement Plan, as amended and restated. Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2006 and incorporated herein by reference.*
10.11	Waddell & Reed Financial, Inc. 2003 Executive Incentive Plan, as amended and restated. Filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2006 and incorporated herein by reference.*
10.12	Form of Accounting Services Agreement, amended and restated as of July 1, 2003, by and between the Funds and Waddell & Reed Services Company.
10.13	Form of Investment Management Agreement, amended and restated as of November 9, 2005, by and between each of the Advisors Funds and Waddell & Reed Investment Management Company.
10.14	Investment Management Agreement, amended and restated as of November 16, 2005, by and between the Ivy Funds and Waddell & Reed Investment Management Company, assigned to Ivy Investment Management Company.
10.15	Investment Management Agreement, amended as of November 9, 2005, by and between the Target Funds and Waddell & Reed, Inc., assigned to Waddell & Reed Investment Management Company.
10.16	Form of Shareholder Servicing Agreement, amended as of August 22, 2001, by and between each of the Advisors Funds or the Ivy Funds and Waddell & Reed Services Company.
10.17	Form of Underwriting Agreement by and between each of the Advisors Funds and Waddell & Reed, Inc. Filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K, File No. 001-13913, for the year ended December 31, 1998 and incorporated herein by reference.
10.18	Form of Amendment to Underwriting Agreement, dated July 24, 2002, by and between each of the Advisors Funds and Waddell & Reed, Inc.
10.19	Form of Distribution Agreement, amended and restated as of September 3, 2003, by and between the Ivy Funds and Waddell & Reed, Inc., assigned to Ivy Funds Distributor, Inc.
10.20	Form of Distribution and Service Plan, amended and restated as of November 29, 2006, by and between each of the Advisors Funds or Ivy Funds and Waddell & Reed, Inc. or Ivy Funds Distributor, Inc., respectively.

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WADDELL & REED FINANCIAL, INC.
Index to Exhibits

10.21	Service Plan, revised as of May 16, 2001, by and between the Target Funds and Waddell & Reed, Inc.
10.22	Administrative Agreement, dated as of March 9, 2001, by and among W&R Insurance Agency, Inc., Waddell & Reed, Inc., BISYS Insurance Services, Inc. and Underwriters Equity Corp. Filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2001 and incorporated herein by reference.
10.23	Consulting Agreement, dated January 1, 2002, by and between Robert L. Hechler and Waddell & Reed, Inc. Filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2001 and incorporated herein by reference.
10.24	First Amendment to Consulting Agreement, dated December 25, 2005, by and between Robert L. Hechler and Waddell & Reed, Inc. Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2006 and incorporated herein by reference.
10.25	Consulting Agreement, dated May 25, 2005, by and between Waddell & Reed Financial, Inc. and Keith A. Tucker. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, File No. 333-43687, on May 26, 2005 and incorporated herein by reference.
10.26	Form of Change in Control Employment Agreement, dated December 14, 2001, by and between Henry J. Herrmann and Waddell & Reed Financial, Inc. Filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2001 and incorporated herein by reference.*
10.27	Summary of Compensation Arrangements with Executive Officers of Waddell & Reed Financial, Inc.*
10.28	Summary of Non-Employee Director Compensation.*
10.29	Form of Restricted Stock Award Agreement for awards to Employees pursuant to the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended September 30, 2007 and incorporated herein by reference.*
10.30	Form of Restricted Stock Award Agreement for awards to Non-Employee Directors pursuant to the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended September 30, 2007 and incorporated herein by reference.*
10.31	Form of Restricted Stock Award Agreement for awards pursuant to the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated. Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended September 30, 2007 and incorporated herein by reference.*

88

WADDELL & REED FINANCIAL, INC.
Index to Exhibits

10.32	Form of Restricted Stock Award Agreement for awards pursuant to the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as amended and restated. Filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q, File No. 333-43687, for the quarter ended September 30, 2007 and incorporated herein by reference.*
10.33	Form of Non-Qualified Stock Option Grant Agreement for awards pursuant to the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated.*
10.34	First Amendment to the Waddell & Reed Financial, Inc. Non-Qualified Stock Option Grant Agreement, dated November 7, 2007, by and between Waddell & Reed Financial, Inc. and Henry J. Herrmann.*
10.35	2008 Performance Goals established pursuant to the Waddell & Reed Financial, Inc. 2003 Executive Incentive Plan, as amended and restated. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, File No. 333-43687, on February 25, 2008 and incorporated herein by reference.*
10.36	Offer of Settlement. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, File No. 333-43687, on July 24, 2006 and incorporated herein by reference.
10.37	Assurance of Discontinuance. Filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, File No. 333-43687, on July 24, 2006 and incorporated herein by reference.
10.38	Stipulation for Consent Order. Filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, File No. 333-43687, on July 24, 2006 and incorporated herein by reference.
11	Statement regarding computation of per share earnings.
21	Subsidiaries of Waddell & Reed Financial, Inc.
23	Consent of KPMG LLP.
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1	Section 1350 Certification of the Chief Executive Officer.
32.2	Section 1350 Certification of the Chief Financial Officer.

*

Indicates management contract or compensatory plan, contract or arrangement.

89

QuickLinks

WADDELL & REED FINANCIAL, INC. INDEX TO ANNUAL REPORT ON FORM 10-K For the fiscal year ended December 31, 2007
PART I

ITEM 1. Business

ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders

PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price

ITEM 6. Selected Financial Data

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures

Report of Independent Registered Public Accounting Firm

ITEM 9B. Other Information.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accounting Fees and Services

PART IV

ITEM 15. Exhibits, Financial Statement Schedules

SIGNATURES
WADDELL & REED FINANCIAL, INC. Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
WADDELL & REED FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS December 31, 2007 and 2006
WADDELL & REED FINANCIAL, INC. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2007, 2006 and 2005
WADDELL & REED FINANCIAL, INC. STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2007, 2006 and 2005 (in thousands)
WADDELL & REED FINANCIAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, 2007, 2006 and 2005
WADDELL & REED FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2007, 2006 and 2005
WADDELL & REED FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007, 2006 and 2005
WADDELL & REED FINANCIAL, INC. Index to Exhibits

EX-10.3

Exhibit 10.3

Target Funds Participation Agreement

(Excludes Products Sold Through W&R Distribution System)

This Fund Participation Agreement (“Agreement”), dated as of the 19th day of September, 2003 is made by and between MINNESOTA LIFE INSURANCE COMPANY (“Company”) on behalf of the Company separate accounts identified on Exhibit A which is attached hereto and may be amended from time to time (“Variable Accounts”), and WADDELL & REED, INC. (“W&R”) which serves as the distributor to the W&R TARGET FUNDS, INC. (the “Funds”) listed on Exhibit B.

WHEREAS, Company and W&R mutually desire the inclusion of the Funds as underlying investment media for variable life insurance policies and/or variable annuity contracts sold through distributors other than W&R and/or its affiliates (collectively, the “Contracts”) issued by Company; and

WHEREAS, the Contracts allow for the allocation of net amounts received by Company to separate sub-accounts of the Variable Accounts for investment in shares of the Funds and other similar funds distributed by W&R and/or its affiliates; and

WHEREAS, selection of a particular sub-account (corresponding to a particular Fund) is made by the Contract owner; and/or participants; and such Contract owner and participants may reallocate their investment options among the sub-accounts of the Variable Accounts in accordance with the terms of the Variable Accounts in accordance with the terms of the Variable Accounts and the Contracts.

NOW THEREFORE, Company and W&R, in consideration of the promises and undertakings described herein, agree as follows:

1.The scope of this Agreement is limited to the inclusion of the Funds in variable annuity and variable life contracts sold through distributors other than W&R and/or its affiliates.

2.(a)Company represents and warrants that the Variable Accounts have been established and are in good standing under Minnesota Law; and the Variable Accounts have been registered as unit investment trusts under the Investment Company Act of 1940, as amended (the “1940 Act”) and will remain so registered, or are exempt from registration pursuant to section 3(c)(11) of the 1940 Act;

(b)Company represents and warrants that it is an insurance company duly organized and in good standing under the laws of its state of incorporation and that it has legally and validly established each Variable Account and Contract;

(c)Company represents and warrants that the Contracts will be registered under the Securities Act of 1933, as amended (“1933 Act”) unless an exemption from registration is available prior to any issuance or sale of the Contracts and that the Contracts will be issued in compliance in all material respects with applicable federal and state laws.

3.Subject to the terms and conditions of this Agreement, Company shall be appointed to, and agrees, to act as a limited agent of W&R, for the sole purpose of receiving instructions for the purchase and redemption of Fund shares (from Contract owners or participants making investment allocation decisions under the Contracts) prior to the close of regular trading each Business Day.  “Business Day” shall mean any day on which the New York Stock Exchange (“NYSE”) is open for trading and on which the Funds calculate their net asset value as set forth in the Funds’ most recent Prospectuses and Statements of Additional Information. Except as particularly stated in this paragraph, Company shall have no authority to act on behalf of W&R or to incur any cost or liability on its behalf.

The Funds or their agent will use reasonable best efforts to provide closing net asset value, change in net asset value, dividend or daily accrual rate information and capital gain information by 6:00 p.m. Central Time each Business Day to Company. Company shall use this data to calculate unit values.  Unit values shall be used to process that same Business Day’s Variable Account transactions. Orders for purchases or redemptions shall be placed with W&R or its specified agent no later than 8:30 a.m. Central Time of the following Business Day.  The Company may aggregate separately all purchase and/or redemption orders for shares of the Funds that it received prior to the close of trading on the NYSE (i.e., 3:00 Central time, unless the NYSE closes earlier in which case such earlier time shall apply).  The Company will not aggregate pre-3:00 Central time trades with post-3:00 Central time trades. Orders for shares of Funds shall be executed at the time they are received by W&R and at the net asset value price determined as of the close of trading on the previous Business Day, provided that the Company represents it has received such orders prior to the close of the NYSE on the previous Business Day.  The Funds may refuse to sell shares to any person or may suspend or terminate the offering of its shares if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the directors of the Funds, necessary in the best interest of the shareholders of the Funds.  W&R will not accept any order made on a conditional basis or subject to any delay or contingency.  Company shall only place purchase orders for shares of Funds on behalf of its customers whose addresses recorded on Company’s books are in a state or other jurisdiction in which the Funds are registered or qualified for sale, or are exempt from registration or qualification as confirmed in writing by W&R.

Payment for net purchases shall be wired to a custodial account designated by W&R and payment for net redemptions will be wired to an account designated by Company. Dividends and capital gain distributions shall be reinvested in additional Fund shares at net asset value.  Notwithstanding the above, W&R shall not be held responsible for providing Company with ex-date net asset value, change in net asset value, dividend or capital gain information when the New York Stock Exchange is closed, when an emergency exists making the valuation of net assets not reasonably practicable, or during any period when the Securities and Exchange Commission (“SEC”) has by order permitted the suspension of pricing shares for the protection of shareholders.

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Issuance and transfer of Fund shares will be by book entry only.  Share certificates will not be issued to Company for any Variable Account.  Fund shares will be recorded in the appropriate title for each Variable Account.

Company agrees to provide W&R, upon request, written reports indicating the number of shareholders or policyholders that hold interests in the Funds and such other information (including books and records) that W&R may reasonably request or as may be necessary or advisable to enable it to comply with any law, regulation or order.

The Funds shall furnish, on or before the ex-dividend date, notice to Company of any income dividends or capital gain distributions payable on the shares of the Funds.  Company hereby elects to receive all such income dividends and capital gain distributions as are payable on a Fund’s shares in additional shares of the Fund.  The Funds shall notify Company of the number of shares so issued as payment of such dividends and distributions.

In the event adjustments are required to correct any material error in the computation of the net asset value of a Fund’s shares, the Fund shall notify the Company as soon as practicable after discovering the need for those adjustments which result in a reimbursement to a Variable Account in accordance with the Fund’s then current policies on reimbursement, which the Fund represents are consistent with applicable SEC standards.  If an adjustment is to be made in accordance with such policies to correct an error which has caused a Variable Account to receive an amount different than that to which it is entitled, the Fund shall make all necessary adjustments to the number of shares owned in the Variable Account and distribute to the Variable Account the amount of such underpayment for credit to Company’s Contract/Policy Owners.

4.All expenses incident to the performance by W&R and the Funds under this Agreement shall be paid by W&R and the Funds.  W & R shall pay fees or other compensation to the Company under this Agreement as provided on Schedule C.  W & R’s obligation to pay compensation or fees as provided in Schedule C shall survive termination of this Agreement.

W&R shall promptly provide Company (or its designee), or cause Company (or its designee) to be provided with, a reasonable quantity of the Funds’ Statements of Additional Information and any supplements, and a camera-ready copy of the Funds’ Prospectus and any Supplements or at the option of the Company, a camera-ready copy of the portions of the Funds’ Prospectus, and any supplements, pertaining specifically to the Funds used in the Company’s Contracts, for use by Company in producing a combined prospectus for each Contract incorporating both the Contract Prospectus and the Funds’ Prospectus.

If the Company elects to include any materials provided by W & R or the Funds, specifically prospectuses, SAIs, shareholder reports and proxy materials, on its web site or in any other computer or electronic format, the Company assumes sole responsibility for maintaining such materials in the form provided by W & R or the Funds and for promptly replacing such materials with all updates provided by W & R or the Funds.  W & R or the Funds agree to provide all such materials requested by the Company in a Portable Document Format (PDF,

3

both camera ready and low resolution enhanced) in a timely fashion at no additional cost, together with such other formats as may be mutually agreed upon.

Each Fund (at its expense) shall provide Company with copies of any Fund-sponsored proxy materials in such quantity as Company shall reasonably require for distribution to contract owners.  The Fund shall bear the costs of distributing Fund proxy materials (or similar materials such as voting solicitation instructions).  Company shall bear the cost of distributing prospectuses and statements of additional information to contract owners.  Company assumes sole responsibility for ensuring that such materials are delivered to contract owners in accordance with applicable federal and state securities laws.

If and to the extent required by law, Company shall: (i) solicit voting instructions from contract owners; (ii) vote the Fund(s) shares in accordance with the instructions received from contract owners; and (iii) vote Fund(s) shares for which no instructions have been received; so long as and to the extent that the Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners.  The Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law.  Company and its agents will in no way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Fund shares held for the benefit of such Contract owners.

5.Company and its agents shall make no representations concerning the Funds or Fund shares except those contained in the Funds’ then current Prospectuses, Statements of Additional Information or other documents produced by W&R (or an entity on its behalf) which contain information about the Funds. Company agrees to allow at least five (5) Business Days for W&R to review any advertising and sales literature drafted by Company (or agents on its behalf) with respect to the Funds prior to submitting such material to any regulator.

6.W&R represents that the Funds are currently qualified as regulated investment companies under Subchapter M of the Internal Revenue Code of 1986 (the “Code”), as amended, and that the Funds shall make every effort to maintain such qualification.  W&R shall promptly notify Company upon having a reasonable basis for believing that the Funds have ceased to so qualify, or that they may not qualify as such in the future.

W&R represents that the Funds currently comply with the diversification requirements pursuant to Section 817(h) of the Code and Section 1.817-5(b) of the Federal Tax Regulations and that the Funds will make every effort to maintain the Funds’ compliance with such diversification requirements, unless the Funds are otherwise exempt from section 817(h) and/or except as otherwise disclosed in the Funds’ prospectus.  W&R will notify Company promptly upon having a reasonable basis for believing that the Funds have ceased to so qualify, or that the Funds might not so qualify in the future. Unless otherwise exempt, W&R shall provide to Company a statement indicating compliance with Section 817(h) and a schedule of investment holdings, to be received by Company no later than twenty-five (25) days following the end of each calendar quarter.

4

Company represents that the Contracts are currently, and at the time of issuance will be, treated as annuity contracts or life insurance policies, whichever is appropriate under applicable provisions of the Code, and that it shall make every effort to maintain such treatment. Company will promptly notify W&R upon having a reasonable basis for believing that the Contracts have ceased to be treated as annuity contracts or life insurance polices, or that the Contracts may not be so treated in the future.

Unless the Funds are exempt from the requirements of section 817(h), Company represents that each Variable Account is a “segregated asset account” and that interests in each Variable Account are offered exclusively through the purchase of a “variable contract”, within the meaning of such terms pursuant to section 1.817-5(f)(2) of the Federal Tax Regulations, that it shall make every effort to continue to meet such definitional requirements, and that it shall notify W&R immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they may not be met in the future.

The Funds represent and warrant that each is duly organized and validly existing under the laws of Maryland and that each does and will comply in all material respects with the 1940 Act and the rules and regulations thereunder.

The Funds represent and warrant that the Fund shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and each Fund shall be registered under the 1940 Act prior to and at the time of any issuance or sale of such shares.  Each Fund shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares.  Each Fund shall register and qualify its shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or W&R.

Each Fund represents and warrants that it, its directors, officers, employees and other dealing with the money or securities, or both, of a Fund shall at all times be covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage required by Rule 17g-1 or other regulations under the 1940 Act.  Such bond shall include coverage for larceny and embezzlement and be issued by a reputable bonding company.

W&R represents and warrants that it is currently and will continue to be a registered-broker dealer and member in good standing with the National Association of Securities Dealers (“NASD”).

7.Within five (5) Business Days after the end of each calendar month, the Funds or their agent shall provide Company a monthly statement of account, which shall confirm all transactions made during that particular month in the Variable Accounts.

8.(a)   The directors of the Funds will monitor the operations of the Funds for the existence of any material irreconcilable conflict among the interest of all Contract owners of all separate accounts investing in the Funds.  W&R shall notify Company of the potential

5

for, or the determination of, such irreconcilable material conflict.  An irreconcilable conflict may arise, among other things, from (i) an action by any state insurance regulatory authority; (ii) a change in applicable insurance laws or regulations; (iii) a tax ruling or provision of the Code or the regulations thereunder; (iv) any other development relating to the tax treatment of insurers, contract holders or policy owners or beneficiaries of variable annuity or variable life insurance products; (v) the manner in which the investments of the Funds are managed; (vi) a difference in voting instructions given by variable annuity contract owners, on the one hand, and variable life insurance policy owners on the other hand, or by the contract holders or policy owners of different participating insurance companies; or (vii) a decision by an insurer to override the voting instructions of participating contract owners.

(b)Company is responsible for reporting any potential or existing conflicts to W&R and the Funds.  Company will be responsible for assisting the directors in carrying out their responsibilities under this provision by providing the directors with all information reasonably necessary for them to consider the issues raised.  W&R shall report to the directors any such conflict that comes to the attention of W&R.

(c)If a majority of the directors of the Funds or a majority of the disinterested directors determine that a material irreconcilable conflict exists involving Company, Company shall, at its expense and to the extent reasonably practicable (as determined by a majority of the disinterested directors), take whatever steps are necessary to eliminate the irreconcilable material conflict, including, but not limited to, withdrawing the assets allocable to some or all of the Variable Accounts from the Funds and reinvesting such assets in a different investment medium, including another Fund, offering to the affected Contract owners the option of making such a change or offering a new funding medium, including a registered investment company.

For purposes of this provision, the directors or the disinterested directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict.  In the event of a determination of an irreconcilable material conflict, the directors shall cause the Funds to take such action, such as establishment of one or more additional Funds, as they reasonably determine to be in the interest of all shareholders and Contract owners in view of all the applicable factors such as the cost, feasibility, tax, regulatory and other considerations.  In no event will the Funds be required by this provision to establish a new funding medium for any Contract.

Company shall not be required by this provision to establish a new funding medium for any Contract if an offer to do so has been declined by a vote of a majority of the Contract owners materially adversely affected by the material irreconcilable conflict.  Company will decline an offer to establish a new funding medium only if Company believes it is in the best interest of its Contract owners.

9.This Agreement shall terminate as to the sale and issuance of Fund shares in new Contracts (i.e., Contracts issued after the effective date of termination):

6

(a)at the option of Company or W&R upon at least 60 days advance written notice to the other;

(b)at any time, upon W&R’s election, if the Funds determine that liquidation of the Funds is in the best interest of the Funds and their beneficial owners. Reasonable advance notice of election to liquidate shall be furnished by W&R to permit the substitution of Fund shares with the shares of another investment company pursuant to SEC regulation;

(c)if the Contracts are not treated as annuity contracts or life insurance policies by the applicable regulators or under applicable rules or regulations;

(d)if the Variable Accounts are not deemed “segregated asset accounts” by the applicable regulators or under applicable rules or regulations;

(e)at the option of Company, if Fund shares are not available for any reason to meet the requirements of Contracts as determined by Company.

(f)with respect only to the applicable Fund, upon a decision by Company based on reasonable cause, in accordance with regulations of the SEC, to substitute such Fund shares with the shares of another investment company for Contracts for which the Fund shares have been selected to serve as the underlying investment medium.  Company shall give at least 60 days written notice to the Funds and W&R of any decision to substitute Fund shares;

(g)upon 60 days notice upon assignment of this Agreement unless such assignment is made with the written consent of each other party; and

(h)in the event Fund shares are not registered, issued or sold pursuant to Federal law, or such law precludes the use of Fund shares as an underlying investment medium of Contracts issued or to be issued by Company.  Prompt written notice shall be given by either party to the other in the event the conditions of this provision occur.

10.All notices sent under this Agreement shall be given in writing, and shall be delivered personally, or sent by fax, or by a nationally-recognized overnight courier, postage prepaid.  All such notices shall be deemed to have been duly given when so delivered personally or sent by fax, with receipt confirmed, or one (1) business day after the date of deposit with such nationally-recognized overnight courier.  All such notices to Company, W&R or the Funds shall be delivered to:

Minnesota Life Insurance Company

400 Robert Street North

Saint Paul, Minnesota 55101

Attention:  General Counsel

Minnesota Life Insurance Company

400 Robert Street North

Saint Paul, Minnesota 55101

Attention:  Randy Wallake, Executive Vice President

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Waddell & Reed, Inc.

6300 Lamar Avenue

Overland Park, KS  66202

Attention: Legal Department

W&R Target Funds, Inc.

6300 Lamar Avenue

Overland Park, KS  66202

Attention: Treasurer

All such notices to Company, W&R and the Funds shall be delivered to their respective addresses as listed above, or such other address as Company, W&R and/or the Funds may have furnished in writing to the other parties in accordance herewith.

11. (a)Company agrees to reimburse and/or indemnify and hold harmless W&R, the Funds, and each of their directors, officers, employees, agents and each person, if any, who controls or is controlled by W&R within the meaning of the Securities Act of 1933 (the “1933 Act”) (collectively, “Affiliated Party”) against any losses, claims, damages or liabilities (“Losses”) to which W&R or any such Affiliated Party may become subject, under the 1933 Act or otherwise, insofar as such Losses  arise out of or are based upon, but not limited to:

(i)any untrue statement or alleged untrue statement of any material fact contained in information furnished by Company;

(ii)the omission or the alleged omission to state in the Registration Statements or Prospectuses of the Variable Accounts, or Contract, or in any sales literature generated by Company on behalf of the Variable Accounts or Contracts, a material fact required to be stated therein or necessary to make the statements therein not misleading;

(iii)statements or representations of Company or its agents, with respect to the sale and distribution of Contracts for which Fund shares are an underlying investment, or wrongful conduct of Company or its agents with respect to sale of acquisition of Variable Insurance Products or Fund shares;

(iv)the failure of Company to provide the services and furnish the materials under the terms of this Agreement;

(v)a material breach of this Agreement or of any of the representations or warranties contained herein; or

(vi)any failure to register the Contracts or the Variable Accounts under federal or state securities laws, state insurance laws or to otherwise comply with such laws, rules, regulations or orders.

Provided however, that Company shall not be liable in any such case to the extent any such losses arise out of or are based upon an act, statement, omission or representation or alleged act, alleged statement, alleged omission or alleged representation which was made

8

in reliance upon and in conformity with written information furnished to Company by or on behalf of W&R specifically for use therein.

Company shall reimburse any legal or other expenses reasonably incurred by W&R, the Funds, or any Affiliated Party in connection with investigating or defending any such Losses, provided, however, that Company shall have prior approval of the use of said counsel or the expenditure of said fees.

This indemnity agreement shall be in addition to any liability which Company may otherwise have.

(b)W&R and the Funds agree to indemnify and hold harmless Company and each of its directors, officers, employees, agents and each person, (collectively, “Company Affiliated Party”), who controls Company within the meaning of the 1933 Act against any Losses to which Company or any such Company Affiliated Party may become subject, under the 1933 Act or otherwise, insofar as such Losses  arise out of or are based upon; but not limited to:

(i)any untrue statement or alleged untrue statement of any material fact contained in any information furnished by W&R or the Funds, including but not limited to, the Registration Statements, Prospectuses or sales literature of the Funds;

(ii)the omission or the alleged omission to state in the Registration Statements or Prospectuses of the Funds or in any sales literature generated by the Funds or their affiliates a material fact required to be stated therein or necessary to make the statements therein not misleading;

(iii)W&R’s failure to keep the Funds fully diversified and qualified as regulated investment companies as required by the applicable provisions of the Code, the 1940 Act, and the applicable regulations promulgated thereunder;

(iv)the failure of W&R to provide the services and furnish the materials under the terms of this Agreement;

(v)a material breach of this Agreement or of any of the representations or warranties contained herein; or

(vi)any failure to register the Funds under federal or state securities laws or to otherwise comply with such laws, rules, regulations or orders.

Provided however, that W&R and the Funds shall not be liable in any such case to the extent that any such losses arise out of or are based upon an act, statement, omission or representation or alleged act, alleged statement, alleged omission or alleged representation which was made in reliance upon or in conformity with written information furnished to W&R or the Funds by Company specifically for use therein.

W&R and the Funds shall reimburse any reasonable legal or other expenses reasonably incurred by Company or any Company Affiliated Party in connection with investigating or defending any such Losses, provided, however, that W&R and the Funds shall have prior approval of the use of said counsel or the expenditure of said fees.

9

This indemnity agreement will be in addition to any liability which W&R and the Funds may otherwise have.

(c)Each party shall promptly notify the other party(ies) in writing of any situation which presents or appears to involve a claim which may be the subject of indemnification under this Agreement and the indemnifying party shall have the option to defend against any such claim.  In the event the indemnifying party so elects, it shall notify the indemnified party and shall assume the defense of such claim, and the indemnified party shall cooperate fully with the indemnifying party, at the indemnifying party’s expense, in the defense of such claim.  Notwithstanding the foregoing, the indemnified party shall be entitled to participate in the defense of such claim at its own expense through counsel of its own choosing.  Neither party shall admit to wrong-doing nor make any compromise in any action or proceeding which may result in a finding of wrongdoing by the other party without the other party’s prior written consent.  Any notice given by the indemnifying party to an indemnified party or participation in or control of the litigation of any such claim by the indemnifying party shall in no event be deemed to be an admission by the indemnifying party of culpability, and the indemnifying party shall be free to contest liability among the parties with respect to the claim.

12.Subject to Section 9(f) of this Agreement, W&R may request or Company may initiate the filing of a substitution application pursuant to Section 26(c) of the 1940 Act to substitute shares of a Fund held by a Company Variable Account for another investment media (“Substitution Application”).  The costs associated with a Substitution Application shall be allocated as follows:

(a)In the event W&R requests Company to submit a Substitution Application, W&R shall reimburse Company for all reasonable costs incurred by Company with respect to such Substitution Application.  W&R shall be obligated to reimburse Company under this provision irrespective of whether the Substitution Application requested by W&R is effectuated.

(b)In the event Company initiates a Substitution Application and the Fund being substituted is offered by separate accounts of companies other than Company, Company shall bear all costs associated with the Substitution Application irrespective of whether the Substitution Application is effectuated.

(c)In the event Company initiates a Substitution Application in accordance with Section 9(f), Company shall bear the costs incurred in the transfer.

13.The forbearance or neglect of any party to insist upon strict compliance by another party with any of the provisions of this Agreement, whether continuing or not, or to declare a forfeiture of termination against the other parties, shall not be construed as a waiver of any of the rights or privileges of any party hereunder.  No waiver of any right or privilege of any party arising from any default or failure of performance by any party shall affect the rights or privileges of the other parties in the event of a further default or failure of performance.

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14.This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of Kansas, without respect to its choice of law provisions and in accordance with the 1940 Act.  In the case of any conflict, the 1940 Act shall control.

15.Each party hereby represents and warrants to the other that the persons executing this Agreement on its behalf are duly authorized and empowered to execute and deliver the Agreement and that the Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.  Except as particularly set forth herein, neither party assumes any responsibility hereunder, and will not be liable to the other for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its reasonable control.

16.Company acknowledges that the identity of W&R’s (and its affiliates’ and/or subsidiaries’) customers and all information maintained about those customers constitute the valuable property of W&R.  Company agrees that, should it come into contact or possession of any such information (including, but not limited to, lists or compilations of the identity of such customers), Company shall hold such information or property in confidence and shall not use, disclose or distribute any such information or property except with W&R’s prior written consent or as required by law or judicial process.

W&R acknowledges that the identity of Company’s (and its affiliates’ and/or subsidiaries’) customers and all information maintained about those customers constitute the valuable property of Company. W&R agrees that, should it come into contact or possession of any such information (including, but not limited to, lists or compilations of the identity of such customers), W&R shall hold such information or property in confidence and shall not use, disclose or distribute any such information or property except with Company’s prior written consent or as required by law or judicial process.

This section shall survive the expiration or termination of this Agreement.

17.Nothing in this Agreement shall be deemed to create a partnership or joint venture by and among the parties hereto.

18.Except to amend Exhibit A, or as otherwise provided in this Agreement, this Agreement may not be amended or modified except by a written amendment executed by each of the parties.

19.Each party shall cooperate with each other party and all appropriate government authorities (including without limitation the Commission, the National Association of Securities Dealers, Inc. and state insurance regulator) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby.

20.The parties of this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect.

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21.This Agreement may be executed by facsimile signature and it may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

MINNESOTA LIFE INSURANCE COMPANY

/s/ Randy R. Wallake

By:  Randy F. Wallake

Title:  Executive Vice President

WADDELL & REED, INC.

/s/ Thomas W. Butch

By:  Thomas W. Butch

Title:  Executive Vice President

W&R TARGET FUNDS, INC.

/s/ Henry J. Herrmann

By:  Henry J. Herrmann

Title:  President

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EXHIBIT A

Variable Accounts of Minnesota Life Insurance Company

1.Minnesota Life Variable Universal Life Account

2.Variable Annuity Account

3.Minnesota Life Variable Life Account

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EXHIBIT B

W&R Target Funds, Inc.

Funds Available to Variable Accounts

Balanced

Growth

Core Equity

Value

Small Cap Growth

International

Small Cap Value

Micro Cap Growth

Asset Strategy

Science and Technology

International II

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EXHIBIT C

Fees or Other Compensation

(a)Compensation described in this Exhibit C shall apply to all assets invested in the Funds in connection with the Contracts (hereinafter the “Aggregated Assets”).

(b)Assets Under Management.  Each quarter, W&R shall calculate and pay to Company a fee that shall be equal to forty-five (45) basis points, on an annualized basis, of the average daily account value of the Aggregated Assets (including any seed money provided by Company or any of its affiliates), provided, however, that the fee is subject to change pursuant to Paragraphs (c) and (d) below.  The fee (the “Total Fee”) shall include and not be in addition to the payment by W&R of the 12b-1 fees received by W&R from the Funds relating to the Aggregated Assets.  W&R may, at its option, pay any portion of the Total Fee due which is attributable to 12b-1 fees to the underwriter of the Contracts

(c)Changes in Law.  If a change in the law requires a reduction in the fees paid by a pooled investment vehicle pursuant to Section 12b-1 of the Investment Company Act of 1940 (or its functional equivalent), and if the Funds are required to reduce the 12b-1 fees they pay that are based upon the value of the Aggregated Assets (including seed money provided by Company or any of its affiliates) as a result of such change in the law, then there shall be a corresponding reduction in the amount of the Total Fee due pursuant to above.

(d)Voluntary Increase in 12b-1 Fees.  If a Fund voluntarily increases the fees it pays pursuant to Section 12b-1 of the Investment Company Act of 1940 (or its functional equivalent) that are based upon the value of the Aggregated Assets (including seed money provided by Company or any of its affiliates), then there shall be a corresponding increase in the amount of the Total Fee due pursuant to above.

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EX-10.12

Exhibit 10.12

ACCOUNTING SERVICES AGREEMENT

                THIS AGREEMENT, originally made as of the 9th day of March, 1995, by and between United Asset Strategy Fund, Inc. and Waddell & Reed Services Company, is hereby amended and restated and effective July 1, 2003, by and between Waddell & Reed Advisors Asset Strategy Fund, Inc. (f/k/a United Asset Strategy Fund, Inc.) (the “Fund”), a Maryland corporation, and Waddell & Reed Services Company (“WRSCO”), a Missouri corporation,

WITNESSETH:

                WHEREAS, the Fund wishes to appoint WRSCO to be its Accounting Services Agent upon and subject to the terms and provisions of this Agreement;

                NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows:

                A.            Appointment of WRSCO as Accounting Services Agent for the Fund; Acceptance.

                                (1) The Fund hereby appoints WRSCO to act as Accounting Services Agent for the Fund upon and subject to the terms and provisions of this Agreement.

                                (2)  WRSCO hereby accepts the appointment as Accounting Services Agent for the Fund and agrees to act as such upon and subject to the terms and provisions of this Agreement.

                B.            Duties of WRSCO.

                                WRSCO shall perform such duties as set forth in this Paragraph B as agent for and on behalf of the Fund.

                                (1)  WRSCO shall at its expense provide bookkeeping and accounting services and assistance, including, in particular, the following administrative services as are required by the Fund:

a)maintaining the registration or qualification of the Fund and their shares under state “Blue Sky” or securities laws and regulations, provided that the Fund shall pay all related filing fees and registration or qualification fees;

b)price daily the value of shares of the Fund;

c)assisting the Fund and third party solicitors (if any) in connection with soliciting and gathering shareholder proxies;

d)preparing the Fund’s U.S. Federal, state and local income tax returns, provided that the Fund shall pay all charges for services and expenses of the Fund’s independent accountants in reviewing such returns;

e)preparing the financial information for the Fund’s prospectuses, statements of additional information and periodic reports to shareholders, provided that the Fund shall pay all charges for services and expenses of the Fund’s independent accountants;

f)preparing the semi-annual report on Forms N-SAR and annual report on Form N-CSR or on such other substitute form as the Securities and Exchange Commission (the “SEC”) from time to time may prescribe under Section 30(b) of the Investment Company Act of 1940, as amended (the “1940 Act”);

g)assisting the Fund’s legal counsel with the preparation and filing with the SEC of the Fund’s registration statement (including prospectuses and statements of additional information), and any amendments or supplements that may be made from time to time, and with the preparation and filing with the SEC of notices and proxy materials for meetings of shareholders, provided that the Fund shall pay all charges for services and expenses of the Fund’s outside legal counsel;

h)assisting in the printing of the Fund’s prospectuses, periodic reports to shareholders and proxy materials; and

i)providing executive, clerical and secretarial personnel competent to carry out the above responsibilities.

                                (2)  WRSCO shall maintain and keep current the accounts, books, records, and other documents relating to the Fund’s financial and portfolio transactions as may be required by rules and regulations of the Securities and Exchange Commission adopted under Section 31(a) of the 1940 Act.

                                (3)  WRSCO shall cause the subject records of the Fund to be maintained and preserved pursuant to the requirements under the 1940 Act.

                                (4)  In pricing daily the value of shares of the Fund, WRSCO may make arrangements to and obtain the value of portfolio securities from pricing services or quotation services that are compensated by the Fund directly or indirectly through the placement of portfolio transactions with broker-dealers who provide such valuation or quotation services to WRSCO.

                                (5)  WRSCO shall maintain duplicate copies of, or information from which copies of, the records necessary to the preparation of the Fund’s financial statements and valuations of its assets may be reconstructed.  Such duplicate copies or information shall be maintained at a location other than where WRSCO performs its normal duties hereunder so that in the event the records established and maintained pursuant to the foregoing provisions of this Section B are damaged or destroyed, WRSCO shall be able to provide the bookkeeping and accounting services and assistance specified in this Section B.

                                (6)  In the event any of WRSCO’s facilities or equipment necessary for the performance of its duties hereunder is damaged, destroyed or rendered inoperable by reason of

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fire, vandalism, riot, natural disaster or otherwise, WRSCO will use its best efforts to restore all services hereunder to the Fund and will not seek from the Fund additional compensation to repair or replace damaged or destroyed facilities or equipment.  WRSCO shall also make and maintain arrangements for emergency use of alternative facilities for use in the event of the aforesaid destruction of or damage to its facilities.

                C.            Compensation of WRSCO.

                                The Fund agrees to pay to WRSCO for its services under this Agreement, an amount payable on the first day of the month as shown on the following table pertinent to the average daily net assets of the Fund during the prior month:

Fund’s Average Daily Net Assets for the Month	Monthly Fee
$0 - $10 million	$	0
$10 - $25 million	$	958
$25 - $50 million	$	1,925
$50 - $100 million	$	2,958
$100 - $200 million	$	4,033
$200 - $350 million	$	5,267
$350 - $550 million	$	6,875
$550 - $750 million	$	8,025
$750 - $1.0 billion	$	10,133
$1.0 billion and over	$	12,375

In addition, for each class of shares in excess of one, the Fund pays WRSCO a monthly per-class fee equal to 2.5% of the monthly base fee.

The Fund also pays monthly a fee paid at the annual rate of .01% or one basis point for the first $1 billion of net assets with no fee charged for net assets in excess of $1 billion.  This fee may be voluntarily waived until Fund assets are at least $10 million.

                D.            Right of Fund to Inspect; Ownership of Records.

                The Fund will have the right under this Agreement to perform on-site inspection of records and accounts, and audits directly pertaining to the Fund’s accounting and portfolio records maintained by WRSCO hereunder at WRSCO’s facilities.  WRSCO will cooperate with the Fund’s independent accountants or representatives of appropriate regulatory agencies and furnish all reasonably requested records and data.  WRSCO acknowledges that these records are the property of the Fund, and that it will surrender to the Fund all such records promptly on request.

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E.             Standard of Care; Indemnification.

                                WRSCO will at all times exercise due diligence and good faith in performing its duties hereunder.  WRSCO will make every reasonable effort and take all reasonably available measures to assure the adequacy of its personnel, facilities and equipment as well as the accurate performance of all services to be performed by it hereunder within, at a minimum, the time requirements of any applicable statutes, rules or regulations and in conformity with the Fund’s Articles of Incorporation, Bylaws and representations made in the Fund’s current registration statement as filed with the Securities and Exchange Commission.

                                WRSCO shall not be responsible for, and the Fund agrees to indemnify WRSCO for, any losses, damages or expenses (including reasonable counsel fees and expenses):  (i) resulting from any claim, demand, action or suit not resulting from WRSCO’s failure to exercise good faith or due diligence and arising out of or in connection with WRSCO’s duties on behalf of the Fund hereunder; (ii) for any delay, error or omission by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties (except with respect to WRSCO’s employees), fire, mechanical breakdown beyond its control, flood or catastrophe, acts of God, insurrection, war, riots or failure beyond its control of transportation, communication or power supply; or (iii) for any action taken or omitted to be taken by WRSCO in good faith in reliance on the accuracy of any information provided to it by the Fund or its directors or in reliance on any advice of counsel who may be internally employed counsel or outside counsel for the Fund or advice of any independent accountant or expert employed by the Fund with respect to the preparation and filing of any document with a governmental agency or authority.

                                In order for the rights to indemnification to apply, it is understood that if in any case the Fund may be asked to indemnify or hold WRSCO harmless, the Fund shall be advised of all pertinent facts concerning the situation in question, and it is further understood that WRSCO will use reasonable care to identify and notify the Fund promptly concerning any situation which presents or appears likely to present a claim for indemnification against the Fund.  The Fund shall have the option to defend WRSCO against any claim which may be the subject of this indemnification and, in the event that the Fund so elects, it will so notify WRSCO, and thereupon the Fund shall take over complete defense of the claim, and WRSCO shall sustain no further legal or other expenses in such situation for which WRSCO shall seek indemnification under this paragraph.  WRSCO will in no case confess any claim or make any compromise in any case in which the Fund will be asked to indemnify WRSCO except with the Fund’s prior written consent.

                F.             Term of the Agreement; Taking Effect; Amendments.

                                This Agreement shall become effective at the start of business on the date hereof and shall continue, unless terminated as hereinafter provided, for a period of one (1) year and from year-to-year thereafter, provided that such continuance shall be specifically approved as provided below.

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                                This Agreement shall go into effect, or may be continued, or may be amended, or a new agreement covering the same topics between the Fund and WRSCO may be entered into only if the terms of this Agreement, such continuance, the terms of such amendment or the terms of such new agreement have been approved by the Board of Directors of the Fund, including the vote of a majority of the directors who are not “interested persons,” as defined in the 1940 Act, of either party to this Agreement, the agreement to be continued, amendment or new agreement, cast in person at a meeting called for the purpose of voting on such approval.  Such a vote is hereinafter referred to as a “disinterested director vote.”

                                Any disinterested director’s vote shall, in favor of continuance, amendment or execution of a new agreement, include a determination that:  (i) the Agreement, amendment, new agreement or continuance in question is in the best interests of the Fund and its shareholders; (ii) the services to be performed under the Agreement, the Agreement as amended, new agreement or agreement to be continued, are services required for the operation of the Fund; (iii) WRSCO can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and (iv) the fees for such services are fair and reasonable in the light of the usual and customary charges made by others for services of the same nature and quality.

                                Nothing herein contained shall prevent any disinterested director vote from being conditioned on the favorable vote of the holders of a majority (as defined in or under the 1940 Act) of the outstanding shares of the Fund.

                G.            Termination.

                                (1)  This Agreement may be terminated by WRSCO at any time without penalty upon giving the Fund at least one hundred twenty (120) days’ written notice (which notice may be waived by the Fund) and may be terminated by the Fund at any time without penalty upon giving WRSCO at least sixty (60) days’ written notice (which notice may be waived by WRSCO), provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Board of Directors of the Fund in office at the time or by the vote of the holders of a majority (as defined in or under the 1940 Act) of the outstanding shares of the Fund.

                                (2)  On termination, WRSCO will deliver to the Fund or its designee all files, documents and records of the Fund used, kept or maintained by WRSCO in the performance of its services hereunder, including such of the Fund’s records in machine readable form as may be maintained by WRSCO, as well as such summary and/or control data relating thereto used by or available to WRSCO.

                                (3)  In addition, on such termination or in preparation therefore at the request of the Fund and at the Fund’s expense, WRSCO shall provide, to the extent that its capabilities then permit, such documentation, personnel and equipment as may be reasonably necessary in order for a new agent or the Fund to fully assume and commence to perform the agency functions described in this Agreement with a minimum disruption to the Fund’s activities.

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                                (4)  This Agreement shall automatically terminate in the event of its assignment, the term “assignment” for this purpose having the meaning defined in Section 2(a)(4) of the Act and the rules and regulations thereunder of the Securities and Exchange Commission.

                IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date and year first above written.

		WADDELL & REED ADVISORS
		ASSET STRATEGY FUND, INC.
		By:	/s/Henry J. Herrmann
			Henry J. Herrmann, President
ATTEST:
By:	/s/Kristen A. Richards
	Kristen A. Richards, Secretary
		WADDELL & REED SERVICES COMPANY
		By:	/s/Michael D. Strohm
			Michael D. Strohm, President
ATTEST:
By:	/s/Daniel C. Schulte
	Daniel C. Schulte, Secretary

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EX-10.13

Exhibit 10.13

INVESTMENT MANAGEMENT AGREEMENT

THIS AGREEMENT, originally made the 9th day of March, 1995, by and between WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC., (f/k/a United Asset Strategy Fund, Inc.) (“Fund”), and WADDELL & REED INVESTMENT MANAGEMENT COMPANY (“WRIMCO”), and hereby amended and restated effective November 9, 2005, has been approved, annually, by the Board of Directors, including separate approval by the Disinterested Directors, as prescribed by Section 15(c) of the Investment Company Act of 1940, as amended (“1940 Act”).

WITNESSETH:

In consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed by and between the parties hereto as follows:

I.              In General

                WRIMCO agrees to act as investment adviser to the Fund with respect to the investment of its assets and in general to supervise the investments of the Fund, subject at all times to the direction and control of the Board of Directors of the Fund, all as more fully set forth herein.

II.            Duties of WRIMCO with respect to investment of assets of the Fund

                A.  WRIMCO shall regularly provide investment advice to the Fund and shall, subject to the succeeding provisions of this section, continuously supervise the investment and reinvestment of cash, securities or other property comprising the assets of the investment portfolio of the Fund; and in furtherance thereof, WRIMCO shall:

                                1.  obtain and evaluate pertinent information about significant developments and economic, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or the portfolio of the Fund, and whether concerning the individual companies whose securities are included in the Fund’s portfolio or the industries in which they engage, or with respect to securities which WRIMCO considers desirable for inclusion in the Fund’s portfolio;

                                2.  furnish continuously an investment program for the portfolio of the Fund;

                                3.  determine what securities shall be purchased or sold by the Fund;

                                4.  take, on behalf of the Fund, all actions which appear to WRIMCO necessary to carry into effect such investment programs and supervisory functions as aforesaid, including the placing of purchase and sale orders.

                B.  WRIMCO shall make appropriate and regular reports to the Board of Directors of the Fund on the actions it takes pursuant to Section II.A. above.  Any investment programs furnished by WRIMCO under this section, or any supervisory function taken hereunder by WRIMCO shall at all times conform to and be in accordance with any requirements imposed by:

                                1.  the provisions of the 1940 Act and any rules or regulations in force thereunder;

                                2.  any other applicable provision of law;

                                3.  the provisions of the Articles of Incorporation of the Fund as amended from time to time;

                                4.  the provisions of the Bylaws of the Fund as amended from time to time;

                                5.  the terms of the registration statement of the Fund, as amended from time to time, under the Securities Act of 1933 and the 1940 Act.

                C.  Any investment programs furnished by WRIMCO under this section or any supervisory functions taken hereunder by WRIMCO shall at all times be subject to any directions of the Board of Directors of the Fund, its Executive Committee, or any committee or officer of the Fund acting pursuant to authority given by the Board of Directors.

III.           Allocation of Expenses

                The expenses of the Fund and the expenses of WRIMCO in performing its functions under this Agreement shall be divided into two classes, to wit:  (i) those expenses which will be paid in full by WRIMCO as set forth in subparagraph “A” hereof, and (ii) those expenses which will be paid in full by the Fund, as set forth in subparagraph “B” hereof.

                A.  With respect to the duties of WRIMCO under Section II above, it shall pay in full, except as to the brokerage and research services acquired through the allocation of commissions as provided in Section IV hereinafter, for (a) the salaries and employment benefits of all employees of WRIMCO who are engaged in providing these advisory services; (b) adequate office space and suitable office equipment for such employees; and (c) all telephone and communications costs relating to such functions.  In addition, WRIMCO shall pay the fees and expenses of all directors of the Fund who are employees of WRIMCO or an affiliated corporation and the salaries and employment benefits of all officers of the Fund who are affiliated persons of WRIMCO.

                B.  The Fund shall pay in full for all of its expenses which are not listed above (other than those assumed by WRIMCO or its affiliates in their respective capacities as principal underwriter of the shares of the Fund, as Shareholder Servicing Agent or as Accounting Services Agent for the Fund), including (a) the costs of preparing and printing prospectuses and reports to shareholders of the Fund, including mailing costs; (b) the costs of printing all proxy statements and all other costs and expenses of meetings of shareholders of the Fund (unless the Fund and

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WRIMCO shall otherwise agree); (c) interest, taxes, brokerage commissions and premiums on fidelity and other insurance; (d) audit fees and expenses of independent accountants and legal fees and expenses of attorneys, but not of attorneys who are employees of WRIMCO or an affiliated company; (e) fees and expenses of its directors not affiliated with WRIMCO or its affiliates; (f) custodian fees and expenses; (g) fees payable by the Fund under the Securities Act of 1933, the 1940 Act, and the securities or “Blue-Sky” laws of any jurisdiction; (h) fees and assessments of the Investment Company Institute or any successor organization; (i) such nonrecurring or extraordinary expenses as may arise, including litigation affecting the Fund, and any indemnification by the Fund of its officers, directors, employees and agents with respect thereto; (j) the costs and expenses provided for in any Shareholder Servicing Agreement or Accounting Services Agreement, including amendments thereto, contemplated by subsection C of this Section III.  In the event that any of the foregoing shall, in the first instance, be paid by WRIMCO, the Fund shall pay the same to WRIMCO on presentation of a statement with respect thereto.

                C.  WRIMCO or an affiliate of WRIMCO, may also act as (i) transfer agent or shareholder servicing agent of the Fund and/or as (ii) accounting services agent of the Fund if at the time in question there is a separate agreement, “Shareholder Servicing Agreement” and/or “Accounting Services Agreement,” covering such functions between the Fund and WRIMCO or such affiliate.  The corporation, whether WRIMCO or its affiliate, which is the party to such Agreement with the Fund is referred to as the “Agent.”  Each such Agreement shall provide in substance that it shall not go into effect, or be amended, or a new agreement covering the same topics between the Fund and the Agent be entered into, unless the terms of such Agreement, such amendment or such new agreement have been approved by the Board of Directors of the Fund, including the vote of a majority of the directors who are not “interested persons” as defined in the 1940 Act, of either party to the Agreement, such amendment or such new agreement (considering WRIMCO to be such a party even if at the time in question the Agent is an affiliate of WRIMCO), cast in person at a meeting called for the purpose of voting on such approval.  Such a vote is referred to as a “disinterested director” vote.  Each such Agreement shall also provide in substance for its continuance, unless terminated, for a specified period which shall not exceed two years from the date of its execution and from year to year thereafter only if such continuance is specifically approved at least annually by a disinterested director vote, and that any disinterested director vote shall include a determination that (i) the Agreement, amendment, new agreement or continuance in question is in the best interests of the Fund and its shareholders; (ii) the services to be performed under the Agreement, the Agreement as amended, new agreement or agreement to be continued are services required for the operation of the Fund; (iii) the Agent can provide services the nature and quality of which are at least equal to those provided by others offering the same or similar services; and (iv) the fees for such services are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality.  Any such Agreement may also provide in substance that any disinterested director vote may be conditioned on the favorable vote of the holders of a majority (as defined in or under the 1940 Act) of the outstanding shares of each class of the Fund.  Any such Agreement shall also provide in substance that it may be terminated by the Agent at any time without penalty upon giving the Fund one hundred twenty (120) days’ written notice (which notice may be waived by the Fund) and may be terminated by the Fund at any time without penalty upon giving the Agent

3

sixty (60) days’ written notice (which notice may be waived by the Agent), provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Board of Directors of the Fund in office at the time or by the vote of the holders of a majority (as defined in or under the 1940 Act) of the outstanding shares of each class of the Fund.

IV.           Brokerage

                A.  WRIMCO may select brokers to effect the portfolio transactions of the Fund on the basis of its estimate of their ability to obtain, for reasonable and competitive commissions, the best execution of particular and related portfolio transactions.  For this purpose, “best execution” means prompt and reliable execution at the most favorable price obtainable.  Such brokers may be selected on the basis of all relevant factors including the execution capabilities required by the transaction or transactions, the importance of speed, efficiency, or confidentiality, and the willingness of the broker to provide useful or desirable investment research and/or special execution services.  WRIMCO shall have no duty to seek advance competitive commission bids and may select brokers based solely on its current knowledge of prevailing commission rates.

                B.  Subject to the foregoing, WRIMCO shall have discretion, in the interest of the Fund, to direct the execution of its portfolio transactions to brokers who provide brokerage and/or research services (as such services are defined in Section 28(e) of the Securities Exchange Act of 1934) for the Fund and/or other accounts for which WRIMCO exercises “investment discretion” (as that term is defined in Section 3(a)(35) of the Securities Exchange Act of 1934); and in connection with such transactions, to pay commission in excess of the amount another adequately qualified broker would have charged if WRIMCO determines, in good faith, that such commission is reasonable in relation to the value of the brokerage and/or research services provided by such broker, viewed in terms of either that particular transaction or the overall responsibilities of WRIMCO with respect to the accounts for which it exercises investment discretion.  In reaching such determination, WRIMCO will not be required to attempt to place a specified dollar amount on the brokerage and/or research services provided by such broker; provided that WRIMCO shall be prepared to demonstrate that such determinations were made in good faith, and that all commissions paid by the Fund over a representative period selected by its Board of Directors were reasonable in relation to the benefits to the Fund.

V.            Compensation of WRIMCO

                As compensation in full for services rendered and for the facilities and personnel furnished under sections I, II, and IV of this Agreement, the Fund will pay to WRIMCO for each day the fees specified in Exhibit A hereto.

                The amounts payable to WRIMCO shall be determined as of the close of business each day; shall, except as set forth below, be based upon the value of net assets computed in accordance with the Articles of Incorporation of the Fund; and shall be paid in arrears whenever requested by WRIMCO.  In computing the value of the net assets of the Fund, there shall be excluded the amount owed to the Fund with respect to shares which have been sold but not yet paid to the Fund by Waddell & Reed, Inc.

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                Notwithstanding the foregoing, if the laws, regulations or policies of any state in which shares of the Fund are qualified for sale limit the operation and management expenses of the Fund, WRIMCO will refund to the Fund the amount by which such expenses exceed the lowest of such state limitations.

VI.           Undertakings of WRIMCO; Liabilities

                WRIMCO shall give to the Fund the benefit of its best judgment, efforts and facilities in rendering advisory services hereunder.

                WRIMCO shall at all times be guided by and be subject to the Fund’s investment policies, the provisions of the Fund’s Articles of Incorporation and Bylaws as each shall from time to time be amended, and to the decision and determination of the Fund’s Board of Directors.

                This Agreement shall be performed in accordance with the requirements of the 1940 Act, the Investment Advisers Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent that the subject matter of this Agreement is within the purview of such Acts.  Insofar as applicable to WRIMCO, as an investment adviser and affiliated person of the Fund, WRIMCO shall comply with the provisions of the 1940 Act, the Investment Advisers Act of 1940 and the respective rules and regulations of the Securities and Exchange Commission thereunder.

                In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of WRIMCO, it shall not be subject to liability to the Fund or to any stockholder of the Fund (direct or beneficial) for any act or omission in the course of or connected with rendering services thereunder or for any losses that may be sustained in the purchase, holding or sale of any security.

VII.          Duration of this Agreement

                This Agreement shall become effective at the start of business on the date hereof and shall continue in effect, unless terminated as hereinafter provided, for a period of one year and from year-to-year thereafter only if such continuance is specifically approved at least annually by the Board of Directors, including the vote of a majority of the directors who are not parties to this Agreement or “interested persons” (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval, or by the vote of the holders of a majority (as so defined) of the outstanding voting securities of each class of the Fund and by the vote of a majority of the directors who are not parties to this Agreement or “interested persons” (as so defined) of any such party, cast in person at a meeting called for the purpose of voting on such approval.

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VIII.        Termination

                This Agreement may be terminated by WRIMCO at any time without penalty upon giving the Fund one hundred twenty (120) days’ written notice (which notice may be waived by the Fund) and may be terminated by the Fund at any time without penalty upon giving WRIMCO sixty (60) days’ written notice (which notice may be waived by WRIMCO), provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Board of Directors of the Fund in office at the time or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund.  This Agreement shall automatically terminate in the event of its assignment, the term “assignment” for this purpose having the meaning defined in Section 2(a)(4) of the 1940 Act and the rules and regulations thereunder.

IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly authorized officers and their corporate seal to be hereunto affixed, all as of the day and year first above written.

(Seal)			WADDELL & REED ADVISORS
			ASSET STRATEGY FUND, INC.
		By:	/s/Kristen A. Richards
			Kristen A. Richards
			Vice President
ATTEST:
By:	/s/Megan E. Bray
	Megan E. Bray
	Assistant Secretary
(Seal)			WADDELL & REED INVESTMENT
			MANAGEMENT COMPANY
		By:	/s/Henry J. Herrmann
			Henry J. Herrmann
			President
ATTEST:
By:	/s/Wendy J. Hills
	Wendy J. Hills
	Secretary

6

EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT

WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.

FEE SCHEDULE

A cash fee computed each day on net asset value for the Fund at the annual rates listed below:

Net Assets	Fee
Up to $1 billion	0.70% of net assets
Over $1 billion and up to $2 billion	0.65% of net assets
Over $2 billion and up to $3 billion	0.60% of net assets
Over $3 billion	0.55% of net assets

Fee Schedule as Effective June 30, 1999.

7

EX-10.14

Exhibit 10.14

INVESTMENT MANAGEMENT AGREEMENT

THIS AGREEMENT, originally made the 31st day of August, 1992, by and between IVY FUNDS, INC., f.k.a. Waddell & Reed Funds, Inc. (hereinafter called “Corporation”), and Waddell & Reed Investment Management Company, and assigned by Waddell & Reed Investment Management Company on June 30, 2003 to Ivy Investment Management Company (hereinafter called “IICO”), f.k.a. Waddell & Reed Ivy Investment Company, and hereby amended and restated and effective November 16, 2005,

WITNESSETH:

In consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed by and between the parties hereto as follows:

                                                I.              In General

                                                                IICO agrees to act as investment adviser to the Corporation with respect to the investment of its assets and in general to supervise the investments of each series of the Corporation as set forth in Exhibit A, and as amended from time to time, subject at all times to the direction and control of the Board of Directors of the Corporation, all as more fully set forth herein.

                                                II.            Duties of IICO with respect to investment of assets of the Corporation

                                                                A.  IICO shall regularly provide investment advice to the Corporation and shall, subject to the succeeding provisions of this section, continuously supervise the investment and reinvestment of cash, securities or other property comprising the assets of the investment portfolios of the Corporation; and in furtherance thereof, IICO shall:

                                                                                1.  obtain and evaluate pertinent information about significant developments and economic, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or one or more of the portfolios of the Corporation, and whether concerning the individual companies whose securities are included in one or more of the Corporation’s portfolios or the industries in which they engage, or with respect to securities which IICO considers desirable for inclusion in one or more of the Corporation’s portfolios;

                                                                                2.  furnish continuously an investment program for each of the portfolios of the Corporation;

                                                                                3.  determine what securities shall be purchased or sold by the Corporation;

                                                                                4.  take, on behalf of the Corporation, all actions which appear to IICO necessary to carry into effect such investment programs and supervisory functions as aforesaid, including the placing of purchase and sale orders.

                                                                B.  IICO shall make appropriate and regular reports to the Board of Directors of the Corporation on the actions it takes pursuant to Section II.A. above.  Any investment programs furnished by IICO under this section, or any supervisory function taken hereunder by IICO shall at all times conform to and be in accordance with any requirements imposed by:

                                                                                1.  the provisions of the Investment Company Act of 1940 and any rules or regulations in force thereunder;

                                                                                2.  any other applicable provision of law;

                                                                                3.  the provisions of the Articles of Incorporation of the Corporation as amended from time to time;

                                                                                4.  the provisions of the Bylaws of the Corporation as amended from time to time;

                                                                                5.  the terms of the registration statement of the Corporation, as amended from time to time, under the Securities Act of 1933 and the Investment Company Act of 1940.

                                                                C.  Any investment programs furnished by IICO under this section or any supervisory functions taken hereunder by IICO shall at all times be subject to any directions of the Board of Directors of the Corporation, its Executive Committee, or any committee or officer of the Corporation acting pursuant to authority given by the Board of Directors.

                                                III.           Allocation of Expenses

                                                                The expenses of the Corporation and the expenses of IICO in performing its functions under this Agreement shall be divided into two classes, to wit:  (i) those expenses which will be paid in full by IICO as set forth in subparagraph “A” hereof, and (ii) those expenses which will be paid in full by the Corporation, as set forth in subparagraph “B” hereof.

                                                                A.  With respect to the duties of IICO under Section II above, it shall pay in full, except as to the brokerage and research services acquired through the allocation of commissions as provided in Section IV hereinafter, for (a) the salaries and employment benefits of all employees of IICO who are engaged in providing these advisory services; (b) adequate office space and suitable office equipment for such employees; and (c) all telephone

2

and communications costs relating to such functions.  In addition, IICO shall pay the fees and expenses of all directors of the Corporation who are employees of IICO or an affiliated corporation and the salaries and employment benefits of all officers of the Corporation who are affiliated persons of IICO.

                                                                B. The Corporation shall pay in full for all of its expenses which are not listed above (other than those assumed by IICO or one of its affiliates in its capacity as principal underwriter of the shares of the Corporation, as Shareholder Servicing Agent or as Accounting Services Agent for the Corporation), including (a) the costs of preparing and printing prospectuses and reports to shareholders of the Corporation, including mailing costs; (b) the costs of printing all proxy statements and all other costs and expenses of meetings of shareholders of the Corporation (unless the Corporation and IICO shall otherwise agree); (c) interest, taxes, brokerage commissions and premiums on fidelity and other insurance; (d) audit fees and expenses of independent accountants and legal fees and expenses of attorneys, but not of attorneys who are employees of IICO or an affiliated company; (e) fees and expenses of its directors not affiliated with Waddell & Reed, Inc.; (f) custodian fees and expenses; (g) fees payable by the Corporation under the Securities Act of 1933, the Investment Company Act of 1940, and the securities or “Blue-Sky” laws of any jurisdiction; (h) fees and assessments of the Investment Company Institute or any successor organization; (i) such nonrecurring or extraordinary expenses as may arise, including litigation affecting the Corporation, and any indemnification by the Corporation of its officers, directors, employees and agents with respect thereto; (j) the costs and expenses provided for in any Shareholder Servicing Agreement or Accounting Services Agreement, including amendments thereto, contemplated by subsection C of this Section III.  In the event that any of the foregoing shall, in the first instance, be paid by IICO, the Corporation shall pay the same to IICO on presentation of a statement with respect thereto.

                                                                C.  IICO or an affiliate of IICO, may also act as (i) transfer agent or shareholder servicing agent of the Corporation and/or as (ii) accounting services agent of the Corporation if at the time in question there is a separate agreement, “Shareholder Servicing Agreement” and/or “Accounting Services Agreement,” covering such functions between the Corporation and IICO, or such affiliate.  The corporation, whether IICO, or its affiliate, which is the party to either such Agreement with the Corporation is referred to as the “Agent.”  Each such Agreement shall provide in substance that it shall go into effect, or be amended, or a new agreement covering the same topics between the Corporation and the Agent may be entered into, only if the terms of such Agreement, such amendment or such new agreement have been approved by the Board of Directors of the Corporation, including the vote of a majority of the directors who are not “interested persons” as defined in the Investment Company Act of 1940, of either party to the Agreement, such amendment or such new agreement (considering IICO to be such a party even if at the time in question the Agent is an affiliate of IICO), cast in person at a meeting called for the purpose of voting on such approval.  Such a vote is referred to as a “disinterested director” vote.  Each such Agreement shall also provide in substance for its continuance, unless terminated, for a specified period which shall not exceed two years from the date of its execution and from year to year thereafter only if such continuance is specifically approved at least annually by a disinterested director vote, and that any disinterested director vote

3

shall include a determination that (i) the Agreement, amendment, new agreement or continuance in question is in the best interests of the Corporation and its shareholders; (ii) the services to be performed under the Agreement, the Agreement as amended, new agreement or agreement to be continued are services required for the operation of the Corporation; (iii) the Agent can provide services the nature and quality of which are at least equal to those provided by others offering the same or similar services; and (iv) the fees for such services are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality.  Any such Agreement may also provide in substance that any disinterested director vote may be conditioned on the favorable vote of the holders of a majority (as defined in or under the Investment Company Act of 1940) of the outstanding shares of each class or series of the Corporation.  Any such Agreement shall also provide in substance that it may be terminated by the Agent at any time without penalty upon giving the Corporation one hundred twenty (120) days’ written notice (which notice may be waived by the Corporation) and may be terminated by the Corporation at any time without penalty upon giving the Agent sixty (60) days’ written notice (which notice may be waived by the Agent), provided that such termination by the Corporation shall be directed or approved by the vote of a majority of the Board of Directors of the Corporation in office at the time or by the vote of the holders of a majority (as defined in or under the Investment Company Act of 1940) of the outstanding shares of each class or series of the Corporation.

                                                IV.           Brokerage

                                                                (a)  IICO may select brokers to effect the portfolio transactions of the Corporation on the basis of its estimate of their ability to obtain, for reasonable and competitive commissions, the best execution of particular and related portfolio transactions.  For this purpose, “best execution” means prompt and reliable execution at the most favorable price obtainable.  Such brokers may be selected on the basis of all relevant factors including the execution capabilities required by the transaction or transactions, the importance of speed, efficiency, or confidentiality, and the willingness of the broker to provide useful or desirable investment research and/or special execution services.  IICO shall have no duty to seek advance competitive commission bids and may select brokers based solely on its current knowledge of prevailing commission rates.

                                                                (b)  Subject to the foregoing, IICO shall have discretion, in the interest of the Corporation, to direct the execution of its portfolio transactions to brokers who provide brokerage and/or research services (as such services are defined in Section 28(e) of the Securities Exchange Act of 1934) for the Corporation and/or other accounts for which IICO or one or more of its affiliates exercise “investment discretion” (as that term is defined in Section 3(a)(35) of the Securities Exchange Act of 1934); and in connection with such transactions, to pay commission in excess of the amount another adequately qualified broker would have charged if IICO determines, in good faith, that such commission is reasonable in relation to the value of the brokerage and/or research services provided by such broker, viewed in terms of either that particular transaction or the overall responsibilities of IICO and its investment advisory affiliates with respect to the accounts for which they exercise investment discretion.  In reaching such determination, IICO will not be required to attempt to place a specified dollar amount on the

4

brokerage and/or research services provided by such broker; provided that IICO shall be prepared to demonstrate that such determinations were made in good faith, and that all commissions paid by the Corporation over a representative period selected by its Board of Directors were reasonable in relation to the benefits to the Corporation.

                                                V.            Compensation of IICO

                                                                As compensation in full for services rendered and for the facilities and personnel furnished under sections I, II, and IV of this Agreement, the Corporation will pay to IICO for each day the fees specified in Exhibit A hereto.

                                                                The amounts payable to IICO shall be determined as of the close of business each day; shall, except as set forth below, be based upon the value of net assets computed in accordance with the Articles of Incorporation of the Corporation; and shall be paid in arrears whenever requested by IICO.  In computing the value of the net assets of the Corporation, there shall be excluded the amount owed to the Corporation with respect to shares which have been sold but not yet paid to the Corporation by Waddell & Reed, Inc.

                                                                Notwithstanding the foregoing, if the laws, regulations or policies of any state in which shares of the Corporation are qualified for sale limit the operation and management expenses of the Corporation, IICO will refund to the Corporation the amount by which such expenses exceed the lowest of such state limitations.

                                                VI.           Undertakings of IICO; Liabilities

                                                                IICO shall give to the Corporation the benefit of its best judgment, efforts and facilities in rendering advisory services hereunder.

                                                                IICO shall at all times be guided by and be subject to the Corporation’s investment policies, the provisions of its Articles of Incorporation and Bylaws as each shall from time to time be amended, and to the decision and determination of the Corporation’s Board of Directors.

                                                                This Agreement shall be performed in accordance with the requirements of the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent that the subject matter of this Agreement is within the purview of such Acts.  Insofar as applicable to IICO, as an investment adviser and affiliated person of the Corporation, IICO shall comply with the provisions of the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the respective rules and regulations of the Securities and Exchange Commission thereunder.

                                                                In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of IICO, it shall not be subject to liability to the Corporation or to any stockholder of the Corporation for any act or omission in

5

the course of or connected with rendering services thereunder or for any losses that may be sustained in the purchase, holding or sale of any security.

                                                VII.          Duration of this Agreement

                                                                This Agreement shall become effective at the start of business on the date hereof and shall continue in effect, unless terminated as hereinafter provided, for a period of one year and from year-to-year thereafter only if such continuance is specifically approved at least annually by the Board of Directors, including the vote of a majority of the directors who are not parties to this Agreement or “interested persons” (as defined in the Investment Company Act of 1940) of any such party, cast in person at a meeting called for the purpose of voting on such approval, or by the vote of the holders of a majority (as so defined) of the outstanding voting securities of each class or series of the Corporation and by the vote of a majority of the directors who are not parties to this Agreement or “interested persons” (as so defined) of any such party, cast in person at a meeting called for the purpose of voting on such approval.

                                                VIII.        Termination

                                                                This Agreement may be terminated by IICO at any time without penalty upon giving the Corporation one hundred twenty (120) days’ written notice (which notice may be waived by the Corporation) and may be terminated by the Corporation at any time without penalty upon giving IICO sixty (60) days’ written notice (which notice may be waived by IICO), provided that such termination by the Corporation shall be directed or approved by the vote of a majority of the Board of Directors of the Corporation in office at the time or by the vote of a majority (as defined in the Investment Company Act of 1940) of the outstanding voting securities of the Corporation.  This Agreement shall automatically terminate in the event of its assignment, the term “assignment” for this purpose having the meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the rules and regulations thereunder.

IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly authorized officers and their corporate seal to be hereunto affixed, all as of the day and year first above written.

(Seal)		IVY FUNDS, INC.
		By:	/s/Kristen A. Richards
			Kristen A. Richards
			Vice President
ATTEST:
By:	/s/Megan E. Bray
	Megan E. Bray
	Assistant Secretary

6

(Seal)		IVY INVESTMENT
		MANAGEMENT COMPANY
		By:	/s/Henry J. Herrmann
			Henry J. Herrmann
			President
ATTEST:
By:	/s/Wendy J. Hills
	Wendy Hills
	Secretary

7

EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT

IVY FUNDS, INC.

FEE SCHEDULES

A cash fee computed each day on net asset value for each Fund at the annual rates listed below*:

Effective June 30, 1999:

Asset Strategy Fund

Net Assets	Fee
Up to $1 billion	0.70% of net assets
Over $1 billion and up to $2 billion	0.65% of net assets
Over $2 billion and up to $3 billion	0.60% of net assets
Over $3 billion	0.55% of net assets

High Income Fund

Net Assets	Fee
Up to $500 million	0.625% of net assets
Over $500 million and up to $1 billion	0.60% of net assets
Over $1 billion and up to $1.5 billion	0.55% of net assets
Over $1.5 billion	0.50% of net assets

Limited-Term Bond Fund

Net Assets	Fee
Up to $500 million	0.50% of net assets
Over $500 million and up to $1 billion	0.45% of net assets
Over $1 billion and up to $1.5 billion	0.40% of net assets
Over $1.5 billion	0.35% of net assets

Municipal Bond Fund

Net Assets	Fee
Up to $500 million	0.525% of net assets
Over $500 million and up to $1 billion	0.50% of net assets
Over $1 billion and up to $1.5 billion	0.45% of net assets
Over $1.5 billion	0.40% of net assets

8

Science and Technology Fund

Net Assets	Fee
Up to $1 billion	0.85% of net assets
Over $1 billion and up to $2 billion	0.83% of net assets
Over $2 billion and up to $3 billion	0.80% of net assets
Over $3 billion	0.76% of net assets

Small Cap Growth Fund

Net Assets	Fee
Up to $1 billion	0.85% of net assets
Over $1 billion and up to $2 billion	0.83% of net assets
Over $2 billion and up to $3 billion	0.80% of net assets
Over $3 billion	0.76% of net assets

Approved May 17, 2000:

Capital Appreciation Fund

Net Assets	Fee
Up to $1 billion	0.65% of net assets
Over $1 billion and up to $2 billion	0.60% of net assets
Over $2 billion and up to $3 billion	0.55% of net assets
Over $3 billion	0.50% of net assets

Large Cap Growth Fund

Net Assets	Fee
Up to $1 billion	0.70% of net assets
Over $1 billion and up to $2 billion	0.65% of net assets
Over $2 billion and up to $3 billion	0.60% of net assets
Over $3 billion	0.55% of net assets

Mid Cap Growth Fund

Net Assets	Fee
Up to $1 billion	0.85% of net assets
Over $1 billion and up to $2 billion	0.83% of net assets
Over $2 billion and up to $3 billion	0.80% of net assets
Over $3 billion	0.76% of net assets

Money Market Fund

A cash fee computed each day on net asset value for the Fund at the annual rate of 0.40% of net assets.

9

Approved 11/16/05:

Energy Fund

Net Assets	Fee
Up to $1 billion	0.85% of net assets
Over $1 billion and up to $2 billion	0.83% of net assets
Over $2 billion and up to $3 billion	0.80% of net assets
Over $3 billion	0.76% of net assets

Effective 10/1/07:

Core Equity Fund

Net Assets	Fee
Up to $1 billion	0.70% of net assets
Over $1 billion and up to $2 billion	0.65% of net assets
Over $2 billion and up to $3 billion	0.60% of net assets
Over $3 billion and up to $5 billion	0.55% of net assets
Over $5 billion and up to $6 billion	0.525% of net assets
Over $6 billion	0.50% of net assets

*If a Fund’s net assets are less than $25 million, IICO has agreed to voluntarily waive the management fee, subject to its right to change or modify this waiver.

10

EX-10.15

Exhibit 10.15

INVESTMENT MANAGEMENT AGREEMENT

This Agreement, originally made the 1st day of July, 1990, by and between W&R TARGET FUNDS, INC., f.k.a. TMK/United Funds, Inc., (hereinafter called “Corporation”) and Waddell & Reed, Inc. (“W&R”), and assigned to WADDELL & REED INVESTMENT MANAGEMENT COMPANY (“WRIMCO”) on January 8, 1992, and amended and restated as of August 21, 2002, has been approved, annually, by the Board of Directors, including separate approval by the Disinterested Directors, as prescribed by Section 15(c) of the Investment Company Act of 1940, as amended (“1940 Act”), and is hereby further amended and effective November 9, 2005.

WITNESSETH:

In consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed by and between the parties hereto as follows:

I.  In General

WRIMCO agrees to act as investment adviser to the Corporation with respect to the investment of its assets and in general to supervise the investments of the Corporation with regard to each of its series listed in Exhibit A, the Fee Schedule, subject at all times to the direction and control of the Board of Directors of the Corporation, all as more fully set forth herein.

II.  Duties of WRIMCO with respect to investment of assets of the Corporation

A.  WRIMCO shall regularly provide investment advice to the Corporation and shall, subject to the succeeding provisions of this section, continuously supervise the investment and reinvestment of cash, securities or other property comprising the assets of the investment portfolio of the Corporation; and in furtherance thereof, WRIMCO shall:

1.  obtain and evaluate pertinent information about significant developments and economic, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or the portfolio of the Corporation, and whether concerning the individual companies whose securities are included in the Corporation’s portfolio or the industries in which they engage, or with respect to securities which WRIMCO considers desirable for inclusion in the Corporation’s portfolio;

2.  furnish continuously an investment program for the portfolio of the Corporation;

3.  determine what securities shall be purchased or sold by the Corporation;

4.  take, on behalf of the Corporation, all actions which appear to WRIMCO necessary to carry into effect such investment programs and supervisory functions as aforesaid, including the placing of purchase and sale orders.

B.  WRIMCO shall make appropriate and regular reports to the Board of Directors of the Corporation on the actions it takes pursuant to Section II.A. above.  Any investment programs furnished by WRIMCO under this section, or any supervisory function taken hereunder by WRIMCO shall at all times conform to and be in accordance with any requirements imposed by:

1.  the provisions of the 1940 Act and any rules or regulations in force thereunder;

2.  any other applicable provision of law;

3.  the provisions of the Articles of Incorporation of the Corporation as amended from time to time;

4.  the provisions of the Bylaws of the Corporation as amended from time to time;

5.  the terms of the registration statement of the Corporation, as amended from time to time, under the Securities Act of 1933 and the 1940 Act.

C.  Any investment programs furnished by WRIMCO under this section or any supervisory functions taken hereunder by WRIMCO shall at all times be subject to any directions of the Board of Directors of the Corporation, its Executive Committee, or any committee or officer of the Corporation acting pursuant to authority given by the Board of Directors.

III.  Allocation of Expenses

The expenses of the Corporation and the expenses of WRIMCO in performing its functions under this Agreement shall be divided into two classes, to wit:  (i) those expenses which will be paid in full by WRIMCO as set forth in subparagraph “A” hereof, and (ii) those expenses which will be paid in full by the Corporation, as set forth in subparagraph “B” hereof.

A.  With respect to the duties of WRIMCO under Section II above, it shall pay in full, except as to the brokerage and research services acquired through the allocation of commissions as provided in Section IV hereinafter, for (a) the salaries and employment benefits of all employees of WRIMCO who are engaged in providing these advisory services; (b) adequate office space and suitable office equipment for such employees; and (c) all telephone and communications costs relating to such functions.  In addition, WRIMCO shall pay the fees and expenses of all directors of the Corporation who are employees of WRIMCO or an affiliated corporation and the salaries and employment benefits of all officers of the Corporation who are affiliated persons of WRIMCO.

B.  The Corporation shall pay in full for all of its expenses which are not listed above (other than those assumed by W&R or its affiliates in their respective capacities as principal

2

underwriter of the shares of the Corporation, as Shareholder Servicing Agent or as Accounting Services Agent for the Corporation), including (a) the costs of preparing and printing prospectuses and reports to shareholders of the Corporation including mailing costs; (b) the costs of printing all proxy statements and all other costs and expenses of meetings of shareholders of the Corporation (unless the Corporation and WRIMCO shall otherwise agree); (c) interest, taxes, brokerage commission and premiums on fidelity and other insurance; (d) audit fees and expenses of independent accountants and legal fees and expenses of attorneys, but not of attorneys who are employees of WRIMCO or an affiliated company; (e) fees and expenses of its directors not affiliated with WRIMCO or its affiliates; (f) custodian fees and expenses; (g) fees payable by the Corporation under the Securities Act of 1933, the 1940 Act, and the securities or “Blue-Sky” laws of any jurisdiction; (h) fees and assessments of the Investment Company Institute or any successor organization; (i) such non recurring or extraordinary expenses as may arise, including litigation affecting the Corporation and any indemnification by the Corporation of its officers, directors, employees and agents with respect thereto; (j) the costs and expenses provided for in any Shareholder Servicing Agreement or Accounting Services Agreement, including amendments thereto, contemplated by subsection C of this Section III.  In the event that any of the foregoing shall, in the first instance, be paid by WRIMCO, the Corporation shall pay the same to WRIMCO on presentation of a statement with respect thereto.

C.  WRIMCO, or an affiliate of WRIMCO, may also act as (i) transfer agent or shareholder servicing agent of the Corporation and/or as (ii) accounting services agent of the Corporation if at the time in question there is a separate agreement, “Shareholder Servicing Agreement” and/or “Accounting Services Agreement,” covering such functions between the Corporation and WRIMCO or such affiliate.  The corporation, whether WRIMCO or its affiliate, which is the party to such Agreement with the Corporation is referred to as the “Agent.”  Each such Agreement shall provide in substance that it shall not go into effect, or be amended, or a new agreement covering the same topics between the Corporation and the Agent be entered into unless the terms of such Agreement, such amendment or such new agreement have been approved by the Board of Directors of the Corporation, including the vote of a majority of the directors who are not “interested persons” as defined in the 1940 Act, of either party to the Agreement, such amendment or such new agreement (considering WRIMCO to be such a party even if at the time in question the Agent is an affiliate of WRIMCO), cast in person at a meeting called for the purpose of voting on such approval.  Such a vote is referred to as a “disinterested director” vote.  Each such Agreement shall also provide in substance for its continuance, unless terminated, for a specified period which shall not exceed two years from the date of its execution and from year to year thereafter only if such continuance is specifically approved at least annually by a disinterested director vote, and that any disinterested director vote shall include a determination that (i) the Agreement, amendment, new agreement or continuance in question is in the best interests of the Corporation and its shareholders; (ii) the services to be performed under the Agreement, the Agreement as amended, new agreement or agreement to be continued are services required for the operation of the Corporation; (iii) the Agent can provide services the nature and quality of which are at least equal to those provided by others offering the same or similar services; and (iv) the fees for such services are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality.  Any such Agreement may also provide in substance that any disinterested director vote may be conditioned

3

on the favorable vote of the holders of a majority (as defined in or under the 1940 Act) of the outstanding shares of each class of the Corporation.  Any such Agreement shall also provide in substance that it may be terminated by the Agent at any time without penalty upon giving the Corporation one hundred twenty (120) days’ written notice (which notice may be waived by the Corporation) and may be terminated by the Corporation at any time without penalty upon giving the Agent sixty (60) days’ written notice (which notice may be waived by the Agent), provided that such termination by the Corporation shall be directed or approved by the vote of a majority of the Board of Directors of the Corporation in office at the time or by the vote of the holders of a majority (as defined in or under the 1940 Act) of the outstanding shares of each class of the Corporation.

IV.  Brokerage

(A)  WRIMCO may select brokers to effect the portfolio transactions of the Corporation on the basis of its estimate of their ability to obtain, for reasonable and competitive commissions, the best execution of particular and related portfolio transactions.  For this purpose, “best execution” means prompt and reliable execution at the most favorable price obtainable.  Such brokers may be selected on the basis of all relevant factors including the execution capabilities required by the transaction or transactions, the importance of speed, efficiency, or confidentiality, and the willingness of the broker to provide useful or desirable investment research and/or special execution services.  WRIMCO shall have no duty to seek advance competitive commission bids and may select brokers based solely on its current knowledge of prevailing commission rates.

(B)  Subject to the foregoing, WRIMCO shall have discretion, in the interest of the Corporation, to direct the execution of its portfolio transactions to brokers who provide brokerage and/or research services (as such services are defined in Section 28(e) of the Securities Exchange Act of 1934) for the Corporation and/or other accounts for which WRIMCO and its affiliates exercise “investment discretion” (as that term is defined in Section 3(a)(35) of the Securities Act of 1934); and in connection with such transactions, to pay commission in excess of the amount another adequately qualified broker would have charged if WRIMCO determines, in good faith, that such commission is reasonable in relation to the value of the brokerage and/or research services provided by such broker, viewed in terms of either that particular transaction or the overall responsibilities of WRIMCO and its investment advisory affiliates with respect to the accounts for which they exercise investment discretion.  In reaching such determination, WRIMCO will not be required to attempt to place a specified dollar amount on the brokerage and/or research services provided by such broker; provided that WRIMCO shall be prepared to demonstrate that such determinations were made in good faith, and that all commissions paid by the Corporation over a representative period selected by its Board of Directors were reasonable in relation to the benefits to the Corporation.

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V.  Compensation of WRIMCO

As compensation in full for services rendered and for the facilities and personnel furnished under sections I, II, and IV of this Agreement, the Corporation will pay to WRIMCO for each day the fees specified in Exhibit A hereto.

The amounts payable to WRIMCO shall be determined as of the close of business each day; shall, except as set forth below, be based upon the value of net assets computed in accordance with the Articles of Incorporation of the Corporation; and shall be paid in arrears whenever requested by WRIMCO.  In computing the value of the net assets of the Corporation, there shall be excluded the amount owed to the Corporation with respect to shares which have been sold but not yet paid to the Corporation by WRIMCO.

Notwithstanding the foregoing, if the laws, regulations or policies of any state in which shares of the Corporation are qualified for sale limit the operation and management expenses of the Corporation, WRIMCO will refund to the Corporation the amount by which such expenses exceed the lowest of such state limitations.

VI.  Undertakings of WRIMCO; Liabilities

WRIMCO shall give to the Corporation the benefit of its best judgment, efforts and facilities in rendering advisory services hereunder.

WRIMCO shall at all times be guided by and be subject to the Corporation’s investment policies, the provisions of the Corporation’s Articles of Incorporation and Bylaws as each shall from time to time be amended, and to the decision and determination of the Corporation’s Board of Directors.

This Agreement shall be performed in accordance with the requirements of the 1940 Act, the Investment Advisers Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent that the subject matter of this Agreement is within the purview of such Acts.  Insofar as applicable to WRIMCO as an investment adviser and affiliated person of the Corporation, WRIMCO shall comply with the provisions of the 1940 Act, the Investment Advisers Act of 1940 and the respective rules and regulations of the Securities and Exchange Commission thereunder.

In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of WRIMCO, it shall not be subject to liability to the Corporation or to any stockholder of the Corporation (direct or beneficial) for any act or omission in the course of or connected with rendering services thereunder or for any losses that may be sustained in the purchase, holding or sale of any security.

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VII.  Duration of this Agreement

This Agreement shall be renewed at the start of business on the date hereof and shall continue in effect, unless terminated as hereinafter provided, for a period of one year and from year-to-year thereafter only if such continuance is specifically approved at least annually by the Board of Directors, including the vote of a majority of the directors who are not parties to this Agreement or “interested persons” (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval, or by the vote of the holders of a majority (as so defined) of the outstanding voting securities of each class of the Corporation and by the vote of a majority of the directors who are not parties to this Agreement or “interested persons” (as so defined) of any such party, cast in person at a meeting called for the purpose of voting on such approval.

VIII.  Termination

This Agreement may be terminated by WRIMCO at any time without penalty upon giving the Corporation one hundred twenty (120) days’ written notice (which notice may be waived by the Corporation) and may be terminated by the Corporation at any time without penalty upon giving WRIMCO sixty (60) days’ written notice (which notice may be waived by WRIMCO), provided that such termination by the Corporation shall be directed or approved by the vote of a majority of the Board of Directors of the Corporation in office at the time or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Corporation.  This Agreement shall automatically terminate in the event of its assignment, the term “assignment” for this purpose having the meaning defined in Section 2(a)(4) of the 1940 Act and the rules and regulations thereunder.

IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly authorized officers and their corporate seal to be hereunto affixed, all as of the day and year first above written.

(Seal)

	W&R TARGET FUNDS, INC.
	By:	/s/Kristen A. Richards
		Kristen A. Richards
		Vice President
ATTEST:
/s/Megan E. Bray
Megan E. Bray
Assistant Secretary
(Seal)

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	WADDELL & REED INVESTMENT
	MANAGEMENT COMPANY
	By:	/s/Henry J. Herrmann
	Henry J. Herrmann
	President
ATTEST:
/s/Wendy J. Hills
Wendy J. Hills
Secretary

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EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT

W&R TARGET FUNDS, INC.

FEE SCHEDULE

A cash fee computed each day on net asset value for each Portfolio at the annual rates listed below*:

Effective June 30, 1999:

Asset Strategy Portfolio
Net Assets	Fee
Up to $1 billion	0.70%
Over $1 billion and up to $2 billion	0.65%
Over $2 billion and up to $3 billion	0.60%
Over $3 billion	0.55%
Balanced Portfolio
Net Assets	Fee
Up to $1 billion	0.70%
Over $1 billion and up to $2 billion	0.65%
Over $2 billion and up to $3 billion	0.60%
Over $3 billion	0.55%
Core Equity Portfolio
Net Assets	Fee
Up to $1 billion	0.70%
Over $1 billion and up to $2 billion	0.65%
Over $2 billion and up to $3 billion	0.60%
Over $3 billion	0.55%
Growth Portfolio
Net Assets	Fee
Up to $1 billion	0.70%
Over $1 billion and up to $2 billion	0.65%
Over $2 billion and up to $3 billion	0.60%
Over $3 billion	0.55%
High Income Portfolio
Net Assets	Fee
Up to $500 million	0.625%
Over $500 million and up to $1 billion	0.600%
Over $1 billion and up to $1.5 billion	0.550%
Over $1.5 billion	0.500%

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International Growth Portfolio
Net Assets	Fee
Up to $1 billion	0.85%
Over $1 billion and up to $2 billion	0.83%
Over $2 billion and up to $3 billion	0.80%
Over $3 billion	0.76%
Money Market Portfolio
A cash fee computed each day on net asset values for the Portfolio at the annual rate of 0.40% of net assets.
Science & Technology Portfolio
Net Assets	Fee
Up to $1 billion	0.85%
Over $1 billion and up to $2 billion	0.83%
Over $2 billion and up to $3 billion	0.80%
Over $3 billion	0.76%
Small Cap Growth Portfolio
Net Assets	Fee
Up to $1 billion	0.85%
Over $1 billion and up to $2 billion	0.83%
Over $2 billion and up to $3 billion	0.80%
Over $3 billion	0.76%

Approved February 14, 2001:

Value Portfolio
Net Assets	Fee
Up to $1 billion	0.70%
Over $1 billion and up to $2 billion	0.65%
Over $2 billion and up to $3 billion	0.60%
Over $3 billion	0.55%

Approved November 19, 2003:

Dividend Income Portfolio
Net Assets	Fee
Up to $1 billion	0.70%
Over $1 billion and up to $2 billion	0.65%
Over $2 billion and up to $3 billion	0.60%
Over $3 billion	0.55%

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Approved November 10, 2004:

Mid Cap Growth Portfolio
Net Assets	Fee
Up to $1 billion	0.85%
Over $1 billion and up to $2 billion	0.83%
Over $2 billion and up to $3 billion	0.80%
Over $3 billion	0.76%

Approved August 24, 2005:

Energy Portfolio
Net Assets	Fee
Up to $1 billion	0.85%
Over $1 billion and up to $2 billion	0.83%
Over $2 billion and up to $3 billion	0.80%
Over $3 billion	0.76%

Effective August 6, 2007:

Bond Portfolio
Net Assets	Fee
Up to $1 billion	0.475%
Over $1 billion and up to $1.5 billion	0.450%
Over $1.5 billion	0.400%

Approved November 28, 2007:

W&R Target Pathfinder Aggressive Portfolio
W&R Target Pathfinder Moderately Aggressive Portfolio
W&R Target Pathfinder Moderate Portfolio
W&R Target Pathfinder Moderately Conservative Portfolio
W&R Target Pathfinder Conservative Portfolio
Net Assets	Fee
All net assets	0.00%

*If a Portfolio’s net assets are less than $25 million, WRIMCO has agreed to voluntarily waive the management fee, subject to its right to change or modify this waiver.

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EX-10.16

Exhibit 10.16

SHAREHOLDER SERVICING AGREEMENT

THIS AGREEMENT, as amended and restated April 1, 1996, between W&R FUNDS, INC., (the “Company”), and Waddell & Reed Services Company (the “Agent”), and further amended August 22, 2001,

W I T N E S S E T H :

WHEREAS, The Company wishes, as applicable, to appoint the Agent or to continue the appointment of the Agent to be its shareholder servicing agent upon, and subject to, the terms and provisions of this Agreement;

NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows:

1.Appointment of Agent as Shareholder Servicing Agent for the Company; Acceptance.

(1)The Company hereby appoints the Agent to act as Shareholder Servicing Agent for the Company upon, and subject to, the terms and provisions of this Agreement.

(2)The Agent hereby accepts the appointment as Shareholder Servicing Agent for the Company and agrees to act as such upon, and subject to, the terms and provisions of this Agreement.

(3)The Agent may appoint an entity or entities approved by the Company in writing to perform any portion of Agent’s duties hereunder (the “Subagent”).

2.Definitions.

(1)In this Agreement -

(a)The term the “Act” means the Investment Company Act of 1940 as amended from time to time;

(b)The term “account” means the shares of the Company registered on the books of the Company in the name of a shareholder under a particular account registration number and includes shares subject to instructions by the shareholder with respect to periodic redemptions and/or reinvestment in additional shares of any dividends payable on said shares;

(c)The term “affiliate” of a person shall mean a person controlling, controlled by, or under common control with that person;

(d)The term “Class” shall mean each separate sub-class of a class of shares of the Company, as may now or in the future exist;

(e)The term “Fund” shall mean each separate class of shares of the Company, as may now or in the future exist;

(f)The term “officers’ instruction” means an instruction given on behalf of the Company to the Agent and signed on behalf of the Company by any one or more persons authorized to do so by the Company’s Board of Directors;

(g)The term “prospectus” means the prospectus and Statement of Additional Information of the applicable Fund or Class from time to time in effect;

(h)The term “shares” means shares including fractional shares of capital stock of the Company, whether or not such shares are evidenced by an outstanding stock certificate issued by the Company;

(i)The term “shareholder” shall mean the owner of record of shares of the Company;

(j)The term “stock certificate” means a certificate representing shares in the form then currently in use by the Company.

3.Duties of the Agent.

The Agent shall perform such duties as shall be set forth in this paragraph 3 and in accordance with the practice stated in Exhibit A of this Agreement or any amendment thereof, any or all of which duties may be delegated to or performed by one or more Subagents pursuant to Paragraph (3) above.

(1)Transfers.

Subject to the provisions of this Agreement the Agent hereby agrees to perform the following functions as transfer agent for the Company:

(a)Recording the ownership, transfer, exchange and cancellation of ownership of shares of the Company on the books of the Company;

(b)Causing the issuance, transfer, exchange and cancellation of stock certificates;

(c)Establishing and maintaining records of accounts;

(d)Computing and causing to be prepared and mailed or otherwise delivered to shareholders payment checks including bank wire transfers and notices of reinvestment in additional shares of dividends, stock dividends or stock splits declared by the Company on shares and of redemption proceeds due by the Company on redemption of shares;

(e)Causing checking accounts to be available and maintained for shareholders who elect to redeem shares by drawing checks on such accounts, including accepting or rejecting signatures on all checks drawn on the checking account and notifying the payor bank to dishonor any check the Agent deems not to be validly signed;

(f)Furnishing to shareholders such information as may be reasonably required by the Company, including appropriate income tax information;

(g)Addressing and mailing to shareholders prospectuses, annual and semi-annual reports and proxy materials for shareholder meetings prepared by or on behalf of the Company;

(h)Replacing allegedly lost, stolen or destroyed stock certificates in accordance with and subject to procedures and conditions agreed upon and set out in officers’ instructions;

(i)Maintaining such books and records relating to transactions effected by the Agent pursuant to this Agreement as are required by the Act, or by rules or regulations thereunder, or by any other applicable provisions of law, to be maintained by the Company or its transfer agent with respect to such transactions; preserving, or causing to be preserved, any such books and records for such periods as may be required by any such law, rule or regulation; furnishing the Company such information as to such transactions and at such time as may be reasonably required by it to comply with applicable laws and regulations;

(j)Providing such services and carrying out such responsibilities on behalf of the Company, or imposed on the Agent as the Company’s transfer agent, not otherwise expressly provided for in this Paragraph 3, as may be required by or be reasonably necessary to comply with any statute, act, governmental rule, regulation or directive or court order, including, without limitation, the requirements imposed by the Tax Equity and Fiscal Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of 1983 relating to the withholding of tax from distributions to shareholders.

(2)Correspondence.

The Agent agrees to deal with and answer all correspondence from or on behalf of shareholders relating to its functions under this Agreement.

4.Compensation of the Agent.

The Company agrees to pay the Agent for its services under this Agreement in accordance with the schedule as then in effect set forth in Exhibit B of this Agreement or any amendment thereof.  In addition, the Company agrees to reimburse the Agent for the following “out-of-pocket” expenses of the Agent within five days after receipt of an itemized statement of such expenses, to the extent that payment of such expenses has not been or is not to be made directly by the Company: (i) costs of stationery, appropriate forms, envelopes, checks, postage, printing (except cost of printing prospectuses, annual and semi-annual reports and proxy materials) and mailing charges, including returned mail and proxies, incurred by the Agent with respect to materials and communications sent to shareholders in carrying out its duties to the Company under this Agreement, bank charges for wire transfers pursuant to Section 3(1)(d) herein above, and maintenance of shareholder checking accounts pursuant to Section 3(1)(e) herein above; (ii) long distance telephone costs incurred by the Agent for telephone communications and microfilm and storage costs for transfer agency records and documents; (iii) costs of all ancillary and supporting services and related expenses (other than insurance

premiums) reasonably required by and provided to the Agent, other than by its employees or employees of an affiliate, with respect to functions of the Company being performed by it in its capacity as Agent hereunder, including legal advice and representation in litigation to the extent that such payments are permitted under Paragraph 7 of this Agreement and charges to Agent made by any Subagent; (iv) costs for special reports or information furnished on request pursuant to this Agreement and not specifically required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs and expenses incurred by the Agent in connection with the duties of the Agent described in Paragraph (3)(1)(i).  In addition, the Company agrees to promptly pay over to the Agent any fees or payment of charges it may receive from a shareholder for services furnished to the shareholder by the Agent.

Services and operations incident to the sale and distribution of the Company’s shares, including sales communications, confirmations of investments (not including reinvestment of dividends) and the clearing or collection of payments will not be for the account or at the expense of the Company under this Agreement.

5.Right of Company to Inspect Records, etc.

The Company will have the right under this Agreement to perform on site inspection of records and accounts and to perform audits directly pertaining to the Company shareholder accounts serviced by the Agent hereunder at the Agent’s or any Subagent’s facilities in accordance with reasonable procedures at the frequency necessary to assure proper administration of the Agreement.  The Agent will cooperate with the Company’s auditors or representatives of appropriate regulatory agencies and furnish all reasonably requested records and data.

6.Insurance.

The Agent now has the insurance coverage described in Exhibit C, attached hereto, and the Agent will not take any action to eliminate or decrease such coverage during the term of this Agreement without receiving the approval of the Fund in advance of any change, except the Agent, after giving reasonable notice to the Company, may eliminate or decrease any coverage if the premiums for such coverage are substantially increased.

The Company, at its expense, will include as part of its insurance coverages maintained pursuant to Section 17(j) of the Investment Company Act of 1940 fidelity insurance with respect to forgery or alteration of checks drawn on its checking account referred to in Section 3(1)(e) of the Agreement subject to such deductible for this particular coverage as it may deem appropriate.  The Agent will maintain at its expense such insurance coverages with respect to the Agent’s duties under Section 3(1)(e) for loss caused by errors or omissions as it deems appropriate.  Any loss to the Company by reason of the deductible on coverages maintained by it hereunder shall be paid by the Agent.

7.Standard of Care; Indemnification.

The Agent will at all times exercise due diligence and good faith in performing its duties hereunder.  The Agent will make every reasonable effort and take all reasonably available measures to assure the adequacy of its personnel and facilities as well as the accurate

performance of all services to be performed by it hereunder within, at a minimum, the time requirements of any applicable statutes, rules or regulations or as set forth in the prospectus.

The Agent shall not be responsible for, and the Company agrees to indemnify the Agent for any losses, damages or expenses (including reasonable counsel fees and expenses) (i) resulting from any claim, demand, action or suit not resulting from the Agent’s failure to exercise good faith or due diligence and arising out of or in connection with the Agent’s duties on behalf of the Company hereunder; (ii) for any delay, error or omission by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties (except with respect to the Agent’s employees), fire, mechanical breakdown beyond its control, flood or catastrophe, acts of God, insurrection, war, riots, or failure beyond its control of transportation, communication or power supply; or (iii) for any action taken or omitted to be taken by the Agent in good faith in reliance on (a) the authenticity of any instrument or communication reasonably believed by it to be genuine and to have been properly made and signed or endorsed by an appropriate person, (b) the accuracy of any records or information provided to it by the Company, (c) any authorization or instruction contained in any officers’ instruction, or (d) with respect to the functions performed for the Company listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by the Company who may be internally employed counsel or outside counsel, in either case for the Company and/or the Agent.

In order for the rights to indemnification to apply, it is understood that if in any case the Company may be asked to indemnify or hold the Agent harmless, the Company shall be advised of all pertinent facts concerning the situation in question, and it is further understood that the Agent will use reasonable care to identify and notify the Company promptly concerning any situation which presents or appears likely to present a claim for indemnification against the Company.  The Company shall have the option to defend the Agent against any claim which may be the subject of this indemnification and, in the event that the Company so elects, it will so notify the Agent and thereupon the Company shall take over complete defense of the claim and the Agent shall sustain no further legal or other expenses in such situation for which the Agent shall seek indemnification under this paragraph.  The Agent will in no case confess any claim or make any compromise in any case in which the Company will be asked to indemnify the Agent except with the Company’s prior written consent.

8.Term of the Agreement; Taking Effect; Amendments.

This Agreement shall become effective at the start of business on the date hereof and shall continue, unless terminated as hereinafter provided, for a period of one year and from year to year thereafter, provided that such continuance shall be specifically approved as provided below.

This Agreement shall go into effect, or may be continued, or may be amended or a new agreement between the Company and the Agent covering the substance of this Agreement may be entered into only if the terms of this Agreement, such continuance, the terms of such amendment or the terms of such new agreement have been approved by the Board of Directors of the Company, including the vote of a majority of the directors who are not “interested persons,” as defined in the Act, of either party to this Agreement or of Waddell & Reed Investment Management Company, cast in person at a meeting called for the purpose of voting on such approval.  Such a vote is hereinafter referred to as a “disinterested director vote.”

Any disinterested director vote shall include a determination that (i) the Agreement, amendment, new agreement or continuance in question is in the best interests of the Company and its shareholders; (ii) the services to be performed under the Agreement, the Agreement as amended, new agreement or agreement to be continued, are services required for the operation of the Company; (iii) the Agent can provide services the nature and quality of which are at least equal to those provided by others offering the same or similar services; and (iv) the fees for such services are fair and reasonable in the light of the usual and customary charges made by others for services of the same nature and quality.

9.Termination.

(1)This Agreement may be terminated by the Agent at any time without penalty upon giving the Company 120 days’ written notice (which notice may be waived by the Company) and may be terminated by the Company at any time without penalty upon giving the Agent sixty (60) days’ written notice (which notice may be waived by the Agent), provided that such termination by the Company shall be directed or approved by the vote of a majority of the Board of Directors of the Company in office at the time or by the vote of the holders of a majority (as defined in or under the Act) of the outstanding shares of the Company.

(2)On termination, the Agent will deliver to the Company or its designee all files, documents and records of the Company used, kept or maintained by the Agent in the performance of its services hereunder, including such of the Company’s records in machine readable form as may be maintained by the Agent, as well as such summary and/or control data relating thereto used by or available to the Agent.

(3)In the event of any termination which involves the appointment of a new shareholder servicing agent, including the Company’s acting as such on its own behalf, the Company shall have the non-exclusive right to the use of the data processing programs used by the Agent in connection with the performance of its duties under this Agreement without charge.

(4)In addition, on such termination or in preparation therefore, at the request of the Company and at the Company’s expense the Agent shall provide to the extent that its capabilities then permit such documentation, personnel and equipment as may be reasonably necessary in order for a new agent or the Company to fully assume and commence to perform the agency functions described in this Agreement with a minimum disruption to the Company’s activities.

10.Construction; Governing Law.

The headings used in this Agreement are for convenience only and shall not be deemed to constitute a part hereof.  Whenever the context requires, words denoting singular shall be read to include the plural.  This Agreement and the rights and obligations of the parties hereunder, shall be construed and interpreted in accordance with the laws of the State of Kansas, except to the extent that the laws of the State of Maryland apply with respect to share transactions.

11.Representations and Warranties of Agent.

Agent represents and warrants that it is a corporation duly organized and existing and in good standing under the laws of the State of Missouri, that it is duly qualified to carry on its business in the State of Kansas and wherever its duties require, that it has the power and authority under laws and by its Articles of Incorporation and Bylaws to enter into this Shareholder Servicing Agreement and to perform the services contemplated by this Agreement.

12.Entire Agreement.

This Agreement and the Exhibits annexed hereto constitutes the entire and complete agreement between the parties hereto relating to the subject matter hereof, supersedes and merges all prior discussions between the parties hereto, and may not be modified or amended orally.

IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be duly executed on the day and year first above written.

	W&R FUNDS, INC.
	By: /s/ Daniel C. Schulte
	Daniel C. Schulte, Vice President
ATTEST:
By: /s/ Kristen A. Richards
Kristen A. Richards, Secretary
	WADDELL & REED SERVICES COMPANY
	By: /s/ Michael D. Strohm
	Michael D. Strohm, President
ATTEST:
By:/s/ Daniel C. Schulte
Daniel C. Schulte, Secretary

EXHIBIT A

A.            DUTIES IN SHARE TRANSFERS AND REGISTRATION

1.The Agent in carrying out its duties shall follow general commercial practices and the Rules of the Stock Transfer Association, Inc. except as they may conflict or be inconsistent with the specific provisions of the Company’s Articles of Incorporation and Bylaws, prospectus, applicable Federal and state laws and regulations and this Agreement.

2.The Agent shall not require that the signature of the appropriate person be guaranteed, witnessed or verified in order to effect a redemption, transfer, exchange or change of address except as may from time to time be directed by the Company as set forth in an officers’ instruction.  In the event a signature guarantee is required by the Company, the Agent shall not inquire as to the genuineness of the guarantee.

3.The Agent shall not replace a lost, stolen or misplaced stock certificate without requiring and being furnished with an open penalty surety bond protecting the Company and the Agent against loss.

B.The practices, procedures and requirements specified in A above may be modified, altered, varied or supplemented as from time to time may be mutually agreed upon by the Company and the Agent and evidenced on behalf of the Company by an officers’ instruction.  Any such change shall not be deemed to be an amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.

EXHIBIT B

COMPENSATION

Class A Shares of Asset Strategy Fund (“Fund”)

An amount payable on the first day of each month of $1.5792 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class A Shares of High Income Fund and Municipal Bond Fund (each a “Fund”)

An amount payable on the first day of each month of $1.6958 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class A Shares of Energy Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology Fund, Small Cap Growth Fund, Tax-Managed Equity Fund and Core Equity Fund (each a “Fund”)

An amount payable on the first day of each month of $1.5042 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class A shares of Limited-Term Bond Fund (“Fund”)

An amount payable on the first day of each month of $1.6958 for each account of the Fund which was in existence during any portion of the immediately preceding month and, in addition, the Fund also pays the Agent a monthly fee of $0.75 for each shareholder check it processes.

Class A Shares of Money Market Fund (“Fund”)

An amount payable on the first day of each month of $1.75 for each account of the Fund which was in existence during any portion of the immediately preceding month and, in addition, the Fund also pays the Agent a monthly fee of $0.75 for each shareholder check it processes.

Class B Shares of Asset Strategy Fund (“Fund”)

An amount payable on the first day of each month of $1.5792 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class B Shares of High Income Fund, Limited-Term Bond Fund and Municipal Bond Fund (each a “Fund”)

An amount payable on the first day of each month of $1.6958 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class B Shares of Energy Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology Fund, Small Cap Growth Fund, Tax-Managed Equity Fund and Core Equity Fund (each a “Fund”)

An amount payable on the first day of each month of $1.5042 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class B Shares of Money Market Fund (“Fund”)

An amount payable on the first day of each month of $1.75 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class C Shares of Asset Strategy Fund (“Fund”)

An amount payable on the first day of each month of $1.5792 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class C Shares of High Income Fund, Limited-Term Bond Fund and Municipal Bond Fund (each a “Fund”)

An amount payable on the first day of each month of $1.6958 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class C Shares of Energy Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology, Small Cap Growth Fund, Tax-Managed Equity Fund and Core Equity Fund (each a “Fund”)

An amount payable on the first day of each month of $1.5042 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class C Shares of Money Market Fund (“Fund”)

An amount payable on the first day of each month of $1.75 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class E Shares of Asset Strategy Fund (“Fund”)

An amount payable on the first day of each month of $1.5792 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class E Shares of High Income Fund (“Fund”)

An amount payable on the first day of each month of $1.6958 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class E Shares of Energy Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology Fund, Small Cap Growth Fund, Tax-Managed Equity Fund and Core Equity Fund (each a “Fund”)

An amount payable on the first day of each month of $1.5042 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class E shares of Limited-Term Bond Fund (“Fund”)

An amount payable on the first day of each month of $1.6958 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class E Shares of Money Market Fund (“Fund”)

An amount payable on the first day of each month of $1.75 for each account of the Fund which was in existence during any portion of the immediately preceding month.

Class I Shares of All Funds (except Ivy Money Market Fund and Ivy Municipal Bond Fund)

An amount payable on the first day of each month equal to 1/12 of .15 of 1% of the average daily net assets of the Class for the preceding month.

Class R Shares of Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology Fund and Small Cap Growth Fund (each a “Fund”)

An amount payable on the first day of each month equal to 1/12 of .20 of 1% of the average daily net assets of the Class for the preceding month.

Class Y Shares of All Funds

An amount payable on the first day of each month equal to 1/12 of .15 of 1% of the average daily net assets of the Class for the preceding month.

The above-referenced per account fees shall be reduced for certain networked accounts to $6.00 per account on an annualized basis computed and payable on the first day of each month for each account which was in existence during any portion of the immediately preceding month.

The above-referenced per account fees for Class A, Class B, Class C and Class E shall also be reduced if the total number of accounts for which WRSCO provides shareholder services reach the following levels:

A reduction of 5% of the per account fee for the number of accounts in excess of 2.5 million but less than 3.0 million; and

A reduction of 10% of the per account fee for the number of accounts in excess of 3.0 million.

When considering the total number of accounts for the purpose of the reductions listed above, Class A, Class B, Class C, Class E, Class II and Advisors Class accounts in each of the Ivy Funds, Ivy Funds, Inc. and Waddell &Reed Advisors Funds are included; however, accounts in Class I, Class R and Class Y of each such fund and Waddell & Reed InvestEd accounts are excluded.

Fee Schedule Amended and Effective November 29, 2006.

EXHIBIT C

Name of Bond	Amount		Bond or Policy No.	Insurer
Investment Company			87015107B	ICI Mutual Insurance Company
Blanket Bond Form
Fidelity	$	31,320,000
Audit Expense	50,000
On Premises	31,320,000
In Transit	31,320,000
Forgery or Alteration	31,320,000
Securities	31,320,000
Counterfeit Currency	31,320,000
Uncollectible Items of Deposit	25,000
Phone-Initiated Transactions	31,320,000
Computer Security	31,320,000
Directors and Officers/ Errors and Omissions Liability Insurance Form Total Limit	$	30,000,000	87015107D	ICI Mutual Insurance Company
Blanket Lost Instrument Bond (Mail Loss)			30S100639551	Travelers
Blanket Undertaking Lost Instrument Waiver of Probate			42SUN339806	Hartford Casualty Insurance

Effective December 31, 2007

EX-10.18

Exhibit 10.18

AMENDMENT TO PRINCIPAL UNDERWRITING AGREEMENT

                This Amendment (“Amendment”) is made as of July 24, 2002 between Waddell & Reed Advisors Asset Strategy Fund, Inc. (the “Fund”), an open-end investment management company registered under the Investment Company Act of 1940, and Waddell & Reed, Inc. (“W&R”), the Fund’s Principal Underwriter.  The parties hereby amend the Principal Underwriting Agreement dated as of March 9, 1995 (“Agreement”), as set forth below.  Unless otherwise provided, capitalized terms used herein shall have the same meanings given to such terms in the Agreement.

                WHEREAS, the Bank Secrecy Act, as amended by the USA PATRIOT ACT, requires the Fund to develop and implement and institute an anti-money laundering program (“AML Program”); and

                WHEREAS, the Fund has adopted the AML Program set forth in Schedule 1 hereto; and

                WHEREAS, W&R processes investor account applications, approves and qualifies prospective investors, accepts investor funds, and/or services investor accounts; and

                WHEREAS, the Fund wishes to delegate certain aspects of the implementation and operation of the Fund’s AML Program to W&R; and

                WHEREAS, W&R desires to accept such delegation.

                NOW THEREFORE, in consideration of the mutual premises and covenants set forth herein, the parties agree as follows:

1.Delegation.  The Fund hereby delegates to W&R, as agent for the Fund, responsibility for the implementation and operation of the following policies and procedures in connection with the Fund’s AML Program, as applicable to W&R’s functions as defined in the Agreement:  (i) know-your-customer policies; (ii) monitoring accounts and identifying high risk accounts; (iii) policies and procedures for reliance on third parties; (iv) policies and procedures for correspondent accounts for foreign financial institutions and for private banking accounts for non-U.S. persons; (v) no cash policy; (vi) detecting and reporting suspicious activity; and (vii) all related recordkeeping requirements, and W&R accepts such delegation.  W&R further agrees to cooperate with the Fund’s AML Compliance Officer in the performance of W&R’s responsibilities under the AML Program.

2.The AML Program.  W&R hereby represents and warrants that W&R has received a copy of the Fund’s AML Program and undertakes to perform all responsibilities imposed on W&R as a “Service Provider” thereunder.  The Fund hereby agrees to provide to W&R any amendment(s) to the AML Program promptly after adoption of any such amendment(s) by the Fund.

3.Consent to Examination.  W&R hereby consents to:  (a) provide to federal examination authorities information and records relating to the AML Program maintained by W&R; and (b) the inspection of W&R by federal examination authorities for purposes of the AML Program.

4.Anti-Money Laundering Program.  W&R hereby represents and warrants that W&R has implemented and enforces an anti-money laundering program (“AMLP”) that complies with laws, regulations and regulatory guidance applicable to the Fund and W&R, and includes, if applicable:

a.know-your-customer policies;

b.due diligence policies for correspondent accounts for foreign financial institutions and for private banking accounts for non-U.S. persons;

c.reasonable internal procedures and controls to detect and report suspicious activities;

d.monitoring accounts and identifying high-risk accounts;

e.a compliance officer or committee with responsibility for the anti-money laundering program;

f.employee training, including that:  (i) new employees receive AML training upon the commencement of their employment; and (ii) existing employees receive AML training at the time such employees assume duties that bring them into contact with possible money laundering activities;

g.an independent audit function; and

h.recordkeeping requirements.

5.Delivery of Documents.  W&R agrees to furnish to the Fund the following documents:

a.a copy of W&R’s AMLP as in effect on the date hereof, and any material amendment thereto promptly after the adoption of any such amendment;

b.a copy of any deficiency letter sent by federal examination authorities concerning W&R’s AMLP; and

c.no less frequently than annually, a report on W&R’s anti-money laundering program that includes a certification to the Fund concerning W&R’s implementation of, and ongoing compliance with, its anti-money laundering program and a copy of any audit report prepared with respect to W&R’s anti-money laundering program.

6.Reports.  W&R will provide periodic reports concerning W&R’s compliance with W&R’s AMLP and/or the Fund’s AML Program at such times as may be reasonably requested by the Fund’s Board of Directors or the Anti-Money Laundering Compliance Officer.

7.Miscellaneous.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Except as specifically set forth herein, all other provisions of the Agreement shall remain in force and effect.

                IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be fully executed as of the day and year first written above.

Waddell & Reed Advisors Asset Strategy Fund, Inc.
By:	/s/Kristen A. Richards
	Kristen A. Richards
Title:	Vice President and Secretary
Waddell & Reed, Inc.
By:	/s/Michael D. Strohm
	Michael D. Strohm
Title:	President

EX-10.19

Exhibit 10.19

DISTRIBUTION AGREEMENT

                THIS AGREEMENT, originally made as of the 8th day of February, 1995, by and between Waddell & Reed Funds, Inc. and Waddell & Reed, Inc. and as assigned, effective June 16, 2003, to Ivy Funds Distributor, Inc., an indirectly owned subsidiary of Waddell & Reed Financial, Inc., the parent company of Waddell & Reed, Inc., is hereby amended and restated as of the 3rd day of September, 2003, by and between Ivy Funds, Inc. (f/k/a W&R Funds, Inc.; f/k/a Waddell & Reed Funds, Inc.), a Maryland Corporation (the “Company”), and Ivy Funds Distributor, Inc. (“IFDI”) a Florida Corporation;

                I.              REPRESENTATIONS

                                A.  The Company represents that

                                                1)  it is a registered open-end management investment company (mutual fund), and

                                                2)  the shares of each of its classes of shares (“Fund”) and of each sub-class thereof (“Class”), if any, are, as of the date of the effectiveness of this Agreement as to each such Fund or Class, registered with the Securities and Exchange Commission (“SEC”) and qualified or otherwise authorized for sale in all states of the United States as may be agreed upon.  (As to any Fund or Class not registered with the SEC and qualified or otherwise authorized for sale in all states of the United States as may be agreed upon, this Agreement shall become effective as to such Fund or Class upon such registration and qualification or authorization.)

                                B.  IFDI represents that

                                                1)  it is a broker-dealer registered with the SEC and is duly qualified to offer shares of the Company in all states in which the shares are currently qualified or otherwise authorized for offer for sale;

                                                2)  it is a member of the National Association of Securities Dealers, Inc. (“NASD”);

                                                3)  it does not engage in the retail sale of Company shares, but rather maintains agreements with other registered broker-dealers, authorizing such broker-dealers to offer Company shares to the public;

                                                4)  it maintains and enforces procedures reasonably designed to achieve compliance with applicable securities laws, rules and regulations including the Rules of the NASD, including those related to the review and approval of advertising and sales literature used in solicitation of orders to buy Company shares, and it files, when applicable, such advertising and sales literature with the NASD.

                II.            APPOINTMENT OF UNDERWRITER and OBLIGATIONS

                The Company hereby, as applicable, appoints IFDI or continues the appointment of IFDI, and IFDI, as applicable, agrees to act or continues to act, as the Company’s principal underwriter under the terms and provisions of this Agreement.

                                A.            Company agrees

                                                1)  to use its best efforts to register from time to time under the Securities Act of 1933 (the “Securities Act”) adequate amounts of its shares for sale by IFDI to the public through broker-dealers with which IFDI contracts and to qualify or to permit IFDI to qualify such shares for offering to the public in such states as may from time to time be agreed upon;

                                                2)  to immediately advise IFDI (i) when any post-effective amendment to its registration statement or any further amendment or supplement thereto or any further registration statement or amendment or supplement thereto becomes effective, (ii) of any request by the SEC for amendments to the registration statement(s) or any then effective prospectus or for additional information, (iii) of the issuance by the SEC of any stop-order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose, and (iv) of the happening of any event which makes untrue any material statement made in the registration statement or any then effective prospectus or which, in the opinion of counsel for the Company, requires the making of a change in the registration statement or any then effective prospectus in order to make the statements therein not misleading; in case of the happening at any time of any event which materially affects the Company or its securities and which should be set forth in a supplement to or an amendment of any then effective prospectus in order to make the statements therein not misleading, to prepare and furnish to IFDI such amendment or amendments to that prospectus as will correct the prospectus so that as corrected it will not contain, or such supplement or supplements to that prospectus which when read in conjunction with that prospectus will make the combined information not contain any untrue statement of a material fact or any omission to state any material fact necessary in order to make the statements in that prospectus not misleading; if any time the SEC shall issue any stop-order suspending the effectiveness of the registration statement, to make every reasonable effort to obtain the prompt lifting of such order; and, before filing any amendment to the registration statement or to any then effective prospectus, to furnish IFDI with a copy of the proposed amendment;

                                                3)  to advise IFDI of the net asset value of the shares of each of its Funds and Classes, as applicable, as often as computed and to furnish to IFDI as soon as practical such information as may be reasonably requested by IFDI in order that it may know all of the facts necessary to provide for the sale of shares of the Company;

                                                4)  to pay or cause to be paid all expenses incident to the issuance, transfer, registration and delivery of its shares, all taxes in connection therewith, costs and expenses incident to preparing and filing any registration statements and prospectuses and any amendments or supplements to a registration statement or a prospectus, statutory fees incidental to the registration of additional shares with the SEC, statutory fees and expenses incurred in

2

connection with any Blue Sky law qualifications undertaken by or at the request of IFDI, and the fees and expenses of the Company’s counsel, accountants or any other experts used in connection with the foregoing; and

                                                5)  not without the consent of IFDI to offer any of its shares for sale directly or to any persons or corporations other than through IFDI, except only

                                                                a)  the reinvestment of dividends and/or distributions or their declaration in shares of the Company, in optional form or otherwise;

                                                                b)  the issuance of additional shares to stock splits or stock dividends;

                                                                c)  sale of shares to another investment or securities holding company in the process of purchasing all or a portion of its assets;

                                                                d)  in connection with an exchange of shares of the Company for shares in another investment or securities holding company;

                                                                e)  the sale of shares to registered unit investment trusts; or

                                                                f)  in connection with the exchange of one Fund’s shares for shares of another Fund of the Company.

                                B.            IFDI agrees

                                                1)  to offer Company shares in such states as may be agreed upon through broker-dealers which are members of the NASD on such terms as are not inconsistent with this Agreement;

                                                2)  in offering shares through other broker-dealers to comply with the provisions of the Articles of Incorporation and Bylaws of the Company and with the provisions stated in its applicable then current prospectus(es);

                                                3)  timely to inform the Company of any action or proceeding to terminate, revoke or suspend IFDI’s registration as a broker-dealer with the SEC, membership in the NASD, or authority with any state securities commission to offer Company shares; and

                                                4)  to pay the cost of all sales literature, advertising and other materials which it may at its discretion use in connection with the sale of Company shares, including the cost of reports to the shareholders of the Company in excess of the cost of reports to existing shareholders and the cost of printing the prospectus(es) furnished to it by the Company.

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III.           TERMS FOR SALE OF SHARES

                                A.            It is mutually agreed that

                                                1)  IFDI shall act as principal in all matters relating to promotion and sale of Company shares, including the preparation and use of all advertising, sales literature and other promotional materials, and shall make and enter into all other arrangements, agreements and contracts as principal on its own account and not as agent for the Company.  Title to shares issued and sold by the Company through IFDI shall pass directly from the Company to the broker-dealer or investor; except provided, however, that IFDI may, if so agreed by IFDI and the Company, act as agent of the Company without commission on repurchase of shares of the Company;

                                                2)  certificates for shares shall not be created or delivered by the Company in any case in which the purchase is pursuant to any provisions of the Company described in its applicable then current prospectus(es) under the terms of which certificates are not to be issued to the shareholder.  Shares sold through IFDI shall be registered in such name or names and amounts as the selling broker-daeler or instructor may request from time to time, and all shares when so paid for and issued shall be fully paid and non-assessable; and

                                                3)  the offering price at which shares of the Company may be sold through IFDI shall include such selling commission as may be applicable to that Class and as may be fixed from time to time by IFDI but shall not be in excess of 8.5 percent of the offering price.  IFDI shall retain any such sales commission and may re-allow all or any part of the sales commission to selected brokers and dealers who sell shares of the Company.  IFDI may designate, reduce or eliminate its selling commissions in certain sales or exchanges to the extent described in the applicable then current prospectus(es) of the Company and in accordance with Section 22(d) of the Investment Company Act of 1940 and any rules, regulations or orders of the SEC thereunder.

                IV.           THE PLAN

                                A.  It is mutually acknowledged that the Company has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (a “Plan”), which Plan is applicable to certain shares and that the Company may in the future adopt Plans applicable to certain Funds and Classes, respectively.

                                B.  With respect to any Fund or Class as to which the Company has adopted a Plan, pursuant to that Plan, each day the Company shall pay to IFDI a distribution fee and/or a service fee at the maximum rates and under the terms and conditions set forth in the applicable Plan, as amended from time to time, or such lesser amount as the Company and IFDI may agree.

                                C.  The Company shall, after excluding from the redemption proceeds that portion represented by the reinvestment of dividends and distributions and the appreciation of the value of Fund shares being redeemed, promptly pay IFDI an amount, if any, equal to the percent of the

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amount invested as determined by IFDI and as is then stated in the Company’s current prospectus applicable to the shares redeemed (the “contingent deferred sales charge”).  For purposes of determining the applicable contingent deferred sales charge, if any: the redemptions shall be deemed in order of investment made when more than one investment has been made; and when the shares being redeemed were acquired by exchange of shares of another Fund or Class of the Company, or corresponding class of another registered investment company for which IFDI or its affiliate serves as principal underwriter, the investment shall be deemed as if it had been made when the Company’s shares were first purchased, and the applicable contingent deferred sales charges, if any, shall be with respect to the amount originally invested in Company shares; and provided that any contingent deferred sales charge shall be determined in accordance with and in the manner set forth in the applicable then current prospectus and any applicable Order or Rule issued by the SEC.

                                D.  It is contemplated that IFDI may incur other expenses substantially in advance of receiving the distribution fee, if any, that may be applicable to the payment of such commissions and expenses.  IFDI recognizes that such payments are at its risk and that this Agreement may be terminated or not continued as hereinafter provided without the payment to it of any further distribution fees or service fees whatsoever and without the payment of any penalty.  The contingent deferred sales charges, if any, shall, however, be payable to IFDI with respect to all subject sales made prior to the termination of this Agreement.

                                E.  IFDI shall at least quarterly provide to the Company’s board of directors a written report with respect to each Fund or Class, as applicable, of the amounts of the distribution and/or service fees expended and the purposes for which these expenditures were made.  IFDI shall in addition furnish to the board of directors of the Company such information as may be requested or as may be necessary to an informed determination by the directors of whether or not the directors should continue the Company’s Plan(s) and continue this Agreement and to determine whether there is reasonable likelihood that the Plan(s) and this Agreement will benefit the Company and its shareholders affected by such Plan(s).

                V.            INDEMNIFICATION

                                A.  The Company agrees with IFDI for the benefit of IFDI and each person, if any, who controls IFDI within the meaning of Section 15 of the Securities Act and each and all and any of them, to indemnify and hold harmless IFDI and any such controlling person from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, under any other statute, at common law or otherwise, and to reimburse the underwriter and such controlling persons, if any, for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by them or any of them in connection with any litigation whether or not resulting in any liability, insofar as such losses, claims, damages, liabilities or litigation arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any prospectus or any amendment thereof or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however,

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that this indemnity agreement shall not apply to amounts paid in settlement of any such litigation if such settlement is effected without the consent of the Company or to any such losses, claims, damages, liabilities or litigation arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus or any amendment thereof or supplement thereto, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which statement or omission was made in reliance upon information furnished in writing to the Company by IFDI for inclusion in any registration statement or any prospectus or any amendment thereof or supplement thereto.  IFDI and each such controlling person shall promptly, after the complaint shall have been served upon IFDI or such controlling person in any litigation against IFDI or such controlling person in respect of which indemnity may be sought from the Company on account of its agreement contained in this paragraph, notify the Company in writing of the commencement thereof.  The omission of IFDI or such controlling person so to notify the Company of any such litigation shall relieve the Company from any liability which it may have to IFDI or such controlling person on account of the indemnity agreement contained in this paragraph but shall not relieve the Company from any liability which it may have to IFDI or controlling person otherwise than on account of the indemnity agreement contained in this paragraph.  In case any such litigation shall be brought against IFDI or any such controlling person and the underwriter or such controlling person shall notify the Company of the commencement thereof, the Company shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense but such defense shall be conducted by counsel of good standing and satisfactory to IFDI or such controlling person or persons, defendant or defendants in the litigation.  The indemnity agreement of the Company contained in this paragraph shall remain operative and in full force and effect regardless of any investigation made by or on behalf of IFDI or any such controlling person and shall survive any delivery of shares of the Company.  The Company agrees to notify IFDI promptly of the commencement of any litigation or proceeding against it or any of its officers or directors of which it may be advised in connection with the issue and sale of its shares.

                                B.  Anything herein to the contrary notwithstanding, the agreement in Section A of this article, insofar as it constitutes a basis for reimbursement by the Company for liabilities (other than payment by the Company of expenses incurred or paid in the successful defense of any action, suit or proceeding) arising under the Securities Act, shall not extend to the extent of any interest therein of any person who is an underwriter or a partner or controlling person of an underwriter within the meaning of Section 15 of the Securities Act or who, at the date of this Agreement, is a director of the Company, except to the extent that an interest of such character shall have been determined by a court of appropriate jurisdiction the question of whether or not such interest is against public policy as expressed in the Securities Act.

                                C.  IFDI agrees to indemnify and hold harmless the Company and its directors and such officers as shall have signed any registration statement from and against any and all losses, claims, damages or liabilities, joint or several, to which the Company or such directors or officers may become subject under the Securities Act, under any other statute, at common law or otherwise, and will reimburse the Company or such directors or officers for any legal or other

6

expenses (including the cost of any investigation and preparation) reasonably incurred by it or them or any of them in connection with any litigation, whether or not resulting in any liability insofar as such losses, claims, damages, liabilities or litigation arise out of, or are based upon, any untrue statement or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which statement or omission was made in reliance upon information furnished in writing to the Company by IFDI for inclusion in any registration statement or any prospectus, or any amendment thereof or supplement thereto, or which statement was made in, or the alleged omission was from, any advertising or sales literature (including any reports to shareholders used as such) which relate to the Company.

                                IFDI shall not be liable for amounts paid in settlement of any such litigation if such settlement was effected without its consent.  The Company and its directors and such officers, defendant or defendants, in any such litigation shall, promptly after the complaint shall have been served upon the Company or any such director or officer in any litigation against the Company or any such director or officer in respect of which indemnity may be sought from IFDI on account of its agreement  contained in this paragraph, notify IFDI in writing of the commencement thereof.  The omission of the Company or such director or officer so to notify the underwriter of any such litigation shall relieve IFDI from any liability which it may have to the Company or such director or officer on account of the indemnity agreement contained in this paragraph, but shall not relieve IFDI from any liability which it may have to the Company or such director or officer otherwise than on account of the indemnity agreement contained in this paragraph.  In case any such litigation shall be brought against the Company or any such officer or director and notice of the commencement thereof shall have been so given to IFDI, IFDI shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense, but such defense shall be conducted by counsel of good standing and satisfactory to the Company.  The indemnity agreement of IFDI contained in this paragraph shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Company and shall survive any delivery of shares of the Company.  IFDI agrees to notify the Company promptly of the commencement of any litigation or proceeding against it or any of its officers or directors or against any such controlling person of which it may be advised, in connection with the issue and sale of the Company’s shares.

                                D.  Notwithstanding any provision contained in this Agreement, no party hereto and no person or persons in control of any party hereto shall be protected against any liability to the Company or its security holders to which they would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of their duties or by reason of their reckless disregard of their obligations and duties under this Agreement.

                VI.           OTHER TERMS

                                A.  This Agreement shall not be deemed to limit IFDI from acting as underwriter, broker and/or dealer for any other mutual fund, from engaging in any other aspects of the securities business, whether or not such may be deemed in competition with the sale of shares of the Company, and to carry on any other lawful business whatsoever.

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                                B.  Except as expressly provided in Article V and hereinabove, the agreements herein set forth have been made and are made solely for the benefit of the Company and IFDI, and the persons expressly provided for in Article V, their respective heirs and successors, personal representatives and assigns, and except as so provided, nothing expressed or mentioned herein is intended or shall be construed to give any person, firm or corporation other than the Company, IFDI and the persons expressly provided for in Article V any legal or equitable right, remedy or claim under or in respect of this Agreement or any representation, warranty or agreement herein contained.  Except as so provided, the term “heirs, successors, personal representatives and assigns” shall not include any purchaser of shares merely because of such purchase.

                                C.  This Agreement shall continue in effect, unless terminated as hereinafter provided, for a period of one (1) year and thereafter only if such continuance is specifically approved at least annually by the Board of Directors, including the vote of a majority of the directors who are not parties to the Agreement or “interested persons” (as defined in the Investment Company Act of 1940) or any such party and who have no direct or indirect financial interest in the operation of any Plan or any agreement relating to that Plan (hereafter the “Plan directors”), cast in person at a meeting called for the purpose of voting on such approval.  This Agreement may be terminated by IFDI at any time without penalty upon giving the Company sixty (60) days’ written notice (which notice may be waived by the Company) and may be terminated by the Company at any time without penalty upon giving IFDI sixty (60) days’ written notice (which notice may be waived by IFDI), provided that such termination by the Company shall be directed or approved by the vote of a majority of the Plan directors, or by the vote of a majority (as defined in the Investment Company Act of 1940) of the outstanding voting securities of a Fund with respect to that Fund.  This Agreement shall automatically terminate in the event of its assignment, the term “assignment” for this purpose having the meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and applicable Rules thereunder.

                                D.  This Agreement shall be governed and construed in accordance with the laws of Kansas.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers and their corporate seals to be affixed as of the day and year first above written.

IVY FUNDS, INC.
By:	/s/Henry J. Herrmann
	Henry J. Herrmann, President
	and Secretary

8

ATTEST:

By:	/s/Kristen A. Richards
	Kristen A. Richards, Secretary
		IVY FUNDS DISTRIBUTOR, INC.
		By:	/s/Thomas W. Butch
			Thomas W. Butch, President
ATTEST:
By:	/s/Daniel C. Schulte
	Daniel C. Schulte, Secretary

9

EX-10.20

Exhibit 10.20

IVY FUNDS, INC.

DISTRIBUTION AND SERVICE PLAN

FOR CLASS A, CLASS B, CLASS C, CLASS E, CLASS R AND CLASS Y SHARES

This Amended and Restated Distribution and Service Plan is adopted by Ivy Funds, Inc. (the “Company”) on behalf of each series of the Company (each, a “Fund” and collectively, the “Funds”), pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the “Act”) to provide for payment by the Company of certain expenses in connection with the: (a) distribution of the Company’s Class A shares, provision of personal services to the Company’s Class A shareholders and the service and maintenance of Class A shareholder accounts; (b) distribution of the Company’s Class B shares, provision of personal services to the Company’s Class B shareholder accounts and/or maintenance of its Class B shareholder accounts; (c) distribution of the Fund’s Class C shares and the services and maintenance of Class C shareholder accounts; (d) distribution of the Company’s Class E shares and the service and maintenance of Class E shareholder accounts; (e) distribution of each of the Ivy Large Cap Growth Fund, Ivy Mid Cap Growth Fund, Ivy Small Cap Growth Fund and Ivy Science and Technology Fund’s Class R shares and the services and maintenance of Class R shareholder accounts; and (f) distribution of the Company’s Class Y shares and the service and maintenance of Class Y shareholder accounts.

I.  CLASS A

With respect to each Fund except Ivy Money Market Fund, the Company is authorized to pay to Ivy Fund Distributors, Inc. (“IFDI”) an amount not to exceed on an annual basis 0.25 of 1% of a Fund’s average net assets of the Class A shares as either (1) a “distribution fee” to finance the distribution of the Fund’s Class A shares, (2) a “service fee” to finance shareholder servicing by IFDI, its affiliated companies, broker-dealers who may sell Class A shares and other third-parties to encourage and foster the maintenance of Class A shareholder accounts, or as a combination of the two fees.  The amounts shall be payable to IFDI daily or at such other intervals as the Board of Directors may determine.

II.  CLASS B

Distribution Fee

With respect to each Fund, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.75 of 1% of a Fund’s average net assets of its Class B shares as a “distribution fee” to finance the distribution of a Fund’s Class B shares payable to IFDI daily or at such other intervals as the Board of Directors may determine.

Service Fee

With respect to each Fund, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.25 of 1% of each Fund’s average net assets of its Class B shares as a “service fee”to finance shareholder servicing by IFDI or its affiliated companies to encourage and foster the maintenance of shareholder accounts of a Fund’s Class B shares.  The amounts shall be payable to IFDI daily or at such other intervals as the Board of Directors may determine.

III.  CLASS C

Distribution Fee

With respect to each Fund, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.75 of 1% of each Fund’s average net assets of its Class C shares as a “distribution fee” to finance the distribution of that Fund’s Class C shares payable to IFDI daily or at such other intervals as the Board of Directors may determine.

Service Fee

With respect to each Fund, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.25 of 1% of each Fund’s average net assets of its Class C shares as a “service fee” to finance shareholder servicing by IFDI or its affiliated companies to encourage and foster the maintenance of shareholder accounts of the particular Fund’s Class C shares.  The amounts shall be payable to IFDI daily or at such other intervals as the Board of Directors may determine.

I.  CLASS E

With respect to each Fund except Ivy Money Market Fund and Ivy Municipal Bond Fund, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.25 of 1% of a Fund’s average net assets of the Class E shares as either (1) a “distribution fee” to finance the distribution of the Fund’s Class E shares, (2) a “service fee” to finance shareholder servicing by IFDI, its affiliated companies, broker-dealers who may sell Class E shares and other third-parties to encourage and foster the maintenance of Class E shareholder accounts, or as a combination of the two fees.  The amounts shall be payable to IFDI daily or at such other intervals as the Board of Directors may determine.

IV.  CLASS R

Distribution and Service Fee

With respect to Ivy Large Cap Growth Fund, Ivy Mid Cap Growth Fund, Ivy Small Cap Growth Fund and Ivy Science and Technology Fund, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.50 of 1% of a Fund’s average net assets of its Class R shares as either (1) a “distribution fee” to finance the distribution of a Fund’s Class R shares or (2) a “service fee” to finance shareholder servicing by IFDI or its affiliated companies to encourage and foster the maintenance of shareholder accounts of a Fund’s Class R shares.  The amounts shall be payable to IFDI daily or at such other intervals as the Board of Directors may determine.

IV.  CLASS Y

Distribution Fee

With respect to each Fund, subject to the limitation on total plan fees set forth below, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.25 of 1% of each Fund’s average net assets of its Class Y shares as a “distribution fee” to finance the distribution of that Fund’s Class Y shares payable to IFDI daily or at such other intervals as the Board of Directors may determine.

Service Fee

With respect to each Fund, subject to the limitation on total plan fees set forth below, the Company is authorized to pay to IFDI an amount not to exceed on an annual basis 0.25 of 1% of each Fund’s average net assets of its Class Y shares as a “service fee” to finance shareholder servicing by IFDI or its affiliated companies to encourage and foster the maintenance of shareholder accounts of the particular Fund’s Class Y shares.  The amounts shall be payable to IFDI daily or at such other intervals as the Board of Directors may determine.

Limitation of Total Plan Fees

With respect to each Fund, the Company is authorized to pay both a distribution fee and a service fee to IFDI provided that the total amount of fees paid to IFDI pursuant to this Plan shall not exceed on an annual basis 0.25 of 1% of the average net assets of that Fund’s Class Y shares.

V.  NASD DEFINITION

For purposes of this Plan, the distribution fee may be considered as a sales charge that is deducted from the net assets of the applicable Class of shares of each Fund and does not include the service fee.  The service fee may be considered a payment made by the Company with respect to each Fund for personal service and/or maintenance of the shareholder accounts of the applicable Class of shares, provided, however, if the National Association of Securities Dealers, Inc. (“NASD”), adopts a definition of “service fee” for purposes of Article III Section 26(b) of its Rules of Fair Practice that differs from the definition of “service fee” as used herein, or if the NASD adopts a related definition intended to define the same concept, the definition of “service fee” as used herein shall be automatically amended to conform to the NASD definition.

VI.  QUARTERLY REPORTS

Any person authorized to direct the disposition of monies paid or payable by a Fund pursuant to the Plan or any related agreement shall provide to the Board of Directors of the Company, and the Board of Directors shall review at least quarterly, a written report of the amounts so expended of the distribution fee and the service fee paid to IFDI under this Plan with respect to each Class of shares of each Fund and the purposes for which such expenditures were made with respect to such Class of shares of each Fund.

VII.  APPROVAL OF PLAN

This Plan shall not become effective as to a Class or Fund until it has been approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the affected Class or the Fund.  With respect to the submission of the Plan for such a vote, it shall have been effectively approved with respect to a Class of shares of a Fund if a majority of the outstanding voting securities of the Class of shares of the Fund votes for approval of the Plan, notwithstanding that the matter has not been approved by a majority of the outstanding voting securities of the Company or any other Fund or Class of shares.

The Plan shall not become effective as to a Class or Fund until it has been approved by a vote of the Board of Directors of the Company and by the Directors who are not interested persons of the Company and have no direct or indirect financial interest in the operation of the Plan or any agreement related to this Plan (other than as Directors or shareholders of the Company) (“Independent Directors”) cast in person at a meeting called for the purpose of voting on such Plan and any related agreements.

VIII.  CONTINUANCE

This Plan shall continue in effect as to each Fund and each Class of shares for a period of one (1) year and thereafter from year to year only so long as such continuance is approved by the Directors, including the Independent Directors, as specified hereinabove for the adoption of the Plan by the Directors and Independent Directors with respect to that Class of shares of that Fund.

IX.  TERMINATION

This Plan may be terminated at any time by a vote of a majority of the Independent Directors as to any Fund or Class of shares by a vote of the majority of the outstanding shares of that Class or Fund without penalty.  On termination, the payment of all distribution and service fees shall cease, and the Company shall have no obligation to IFDI to reimburse it for any expenditure it has made or may make to distribute a Fund’s Class of shares or services shareholder accounts of a particular Class of shares.

X.  AMENDMENTS

This Plan may not be amended to increase materially the amount to be spent for distribution or services without approval by the shareholders of the affected Class of shares of the affected Fund, and all material amendments of this Plan must be approved in the manner prescribed for the adoption of the Plan by the Board of Directors and Independent Directors as provided hereinabove.  The distribution and service fees may, however, be reduced by action of the Board of Directors without shareholder approval.

XI.  RELATED AGREEMENTS

Any agreement related to the Plan shall be in writing and shall provide: (a) that such agreement may be terminated at any time as to a Fund or Class of shares, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the outstanding voting securities of a Fund or Class of shares, on not more than sixty (60) days’ written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment.

XII.  DIRECTORS

While this Plan is in effect, the selection and nomination of Independent Directors shall be committed to the discretion of the Independent Directors.

XIII.  RECORDS

The Company shall preserve copies of the Plan, any related agreement and any report made pursuant to paragraph VI hereof, for a period of not less than six (6) years from the date of the Plan, such agreement or report, as the case may be, the first two (2) years of which shall be in an easily accessible place.

XIV.  SEVERABILITY

The provisions of this Plan are severable with respect to each Class of shares and each Fund.

XV.  LIMITATION OF LIABILITY

It is understood and expressly stipulated that neither the holders of shares of a Fund nor any Director, officer, agent or employee of the Company shall be personally liable hereunder, nor shall any resort be

had to other private property for the satisfaction of any claim or obligation hereunder, but the Company only shall be liable.

IN WITNESS WHEREOF, the Company has adopted this Amended and Restated Distribution and Service Plan as of this 29th day of November, 2006.

IVY FUNDS, INC.

By /s/ Henry J. Herrmann

Henry J. Herrmann, President

EX-10.21

Exhibit 10.21

W&R TARGET FUNDS, INC.

SERVICE PLAN

Adopted August 21, 1998, Revised May 16, 2001

This Plan is adopted by W&R Target Funds, Inc. (the “Fund”), pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the “Act”), to provide for payment by each series (“Portfolio”) of the Fund of certain expenses in connection with the provision of personal services to the owners of variable life insurance policies or variable annuity contracts funded by Portfolio shares (“Policies”) and/or maintenance of the accounts of such Policies (“Policyowners”).  Payments under the Plan are to be made to Waddell & Reed, Inc. (“W&R”).

Service Fee

Each Portfolio is authorized to pay to W&R an amount not to exceed on an annual basis .25 of 1% of the Portfolio’s average net assets as a “service fee” to finance Policyowner servicing by W&R, its affiliated companies, broker-dealers who may sell the Portfolio’s shares and other third parties and to encourage and foster the maintenance of Policyowner accounts.  The amounts shall be payable to W&R daily or at such other intervals as the board of directors may determine.

NASD Definition

The “service fee” shall be considered a payment made by the Portfolio for personal service and/or maintenance of Policyowner accounts, as such is now defined by the National Association of Securities Dealers, Inc. (“NASD”), provided, however, if the NASD adopts a definition of “service fee” for purposes of Rule 2830 and the NASD Conduct Rules that differs from the definition of “service fee” as presently used, or if the NASD adopts a related definition intended to define the same concept, the definition of “service fee” as used herein shall be automatically amended to conform to the NASD definition.

Quarterly Reports

W&R shall provide to the board of directors of the Fund, and the board of directors shall review, at least quarterly a written report of the amounts so expended of the service fee paid or payable to it under this Plan and the purposes for which such expenditures were made.

Approval of Plan

This Plan shall become effective as to a Portfolio when it has been approved by a vote of at least a majority of that Portfolio’s outstanding voting securities (as defined in the Act) and by a vote of the board of directors of the Fund and of the directors who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or any agreement related to this Plan (other than as directors of the Fund or as Policyowners) (“independent directors”) cast in person at a meeting called for the purposes of voting on such Plan.

Continuance

This Plan shall continue in effect for a period of one (1) year and thereafter from year to year only so long as such continuance is approved by the directors, including the independent

directors, as specified hereinabove for the adoption of the Plan by the directors and independent directors.

Director Continuation

In considering whether to adopt, continue or implement this Plan, the directors shall have a duty to request and evaluate, and W&R shall have a duty to furnish, such information as may be reasonably necessary to an informed determination of whether this Plan should be adopted, implemented or continued.

Termination

This Plan may be terminated at any time by a vote of a majority of the independent directors of the Fund or, as to a Portfolio, by a vote of the majority of the outstanding voting securities of that Portfolio without penalty.  On termination, the payment of all service fees shall cease, and the Fund shall have no obligation to W&R to reimburse it for any cost or expenditure it has made or may make to service Policyowner accounts.

Amendments

This Plan may not be amended to increase materially the amount to be spent by a Portfolio for personal service and/or maintenance of Policyowner accounts without approval of the shareholders of that Portfolio, and all material amendments of this Plan must be approved in the manner prescribed for the adoption of the Plan as provided hereinabove.

Directors

While this Plan is in effect, the selection and nomination of the directors who are not interested persons of the Fund shall be committed to the discretion of the directors who are not interested persons of the Fund.

Records

Copies of this Plan and reports made pursuant to this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.

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EX-10.27

Exhibit 10.27

Summary of Compensation Arrangements With Executive Officers of the Company

I.              Named Executive Officer Compensation.  On December 13, 2007, the Compensation Committee (the “Committee”) of the Board of Directors of Waddell & Reed Financial, Inc. (the “Company”) approved the annual base salaries (effective as of January 1, 2008) of the Company’s executive officers.  The following table sets forth the annual base salaries of the Company’s Chief Executive Officer, Chief Financial Officer and the next three most highly compensated officers (collectively, the “Named Executive Officers”) for 2008:

Named Executive Officer	Salary
Henry J. Herrmann Chief Executive Officer	$1,000,000
Daniel P. Connealy Senior Vice President andChief Financial Officer	$390,000
Michael L. Avery Senior Vice President and Chief Investment Officer	$550,000
Thomas W. Butch Senior Vice President and Chief Marketing Officer	$475,000
Daniel C. Schulte Senior Vice President and General Counsel	$365,000

                The Company has adopted a Supplemental Executive Retirement Plan, as amended and restated (the “SERP”) pursuant to which participants’ accounts are credited with (1) an amount equal to 4% of his or her base salary, less the amount of the maximum employer matching contribution allowable that can be made on the participant’s behalf under the Company 401(k) and Thrift Plan, and (2) a non-formula award, as determined by the Committee in its discretion.   For 2007, the Committee designated Mr. Herrmann as a participant of the SERP and did not award him a non-formula award in 2007.  None of the other Named Executive Officers were eligible to participate in the SERP for 2007.

II.            2007 Executive Incentive Awards.    Pursuant to the Company 2003 Executive Incentive Plan, as amended and restated (the “EIP”), eligible participants may receive (1) an annual incentive award of cash, and (2) an annual incentive award of restricted stock, both based upon the annual financial performance of the Company.

A.            Cash Awards.  On December 13, 2007, the Committee authorized the payment of annual cash incentive (i.e., bonus) awards based on the Company’s financial performance for the year ended December 31, 2007 to executive officers participating in the EIP, which included Messrs. Herrmann, Connealy, Avery, Butch and Schulte.  With respect to Mr. Herrmann, the Committee authorized the payment of his annual cash incentive award based on the Company’s financial performance for the year ended December 31, 2007 in the amount of $2,400,000 on December 13, 2007 and $100,000 on February 20, 2008. These annual incentive awards were determined based on performance goals established in February 2007.  As permitted by the EIP, the Committee exercised its discretion to reduce the amount of the cash awards payable to Messrs. Herrmann, Connealy, Avery, Butch and Schulte, but in accordance with the EIP, the reductions did not increase the award amounts for any other participant.   The following table sets forth the annual cash incentive awards to the Named Executive Officers for 2007:

Named Executive Officer	Cash Award
Henry J. Herrmann Chief Executive Officer	$2,500,000
Daniel P. Connealy Senior Vice President andChief Financial Officer	$440,000
Michael L. Avery Senior Vice President and Chief Investment Officer	$1,000,000
Thomas W. Butch Senior Vice President and Chief Marketing Officer	$575,000
Daniel C. Schulte Senior Vice President and General Counsel	$440,000

Pursuant to the Company 1998 Executive Stock Award Plan, as amended and restated, eligible executives may annually convert all or a portion of their annual cash incentive award into restricted stock of the Company.  Additionally, the Compensation Committee may, in its sole discretion, direct that all or a portion of the cash incentive award payments payable under the EIP be paid in restricted stock.  For 2007, none of the Named Executive Officer converted any portion of their annual cash incentive award into restricted stock of the Company, nor did the Committee direct that any portion of their cash incentive award be paid in restricted stock.

B.            Restricted Stock Awards.  On December 13, 2007, the Committee authorized the payment of the annual incentive awards of restricted stock based on the Company’s financial performance for the year ended December 31, 2007 to executive officers participating in the EIP, which included Messrs. Herrmann, Connealy, Avery, Butch and Schulte.  These annual incentive awards were determined based on performance goals established in February 2007.  As permitted by the EIP, the Committee exercised its discretion to reduce the amount of the restricted stock awards payable to Messrs. Herrmann, Connealy, Avery, Butch and Schulte, but in accordance with the EIP, the reductions did not increase the restricted stock award amounts for any other participant.  The following table sets forth the annual restricted stock awards to the Named Executive Officers for 2007:

Named Executive Officer	Restricted Stock Award
Henry J. Herrmann Chief Executive Officer	50,000 shares
Daniel P. Connealy Senior Vice President andChief Financial Officer	30,000 shares
Michael L. Avery Senior Vice President and Chief Investment Officer	60,000 shares
Thomas W. Butch Senior Vice President and Chief Marketing Officer	50,000 shares
Daniel C. Schulte Senior Vice President and General Counsel	25,000 shares

These shares were granted on December 31, 2007 pursuant to the Company 1998 Stock Incentive Plan, as amended and restated, in accordance with the form of restricted stock agreement filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

EX-10.28

Exhibit 10.28

Summary of Board of Director Compensation Effective January 1, 2008

Annual retainer of $55,500 ($110,000 for the Chairman of the Board);

Meeting fees of $2,000/meeting;

Meeting fees of $1,500/committee meeting ($3,000/committee meeting for Committee Chairmen);

Award of 5,000 shares of restricted Class A common stock upon initial election to the Board of Directors;

After initial election, annual formula-based award of 1,500 shares of restricted stock and an additional discretionary, non-formula based award of 3,000 shares (6,000 shares for the Chairman of the Board) of restricted stock to be awarded the first trading day of January each year;

Reimbursement for travel and lodging expenses incurred in attending meetings;

Eligibility to participate in the Company’s group health insurance plan, a portion of the premiums for which are paid by the Company; and

Ability to convert annual cash compensation into restricted stock under the Company’s 1998 Non-Employee Director Stock Award Plan, as amended and restated.  The number of shares of restricted stock granted is determined based on the closing market price of the Company’s Class A common stock as of the grant date.

EX-10.33

Exhibit 10.33

STATE OF KANSAS	)
JOHNSON COUNTY	)

WADDELL & REED FINANCIAL, INC. NON-QUALIFIED STOCK OPTION

GRANT AGREEMENT

                WADDELL & REED FINANCIAL, INC., a corporation organized and existing under the laws of the state of Delaware (the “Company”), does hereby grant and give unto                                          (the “Optionee”), the following non-qualified stock options (the “Option”) upon the terms and conditions hereinafter set forth.

AUTHORITY FOR GRANT

                1.             Employee Incentive Plan.  The Option is granted under the provisions of the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as Amended and Restated (the “Plan”), as a non-qualified option and is subject to the terms and provisions of the Plan.  Capitalized terms used but not defined herein shall have the meaning given them in the Plan, which is incorporated by reference herein.

TERMS OF OPTION

                2.             Number of Shares.  In consideration of future services to the Company, the Optionee is hereby granted an option to purchase from the Company                          shares (the “Shares”) of the Company’s Class A Common Capital Stock, par value $.01.

                3.             Option Price Per Share.  The option price for each Share subject to the Option shall be $                  , the Fair Market Value per share of the Stock on          ,      (the “Grant Date”).

                4.             Option Period.  The Option shall be and become first exercisable six (6) months from the Grant Date.  Notwithstanding any other provision of this Agreement, if the Option is not exercised with respect to all Shares prior to                   , which is the expiration date of the

original Option Period for the exercised Option giving rise to the grant of this Option (the “Original Expiration Date”), it shall terminate and the parties hereto shall have no further rights or obligations hereunder.  For the purposes of this Agreement, “Option Period” shall mean the period beginning on the Grant Date and ending on the Original Expiration Date, not to exceed a ten (10) year and two (2) day period commencing on the Grant Date.

5.             Method of Exercise.  The Option may be exercised to the extent then exercisable in whole or in part at any time during the Option Period, by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Compensation Committee of the Waddell & Reed Financial, Inc. Board of Directors (the “Committee”).  Payment in full or in part may also be made in the form of Stock already owned by the Optionee (based on the fair market value of the Stock on the date the Option is exercised).  The Optionee shall have the rights to dividends or other rights of a stockholder with respect to the Shares subject to the option when the Optionee has given written notice of exercise and has paid in full for such Shares.

6.             Restoration Provision.  If payment on exercise of the Option is made in the form of Stock, and the exercise occurs on the Annual SORP Exercise Date, an additional Option (“SORP Option”) will automatically be granted to the Optionee as of the date of the Annual SORP Exercise Date, having an exercise price equal to 100% of the Fair Market Value of the Stock on the date of exercise of the Option, having a term equal to the original Option Period for the exercised Option giving rise to the grant of the SORP Option, not to exceed a maximum term of ten (10) years and two (2) days from such Annual SORP Exercise Date (subject to any forfeiture provision or shorter limitation on exercise required under the Plan), having an initial exercise date no earlier than six months after the Annual SORP Exercise Date and covering a

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number of shares of Stock equal to the number of shares of Stock used to pay the exercise price of the Option, plus the number of shares of Stock, if any, withheld or sold to cover income taxes on such exercise. “Annual SORP Exercise Date” shall mean August 1, or if August 1 is not a trading day on the New York Stock Exchange, “Annual SORP Exercise Date” shall mean the next succeeding trading day.  Notwithstanding the foregoing, the Committee may delay the Annual SORP Exercise Date to the extent it determines necessary to comply with regulatory or administrative requirements.  This Restoration Provision shall only be available to the Optionee if the Optionee is an employee or director of the Company, any Subsidiary or any Affiliate on the Annual SORP Exercise Date.  Further, the Stock used by the Optionee to exercise the Option on the Annual SORP Exercise Date must have been owned by the Optionee for a period of at least six months prior to the Annual SORP Exercise Date.  Finally, this Restoration Provision is subject to further terms and conditions contained in the SORP participant and election forms distributed to the Optionee in advance of the Annual SORP Exercise Date and to subsequent amendments to this provision as adopted by the Compensation Committee.

                7.             Transferability of Option.  The Option may be transferred by the Optionee to members of his or her Immediate Family (the children, grandchildren or spouse of the Optionee), to one or more trusts for the benefit of such Immediate Family members or to one or more partnerships where such Immediate Family members are the only partners if (i) at the Committee’s sole and absolute discretion, the Optionee has received express written approval of such transfer from the Committee (ii) the Optionee does not receive any consideration in any form whatsoever for said transfer and (iii) the transfer is not in violation of any applicable federal or state securities laws.  Except as provided in the foregoing sentence, the Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution.

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TERMINATION OF OPTION

                8.             Termination by Death.  If the Optionee’s employment with the Company, any Subsidiary or any Affiliate terminates by reason of death (or if Optionee dies following termination of employment by reason of Disability or Normal Retirement), the Option shall become immediately exercisable and may thereafter be immediately exercised by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, during the period ending on the expiration of the stated term of the Option or the first anniversary of the Optionee’s death, whichever is later.

                9.             Termination by Reason of Disability.  If the Optionee’s employment with the Company, any Subsidiary or any Affiliate terminates by reason of Disability, the Option shall be immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of the Option.

                10.           Termination by Reason of Retirement.  If the Optionee’s employment with the Company, any Subsidiary, or any Affiliate terminates by reason of Normal Retirement, the Option shall become immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of the Option.

                If the Optionee’s employment with the Company, any Subsidiary or any Affiliate terminates by reason of Early Retirement, the Option shall terminate three (3) years from the date of such Early Retirement or upon the expiration of the stated term of the Option, whichever is shorter.  In the event of Early Retirement, there shall be no acceleration of vesting of the Option and the Option may only be exercised to the extent it is or becomes exercisable prior to termination.

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                11.           Termination for Cause.  If the Optionee’s employment with the Company, any Subsidiary or any Affiliate is terminated for Cause, the Option shall be immediately forfeited to the Company upon the giving of notice of termination of employment.

                12.           Other Termination.  If the Optionee’s employment with the Company, any Subsidiary or any Affiliate is involuntarily terminated by the Optionee’s employer without Cause, the Option shall terminate three (3) months from the date of termination of employment or upon the expiration of the stated term of the Option, whichever is shorter.  If the Optionee’s employment with the Company, any Subsidiary, or any Affiliate is voluntarily terminated for any reason, the Option shall terminate one (1) month from the date of termination of employment or upon the expiration of the stated term of the Option, whichever is shorter.  In the event of involuntary termination without Cause or voluntary termination, there shall be no acceleration of vesting of the Option and the Option may only be exercised to the extent it is or becomes exercisable prior to such termination.

GENERAL TERMS AND PROVISIONS

                13.           Shares Listed on the Exchange.  The Shares for which the Option is hereby granted shall have been listed on the New York Stock Exchange at the time the Option is exercised.

                14.           Shares May be Newly Issued or Purchased.  The Shares to be delivered upon the exercise of the Option shall be made available, at the discretion of the Company, either from authorized but previously unissued Stock or from Stock held in the treasury of the Company.

                15.           Adjustment of Shares for Recapitalization.  In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate structure affecting the Stock, an equitable substitution or adjustment shall be made in the number and price of Shares subject to the Option.

5

                16.           Payment of Taxes.  The Optionee shall, no later than the date as of which the value of any portion of the Option first becomes includable in his/her gross income for Federal income tax purposes, pay to the Company, or make other arrangements satisfactory to the Committee, in its sole discretion, regarding payment of, any Federal, state, local or FICA taxes of any kind required by law to be withheld with respect to the Option.  The obligations of the Company under this Agreement shall be conditional on such payment or arrangements.

                The Optionee may elect, subject to the approval of the Committee, to satisfy his/her Federal, and where applicable, FICA, state and local tax withholding obligations arising from all awards by the reduction in an amount necessary to pay all said withholding tax obligations, of the number of Shares of stock or amount of cash otherwise issuable or payable to said Optionee upon the issuance of Shares or payment of cash in respect of an Option.

                The Company and, where applicable, its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes owed by an Optionee from any payment of any kind otherwise due to said Optionee.

                17.           Headings.  The headings contained herein are for convenience of reference only, do not constitute a part of this Grant Agreement and shall not be deemed to limit or affect any of the provisions hereof.

18.           Notices.  Any notices required by or permitted to be given to the Company under this Agreement shall be made in writing and addressed to the Secretary of the Company in care of the Company’s Legal Department, 6300 Lamar Avenue, Overland Park, Kansas 66202.  Any such notice shall be deemed to have been given when received by the Company.

                19.           Rules of Construction.  This Agreement has been executed and delivered by the Company in Kansas and shall be construed and enforced in accordance with the laws of said State, other than any choice of law rules calling for the application of laws of another

6

jurisdiction.  Should there be any inconsistency or discrepancy between the provisions of this Option and the terms and conditions of the Plan under which this Option is granted, the provisions in the Plan shall govern and prevail.  This Agreement is not an employment contract and the receipt of this Option does not give the Optionee any right to continued employment by the Company, any Subsidiary or any Affiliate for any period.

                20.           Accelerated Exercisability.  Notwithstanding Paragraph 4 above, subject to Section 13 of the Plan, upon the occurrence of a Change in Control the Option shall become immediately exerciseable and may thereafter be exercised up until expiration of the original term of the Option.

                21.           Effective Date Stock Option.  This Option has been executed this          day of                  ,       , effective as of                  ,       .

WADDELL & REED FINANCIAL, INC.
By:
	“Company”
	“Optionee”

7

EX-10.34

Exhibit 10.34

FIRST AMENDMENT TO THE
WADDELL & REED FINANCIAL, INC.
NON-QUALIFIED STOCK OPTION GRANT AGREEMENT

This First Amendment to the Waddell & Reed Financial, Inc. Non-Qualified Stock Option Grant Agreement (the “Amendment”) is made and entered into on this 7^th day of November, 2007, between Waddell & Reed Financial, Inc. (the “Company”) and the undersigned holder of options to purchase shares of the Company’s Class A Common Stock (the “Optionee”).

WHEREAS, the Company previously granted to Optionee the option identified on the attached Schedule I (the “Option”) to purchase shares of the Company’s Class A Common Stock (the “Stock”) under the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated (the “Plan”);

WHEREAS, the Company and the Optionee entered into a formal Stock Option Grant Agreement (the “Option Agreement”) evidencing each such Option; and

WHEREAS, the Company desires to amend the Option Agreement to require that the Optionee surrender the Option to the Company for a single lump sum cash payment in full settlement of the Option.

NOW THEREFORE, the Option Agreement shall be amended as follows:

1.Section 5 of the Option Agreement shall be amended and restated in its entirety to read as follows:

5.             Cash Settlement of Option.  Notwithstanding any other provision in the Option Agreement to the contrary, the Company hereby cancels the Option and on and after the date hereof the Optionee will not be entitled to exercise the Option.  The Optionee will receive in consideration for the cancellation of the Option an amount in cash equal to the product obtained, less any applicable tax withholding, by multiplying (i) the excess of the Fair Market Value of a share of Stock over the per Share purchase price of the Option, by (ii) the number of Shares subject to the Option.  The Optionee understands that the cancellation of all or a portion of the Option pursuant to this Amendment and the acceptance of the consideration set forth herein will constitute a binding agreement between the Optionee and the Company upon the terms and subject to the conditions of this Amendment.

2.The Option Agreement will terminate and be surrendered by the Optionee to the Company effective as of the date hereof.

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Amendment effective as provided above.

COMPANY:
By:	/s/ Daniel P. Connealy
	Daniel P. Connealy
	Senior Vice President and Chief Financial Officer
OPTIONEE:
/s/ Henry J. Herrmann
Henry J. Herrmann
Trustee, the Henry J. Herrmann Trust dated October 12, 1999, as amended December 21, 2001

2

SCHEDULE I

Option No.	Grant Date	Outstanding Options	Strike Price	Expiration Date
1949	08/01/2002	155,313	18.00	03/05/2008

I-1

EX-11

Exhibit 11

WADDELL & REED FINANCIAL, INC.

COMPUTATION OF EARNINGS PER SHARE

	2007		2006		2005
	(In thousands except per share data)
Net income	$	125,497	$	46,112	$	60,121
Basic weighted average shares outstanding	80,781		81,353		80,908
Diluted weighted average shares outstanding	82,824		83,212		82,045
Basic net income per share	$	1.55	$	0.57	$	0.74
Diluted net income per share	$	1.52	$	0.55	$	0.73

EX-21

Exhibit 21

Subsidiaries of the Company

Name	Jurisdiction of Incorporation or Formation
Waddell & Reed Financial Services, Inc.	Missouri
Waddell & Reed, Inc.	Delaware
Waddell & Reed Investment Management Company	Kansas
Waddell & Reed Services Company	Missouri
Waddell & Reed Development, Inc.	Delaware
Ivy Investment Management Company	Delaware
Ivy Funds Distributor, Inc.	Florida
W & R Insurance Agency, Inc.	Missouri
W & R Insurance Agency of Alabama, Inc.	Alabama
W & R Insurance Agency of Montana, Inc.	Montana
W & R Insurance Agency of Nevada, Inc.	Nevada
W & R Insurance Agency of Utah, Inc.	Utah
W & R Insurance Agency of Wyoming, Inc.	Wyoming
Unicon Agency, Inc.	New York
Unicon Insurance Agency of Massachusetts, Inc.	Massachusetts
Fiduciary Trust Company of New Hampshire	New Hampshire
Austin, Calvert & Flavin, Inc.	Texas
Legend Group Holdings, LLC	Delaware
Legend Advisory Corporation	New York
Legend Equities Corporation	Delaware
Advisory Services Corporation	Nevada
The Legend Group, Inc.	Delaware
LEC Insurance Agency, Inc.	Texas

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Waddell & Reed Financial, Inc.:

We consent to the incorporation by reference in the Registration Statements No. 333-65827 and 333-44528 on Forms S-8 and No. 333-43862 and 333-131271 on Forms S-3 of Waddell & Reed Financial, Inc. of our reports dated February 28, 2008, with respect to the consolidated balance sheets of Waddell & Reed Financial, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007; and the effectiveness of internal control over financial reporting as of December 31, 2007, which reports appear in the December 31, 2007 annual report on Form 10-K of Waddell & Reed Financial, Inc.  Our report refers to a change in method of accounting for pension plan and postretirement obligations.

Kansas City, Missouri
February 28, 2008

EX-31.1

Exhibit 31.1

I, Henry J. Herrmann, certify that:

1.I have reviewed this Annual Report on Form 10-K of Waddell & Reed Financial, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 28, 2008

/s/ Henry J. Herrmann

Henry J. Herrmann

Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Daniel P. Connealy, certify that:

1.I have reviewed this Annual Report on Form 10-K of Waddell & Reed Financial, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 28, 2008

/s/ Daniel P. Connealy

Daniel P. Connealy

Senior Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

                I, Henry J. Herrmann, Chief Executive Officer of Waddell & Reed Financial, Inc. (the “Company”) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (the “Act”), that:

1.The Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (the “Report”) dated February 29, 2008 and filed with the United States Securities and Exchange Commission on the date thereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  February 28, 2008

/s/ Henry J. Herrmann

Henry J. Herrmann

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

                I, Daniel P. Connealy, Senior Vice President and Chief Financial Officer of Waddell & Reed Financial, Inc. (the “Company”) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (the “Act”), that:

1.The Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (the “Report”) dated February 29, 2008 and filed with the United States Securities and Exchange Commission on the date thereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  February 28, 2008

/s/ Daniel P. Connealy

Daniel P. Connealy

Senior Vice President and

Chief Financial Officer