10-K

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, 2008

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, 2008 was $2.784 billion.

        Shares outstanding of each of the registrant's classes of common stock as of February 20, 2009 Class A common stock, $.01 par value: 84,930,484

DOCUMENTS INCORPORATED BY REFERENCE

        In Part III of this Form 10-K, portions of the definitive proxy statement for the 2009 Annual Meeting of Stockholders to be held April 8, 2009.

Index of Exhibits (Pages 84 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, 2008

Part I		Page
Item 1.	Business	3
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
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	45
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	49
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	49
Item 11.	Executive Compensation	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
Item 13.	Certain Relationships and Related Transactions, and Director Independence	49
Item 14.	Principal Accounting Fees and Services	49
Part IV
Item 15.	Exhibits, Financial Statement Schedules	49
SIGNATURES		50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		51
INDEX TO EXHIBITS		84

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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 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, 2008, we had $47.5 billion in assets under management and approximately 3.7 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. Our 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 those 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 focuses its 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 $23.5 billion at December 31, 2008.

        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). Assets under management acquired through this channel were $17.5 billion at the end of 2008.

        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 $6.5 billion at December 31, 2008.

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 a 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 tenth 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 financial advisors, Legend primarily serves 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, Ivy Funds Variable Insurance Porfolios, Inc. (the "Ivy Funds VIP") (renamed from W&R Target Funds, Inc. in 2008) 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 Ivy Funds VIP 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 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 64 investment professionals including a team of 27 portfolio managers who average 18 years of industry experience and 13 years of tenure with the Company. The team has 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

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companies in which they invest. With a relatively concentrated investment base, the team knows the portfolio holdings inside and out and manages them with insight and confidence. In addition, we use research provided by brokerage firms and independent outside 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, 2008
			Ending Assets		Percentage of Total
			(in millions)
Investment Style:
	Balanced & Flexible		$	14,815		31%
	Large Capitalization Growth Equities			6,530		14%
	Narrowly Diversified			5,624		12%
	Large Capitalization Core Equities			4,409		9%
	Taxable Investment Grade Fixed Income			3,583		8%
	International Equities			2,637		6%
	Small Capitalization Growth Equities			2,193		5%
	Money Market			2,065		4%
	Value Equities			1,409		3%
	Multi-Capitalization Core Equities			1,182		2%
	High Yield Fixed Income			1,087		2%
	Middle Capitalization Growth Equities			935		2%
	Tax Exempt Fixed Income			958		2%
	International Fixed Income			57		0%
		Total	$	47,484		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 like those experienced in the second half of 2008. 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 78 registered open-end mutual fund portfolios, including 21 portfolios in the Advisors Funds family, 29 portfolios in the Ivy Funds family, 25 portfolios in the Ivy Funds VIP family and three portfolios in InvestEd. The Advisors Funds, variable products offering the Ivy Funds VIP, 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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        We added one fund and five managed fund-of-funds portfolios to our product line during 2008. We launched the Ivy Global Bond fund for investors seeking a high level of current income generated from a diversified portfolio consisting of fixed-income securities of domestic and foreign issuers. We added the fund-of-funds portfolios to the Ivy Funds VIP family to help investors achieve financial objectives through a professionally developed asset allocation program and to maximize long-term total returns at a given level of risk through broad diversification among several traditional asset classes.

Other Products

        Pursuant to general agency arrangements with Nationwide and Minnesota Life, we distribute certain of their variable annuity products, which offer the Ivy Funds VIP 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 utilize our Funds. MAP includes 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 2007 along with a reintroduction of MAP, to include additional financial planning modules as a bundled offering. As of December 31, 2008, clients have $1.4 billion invested in our MAP and MAP Plus products. These assets are included in our mutual fund assets under management.

        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. Clients have $224 million invested in our SPA products as of December 31, 2008 and these assets are included in our mutual fund assets under management.

        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 Ivy Funds VIP 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

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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 seven 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 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 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 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 Ivy Funds VIP 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 Ivy Funds VIP 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, 2008 was 8.9%, compared to the industry average of 29.7%, as derived from statistics provided by the Investment Company Institute ("ICI").

        Our sales force consisted of 2,366 financial advisors, including 168 district managers and 201 district supervisors as of December 31, 2008. Eight regional vice presidents and 98 managing principals oversee this sales force, which operates out of 171 offices located throughout the United States and 306 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, 2008, our Advisors channel had approximately 540,000 mutual fund customers with an average investment of $37,000 and approximately 78,000 variable account customers with an average investment of $44,000.

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        The following table illustrates commissionable investment product sales by our financial advisors (including InvestEd) for the years ended December 31, 2008, 2007 and 2006. Sales are shown gross of 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.

		2008		2007		2006
		(in millions)
Front-end load sales		$	1,232		1,406		1,700
Variable annuity products			529		464		331
	Front-load product total		1,761		1,870		2,031
Deferred-load sales			119		134		186
Fee-based allocation products			817		628		59
	Total advisor sales	$	2,697		2,632		2,276

        As of December 31, 2008, 38% 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 advisors. 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, fully implemented in 2008, that allow us to provide our clients consolidated statements and more robust brokerage capabilities. We believe these efforts 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, $1.2 million and $994 thousand, for the years ended December 31, 2008, 2007 and 2006, respectively. Growth in this metric is important to us 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 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 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 $64.1 thousand, $64.7 thousand and $61.8 thousand for the years 2008, 2007 and 2006, 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 five 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 $17.5 billion at December 31, 2008, including $3.1 billion in assets at December 31, 2008 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.

	2008		2007		2006
	(in millions)
Sales (net of commissions)	$	15,599		9,470		4,541
Redemptions		(8,541)		(2,795)		(1,915)
Net Sales		7,058		6,675		2,626
Market Appreciation (Depreciation)		(10,980)		3,894		1,263
Ending Assets Under Management	$	17,489		21,537		10,819

        During 2008, 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 35 by year-end, and 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 wholesaling 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 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, 2008, Legend had 436 registered retirement advisors in 107 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, 2008, 2007 and 2006, Legend advisors sold $63.8 million, $74.2 million and $74.0 million of our mutual funds, respectively. For the years ended December 31, 2008, 2007 and 2006, Legend also sold $262.4 million, $363.5 million and $382.5 million, respectively, of unaffiliated mutual funds. Sales per Legend advisor were $728 thousand in 2008. Legend had $3.5 billion of client assets under administration as of December 31, 2008, including $346.0 million in our funds.

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.

        Over the past several years, we have expanded our distribution efforts in this channel by entering into additional subadvisory agreements with certain strategic partners. As part of the acquisition of MIMI's business in 2002, we entered into new subadvisory and marketing agreements extending 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 is renewable on an annual basis.

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        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.

        During the past three 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 very competititve performance record and on our disciplined investment style, which focuses on risk adjusted returns and produces consistent results over time.

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.

        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.

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        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. In 2004, we implemented compliance with Section 404 of S-OX. Our related report on internal controls over financial reporting for 2008 is included in Part I, Item 9A.

        As a publicly traded company, we are also subject to the rules of the New York Stock Exchange (the "NYSE"), the exchange on which our stock is listed, 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 broker/dealer regulation 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, 2008, 2007 and 2006, 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.

        Title III of the USA PATRIOT Act, the International Money Laundering 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.

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        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 2008 there were more than 8,800 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 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.

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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, 2008, we had 1,678 full-time employees, consisting of 893 home office employees, 139 employees of subsidiary companies in Florida and Texas, 98 managing principals, eight regional vice presidents, nine associate managers, 162 field office support personnel, and 369 district managers and district supervisors; district managers and supervisors are counted as both employees and financial advisors.

        At December 31, 2008, our sales force (excluding Legend advisors) was comprised of 2,366 financial advisors, including 1,997 financial advisors who are independent contractors and 369 district managers and district supervisors who are considered employees. Legend, which is a part of our Wholesale channel, had 436 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 NW, 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, 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 can 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.

ITEM 1A.    Risk Factors

        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 on-going 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 further withdrawing from the markets or decreasing their rate of investment, either of which could adversely affect our revenues, earnings and growth prospects to a greater extent. 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 the adverse economic environment, this may prove more difficult. Our growth rate has varied from year to year and there can be no assurance that the average growth rates sustained in recent years will continue. Further declines in the securities markets could significantly reduce future revenues and earnings. In addition, a decline in the market value of these assets could cause our clients to withdraw

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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 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 Class A common stock (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.

        An Increasing Percentage Of Our Assets Under Management Are Distributed Through Our Wholesale Channel, Which Has 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 36.8% at December 31, 2008, 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 71.9% for the year ended December 31, 2008. 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 35.5% and 18.5% for the years ended December 31, 2008 and 2007, respectively, compared to redemption rates of 8.9% and 9.1% 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 Redeem 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

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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.

        Our Financial Advisors Are Classified As Independent Contractors, And Changes To Their Classification 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.

        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 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, 2008, our total assets were approximately $775.4 million, of which approximately $221.2 million, or 29%, 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.

        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. There can be no assurances that

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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. 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.

        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, including financial reporting and accounting systems. 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 advisory 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 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 variable products, 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.

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        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 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.

        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 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.

        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.

        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 364-day revolving credit facility with various lenders providing for total loans of $175.0 million. Under this facility, the lenders may, at their option upon our request, expand the facility to $200.0 million. At February 20, 2009, there was no balance outstanding under the revolving credit facility. 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

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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.

        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

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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.

ITEM 1B.    Unresolved Staff Comments

        None.

ITEM 2.    Properties

        Our home offices lease approximately 370,000 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 630,000 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

	2008						2007
Quarter	High		Low		Dividends Per Share		High		Low		Dividends Per Share
1	$	36.08	$	27.76	$	0.19	$	27.58	$	21.91	$	0.17
2		38.00		30.88		0.19		27.69		22.74		0.17
3		35.07		21.25		0.19		29.35		21.52		0.17
4		25.27		8.57		0.19		37.65		26.71		0.17

        Year-end closing prices of our common stock were $15.46 and $36.09 for 2008 and 2007, respectively. The closing price of our common stock on February 20, 2009 was $14.43.

        According to the records of our transfer agent, we had 3,871 holders of record of common stock as of February 20, 2009. 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." We anticipate that quarterly dividends will continue to be paid.

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, 2008, we repurchased (i) 3,349,808 shares in the open market and privately at an aggregate cost, including commissions, of $93.0 million, (ii) 44,011 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) 2,704 newly issued shares from SORP participants to cover their statutory minimum tax withholdings on option exercises, and (iv) 430,145 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 2008 was $12.2 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.

20

        The following table sets forth certain information about the shares of common stock we repurchased during the fourth quarter of 2008.

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		467,690	$    15.18	467,690	n/a (1)
November 1 - November 30		108,272	10.92	108,272	n/a (1)
December 1 - December 31		172,505	12.65	172,505	n/a (1)
	Total	748,467	$    13.98	748,467

(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 2008, all stock repurchases were made pursuant to the repurchase program, including 105,359 shares, reflected in the table above, that were purchased in connection with funding employee income tax withholding obligations arising from the vesting of nonvested shares.

21

Total Return Performance

Comparison of Cumulative Total Return

The above graph compares the cumulative total stockholder return on the Company's Class A common stock from December 31, 2003 through December 31, 2008, with the cumulative total return of the Standard & Poor's 500 Stock Index and the SNL Asset Manager Index. The SNL Asset Manager Index is a composite of 32 publicly traded asset management companies (including, among others, the companies in the peer group reviewed by the Compensation Committee for executive compensation purposes) prepared by SNL Financial, Charlottesville, Virginia. The graph assumes the investment of $100 in the Company's class A common stock and in each of the two indices on December 31, 2003 with all dividends being reinvested. The closing price of the Company's Class A common stock on December 31, 2003 (the last trading day of the year) was $23.46 per share. The stock price performance on the graph is not necessarily indicative of future price performance.

Index	12/31/03	12/31/04	12/31/05	12/31/06	12/31/07	12/31/08
Waddell & Reed Financial, Inc.	$100.00	$104.50	$94.53	$126.71	$171.40	$76.20
SNL Asset Manager	$100.00	$130.47	$165.93	$192.43	$219.04	$104.10
S&P 500	$100.00	$110.88	$116.33	$134.70	$142.10	$89.53

Cumulative Total Return assumes an initial investment of $100 on December 31, 2003, with the reinvestment of all dividends through December 31, 2008.

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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,
		2008 (1)		2007		2006 (2)		2005 (3)		2004
		(in thousands, except per share data and number of financial advisors)
Revenues from:
	Investment management fees	$	399,863		372,345		311,525		267,681		240,282
	Underwriting and distribution fees		416,762		371,085		317,458		272,590		252,883
	Shareholder service fees		102,495		94,124		89,672		81,809		76,522
	Total revenues		919,120		837,554		718,655		622,080		569,687
Net income			96,163		125,497		46,112		60,121		102,165
	per common share—basic		1.17		1.55		0.57		0.74		1.27
	per common share—diluted		1.15		1.52		0.55		0.73		1.25
Dividends declared per common share		$	0.76		0.68		0.60		0.60		0.60
Advisor and productivity data (excluding Legend):
	Investment product sales (4)	$	2,696,910		2,632,411		2,276,405		1,901,356		1,811,960
	Number of financial advisors (end of period)		2,366		2,293		2,255		2,409		2,623
	Average number of financial advisors		2,297		2,190		2,290		2,453		2,556
	Investment product sales per advisor	$	1,174		1,189		994		776		709
Wholesale channel data:
	Sales (net of commissions)	$	15,598,998		9,469,932		4,541,812		2,346,749		1,375,222
	Number of wholesalers		35		34		26		23		19
Institutional channel sales		$	2,358,104		1,882,908		968,106		654,333		1,276,614

		As of December 31,
		2008		2007		2006		2005		2004
		(in millions)
Assets under management		$	47,484		64,868		48,401		41,863		38,658
Balance sheet data:
	Goodwill and identifiable intangible assets		221.2		228.4		228.4		250.3		250.3
	Total assets		775.4		893.8		662.7		632.3		619.9
	Short-term debt		-		-		-		1.7		35.0
	Long-term debt		200.0		200.0		199.9		198.2		202.9
	Total liabilities		455.3		512.1		418.0		384.9		401.0
	Stockholders' equity		320.1		381.7		244.7		247.4		218.9

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(1)

Includes a pre-tax charge of $16.5 million ($10.5 million net of tax) for restructuring charges consisting primarily of severance costs associated with our voluntary separation program as well as costs associated with terminating various projects under development; a charge of $7.2 million (not deductible for income tax purposes) to recognize the impairment of goodwill associated with ACF; additional amortization of our deferred acquisition cost asset of $6.5 million ($4.1 million net of tax) due to significant asset redemption activity and our review of the recoverability of our deferred sales commission asset; and a pre-tax charge of $2.1 million ($1.4 million net of tax) related to the settlement of miscellaneous litigation and other matters.

(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; 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.

(3)

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.

(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 contains "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, which reflect the current views and assumptions of management with respect to future events regarding our business and the industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to revenues and earnings, the amount and composition of assets under management, distribution sources, expense levels, redemption rates and the financial markets and other conditions. These statements are generally identified by the use of words such as "may," "could," "should," "would," "believe," "anticipate," "forecast," "estimate," "expect," "intend," "plan," "project," "outlook," "will," "potential" and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance. 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 in the relative investment performance of our products, our inability to pay future dividends, the loss of existing distribution channels or the inability to access new ones, a reduction of the assets we manage on short notice, and adverse results of litigation and/or arbitration. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

        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.

Expense Drivers

        Our major expenses are underwriting and distribution-related commissions, employee compensation, amortization of deferred sales commissions, subadvisory fee expenses and information technology expense.

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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 Advisors channel sales force of independent financial advisors or through our Wholesale channel, which includes third-parties such as other broker/dealers, registered investment advisors (including the retirement advisors of Legend) and various retirement platforms. We also market our investment advisory services to institutional investors, either directly or through consultants, in our Institutional channel.

        In the Advisors channel, our sales force consists of 2,366 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 35 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.

Market Developments

        During the past fiscal year, we operated in a period of high volatility in the financial markets. Over the twelve month period the Dow Jones Industrial Average declined 34% and the Standard & Poor's 500 Index declined 38%. Almost every class of financial assets experienced significant price declines and high volatility. Although the U.S. government took steps to stabilize the financial markets and the banking system and ensure continued availability of commercial and consumer credit, the economic outlook remains uncertain and we anticipate a challenging business climate in the year ahead.

Consequences of Market Developments

        Due to our assets under management at year-end being substantially less than our average assets under management for the year, we will likely experience a significant decline in revenues in 2009 unless market conditions improve.

        We took steps in the fourth quarter of 2008 to manage our expenses in response to current market conditions; however, we expect our net income and operating margins may be adversely affected, especially in the near future.

        During the fourth quarter of 2008 we offered a voluntary separation program to our employees that included enhanced severance benefits. A total of 169 employees accepted the program, which for most was effective by December 31, 2008. Related to this program, we recorded a restructuring charge of $16.5 million in general and administrative expenses. The restructuring charge includes $0.7 million for termination of various projects under development. We also reversed $7.9 million of previously recorded bonus accruals to reflect lower bonus awards for 2008.

        Due to significant asset redemption activity and our review of the recoverability of our deferred sales commission assets in the fourth quarter of 2008, we recorded $6.5 million in additional amortization ($0.7 million related to Class B shares and $5.8 million related to Class C shares), partially offset by higher CDSC revenue received during the fourth quarter as a result of higher redemption activity.

        Based on a review of goodwill and intangibles in the fourth quarter, we recorded a goodwill impairment charge of $7.2 million related to ACF based on declines in ACF's assets under management and the related adverse impact on its earnings potential.

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Assets Under Management

        Assets under management of $47.5 billion on December 31, 2008 were 27% lower than the $64.9 billion reported a year earlier primarily due to market depreciation of $25.4 billion. Almost 90% of the year's market depreciation occurred during the last six months of the year. Net sales of $7.8 billion ($7.1 billion of which was generated by the Wholesale channel) partially offset market declines and increased redemptions.

Change in Assets Under Management (1)

	Advisors Channel		Wholesale Channel		Institutional Channel		Total
	(in millions)
December 31, 2008
Beginning Assets	$	34,562		21,537		8,769		64,868
Sales (net of commissions)		3,724		15,599		2,359		21,682
Redemptions		(3,771)		(8,541)		(1,561)		(13,873)
Net Sales		(47)		7,058		798		7,809
Net Exchanges		(150)		145		-		(5)
Reinvested Dividends and Capital Gains		325		(271)		119		173
Net Flows		128		6,932		917		7,977
Market Depreciation		(11,218)		(10,980)		(3,163)		(25,361)
Ending Assets	$	23,472		17,489		6,523		47,484
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

(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.

27

        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 13% as compared to 2007. However, average assets under management for the fourth quarter of 2008 were $48.4 billion, a 23% decrease from the fourth quarter average of $62.5 billion in 2007. The significant decline in our assets under management which took place in the second half of 2008 will continue to drive down our average assets under management if market conditions do not improve.

Average Assets Under Management

			2008				2007				2006
			Average		Percentage of Total		Average		Percentage of Total		Average		Percentage of Total
			(in millions, except percentage data)
Distribution Channel:
	Advisors Channel
		Equity	$	24,201		80%		27,048		84%		23,821		84%
		Fixed income		4,490		15%		4,154		13%		3,901		14%
		Money market		1,428		5%		1,046		3%		798		2%
	Total		$	30,119		100%		32,248		100%		28,520		100%
	Wholesale Channel
		Equity	$	23,268		98%		14,395		97%		8,499		95%
		Fixed income		413		2%		380		3%		344		4%
		Money market		152		0%		64		0%		70		1%
	Total		$	23,833		100%		14,839		100%		8,913		100%
	Institutional Channel
		Equity	$	7,445		93%		7,199		92%		7,120		92%
		Fixed income		584		7%		614		8%		624		8%
		Money market		-		-		-		-		-		-
	Total		$	8,029		100%		7,813		100%		7,744		100%
Total by Asset Class:
		Equity	$	54,914		89%		48,642		89%		39,440		87%
		Fixed income		5,487		9%		5,148		9%		4,869		11%
		Money market		1,580		2%		1110		2%		868		2%
	Total		$	61,981		100%		54,900		100%		45,177		100%

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        The following table summarizes our five largest mutual funds as of December 31, 2008 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

			2008				2007				2006
			Ending		Percentage of Total		Ending		Percentage of Total		Ending		Percentage of Total
			(in millions, except percentage data)
By Assets Under Management:
	Ivy Asset Strategy		$	10,430		22%		8,419		14%		2,008		4%
	Ivy Global Natural Resources			2,618		5%		8,464		15%		4,519		9%
	Advisors Asset Strategy			2,411		5%		3,118		5%		1,899		4%
	Advisors Core Investment			2,377		5%		4,240		7%		4,155		9%
	Advisors Science & Technology			1,670		4%		2,851		5%		2,521		5%
		Total	$	19,506		41%		27,092		46%		15,102		31%
			(in thousands, except percentage data)
By Management Fees:
	Ivy Asset Strategy		$	71,957		18%		24,802		7%		7,094		2%
	Ivy Global Natural Resources (1)			56,247		14%		50,944		14%		31,454		10%
	Advisors Core Investment			21,053		5%		25,861		7%		25,635		8%
	Advisors Asset Strategy			19,966		5%		15,696		4%		10,654		3%
	Advisors Science & Technology			19,202		5%		22,310		6%		20,676		7%
		Total	$	188,425		47%		139,613		38%		95,513		30%

(1)

For the years ended December 31, 2008, 2007 and 2006, we paid subadvisory fees of $28.8 million, $25.6 million and $15.8 million, respectively, to MFC for subadvisory services. The subadvisory agreement with MFC is renewable on an annual basis.

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Results of Operations

Fourth Quarter 2008

        Due to the effects of the negative market developments summarized earlier, we experienced a significant decline in assets under management and associated revenues concentrated in the last six months of 2008. These declines were a contributing factor to several actions taken by the company during the fourth quarter which resulted in one-time charges to our income statement. The table below details the components of operating income for the quarters ended December 31, 2008 and 2007. Significant changes to individual line items are summarized below.

		For the Quarter Ended December 31,				Variance
		2008		2007		2008 vs. 2007
		(in thousands, except percentage data)
Investment management fees		$	76,397		105,296		-27%
Underwriting and distribution fees			89,343		106,345		-16%
Shareholder service fees			25,304		24,476		3%
	Total revenues		191,044		236,117		-19%
Underwriting and distribution			114,164		122,745		- -7%
Compensation and related costs			21,140		31,901		-34%
General and administrative			32,894		13,819		138%
Subadvisory fees			5,385		12,532		-57%
Depreciation			3,481		3,140		11%
Goodwill impairment			7,222		-		NM
	Total operating expenses		184,286		184,137		0%
Operating income		$	6,758		51,980		-87%

        Investment management fee revenue declined due to an average asset decline in the fourth quarter of 2008 of 23% compared to last year's fourth quarter. A lower effective management fee rate (62.8 basis points in the current quarter compared to 66.9 basis points in the fourth quarter of 2007) also impacted revenues. The decline in rate is due to a mix-shift in assets under management to lower fee products. A significant decrease in underwriting and distribution fee revenue of $14.0 million occurred in the Advisors channel compared to the same period last year, primarily due to lower Rule 12b-1 asset-based service and distribution fees based on a decline in average assets under management. The decrease was partially offset by increased revenues related to the sale of insurance products of $1.7 million and fee-based asset allocation products of $1.4 million. CDSC revenues also increased $2.7 million in the Wholesale channel compared to the prior year due to higher redemptions in 2008.

        Due to significant asset redemption activity and our review of the recoverability of our deferred sales commission assets in the fourth quarter of 2008, we recorded $6.5 million in additional amortization ($0.7 million related to Class B shares and $5.8 million related to Class C shares), partially offset by higher CDSC revenue recorded during the fourth quarter based on higher redemptions. Amortization of deferred sales commission assets is included in Underwriting and distribution expense in the statements of income.

        Compensation and related costs were lower in this year's fourth quarter primarily due to the reversal of previously accrued bonuses of $7.9 million and an overall lower bonus pool in 2008 to reflect current market and economic conditions. General and administrative expenses increased significantly due to the

30

restructuring charge of $16.5 million. Subadvisory fees declined due to the decline in subadvised average assets under management ($5.0 billion in the fourth quarter of 2008 compared to $12.0 billion in the same quarter last year). We also recorded a goodwill impairment charge of $7.2 million in this year's fourth quarter related to ACF based on declines in ACF's assets under management and the related adverse impact on its earnings potential.

        Our available for sale investment portfolio had unrealized losses of $6.2 million as of December 31, 2008. If market conditions persist and the decline in value is determined to be other than temporary, it is possible that future periods could include the realization of these losses as a charge to net income.

Fiscal Year 2008

Net Income

		For the Year Ended December 31,						Variance
		2008		2007		2006		2008 vs. 2007		2007 vs. 2006
		(in thousands, except percentage data)
Net Income		$	96,163		125,497		46,112		-23%		172%
Earnings per share:
	Basic	$	1.17		1.55		0.57		-25%		172%
	Diluted	$	1.15		1.52		0.55		-24%		176%
Operating Margin			18%		23%		12%		-5%		11%

        We reported net income of $96.2 million, or $1.15 per diluted share, in 2008 compared to $125.5 million, or $1.52 per diluted share in 2007 and $46.1 million, or $0.55 per diluted share in 2006.

        Operating results for 2008 include a restructuring charge of $16.5 million, a goodwill impairment charge of $7.2 million related to our subsidiary ACF based on declines in ACF's assets under management and the related adverse impact on its earnings potential and $6.5 million in additional amortization to reduce our deferred acquisition cost asset.

        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 ACF based on 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, 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.

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Total Revenues

        Total revenues increased 10% and 17% for the fiscal years 2008 and 2007, respectively, attributable to growth in average assets under management of 13% and 22% for the two years.

		For the Year Ended December 31,						Variance
		2008		2007		2006		2008 vs. 2007		2007 vs. 2006
		(in thousands, except percentage data)
Investment management fees		$	399,863		372,345		311,525		7%		20%
Underwriting and distribution fees			416,762		371,085		317,458		12%		17%
Shareholder service fees			102,495		94,124		89,672		9%		5%
	Total revenues	$	919,120		837,554		718,655		10%		17%

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 $27.5 million, or 7%, in 2008 and $60.8 million, or 20%, in 2007.

        Revenues from investment management services provided to our retail mutual funds, which are distributed through the Advisors and the Wholesale channels, were $364.7 million in 2008 and increased $31.9 million, or 10%, compared to 2007, while the related retail average assets increased 15%. 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 2007 were 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 $332.8 million in 2007 and increased $62.6 million, or 23%, compared to 2006, while the related retail average assets increased 26%. Retail sales in 2008 and 2007 were $19.3 billion and $13.0 billion, respectively, representing a 48% and 68% increase over sales in 2007 and 2006, respectively, with the majority of the growth in retail sales occurring in our Wholesale channel.

        Institutional and separate account revenues were $35.2 million, $39.5 million and $41.3 million in 2008, 2007 and 2006, respectively. The decrease in account revenues in 2008 was primarily attributable to a management fee rate decrease on certain institutional accounts. 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.

        Long-term redemption rates (which exclude money market fund redemptions) in the Advisors channel improved to 8.9% in 2008 compared to 9.1% and 9.2% in 2007 and 2006, respectively. In the Wholesale channel, long-term redemption rates were 35.5% in 2008, an increase from 18.5% in 2007 and 21.0% in 2006. The Wholesale channel's elevated rate in 2008 is a direct consequence of the volatility in the financial markets which occurred during the second half of the year and includes a 75.2% fourth quarter redemption rate. 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 19.4% in 2008 compared to 27.2% in 2007 and 22.6% in 2006. The higher institutional redemption rate in 2007, which is based on total

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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.

Underwriting and Distribution Fee Revenues and Expenses

        The following tables illustrate our underwriting and distribution fee revenues and expenses segregated by distribution channel for the years ended December 31, 2008, 2007 and 2006:

		Total
		2008		2007		2006		2008 vs. 2007		2007 vs. 2006
		(in thousands, except percentage data)
Revenue		$	416,762		371,085		317,458		12%		17%
Expenses:
	Direct		361,005		300,929		244,454		20%		23%
	Indirect		135,817		121,345		112,084		12%		8%
Total Expenses			496,822		422,274		356,538		18%		18%
Net Underwriting & Distribution		$	(80,060)		(51,189)		(39,080)		-56%		-31%

		Advisors Channel
		2008		2007		2006		2008 vs. 2007		2007 vs. 2006
Revenue		$	235,343		238,210		225,313		-1%		6%
Expenses:
	Direct		163,183		163,513		154,580		0%		6%
	Indirect		92,384		84,777		82,337		9%		3%
Total Expenses			255,567		248,290		236,917		3%		5%
Net Underwriting & Distribution		$	(20,224)		(10,080)		(11,604)		-101%		13%

		Wholesale Channel
		2008		2007		2006		2008 vs. 2007		2007 vs. 2006
Revenue		$	181,419		132,875		92,145		37%		44%
Expenses:
	Direct		197,822		137,416		89,874		44%		53%
	Indirect		43,433		36,568		29,747		19%		23%
Total Expenses			241,255		173,984		119,621		39%		45%
Net Underwriting & Distribution		$	(59,836)		(41,109)		(27,476)		-46%		-50%

        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. A portion 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. The remainder of 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

33

third party intermediaries, asset-based fees earned on our asset allocation products, and commissions earned on the sale of other insurance products.

        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, its relatively small size and the fact that there are no Rule 12b-1 fees, loads, CDSCs, or any other charges to separate account clients except investment management fees. We recover certain of our underwriting and distribution costs through Rule 12b-1 service and distribution fees, which are paid by the Funds. We also have Rule 12b-1 service and/or distribution plans for the Ivy Funds, Ivy Funds VIP, InvestEd and Advisor Funds. All Rule 12b-1 service and distribution fee revenue received from the Funds is recorded on a gross basis.

        Underwriting and distribution revenues increased by $45.7 million, or 12%, in 2008 compared to 2007. A majority of the increase in revenues was due to higher Rule 12b-1 asset-based service and distribution fees of $36.7 million as a result of an increase in average mutual fund assets under management. Additionally, revenues from fee-based asset allocation products increased $11.5 million. CDSC revenues increased in the Wholesale channel by $4.9 million due to higher redemptions in 2008, concentrated in the second half of the year. Revenue on front-load product sales sold in the Wholesale channel increased by $3.0 million but decreased in the Advisors channel by $4.5 million. Financial planning revenues decreased by $1.6 million. Lower advisory fees, Rule 12b-1 service fee revenues and point of sale commissions earned by Legend decreased revenue by $6.9 million compared to the prior year as their assets under administration decreased from $5.1 billion at the beginning of 2008 to $3.5 billion at the end of the year.

        Underwriting and distribution revenues increased by $53.6 million, or 17%, in 2007 compared to 2006. 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 expenses increased by $74.5 million, or 18%, in 2008, when compared with the prior year. A majority of this increase was attributed to higher direct expenses in the Wholesale channel of $60.4 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. In 2008, based on significant asset redemption activity in the latter part of the year and our review of the recoverability of our deferred sales commission assets, we recorded $6.5 million in additional amortization ($0.7 million related to Class B shares and $5.8 million related to Class C shares). This additional expense was partially offset by higher

34

CDSC revenue of $2.0 million received in the fourth quarter due to higher redemptions. Direct expenses in the Advisors channel remained largely unchanged due to higher amortization expense of deferred sales commissions of $1.8 million and higher Rule 12b-1 asset-based service and distribution commissions of $1.4 million, offset by lower point of sale commissions on front-load product sales of $2.6 million and a $1.2 million decrease in financial planning fee expenses. The increase in indirect expenses in the Advisors channel of $7.6 million was due to increased convention, employee compensation and benefits, information technology and field office expenses. The indirect expenses increase of $6.9 million in the Wholesale channel was driven by higher costs associated with developing our non-proprietary distribution outlets. These costs include a $4.2 million increase for higher marketing costs for promotion and distribution of our products through the Wholesale channel based on higher sales volume and a $2.7 million increase in compensation expenses, partially due to adding more wholesalers during the year.

        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 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.

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 2008 and 2007, shareholder service fee revenue increased by 9% and 5%, respectively, compared to 16% and 10% increases each year in the average number of accounts. The average number of shareholder accounts grew to 3.56 million in 2008 compared to 3.06 million in 2007 and 2.79 million in 2006. 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 $110.9 million, or 17%, in 2008 compared to 2007 primarily due to increased underwriting and distribution expense, a $16.5 million restructuring charge recorded in general and administrative and a goodwill impairment charge in the current year.

        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. Underwriting and distribution expenses are discussed above.

		For the Year Ended December 31,						Variance
		2008		2007		2006		2008 vs. 2007		2007 vs. 2006
		(in thousands, except percentage data)
Underwriting and distribution		$	496,822		422,274		356,538		18%		18%
Compensation and related costs			119,057		115,905		110,101		3%		5%
General and administrative			76,370		48,487		100,604		58%		-52%
Subadvisory fees			41,122		43,844		30,758		-6%		43%
Depreciation			13,198		12,412		11,725		6%		6%
Goodwill impairment			7,222		-		20,000		NM		NM
	Total operating expenses	$	753,791		642,922		629,726		17%		2%

Compensation and Related Costs

        Compensation and related costs in 2008 increased $3.2 million, or 3%, compared to 2007. Base salaries and payroll taxes contributed $6.3 million to the increase, primarily due to an increase in average headcount of 8.3% and annual merit increases during the current year. The voluntary separation program was effective for a majority of the 169 participants as of December 31, 2008; therefore, we expect compensation expense in 2009 will be reduced from 2008 levels. Share-based compensation accounted for $5.3 million of the increase primarily due to higher amortization expense associated with our April 2007, December 2007 and April 2008 grants of nonvested stock compared to grants that became fully vested in 2008. Group insurance costs increased $1.9 million compared to 2007 based on unfavorable claims experience. These expense increases were offset by decreased incentive compensation expense of $7.5 million and increased capitalized software development activities of $2.3 million, primarily due to technology initiatives associated with expansion of our brokerage capabilities and lower pension and savings plan costs of $1.2 million based on favorable investment returns on our pension assets experienced during 2007.

        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 2007. 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 that 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.

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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.

        General and administrative expenses increased $27.9 million in 2008 compared to 2007. Fiscal year 2008 included a $16.5 million restructuring charge related to the voluntary separation of 169 employees and the termination of various projects under development. The $16.5 million charge was comprised of $15.0 million in employee compensation and other benefit costs, $795 thousand for accelerated vesting of nonvested stock and $717 thousand in project development costs, including $500 thousand for the early termination of a contract. We also recorded a $1.6 million charge for the settlement of miscellaneous litigation. Excluding these charges, general and administrative expenses increased $9.5 million compared to 2007. Higher costs for third party subaccounting, networking fees and computer services were primarily responsible for the current year increase.

        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.

Goodwill Impairment

        Due to the decline in the financial markets during the second half of 2008, we performed a review of goodwill and intangibles in the fourth quarter. We recorded an impairment charge of $7.2 million related to ACF goodwill based on declines in ACF's assets under management and the related adverse impact on its earnings potential. All goodwill related to ACF has now been written off.

        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 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.

        Subadvisory expenses for the years ended 2008, 2007 and 2006 were $41.1 million, $43.8 million and $30.8 million, respectively, while subadvised average assets under management were $10.2 billion, $10.4 billion and $7.1 billion for the years ended December 31, 2008, 2007 and 2006, 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. Subadvised assets under management at December 31, 2008 dropped to $4.8 billion. Since subadvisory expenses are a function of sales, redemptions and market action for subadvised assets, the lower asset base will likely result in a significant decrease to subadvisory expenses for the coming year. Subadvisory revenues will also decrease in 2009 based on the lower asset base. Revenues earned on the Ivy Global Natural Resources fund, which accounted for approximately 70% of our subadvisory fee revenues in 2008, are expected to decrease over 50% in 2009.

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Other Income and Expenses

Investment and Other Income

        Investment and other income for 2008 decreased by $13.3 million compared to 2007. Mark-to-market adjustments to our trading portfolio accounted for $6.4 million of the decline. Losses in our trading portfolio were $5.5 million compared to gains of $900 thousand in 2007. There were no gains from the sale of available-for-sale mutual fund holdings in 2008 compared to $3.6 million in gains recorded on sales in 2007. Lower effective interest rates on cash and short-term investments in 2008, partially offset by higher average balances, also resulted in a reduction to investment income of $3.3 million.

        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.

Interest Expense

        Interest expense increased $0.2 million in 2008 compared to the prior year due to increased costs associated with our $175.0 million credit facility which was renewed in October 2008.

        Interest expense decreased $0.3 million in 2007 compared to the prior year due to the refinancing of $200.0 million in senior notes in January of 2006, which had a lower interest rate than the old notes.

Income Taxes

        Our effective income tax rate was 38.5%, 37.0% and 48.3% in 2008, 2007 and 2006, respectively. The effective tax rate in 2008 increased compared to 2007 primarily as a result of the non-deductible goodwill impairment charge recorded during 2008. Our 2008 effective tax rate, removing the effect of this non-deductible charge, would have been 36.8%. The effective income tax rate, exclusive of the non-deductible goodwill impairment, decreased slightly in 2008 over that of 2007 due to the Company generating larger state tax incentives in 2008 than those generated in 2007. The lower effective tax rate in 2007 as compared to 2006 was mainly a result of the non-deductible goodwill impairment charge and non-deductible fines recorded during 2006. The 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 slight increase in the 2007 rate as compared to the 2006 rate, excluding non-deductible charges and state tax incentives, was due to changes in state legislation in jurisdictions in which the Company operates.

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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
	2008		2007		2006		2008 vs. 2007		2007 vs. 2006
	(in thousands, except percentage data)
Balance Sheet Data:
Cash and cash equivalents	$	210,328		263,914		163,887		-20%		61%
Cash and cash equivalents - restricted		48,713		99,886		32,629		-51%		206%
Investment Securities		58,684		50,913		48,129		15%		6%
Long-term debt		199,969		199,955		199,942		0%		0%
Cash Flow Data:
Operating cash flows		124,377		128,111		93,011		-3%		38%
Investing cash flows		(24,429)		(5,146)		(2,332)		375%		121%
Financing cash flows		(153,534)		(22,938)		(63,486)		-569%		64%

        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. We continue to invest in our Advisors channel by providing additional support to our advisors through training opportunities, wholesaling efforts and enhanced technology tools.

Pay Dividends

        The Board of Directors approved increases 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 and from $.17 per share to $.19 per share beginning with our first quarter 2008 dividend, paid on May 1, 2008. Dividends on our common stock resulted in financing cash outflows of $63.7 million, $55.4 million and $50.6 million in 2008, 2007 and 2006, respectively.

Repurchase Our Stock

        In 2008, we repurchased 3.3 million of our shares, compared to 2.4 million shares and 1.1 million shares in 2007 and 2006, respectively. In the future, we plan to repurchase shares, at a minimum, to offset dilution from shares issued for employee share plans. Additionally, during 2009 we expect to repurchase approximately 374,000 shares from employees who elect to tender shares to cover their minimum tax withholdings arising from the vesting of nonvested shares.

Operating Cash Flows

        Cash from operations is our primary source of funds and decreased slightly in the current year. Increased revenues combined with higher non-cash amortization of deferred sales commissions and higher

39

non-cash share-based compensation expense partially offset the impact of considerably lower net earnings in 2008 compared to 2007.

        We anticipate that our 2009 contribution to our Pension Plan will be made from cash generated from operations and will be in the range from $7.0 to $12.0 million.

Investing Cash Flows

        Investing activities consist primarily of the purchase and sale of available-for-sale investment securities, as well as capital expenditures. We expect our 2009 capital expenditures to decline based on completion of our home office facilities renovation, initiated in 2007. A portion of the renovation was a contractual obligation under our operating agreement.

Financing Cash Flows

        As noted previously, dividends and stock repurchases accounted for a majority of our financing cash outflows in 2008. An increase in our stock price during 2007 resulted in substantial stock option exercises, and cash provided by stock option exercises was $84.6 million for that year.

        On January 13, 2006, we issued $200.0 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 $200.0 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.

        The Company entered into a 364-day revolving credit facility (the "Credit Facility") with various lenders, effective October 6, 2008, which initially provides for borrowings of up to $175.0 million and replaced the Company's previous three-year revolving credit facility. Lenders could, at their option upon the Company's request, expand the facility to $200.0 million. During 2008 and at December 31, 2008 there were no borrowings outstanding under the Credit Facility. Borrowings under the Credit Facility bear interest at various rates including adjusted LIBOR or an alternative 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 2008.

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 2009. 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, 2008, 2007 and 2006 totaled $69.5 million, $49.6 million and $19.6 million, respectively. The primary driver of the increase in 2008 was Class C shares, for which $40.3 million of commissions were funded in 2008. 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 may exceed the level

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experienced in previous years due to increased sales in our fee-based asset allocation products and 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, 2008. 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	2009	2010- 2011	2012- 2013	Thereafter/ Indeterminate
	(in thousands)
Long-term debt obligations, including interest	$227,969	11,200	216,769	-	-
Non-cancelable operating lease commitments	72,039	17,703	27,215	15,810	11,311
Purchase obligations	124,170	39,006	55,560	26,332	3,272
Unrecognized tax benefits	4,903	1,094	-	-	3,809
	$429,081	69,003	299,544	42,142	18,392

        Other possible long-term discretionary uses of cash could include capital expenditures for enhancement of technology infrastructure and home office expansion, 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.

Accounting for Goodwill and Intangible Assets

        As of December 31, 2008, our total goodwill and intangible assets were $221.2 million, or 29%, 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 that 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

41

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 2008 and 2007, the Company settled five open tax years and two open tax years, respectively, that were undergoing audit by state jurisdictions 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 that 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, 2008, 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. The carryforwards, if not utilized, will expire between 2009 and 2028. 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 has been established at December 31, 2008, December 31, 2007 and December 31, 2006. 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.

Pension 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

42

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.

        We continue to utilize a discount rate for our pension and postretirement plans of 6.75%. In 2007, to reflect market interest rates, we increased the discount rate for our plans to 6.75% from the 6.0% used in 2006. We continue to assume long-term asset returns of 7.75% on the assets in our pension plan, the same as our assumption in 2007 and 2006. 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 41% large cap growth, 38% asset strategy, 10% core plus fixed income, 9% science and technology and 2% cash. Our targeted allocation percentages are 40% large cap growth, 35% asset strategy, 13% core plus fixed income, 10% science and technology and 2% cash.

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

		December 31, 2008	December 31, 2009
Assumptions	Change	Increase (Decrease) PBO/APBO (1)	Increase (Decrease) Expense (2)
		(in thousands)
Pension
Discount rate	+/-50 bps	$(4,632)/5,024	$(526)/566
Expected return on assets	+/-50 bps	N/A	(388)/388
OPEB
Discount rate	+/-50 bps	(241)/261	(20)/19
Health care cost trend rate	+/-100 bps	511/(444)	92/(78)

(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 CDSCs 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

43

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.

Accounting Pronouncements

        In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We do not expect material changes to our basic earnings per share calculations in 2009. All prior-period earnings per share data presented must be adjusted retrospectively to conform to the provisions of this standard. There will be no change to our quarterly and annual basic earnings per share information for prior periods due to the adoption of this standard; however, the impact on quarterly and annual basic earnings per share is expected to be immaterial through 2008.

        In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. It is not expected that the provisions of SFAS No. 162 will have an impact on the Company's results of operations or financial position.

        In April 2008, the FASB issued FSP SFAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP SFAS 142-3"). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets." FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008. 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 issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51" ("SFAS No. 160"). This standard 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.

        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

44

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.

Seasonality and Inflation

        We do not believe our operations are subject to significant seasonal fluctuation. 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; however, the fourth quarter of 2008 did not reflect increased sales activity. 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, 2008. On January 13, 2006, we issued $200.0 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 $200.0 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 $100.0 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 considered these swaps to be completely effective cash flow hedges under SFAS No. 133,"Accounting for Derivative Instruments and Hedging Activities." As of December 31, 2008, net unrealized gains attributed to the forward swap cash flow hedges were approximately $0.5 million and were included as a component of accumulated other comprehensive income.

45

        On January 10, 2006, the Company terminated these forward interest rate swap agreements upon the completion of its new offering in January 2006 of $200.0 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 has been deferred in accumulated other comprehensive income and is being 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.

ITEM 8.    Financial Statements and Supplementary Data

        Reference is made to the Consolidated Financial Statements referred to in the Index on page 51 setting forth our consolidated financial statements, together with the report of KPMG LLP dated February 26, 2009 on page 52.

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

46

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, 2008, 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, 2008, as stated in their attestation report which follows.

47

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, 2008, 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, 2008, 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, 2008 and 2007, 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, 2008, and our report dated February 26, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Kansas City, Missouri
February 26, 2009

48

(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 2009 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 2009 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 2009 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 2009 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 2009 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 51 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 84 for a list of all exhibits filed as part of this Report.

49

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 27, 2009.

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 27, 2009
/s/ DANIEL P. CONNEALY Daniel P. Connealy	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 27, 2009
/s/ BRENT K. BLOSS Brent K. Bloss	Senior Vice President – Finance and Treasurer (Principal Accounting Officer)	February 27, 2009
/s/ ALAN W. KOSLOFF Alan W. Kosloff	Chairman of the Board and Director	February 27, 2009
/s/ DENNIS E. LOGUE Dennis E. Logue	Director	February 27, 2009
/s/ JAMES M. RAINES James M. Raines	Director	February 27, 2009
/s/ RONALD C. REIMER Ronald C. Reimer	Director	February 27, 2009
/s/ WILLIAM L. ROGERS William L. Rogers	Director	February 27, 2009
/s/ JERRY W. WALTON Jerry W. Walton	Director	February 27, 2009

50

WADDELL & REED FINANCIAL, INC.

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	52
Consolidated Balance Sheets at December 31, 2008 and 2007	53
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2008	54
Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2008	55
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2008	56
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2008	57
Notes to Consolidated Financial Statements	58

51

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, 2008 and 2007, 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, 2008. 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, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Waddell & Reed Financial, Inc.'s internal control over financial reporting as of December 31, 2008 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 26, 2009 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

Kansas City, Missouri
February 26, 2009

52

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2008 and 2007

			2008		2007
			(in thousands)
Assets:
	Cash and cash equivalents		$	210,328		263,914
	Cash and cash equivalents – restricted			48,713		99,886
	Investment securities			58,684		50,913
	Receivables:
		Funds and separate accounts		33,539		43,602
		Customers and other		61,280		80,909
	Deferred income taxes			11,182		2,559
	Prepaid expenses and other current assets			7,109		6,165
		Total current assets		430,835		547,948
	Property and equipment, net			59,966		47,984
	Deferred sales commissions, net			52,183		45,290
	Goodwill and identifiable intangible assets			221,210		228,432
	Pension benefits			–		14,929
	Other non-current assets			11,166		9,167
		Total assets	$	775,360		893,750
Liabilities:
	Accounts payable		$	40,002		22,233
	Payable to investment companies for securities			67,848		159,151
	Accrued compensation			24,296		38,310
	Income taxes payable			2,397		271
	Other current liabilities			70,165		52,637
		Total current liabilities		204,708		272,602
	Long-term debt			199,969		199,955
	Accrued pension and postretirement costs			29,083		7,230
	Deferred income taxes			3,564		15,682
	Other non-current liabilities			17,911		16,663
		Total liabilities		455,235		512,132
	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; 84,877 shares outstanding (86,630 at December 31, 2007)				997		997
Additional paid-in capital				207,886		209,210
Retained earnings				487,558		456,499
Cost of 14,824 common shares in treasury (13,071 in 2007)				(350,463)		(291,719)
Accumulated other comprehensive income (loss)				(25,853)		6,631
		Total stockholders' equity		320,125		381,618
Total liabilities and stockholders' equity			$	775,360		893,750

See accompanying notes to consolidated financial statements.

53

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2008, 2007 and 2006

				2008		2007		2006
				(in thousands, except per share data)
Revenues:
	Investment management fees			$	399,863		372,345		311,525
	Underwriting and distribution fees				416,762		371,085		317,458
	Shareholder service fees				102,495		94,124		89,672
		Total			919,120		837,554		718,655
Operating expenses:
	Underwriting and distribution				496,822		422,274		356,538
	Compensation and related costs (including share-based compensation of $28,967, $23,704 and $21,862, respectively)				119,057		115,905		110,101
	General and administrative				76,370		48,487		100,604
	Subadvisory fees				41,122		43,844		30,758
	Depreciation				13,198		12,412		11,725
	Goodwill impairment				7,222		—		20,000
		Total			753,791		642,922		629,726
Operating income					165,329		194,632		88,929
Investment and other income					3,178		16,452		12,498
Interest expense					(12,087)		(11,924)		(12,227)
Income before provision for income taxes					156,420		199,160		89,200
Provision for income taxes					60,257		73,663		43,088
	Net income			$	96,163		125,497		46,112
Net income per share:
	Basic			$	1.17		1.55		0.57
	Diluted			$	1.15		1.52		0.55
Weighted average shares outstanding			— basic		82,331		80,781		81,353
			— diluted		83,969		82,824		83,212
Dividends declared per common share				$	0.76		0.68		0.60

See accompanying notes to consolidated financial statements.

54

WADDELL & REED FINANCIAL, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended December 31, 2008, 2007 and 2006

(in thousands)

	Common Stock
					Additional Paid-in Capital		Retained Earnings				Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares		Amount						Treasury Stock
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
Net income		—		—		—		96,163		—		—		96,163
Recognition of equity compensation		—		—		28,933		34		—		—		28,967
Recognition of equity compensation related to restructuring		—		—		795		—		—		—		795
Issuance of nonvested shares and other		—		—		(34,990)		—		34,990		—		—
Dividends accrued, $.76 per share		—		—		—		(65,138)		—		—		(65,138)
Exercise of stock options		—		—		(3,533)		—		11,581		—		8,048
Excess tax benefits from share-based payment arrangements		—		—		7,471		—		—		—		7,471
Other stock transactions		—		—		—		—		(12,303)		—		(12,303)
Repurchase of common stock		—		—		—		—		(93,012)		—		(93,012)
Unrealized loss on available for sale investment securities		—		—		—		—		—		(8,435)		(8,435)
Reclassification for amounts included in net income		—		—		—		—		—		(142)		(142)
Pension and postretirement benefits		—		—		—		—		—		(23,907)		(23,907)
Balance at December 31, 2008		99,701	$	997		207,886		487,558		(350,463)		(25,853)		320,125

See accompanying notes to consolidated financial statements.

55

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31, 2008, 2007 and 2006

		2008		2007		2006
		(in thousands)
Net income		$	96,163		125,497		46,112
Other comprehensive income:
Net unrealized appreciation (depreciation) of investment securities during the period, net of income taxes of $(4,855), $1,354 and $719, respectively			(8,435)		2,345		1,569
Net unrealized loss on derivatives during the period, net of income taxes of $0, $0 and $(188), respectively			—		—		(283)
Pension and postretirement benefits, net of income taxes of $(13,764), $7,178 and $3,022, respectively			(23,907)		12,766		5,146
Reclassification adjustments for amounts included in net income, net of income taxes of $(84), $(1,396) and $(1,226), respectively			(142)		(2,428)		(2,199)
	Comprehensive income	$	63,679		138,180		50,345

See accompanying notes to consolidated financial statements.

56

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2008, 2007 and 2006

			2008		2007		2006
			(in thousands)
Cash flows from operating activities:
	Net income		$	96,163		125,497		46,112
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		12,969		12,395		11,937
		Amortization of deferred sales commissions		62,560		24,766		15,058
		Share-based compensation		29,762		23,704		21,862
		Excess tax benefits from share-based payment arrangements		(7,471)		(12,919)		(4,359)
		Gain on sale of available-for-sale investment securities		—		(3,598)		(3,260)
		Net purchases and sales of trading securities		(26,885)		(926)		(749)
		Unrealized (gain) loss on trading securities		6,072		(1,001)		(283)
		Goodwill impairment		7,222		—		20,000
		Loss on sale and retirement of property and equipment		899		405		592
		Capital gains and dividends reinvested		(1,880)		(2,135)		(1,317)
		Deferred income taxes		(2,040)		(3,171)		(1,423)
	Changes in assets and liabilities:
		Cash and cash equivalents — restricted		51,173		(67,257)		(6,548)
		Receivables from funds and separate accounts		10,063		(4,796)		(5,401)
		Other receivables		19,629		(21,046)		(16,632)
		Other assets		(2,943)		1,375		(178)
		Deferred sales commissions		(69,453)		(49,594)		(19,621)
		Accounts payable and payable to investment companies		(73,534)		89,523		31,091
		Other liabilities		12,071		16,889		6,130
Net cash provided by operating activities				124,377		128,111		93,011
Cash flows from investing activities:
	Purchases of available-for-sale investment securities			(100)		(5,650)		(7,350)
	Proceeds from sales of available-for-sale investment securities			—		10,429		14,812
	Proceeds from maturities of available-for-sale investment securities			1,750		—		435
	Additions to property and equipment			(26,079)		(9,925)		(10,229)
Net cash used in investing activities				(24,429)		(5,146)		(2,332)
Cash flows from financing activities:
	Proceeds from long term debt and interest rate swap termination			—		—		199,863
	Repayment of long term debt			—		—		(200,000)
	Dividends paid			(63,738)		(55,392)		(50,613)
	Repurchase of common stock			(93,012)		(59,488)		(27,643)
	Exercise of stock options			8,048		84,562		16,188
	Excess tax benefits from share-based payment arrangements			7,471		12,919		4,359
	Other stock transactions			(12,303)		(5,539)		(5,640)
Net cash used in financing activities				(153,534)		(22,938)		(63,486)
Net increase (decrease) in cash and cash equivalents				(53,586)		100,027		27,193
Cash and cash equivalents at beginning of year				263,914		163,887		136,694
Cash and cash equivalents at end of year			$	210,328		263,914		163,887
Cash paid for:
	Income taxes (net)		$	53,146		74,439		29,922
	Interest		$	11,200		11,200		6,845

See accompanying notes to consolidated financial statements.

57

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008, 2007 and 2006

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"), Ivy Funds Variable Insurance Porfolios, Inc. (the "Ivy Funds VIP") (renamed from W&R Target Funds, Inc. in 2008), Ivy Funds, Inc. and the Ivy Funds portfolios (collectively, the "Ivy Funds"), and Waddell & Reed InvestEd Portfolios, Inc. ("InvestEd") (collectively, the Advisors Funds, Ivy Funds VIP, Ivy Funds and InvestEd are referred to as 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. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which has increased the uncertainty inherent in such estimates and assumptions. Actual results could differ from our 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. At December 31, 2008, our cash and cash equivalents balance is comprised of commercial paper of $56.5 million and cash and money market assets of $153.8 million. 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.

58

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

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.

        The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157") effective January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The Company did not have a transition adjustment to beginning retained earnings as a result of adopting this standard. SFAS No. 157 applies to all financial instruments that are measured and reported on a fair value basis. This includes those items reported in investment securities on the consolidated balance sheets.

        In conjunction with the adoption of SFAS No. 157, the Company also adopted SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No. 115" ("SFAS No. 159") as of January 1, 2008. SFAS No. 159 provides companies the option to report select financial assets and liabilities at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. Additionally, the transition provisions of SFAS No. 159 permit a one-time election for existing positions at the adoption date with a cumulative-effect adjustment included in beginning retained earnings and future changes in fair value reported in earnings. 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. After the initial adoption, the election is made at the acquisition of a financial asset or financial liability and it may not be revoked. The adoption of SFAS No. 159 did not result in a transition adjustment to beginning retained earnings.

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 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 each quarter and adjusted for other than temporary declines in value. 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. When a decline in fair value 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 five to ten years for furniture, fixtures, data

59

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

processing equipment and computer software; five 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." Internal costs capitalized are included in Property and equipment, net on the consolidated balance sheets, and were $14.4 million and $9.3 million as of December 31, 2008 and 2007, 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 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.

        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 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.

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 Class B shares are 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 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

60

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

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. In addition, 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. 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. As part of our review in the fourth quarter of 2008, we recorded $6.5 million in additional amortization ($0.7 million related to Class B shares and $5.8 million related to Class C shares).

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.

        We also recognize distribution revenues monthly for certain types of investment products, primarily variable annuity products that 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 $5.3 million, $4.8 million and $2.9 million for the years ended December 31, 2008, 2007 and 2006, respectively, and is classified in underwriting and distribution expense in the statement of income.

Share-Based Compensation

        Effective January 1, 2006, the Company adopted SFAS No. 123R, "Share-Based Payment, (revised 2004)" ("SFAS No. 123R"). 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, 2007 and 2008 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.

        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 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.

61

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

Accounting for Income Taxes

        Income tax expense is based on pre-tax financial accounting income, including adjustments made for the recognition or derecognition of 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 June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We do not expect material changes to our basic earnings per share calculations in 2009. All prior-period earnings per share data presented must be adjusted retrospectively to conform to the provisions of this standard. There will be no change to our quarterly and annual basic earnings per share information for prior periods due to the adoption of this standard; however, the impact on quarterly and annual basic earnings per share is expected to be immaterial through 2008.

        In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. It is not expected that the provisions of SFAS No. 162 will have an impact on the Company's results of operations or financial position.

        In April 2008, the FASB issued FSP SFAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP SFAS 142-3"). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets." FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008. It is not expected that the adoption of this standard on January 1, 2009 will significantly affect our results of operations or financial condition.

62

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51" ("SFAS No. 160"). This standard 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.

        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.

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December 31, 2008, 2007 and 2006

4.     Investment Securities

        Investment securities at December 31, 2008 and 2007 are as follows:

2008	Amortized cost		Unrealized gains		Unrealized losses		Fair value
	(in thousands)
Available-for-sale securities:
Mortgage-backed securities	$	11		1		—		12
Municipal bonds		5,290		—		(1,086)		4,204
Affiliated mutual funds		23,966		459		(5,133)		19,292
	$	29,267		460		(6,219)		23,508
Trading securities:
Mortgage-backed securities								108
Municipal bonds								372
Corporate bonds								93
Common stock								37
Affiliated mutual funds								34,566
								35,176
Total investment securities								58,684

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
Municipal bonds								502
Corporate bonds								156
Common stock								74
Affiliated mutual funds								12,618
								13,468
Total investment securities								50,913

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December 31, 2008, 2007 and 2006

        A summary of debt securities and affiliated mutual funds with market values below carrying values at December 31, 2008 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	$	4,204		(1,086)		—		—		4,204		(1,086)
Affiliated mutual funds		16,574		(5,076)		51		(57)		16,625		(5,133)
Total temporarily impaired securities	$	20,778		(6,162)		51		(57)		20,829		(6,219)

        Based upon our assessment of these municipal bonds and affiliated mutual funds, the time frame investments have been in a loss position, 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 December 31, 2008.

        Mortgage-backed securities and municipal bonds accounted for as available-for sale and held as of December 31, 2008 mature as follows:

	Amortized cost		Fair value
	(in thousands)
After one year but within ten years	$	4,300		3,541
After ten years		1,001		675
	$	5,301		4,216

        Mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading and held as of December 31, 2008 mature as follows:

	Fair value
	(in thousands)
After one year but within ten years	$	465
After ten years		108
	$	573

        Investment securities with fair values of $1.1 million, $10.9 million and $15.5 million were sold during 2008, 2007 and 2006, respectively. In 2008, a net loss of $31 thousand was recognized from the sale of $1.1 million in trading securities. 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.

        The aggregate carrying amount of our equity method investments, classified in other assets, was $3.9 million and $3.6 million at December 31, 2008 and 2007, respectively. At December 31, 2008, our investment consists of a limited partnership interest in venture capital funds.

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December 31, 2008, 2007 and 2006

        SFAS No. 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with SFAS No. 157, these inputs are summarized in the three broad levels listed below:

•

Level 1 – Quoted prices in active markets for identical securities

•

Level 2 – Other significant observable inputs (including quoted prices in active markets for similar securities)

•

Level 3 – Significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments)

        In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to SFAS No. 157.

        The following table presents fair value measurements as of December 31, 2008:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Investment securities	$	53,895		4,789		—	$	58,684

5.     Goodwill and Identifiable Intangible Assets

        Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business. Our goodwill is not deductible for tax purposes. The activity related to goodwill and identifiable intangible assets (all considered indefinite lived) is summarized as follows:

		December 31, 2007		Goodwill Impairment		December 31, 2008
		(in thousands)
Goodwill		$	212,077		(9,559)		202,518
Accumulated amortization			(38,644)		2,337		(36,307)
	Total goodwill		173,433		(7,222)		166,211
Mutual fund management advisory contracts			38,699		—		38,699
Mutual fund subadvisory management contracts			16,300		—		16,300
	Total indentifiable intangible assets		54,999		—		54,999
Total		$	228,432		(7,222)		221,210

        Based on our annual review of goodwill in the second quarter of 2006, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we recorded an impairment charge of $20.0 million related to our subsidiary, Austin Calvert & Flavin, Inc. ("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.

        The implied fair value of all reporting units exceeded their carrying amounts at the time of our annual review of goodwill in the second quarter of 2008. Due to the decline in the financial markets during the

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December 31, 2008, 2007 and 2006

second half of 2008, we performed another review of goodwill and intangibles in the fourth quarter. We recorded an impairment charge of $7.2 million to write off the remaining balance of goodwill related to ACF based on declines in ACF's assets under management and the related adverse impact on its earnings potential. The goodwill impairment charges related to ACF were not deductible for income tax purposes and as a result, no tax benefit has been recognized for these charges.

6.     Property and Equipment

        A summary of property and equipment at December 31, 2008 and 2007 is as follows:

	2008		2007		Estimated useful lives
	(in thousands)
Leasehold improvements	$	14,707		7,337		1 - 15 years
Furniture and fixtures		27,810		23,726		5 - 10 years
Equipment and machinery		21,622		21,675		5 - 20 years
Computer software		50,645		41,201		5 - 10 years
Data processing equipment		20,658		17,652		5 - 10 years
Property and equipment, at cost		135,442		111,591
Accumulated depreciation		(75,476)		(63,607)
Property and equipment, net	$	59,966		47,984

        Depreciation expense was $13.2 million, $12.4 million and $11.7 million during the years ended December 31, 2008, 2007 and 2006, respectively.

        At December 31, 2008, we have property and equipment under capital lease with a cost of $724 thousand and accumulated depreciation of $102 thousand.

7.     Restructuring

        In the fourth quarter of 2008, we initiated a restructuring plan to reduce our operating costs. We completed the restructuring by December 31, 2008, which included a voluntary separation of 169 employees and the termination of various projects under development. We recorded a pre-tax restructuring charge of $16.5 million, consisting of $15.0 million in employee compensation and other benefit costs, $795 thousand for accelerated vesting of nonvested stock and $717 thousand in project development costs, including $500 thousand for the early termination of a contract. The restructuring charge is included in general and administrative expenses in the consolidated statement of income.

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December 31, 2008, 2007 and 2006

        The activity in the accrued restructuring liability is summarized as follows:

	Restructuring Charges		Cash Payments		Non-cash Settlements and Other		Accrued Liability as of December 31, 2008
Employee compensation and other benefit costs	$	15,025		(269)		(226)		14,530
Share-based compensation expense		795		—		(795)		—
Contract termination and project development costs		717		—		(217)		500
	$	16,537		(269)		(1,238)		15,030

        We expect the remaining restructuring costs to be paid out through 2010, with the majority paid out by the end of 2009. The long-term portion of the restructuring liability of $2.7 million is included in Other liabilities and the short-term portion of $12.3 million is included in Other current liabilities in the consolidated balance sheet.

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).

        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 $100.0 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 $200.0 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 $200.0 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

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, 2008, the remaining unamortized amount was approximately $0.5 million.

        The Company entered into a 364-day revolving credit facility (the "Credit Facility") with various lenders, effective October 6, 2008, which initially provides for borrowings of up to $175.0 million and replaced the Company's previous three-year revolving credit facility. Lenders could, at their option upon the Company's request, expand the facility to $200.0 million. At December 31, 2008 there were no borrowings outstanding under the Credit Facility. Borrowings under the Credit Facility bear interest at various rates including adjusted LIBOR or an alternative 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 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, 2008 and 2007:

		2008		2007
		(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			(31)		(45)
	Total long-term debt	$	199,969		199,955

9.     Income Taxes

        The provision for income taxes for the years ended December 31, 2008, 2007 and 2006 consists of the following:

		2008	2007	2006
		(in thousands)
Currently payable:
	Federal	$      59,149	72,760	39,770
	State	3,149	5,092	3,823
		62,298	77,852	43,593
Deferred taxes		(2,041)	(4,189)	(505)
	Provision for income taxes	$      60,257	73,663	43,088

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

        The following table reconciles the statutory federal income tax rate with our effective income tax rate for the years ended December 31, 2008, 2007 and 2006:

	2008		2007		2006
Statutory federal income tax rate		35.0%		35.0%		35.0%
State income taxes, net of federal tax benefits		1.4		2.1		1.7
State tax incentives		(0.3)		(0.1)		(1.2)
Nondeductible fines		—		—		4.7
Nondeductible goodwill impairment expense		1.6		—		7.8
Other items		0.8		—		0.3
Effective income tax rate		38.5%		37.0%		48.3%

        The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at December 31, 2008 and 2007 are as follows:

		2008	2007
		(in thousands)
Deferred tax liabilities:
	Unrealized pension benefits	$           —	(785)
	Deferred sales commissions	(6,019)	(6,754)
	Property and equipment	(9,213)	(8,794)
	Benefit plans	(3,609)	(3,037)
	Identifiable intangible assets	(8,359)	(8,374)
	Unrealized gains on derivatives	(165)	(248)
	Unrealized gains on available for sale investment securities	—	(2,753)
	Purchase of fund assets	(4,189)	(3,423)
	Prepaid expenses	(1,544)	(1,413)
	Other	(323)	(242)
Total gross deferred liabilities		(33,421)	(35,823)
	Deferred tax assets:
	Acquisition lease liability	784	1,029
	Additional pension and postretirement liability	12,978	—
	Accrued expenses	11,225	6,753
	Unrealized losses on investment securities	2,333	676
	Nonvested stock	10,827	11,240
	State tax credit carryforwards	337	174
	State net operating loss carryforwards	4,698	3,527
	Other	2,242	2,828
Total gross deferred assets		45,424	26,227
Valuation allowance		(4,385)	(3,527)
Net deferred tax asset (liability)		$    7,618	(13,123)

        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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

to the carryforwards as of December 31, 2008 and December 31, 2007 is approximately $4.7 million and $3.5 million, respectively. The carryforwards, if not utilized, will expire between 2009 and 2028. 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 $4.4 million and $3.5 million has been established at December 31, 2008 and December 31, 2007, respectively. The Company generated state tax credits in 2007 and 2008 that will expire in 2017 and 2018, respectively, if not utilized. The Company anticipates these credits will be fully utilized prior to their expiration date.

        As of January 1, 2008, 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. As of December 31, 2008, the Company had unrecognized tax benefits, including penalties and interest, of $4.9 million ($3.4 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'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, 2008, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $1.7 million ($1.3 million net of federal benefit). The total amount of penalties and interest, net of federal benefit, related to tax uncertainties recognized in the statement of income for the period ended December 31, 2008 was $385 thousand. The total amount of accrued penalties and interest related to uncertain tax positions at December 31, 2008 of $1.6 million ($1.2 million net of federal benefit) is included in the total unrecognized tax benefits described above.

        The following table summarizes the Company's reconciliation of unrecognized tax benefits excluding penalties and interest for the year ended December 31, 2008:

		Unrecognized Tax Benefits
		(in thousands)
Balance at January 1, 2008		$	4,495
Increases during the year:
	Gross increases – tax positions in prior period		468
	Gross increases – current-period tax positions		607
Decreases during the year:
	Decreases due to settlements with taxing authorities		(2,062)
	Decreases due to lapse of statute of limitations		(176)
Balance at December 31, 2008		$	3,332

        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. In 2008, the Company settled five open tax years that were undergoing audit by a state jurisdiction in which the Company operates. The Company also received

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December 31, 2008, 2007 and 2006

notification of a favorable outcome on a tax position in which the Company had previously considered partially uncertain, and therefore, had not previously recognized the full tax benefit. During 2007, the Company settled two open tax years that were undergoing audit by a state jurisdiction in which the Company operates. During 2006, the Company settled four open tax years, 2000 through 2004, that were undergoing audit by the United States Internal Revenue Service. The 2005, 2006, and 2007 federal income tax returns are the only open tax years that remain subject to potential future audit. State income tax returns for all years after 2004 and, in certain states, income tax returns for 2003, 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 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 $912 thousand to $1.6 million ($607 thousand to $1.1 million net of federal benefit) upon settlement of these audits. Such settlements are not anticipated to have a significant impact on the results of operations.

10.   Pension Plan and Postretirement Benefits Other Than Pension

        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.

        A reconciliation of the funded status of these plans and the assumptions related to the obligations at December 31, 2008, 2007 and 2006 follows:

		Pension Benefits			Other Postretirement Benefits
		2008	2007	2006	2008	2007	2006
		(in thousands)
Change in projected benefit obligation:
	Net benefit obligation at beginning of year	$    94,893	88,320	86,530	3,975	4,174	3,715
	Service cost	5,727	5,718	5,446	296	292	299
	Interest cost	6,326	5,490	4,830	262	244	209
	Plan amendments	—	—	—	—	—	165
	Benefits and expenses paid	(6,553)	(3,690)	(3,496)	(616)	(313)	(244)
	Actuarial (gain) loss	(1,799)	(945)	(4,990)	1,126	(570)	(107)
	Retiree contributions	—	—	—	162	148	137
	Net benefit obligation at end of year	$    98,594	94,893	88,320	5,205	3,975	4,174

        The accumulated benefit obligation for the Pension Plan was $86.9 million and $81.3 million at December 31, 2008 and 2007, respectively.

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December 31, 2008, 2007 and 2006

			Pension Benefits						Other Postretirement Benefits
			2008		2007		2006		2008		2007		2006
			(in thousands)
Change in plan assets:
	Fair value of plan assets at beginning of year		$	109,822		82,889		74,445		—		—		—
	Actual return on plan assets			(30,249)		23,622		4,940		—		—		—
	Employer contributions			5,000		7,000		7,000		454		165		107
	Retiree contributions			—		—		—		162		148		137
	Benefits paid			(6,553)		(3,689)		(3,496)		(616)		(313)		(244)
		Fair value of plan assets at end of year	$	78,020		109,822		82,889		—		—		—
Funded status at end of year			$	(20,574)		14,929		(5,431)		(5,205)		(3,975)		(4,174)

		Pension Benefits							Other Postretirement Benefits
		2008			2007		2006		2008		2007		2006
		(in thousands, except percentage data)
Amounts recognized in the statement of financial position under SFAS No. 158:
	Noncurrent assets	$	–			14,929		–		–		–		–
	Current liabilities		–			–		–		(252)		(192)		(209)
	Noncurrent liabilities		(20,574)			–		(5,431)		(4,953)		(3,783)		(3,965)
	Net amount recognized at end of year	$	(20,574)			14,929		(5,431)		(5,205)		(3,975)		(4,174)
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income:
	Transition obligation	$	(52)			(57)		(62)		–		–		–
	Prior service cost		(4,596)			(3,714)		(4,149)		(323)		(362)		(400)
	Accumulated gain (loss)		(30,835)			4,792		(14,143)		283		1,489		958
	Accumulated other comprehensive income		(35,483)			1,021		(18,354)		(40)		1,127		558
	Cumulative employer contributions in excess of net periodic benefit cost		14,909			13,908		12,923		(5,165)		(5,102)		(4,732)
	Net amount recognized at end of year	$	(20,574)			14,929		(5,431)		(5,205)		(3,975)		(4,174)
Weighted average assumptions used to determine benefit obligation at December 31:
	Discount rate		6.75%			6.75%		6.00%		6.75%		6.75%		6.00%
	Rate of compensation increase			(1)		3.86%		3.86%		Not applicable

(1)

Rate of compensation increase is 0% for 2009, 2.5% for 2010 and 3.86% for 2011 and after.

        The discount rate assumptions used to determine the postretirement obligations at December 31, 2008 and 2007 and the postretirement expenses in 2008 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.

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December 31, 2008, 2007 and 2006

        Our Pension Plan asset allocation at December 31, 2008 and 2007 and our target allocation for 2009 are as follows:

Plan assets by investment style		Target Allocation at January 1, 2009		Percentage of Plan Assets at December 31, 2008
Large Cap Growth			40%		41%
Asset Strategy			35%		38%
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, 2008		Percentage of Plan Assets at December 31, 2007
Equity securities			67%		75%
Debt securities			19%		15%
Cash			14%		10%
	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 the 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.

        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.

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WADDELL & REED FINANCIAL, INC.

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December 31, 2008, 2007 and 2006

        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, 2008, 2007 and 2006.

		Pension Benefits						Other Postretirement Benefits
		2008		2007		2006		2008		2007		2006
		(in thousands)
Components of net periodic benefit cost:
	Service cost	$	5,727		5,718		5,446		296		292		299
	Interest cost		6,326		5,490		4,830		262		244		209
	Expected return on plan assets		(8,614)		(6,442)		(5,694)		—		—		—
Actuarial (gain) loss     amortization			—		808		954		(80)		(39)		(38)
	Prior service cost amortization		555		436		436		39		38		23
Transition obligation     amortization			5		5		5		—		—		—
	Net periodic benefit cost	$	3,999		6,015		5,977		517		535		493

        The estimated net loss, prior service cost and transition obligation for the Pension Plan that will be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $1.6 million, $555 thousand and $5 thousand, respectively. The estimated prior service cost for the postretirement medical plan that will be amortized from Accumulated other comprehansive income into net periodic benefit cost over the next fiscal year is $39 thousand.

		Pension Benefits						Other Postretirement Benefits
		2008		2007		2006		2008		2007		2006
Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:
	Discount rate		6.75%		6.00%		5.75%		6.75%		6.00%		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

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

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

	Pension Benefits		Other Postretirement Benefits
	(in thousands)
2009	$	5,561		260
2010		5,347		334
2011		7,133		378
2012		8,352		411
2013		8,416		447
2014 through 2018		52,379		2,374
	$	87,188		4,204

        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 2008 and 2007 were voluntary. We anticipate that the 2009 contribution will be made from cash generated from operations and will be in the range from $7.0 to $12.0 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 2009 expected contribution with cash generated from operations. Contributions by participants to the postretirement plan were $162 thousand and $148 thousand for the years ending December 31, 2008 and 2007, 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, 2008 accumulated postretirement benefit obligation by approximately $511 thousand, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2008 by approximately $92 thousand. The effect of a 1% annual decrease in assumed cost trend rates would decrease the December 31, 2008 accumulated postretirement benefit obligation by approximately $444 thousand, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2008 by approximately $78 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

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WADDELL & REED FINANCIAL, INC.

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December 31, 2008, 2007 and 2006

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 2008. 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, 2008 and 2007, the aggregate liability to participants was $3.5 million and $3.4 million, respectively.

        At December 31, 2008, the accrued pension and postretirement liability recorded on the balance sheet was comprised of accrued pension costs of $20.6 million, an accrued liability for SERP benefits of $3.5 million and a liability for postretirement benefits in the amount of $5.0 million. The current portion of postretirement liability of $0.3 million is included in other current liabilities on the balance sheet. 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.

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, 2008, 2007 and 2006 were $4.0 million, $3.7 million and $3.4 million, respectively.

12.   Stockholders' Equity

Earnings per Share

        For the years ended December 31, 2008, 2007 and 2006, earnings per share were computed as follows:

		2008		2007		2006
		(in thousands, except per share amounts)
Net income		$	96,163		125,497		46,112
Weighted average shares outstanding — basic			82,331		80,781		81,353
Dilutive potential shares from stock options and certain nonvested stock awards			1,638		2,043		1,859
Weighted average shares outstanding — diluted			83,969		82,824		83,212
Earnings per share:
	Basic	$	1.17		1.55		0.57
	Diluted	$	1.15		1.52		0.55

Anti-dilutive Securities

        Options to purchase 688 thousand shares, 659 thousand shares and 2.79 million shares of Class A common stock ("common stock") were excluded from the diluted earnings per share calculation for years ended December 31, 2008, 2007 and 2006, respectively because they were anti-dilutive. Also excluded from the diluted earnings per share calculation were approximately 1.3 million shares, 265 thousand shares and

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

236 thousand shares of anti-dilutive nonvested stock for the years ended December 31, 2008, 2007 and 2006, respectively.

Dividends

        We declared dividends on our common stock of $0.76 per share, $0.68 per share and $0.60 per share for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008 and 2007, other current liabilities included $16.1 million and $14.7 million, respectively, for dividends payable to stockholders.

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 3,349,808 shares, 2,350,054 shares and 1,139,116 shares repurchased in the open market or privately during the years ended December 31, 2008, 2007 and 2006, 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, 13,182,310 shares of common stock are available for issuance as of December 31, 2008 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

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WADDELL & REED FINANCIAL, INC.

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December 31, 2008, 2007 and 2006

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. 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.

(a)

Stock Options

        A summary of stock option activity and related information for the year ended December 31, 2008 follows:

	Options		Weighted average exercise price		Weighted average remaining contractual term (in years)
Outstanding at December 31, 2007		2,645,666	$	21.58		2.10
Granted		—		—
Exercised		(503,907)		15.97
Granted in restoration		46,715		33.91
Exercised in restoration		(55,755)		26.75
Terminated/Canceled		(110,875)		16.24
Outstanding at December 31, 2008		2,021,844	$	23.44		1.40
Exercisable at December 31, 2008		1,975,129	$	23.20		1.38

        The aggregate intrinsic value of outstanding options and exercisable options as of December 31, 2008 was $126 thousand. The total intrinsic value (on date of exercise) of options exercised during the years ended December 31, 2008, 2007 and 2006 was $9.4 million, $31.9 million and $8.7 million, respectively. The related income tax benefit recognized was $3.3 million, $11.6 million and $3.1 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

        SORP options with vesting periods of six months were the only options granted during 2008, 2007 and 2006. Compensation expense related to options issued under the SORP of $217 thousand, $19 thousand and $157 thousand was recorded for the years ended December 31, 2008, 2007 and 2006, respectively.

        The weighted average fair value of options granted during the years ended December 31, 2008, 2007 and 2006 were $5.47, $2.76 and $2.94, respectively. The grant date fair value of options granted have been calculated using a Black-Scholes option-pricing model with assumptions as follows:

	2008		2007		2006
Dividend yield		2.24%		2.70%		2.80%
Risk-free interest rate		2.05%		4.57%		4.92%
Expected volatility		32.10%		24.50%		22.50%
Expected life (in years)		1.89		1.21		2.09

(b)

Nonvested Stock

        A summary of nonvested share activity and related fair value for the year ended December 31, 2008 follows:

	Nonvested Stock Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2007		3,426,921	$	24.02
Granted		1,565,553		27.95
Vested		(1,378,985)		23.51
Forfeited		(50,891)		25.71
Nonvested at December 31, 2008		3,562,598	$	25.92

        For the years ended December 31, 2008, 2007 and 2006, compensation expense related to nonvested stock totaled $29.0 million, $23.7 million and $21.7 million, respectively. In 2008, we also recognized $795 thousand related to nonvested stock which was immediately vested under the voluntary separation program, discussed in Note 7. The related income tax benefit was $10.5 million, $8.6 million and $7.9 million for the years ended December 31, 2008, 2007 and 2006, respectively, which may be recognized upon vesting. As of December 31, 2008, the remaining unamortized expense of $62.3 million is expected to be recognized over a weighted average period of 2.5 years.

        The total fair value of shares vested (at vest date) during the years ended December 31, 2008, 2007 and 2006 was $40.0 million, $21.0 million and $16.9 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 2009, we expect to repurchase approximately 374,000 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

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

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 increased by $372 thousand for the year ended December 31, 2008, decreased by $45 thousand for the year ended December 31, 2007 and increased by $280 thousand for the year ended December 31, 2006.

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 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.

        A broker/dealer may elect not to be subject to the Aggregate Indebtedness Standard of paragraph (a)(1)(i) of Rule 15c3-1, in which case net capital must exceed the greater of $250 thousand or 2% of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for broker/dealers. W&R made this election during the current year and thus, is not subject to the aggregate indebtedness ratio as of December 31, 2008.

        Net capital and aggregated indebtedness information for our broker/dealer subsidiaries is presented in the following table as of December 31, 2008 and 2007 (in thousands):

	2008						2007
	W&R		LEC		IFDI		W&R		LEC		IFDI
Net capital	$	7,494		2,148		25,108	$	41,187		2,136		12,328
Required capital		250		172		1,298		13,117		173		1,333
Excess of required capital	$	7,244		1,976		23,810	$	28,070		1,963		10,995
Ratio of aggregate indebtedness to net capital		Not applicable		1.20 to 1.0		0.78 to 1.0		4.78 to 1.0		1.22 to 1.0		1.62 to 1.0

15.   Rental Expense and Lease Commitments

        We lease our home office buildings, certain sales and other office space and equipment under long-term operating leases. Rent expense was $20.1 million, $18.6 million and $18.3 million, for the years ended December 31, 2008, 2007 and 2006, respectively. Future minimum rental commitments under non-cancelable operating leases are as follows (in thousands):

2009	$	17,703
2010		14,889
2011		12,326
2012		10,106
2013		5,704
Thereafter		11,311
	$	72,039

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008, 2007 and 2006

        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 2008.

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 Ivy Funds VIP) 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 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.

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, 2008, 2007 and 2006

19.   Selected Quarterly Information (Unaudited)

			Quarter
			First		Second		Third		Fourth
			(in thousands)
2008
	Total revenues		$	234,069		252,783		241,224		191,044
	Net income			28,341		35,187		33,365		(730) (1)
	Earnings per share:
		Basic	$	0.34		0.42		0.41		(0.01)
		Diluted	$	0.33		0.42		0.40		(0.01)

			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

(1)

Includes a pre-tax charge of $16.5 million ($10.5 million net of tax) for restructuring charges consisting primarily of severance costs associated with our voluntary separation program as well as costs associated with terminating various projects under development; a charge of $7.2 million (not deductible for income tax purposes) to recognize the impairment of goodwill associated with ACF; additional amortization of our deferred acquisition cost asset of $6.5 million ($4.1 million net of tax) due to significant asset redemption activity and our review of the recoverability of our deferred sales commission asset; and a pre-tax charge of $2.1 million ($1.4 million net of tax) related to the settlement of miscellaneous litigation and other matters. These charges were offset by the reversal of bonus accruals of $7.9 million ($5.1 million net of tax) to reflect lower annual awards.

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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 September 17, 2008 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 The Bank of New York Mellon Trust Company, National Association, as successor in interest to 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 The Bank of New York Mellon Trust Company, National Association, as successor in interest to 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 The Bank of New York Mellon Trust Company, National Association, as successor in interest to 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

Exhibit No.	Exhibit Description
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	Administrative Services Agreement, dated as of October 20, 2008, by and among Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company and Waddell & Reed, Inc. and its affiliated insurance companies.
10.3	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.
10.4	Fund Participation Agreement, dated as of September 19, 2003, by and among Minnesota Life Insurance Company, Waddell & Reed, Inc. and Ivy Funds VIP. Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.5	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.
10.6	Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated.*
10.7	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.*
10.8	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.*

85

WADDELL & REED FINANCIAL, INC.
Index to Exhibits

Exhibit No.	Exhibit Description
10.9	Credit Agreement, dated as of October 6, 2008, by and among Waddell & Reed Financial, Inc., the Lenders, Bank of America, N.A. and Bank of America Securities LLC. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, File No. 333-43687, on October 6, 2008 and incorporated herein by reference.
10.10	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.
10.11	Waddell & Reed Financial, Inc. Supplemental Executive Retirement Plan, as amended and restated.*
10.12	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 April 11, 2008 incorporated herein by reference.*
10.13	Form of Accounting Services Agreement, amended and restated as of July 1, 2003, by and between the Funds and Waddell & Reed Services Company. 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, 2007 and incorporated herein by reference.
10.14	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. 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, 2007 and incorporated herein by reference.
10.15	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. Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.16	Investment Management Agreement, amended as of November 9, 2005, by and between Ivy Funds VIP and Waddell & Reed, Inc., assigned to Waddell & Reed Investment Management Company. Filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.17	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. Filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.

86

WADDELL & REED FINANCIAL, INC.
Index to Exhibits

Exhibit No.	Exhibit Description
10.18	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.
10.19	Form of Amendment to Underwriting Agreement, dated July 24, 2002, by and between each of the Advisors Funds and Waddell & Reed, Inc. Filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.20	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. Filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.21	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. Filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.22	Service Plan, revised as of May 16, 2001, by and between Ivy Funds VIP and Waddell & Reed, Inc. Filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.
10.23	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.
10.24	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.
10.25	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.*
10.26	First Amendment to Change in Control Employment Agreement, dated December 17, 2008, by and between Henry J. Herrmann and Waddell & Reed Financial, Inc.*
10.27	Summary of Compensation Arrangements with Executive Officers of Waddell & Reed Financial, Inc.*
10.28	Summary of Non-Employee Director Compensation.*

87

WADDELL & REED FINANCIAL, INC.
Index to Exhibits

Exhibit No.	Exhibit Description
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.*
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.*
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. Filed as Exhibit 10.33 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.*
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. Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K, File No. 333-43687, for the year ended December 31, 2007 and incorporated herein by reference.*
10.35	2009 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 19, 2009 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.
12	Statement re computation of ratios of earnings to fixed charges.

88

WADDELL & REED FINANCIAL, INC.
Index to Exhibits

Exhibit No.	Exhibit Description
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

EX-10.2

Exhibit 10.2

ADMNISTRATIVE SERVICES AGREEMENT

This Agreement is entered into effective the 20th day of October, 2008, by and between Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company (collectively referred to hereinafter “NWL”) and Waddell & Reed, Inc. (hereinafter “Waddell & Reed”), on its own behalf and on behalf of its affiliated corporate insurance agencies.

WHEREAS, NWL agrees to develop, issue and administer certain annuity contracts life policies and qualified employer-sponsored retirement plan trust products (identified in Appendix A attached hereto and collectively, referred to hereinafter as (“the Products”); and

WHEREAS, Waddell & Reed supports the agreement of NWL to develop, issue and administer the Products listed in Appendix A attached hereto.

NOW, THEREFORE, in consideration of the promises, covenants and undertakings contemplated herein, NWL and Waddell & Reed agree as follows:

APPOINTMENT OF PRODUCT DEVELOPER

NWL is hereby appointed Product Developer for the products referenced above and described in the attached Appendix A. The role of Product Developer means NWL shall develop and support the products for distribution exclusively by Waddell & Reed and perform those functions enumerated in the attached Exhibit A.

RELATIONSHIP AND WHOLESALER SUPPORT

NWL will dedicate one person to manage the relationship with Waddell & Reed during the term of the Exclusivity provision below. NWL will provide wholesaling and service support for the Products that is reasonably satisfactory to Waddell & Reed.  Nationwide will sponsor and participate in periodic meetings of Waddell & Reed’s sales representatives, as requested from time to time by Waddell & Reed during the term of the Exclusivity period below.

EXCLUSIVITY

Except as otherwise provided herein, NWL will be the exclusive provider to Waddell & Reed of the product types listed in the Appendix A attached hereto for a period of three (3) years from October 2008. During this three- (3) year period, Waddell & Reed will not offer any other competitor’s products to its clients, except as otherwise provided herein. Notwithstanding the foregoing, this exclusivity provision will not apply to (a) clients transferring similar investment products from one investment advisor and/or broker-dealer to Waddell & Reed, (b) additions made by Waddell & Reed clients to products owned prior to the commencement of distribution of like NWL products by Waddell &

Reed pursuant to the General Agent Agreement, (c) sales made by new Waddell & Reed financial advisors to prospects to which non-NWL products were offered prior to their engagement by Waddell & Reed, (d) products offered by Securian/Minnesota Life Insurance Company and its affiliates, (e) products offered by one (1) additional insurance company manufacturer to be identified by Waddell & Reed following the effective date of this Agreement, and (f) exception sales of products offered by other insurance companies where the sale of a NWL product is rejected by Waddell & Reed clients due to product feature or other reasons.

Waddell & Reed will make a good faith effort to monitor and report these exceptions to ensure that the principle of overall exclusivity is maintained. NWL will provide sufficient resources to fulfill mutually agreed upon product feature, support and service level standards. It is understood and agreed that such exclusivity shall terminate at Waddell & Reed’s option if (a) NWL fails to meet the agreed upon product feature, support and service standards or (b) NWL experiences a change of control involving an unaffiliated organization. NWL may also terminate its exclusive relationship with Waddell & Reed if Waddell & Reed fails to meet its obligations as set forth herein.

Notwithstanding the foregoing, if Waddell & Reed experiences a change of control involving an unaffiliated organization and such organization desires for Waddell & Reed to sell its products or the products of one or more of its affiliates (“Acquirer Products”), this exclusivity provision will not apply to the Acquirer Products. It is understood and agreed that if such a change of control should occur, and Waddell & Reed commences offering Acquirer Products, Waddell & Reed shall use its best efforts to ensure that NWL’s products receive and maintain an equitable competitive position in Waddell & Reed’s distribution system throughout the exclusive period. For purposes of this provision, an “equitable competitive position” shall mean the opportunity for NWL to provide products with substantially similar costs, features, commissions, fund diversification and positioning as the Acquirer Products. In the event such a change of control occurs and Waddell & Reed commences offering Acquirer Products, the exception from this exclusivity provision identified in Section (b) above, regarding a change of control at NWL involving an unaffiliated organization, shall cease to apply. The terms of the Exclusivity provision may be modified only in writing once mutually agreed upon by both parties.

Waddell & Reed agrees that, at all times during the term of this Agreement, both the level of marketing and promotional services and the level of product and other administrative support services provided by Waddell & Reed to NWL will be at least equal to the level ofsuchservicesprovidedineachcasebyWaddell&ReedtoMinnesotaLifeanditsaffiliatedcompanies(“Minneso.taLifeCompanies”), and any other co-exclusive provider permitted under this Agreement (“Co-Exclusive Provider”).  Waddell & Reed shall provide NWL with such relevant information as NWL may reasonably request about the nature, scope and frequency of all marketing, promotional and administrative services provided by Waddell & Reed to the Minnesota Life Companies and/or the Co-Exclusive Provider, and shall keep NWL reasonably informed about changes in the levels of such services.

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SALES MATERIAL AND OTHER DOCUMENTS

Waddell & Reed shall not print, publish or distribute any advertisement, circular or any document relating to the products distributed pursuant to this Agreement or relating to NWL unless such advertisement, circular or document shall have been approved in writing by NWL, which approval shall not be unreasonably withheld and shall be given as promptly as possible. Neither NWL nor any of its affiliates shall print, publish or distribute any advertisement, circular or any document relating to the products distributed pursuant to this Agreement or relating to Waddell & Reed unless such advertisement, circular or document shall have been approved in writing by Waddell & Reed, which approval shall not be unreasonably withheld and shall be given as promptly as possible. However, nothing herein shall prohibit any person from advertising the products in general or on a generic basis.

SALES MATERIAL

1.NWL shall develop and prepare promotional material to be used in the distribution of the products, in consultation with Waddell & Reed.

2.NWL is responsible for the printing of such promotional material.

3.NWL is responsible for the expense of providing such promotional material.

4.NWL is responsible for approval of promotional material by state insurance regulators, where required.

5.Waddell & Reed is responsible for the filing of all appropriate promotional material with federal securities regulators.

6.All promotional material relating to the products shall be subject to prior approval by Waddell & Reed.

7.Waddell & Reed and NWL agree to abide by the Advertising and Sales Promotion Material Guidelines, attached hereto as EXHIBIT B, and incorporated herein by reference.

PROSPECTUSES

NWL represents that the Contracts and Policies for the products, (collectively referred to hereinafter as “the Contracts”), are or shall be properly registered under the 1933 Act and/or the 1940 Act and agrees that the registration statements under the 1933 Act and/or the 1940 Act for the Contracts will remain in full force and effect for the duration of this Agreement. If any state should amend its current securities laws to require registration of insurance contracts, then NWL will comply with the amended state law.

Combined Product and Underlying Sub Account Prospectus- NWL shall be responsible for printing the product prospectuses and the underlying sub account prospectuses as a combined document. Waddell & Reed shall be responsible for providing a camera-ready copy of the underlying sub account prospectuses, as amended from time to time, to NWL for its use in printing the combined document.

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This document will be used in sales kits and in the contract package for newly issued contracts. The total printing expense for the combined document shall be borne by NWL. Any annual product prospectus mailing required to be distributed to policyholders (Shareholders) by applicable law will not be produced as a combined document.

Product Prospectus- NWL shall be responsible for printing the product prospectuses for the annual product prospectus mailing required to be distributed to policyholders (Shareholders) by applicable law. The total printing expense and mailing expense (postage) for the product prospectuses will be borne by NWL.

Underlying Sub Account Prospectus- Waddell & Reed will print the underlying sub account prospectuses, and shall bear the total printing expense relating to any annual underlying sub account prospectus mailing required to be distributed to policyholders (Shareholders) by applicable law. NWL within ten (10) business days of a request by Waddell & Reed, shall send to Waddell & Reed an electronic file in a format reasonably acceptable to Waddell & Reed containing the names and mailing addresses of then-current policyholders to enable it to mail the underlying sub account prospectuses.  NWL will reimburse Waddell & Reed for the postage expense of the annual underlying sub account prospectus mailing required to be distributed to policyholders (Shareholders) by applicable law. Waddell & Reed and NWL shall share equally that portion of total printing expenses relating to the underlying sub account prospectuses produced for soliciting prospective policyholders (Marketing).

Supplements to Underlying Sub Account Prospectus- Waddell & Reed is responsible for the printing and mailing of any supplements to underlying sub account prospectuses required to be distributed to policyholders (Shareholders) by applicable law.  NWL within ten (10) business days of a request by Waddell & Reed, shall send to Waddell & Reed an electronic file in a format reasonably acceptable to Waddell & Reed containing the names and mailing addresses of then-current policyholders to enable it to mail the underlying sub account prospectus supplement.  Waddell & Reed shall be responsible for providing NWL a camera-ready copy of the supplement to the underlying sub account prospectuses to update the combined product and underlying sub account prospectus. NWL shall reimburse Waddell & Reed for associated postage expense of any supplements to underlying sub account prospectuses.

Underlying Sub Account Semiannual and Annual Reports- Waddell & Reed will print and bear the printing expense for the underlying sub account semiannual and annual reports distributed to policyholders (Shareholders) and NWL will reimburse Waddell & Reed for the postage expense of the underlying sub acccount semiannual and annual reports distributed to policyholders (Shareholders).

Upon request, NWL will provide Waddell & Reed copies of all registration statements, prospectuses, statements of additional information, reports, sales literature and other promotional materials, applications of exemption, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or a Variable Account.

4

Upon request, NWL will provide Waddell & Reed with a report, in a format reasonably acceptable to Waddell & Reed, listing the total number of Contract policyholders who have selected each of the sub accounts.

NWL, during the term of this Agreement, will immediately notify Waddell & Reed of the following: (i) When the Registration Statement for any Contract has become effective or when any amendment with respect to the Registration Statement thereafter becomes effective; (ii) Any request by the SEC for any amendments or supplements to the Registration Statement for any Contract or any request for additional information that must be provided by Waddell & Reed; and (iii) The issuance by the SEC of any stop order with respect to the Registration Statement for any Contact or any amendments thereto or the initiation of any proceedings for that purpose or for any other purpose relating to the registration and/or offering of the Contracts.

CONTRACTS, APPLICATIONS AND RELATED FORMS

NWL is responsible for the design of product applications, contracts and related service forms in consultation with Waddell & Reed;

NWL is responsible for the printing of adequate supplies of product applications, contracts and related service forms;

NWL will, during the term of this Agreement, immediately notify Waddell & Reed of the following: (i) The states or jurisdictions where approval of the product contract forms is required under applicable insurance laws and regulations, and whether and when such approvals have been obtained; and (ii)  The states or jurisdictions where any product contract form may not lawfully be sold.

NWL is responsible for the design and printing of service forms which the parties jointly determine to be necessary.

NWL is responsible for supplying adequate quantities of service forms and will arrange for delivery of such forms in bulk to any location designated by Waddell & Reed.

PRODUCTION REPORTS

NWL will provide periodic production reports to Waddell & Reed during the term of this Agreement.  The frequency, content and format of such production reports shall be reasonably satisfactory to Waddell & Reed.

COMPLAINT HANDLING

NWL and Waddell & Reed shall inform the other party of (i) any complaints made to such party relating to the Services or Products provided under this Agreement, (ii) any actions, proceedings, claims, demands or complaints brought by a third party relating to the services or products provided under this Agreement, or to (iii) any complaints

5

brought by a regulatory body relating to the Services or Products provided under this Agreement; and cooperate with the other party with respect to the resolution of such complaints and when possible adhering to regulatory deadlines.

MARKETING ALLOWANCE

NWL agrees to provide Waddell & Reed, promptly upon written request, records to verify the accuracy of the marketing allowance calculations.

Variable Annuities

In addition to the compensation payable to Waddell & Reed by NWL under the Distribution Agreement, NWL shall calculate and pay to Waddell & Reed marketing allowance compensation in an amount equal to 0.25% annually of the average monthly account value of all variable annuity assets for the products listed below distributed by Waddell & Reed.  The marketing allowance shall be paid by NWL to Waddell & Reed monthly and shall survive termination of this Agreement and the Distribution Agreement.

Variable Annuity Products

Waddell & Reed Advisors Select Annuity

Waddell & Reed Advisors Select Plus Annuity

Waddell & Reed Advisors Select Plus Annuity NY

Waddell & Reed Advisors Select Preferred Annuity

Fixed Annuities

In addition to the compensation payable to Waddell & Reed by NWL under the General Agent Agreement, NWL shall calculate and pay to Waddell & Reed marketing allowance compensation in an amount equal to 0.25% of gross sales of the fixed annuities listed below distributed by Waddell & Reed.

Fixed Annuity Products

Waddell & Reed Advisors Nationwide Platinum V Fixed Annuity

Waddell & Reed Advisors Nationwide Platinum V Fixed Annuity NY

Nationwide Platinum V Plus Fixed Annuity

Nationwide Quatro Select

Nationwide Quatro Select NY

Nationwide will pay Waddell & Reed asset based marketing allowance compensation in an amount based upon the chart below.  The payment will be a percentage of the average monthly account value of specified fixed annuities. The applicable annuities are the Waddell & Reed Advisors Nationwide Platinum V Fixed Annuity and Waddell & Reed Advisors Nationwide Platinum V Fixed Annuity NY distributed by Waddell & Reed. It is hereby recognized that the marketing allowance based on assets will reduce the effective interest rates on affected contracts by a corresponding amount.

6

Annual percentage of W&R Advisors Platinum V and Platinum V NY assets

Effective date	%
October 1, 2001 – September 30, 2002	0.25%
October 1, 2002 – October 14, 2002	0.10%
October 15, 2002 – October 23, 2002	0.00%
October 24, 2002 – December 4, 2002	0.10%
December 5, 2002 – January 5, 2003	0.25%
January 6, 2003 – January 31, 2003	0.20%
February 1, 2003 and later	0.00%

Variable Immediate Annuity

NWL will pay Waddell & Reed marketing allowance compensation in an amount equal to 0.25% annually of the average daily assets in the variable funds of the Waddell & Reed Advisors Select Income Annuity.  The marketing allowance shall be paid by NWL to Waddell & Reed monthly and shall survive termination of this Agreement and the Distribution Agreement.

WEBSITE HOSTING AND MAINTENANCE

NWL shall have sole control over the internet site at www.nationwidefinancial.com/waddellreed (the “Web Site”). Both parties agree that NWL will conduct regular performance updates and Web Site enhancements. Modifications in the Web Site shall be deemed approved if Waddell and Reed fails, within 10 business days, to object in writing to NWL’s Web Site changes. In the event Waddell and Reed objects to certain updates or enhancements, the parties shall negotiate in good faith, without penalty, and agree in writing to a Web Site solution acceptable to both parties.

NWL shall be responsible for compliance with the security, privacy and user access policies of the Web Site and compliance with all applicable state and federal laws pertaining to the Web Site, with the exception of the form and content of materials created by and obtained from Waddell & Reed.

No compensation shall be paid and each party shall bear its own costs with respect to the creation, maintenance and operation of the Web Site.

Both parties expressly agree that the indemnifications and representations of the Agreement are extended to include the Web Site activities. In addition, the following acknowledgements and representations are made, specifically relating to the Web Site:

Ownership of the Web Site. As between Waddell & Reed and NWL, Waddell & Reed acknowledges that NWL is the exclusive owner of the Web Site, its services and content. NWL acknowledges that content given to NWL by Waddell & Reed for the Web Site shall remain the property of Waddell & Reed or its licensor. Neither NWL

7

nor Waddell & Reed shall have any rights in the other party’s content other than the limited right to use such content as required to perform the terms of this Agreement.

Since NWL has customized this particular Web Site for Waddell & Reed, Waddell & Reed hereby grants to NWL the nonexclusive, nontransferable, nonassignable right during the term of this Agreement to use (i.e., to copy, transmit, distribute, display and perform both privately and publicly), the Waddell & Reed icon, the Waddell & Reed name and any other related textual and graphic materials, if any, that are provided by Waddell & Reed to NWL for the express purpose of inclusion on the Web Site.

To further the purpose, and subject to the terms of this Agreement, each party hereby grants to the other party a limited, non-exclusive, nonsublicenseable, royalty-free, worldwide license to use such party’s trademarks, service marks, trade names, logos, or other commercial or product designations (collectively, the “Marks”). The owner of the Marks may terminate the foregoing license if, in its sole discretion, the licensee’s use of the Marks does not conform to the owner’s standards. Title to and ownership of the owner’s Marks shall remain with the owner. The licensee shall not take any action inconsistent with the owner’s ownership of the Marks and any benefit accruing from the use of such Marks shall automatically vest in the owner.

NWL shall acquire no ownership to Waddell & Reed’s intellectual property rights by virtue of its inclusion of Waddell & Reed’s trademark on the Web Site, nor shall Waddell & Reed acquire any rights in NWL’s intellectual property or in NWL’s ownership of the Web Site by its trademark’s inclusion on the Web Site.

Neither party makes any express or implied warranties to the other party with respect to the Web site including, but not limited to, warranties of merchantability, fitness for a particular purpose, or that the operation of the Web site will be uninterrupted or error-free. Neither party shall be liable to the other for loss of use, data, or profits, business interruption, or any other damages caused by or resulting from interruptions or errors on the Web site caused by forces outside of reasonable control, including but not limited to malicious codes, interrupted communications, and/or hackers,

Waddell & Reed warrants that any passwords or access devices provided to the Web site are for the sole use of the General Agent or Agents, and shall not be provided to any consumers.

Waddell & Reed and NWL agree that consumer’s nonpublic personal information obtained from and provided to each party will be maintained as confidential, will be used for only the intent and purpose shared, and will comply with all laws relating to privacy, confidentiality, security and the handling of customer information which may from time to time be established.

Either party may terminate the Web Site relationship without penalty by 30 days prior written notice. Upon termination of the Web Site relationship, all rights, licenses, and privileges shall automatically revert to the granting party.

8

GENERAL PROVISIONS

PREVIOUS AGREEMENT

As of the effective date of this Agreement, this Agreement shall supersede and effectively terminate any and all Administrative Services Agreements and amendments to all Administrative Service Agreements that may have been entered into between NWL and Waddell & Reed.

OTHER AGREEMENTS

NWL and Waddell & Reed acknowledge other agreements are established between the two parties however, the provisions of this Agreement control the conduct contemplated herein.

WAIVER

Failure of NWL or Waddell & Reed to insist upon strict compliance with any of the conditions of this Agreement shall not be construed as a waiver of any of the conditions, but the same shall remain in full force and effect. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver.

LIMITATIONS

Neither party shall have authority on behalf of the other to (i) make, alter or discharge any contractual terms of the products, (ii) to waive any forfeiture, (iii) extend the time of making any contributions to the products, (iv) guarantee dividends, (v) alter the forms which either may prescribe (vi) or substitute other forms in place of those prescribed by the other.

BINDING EFFECT

This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective successors and assigns, provided that neither party shall assign or sub-contract this Agreement or any rights or obligations hereunder without the prior written consent of the other, which consent shall not be unreasonably withheld.

INDEMNIFICATIONS

NWL agrees to indemnify and hold Waddell & Reed harmless from any and all losses, claims, damages, liabilities or expenses to which Waddell & Reed may become subject under any statute, regulation, common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses relate directly to the sale of the Contracts and arise as a direct consequence of: (i) any material misrepresentation or omission, or alleged misrepresentation or omission, contained in the registration statement, prospectuses or

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the Contracts; (ii) any failure by NWL or its employees, whether negligent or intentional, to perform the duties and discharge the obligations contemplated in this Agreement;  (iii) any fraudulent, unauthorized or wrongful act or omission by NWL, its employees, contractors or agents; and (iv) NWL’s misuse, modification and/or unauthorized use of the Marks or any claims that the Marks or materials provided to Waddell & Reed by NWL pursuant to this Agreement constitute an infringement of title, copyright, trademark or other intellectual property rights of a third party, or piracy, plagiarism, or unfair competition or idea misappropriation under implied or express contract or any other cause of action in any way related to the Marks or materials provided to Waddell & Reed by NWL pursuant to this Agreement.

Waddell & Reed agrees to indemnify and hold NWL, their officers, directors, employees and agents harmless from any and all losses, claims, damages, liabilities or expenses to which NWL may become subject under any statute, regulation, common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses related directly to the sale of the Contracts and arise as a direct consequence of: (i) any material misrepresentation or omission, or alleged misrepresentation or omission involving the sales subject to this Agreement, provided that such misrepresentations or omissions are not caused by NWL; (ii) any failure by Waddell & Reed, its Agents or affiliated agencies, whether negligent or intentional, to perform the duties and discharge the obligations contemplated in this Agreement; (iii) any fraudulent, unauthorized or wrongful act or omission by Waddell & Reed, its Agents or affiliated agencies; (iv) Waddell & Reed’s misuse, modification and/or unauthorized use of the Marks or any claims that the Marks or materials provided to NWL by Waddell & Reed pursuant to this Agreement constitute an infringement of title, copyright, trademark or other intellectual property rights of a third party, or piracy, plagiarism, or unfair competition or idea misappropriation under implied or express contract or any other cause of action in any way related to the Marks or materials provided to NWL by Waddell & Reed pursuant to this Agreement; (iv) any and all actions conducted on the part of Waddell & Reed, its Agents or affiliated agencies resulting from a finding by any regulatory agency with jurisdiction over NWL that a sale of a Contract was unsuitable; and (v) any loss, damage, liability, claim, demand, suit, judgment and expense (including reasonable attorneys’ fees) brought against NWL due to the misuse of Waddell & Reed’s access number(s), password(s) and account number(s) collectively referred to as “Security Codes.”

In the event that NWL is compelled or agrees to pay any amount in the settlement of any claim, judgment, arbitration or similar action pursuant to this Section, Waddell & Reed shall reimburse NWL. NWL, in the alternative, may deduct the amount of such reimbursement obligation from any sales compensation subsequently payable to Waddell & Reed.

No party shall be liable, as the indemnifying party pursuant to this Section, to the extent that the losses, claims, damages, liabilities or legal expenses incurred by the indemnified party arise out of the indemnified party’s willful misfeasance, bad faith, or

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gross negligence in the performance of its duties, or through the reckless disregard of the indemnified party’s duties, under this Agreement.

The parties will promptly notify each other of the commencement of any litigation or proceedings, or the assertion of any claim or any material inquiries related to the duties set forth in the Agreement.  The indemnifying party shall have control of the defense of any such action, including appeals, and of all negotiations relating thereto, including the right to effect the settlement or compromise thereof.

Nothing in this Section shall preclude the parties from exercising any other rights and remedies that may be available to them at law or in equity.

NOTICES

All notices, requests, demands and other communication under this Agreement shall be in writing and shall be deemed to have been given on the date of service if served personally on the party to whom notice is to be given, or on the date of mailing if sent by First Class Mail, Registered or Certified, postage prepaid and properly addressed as follows:

To NWL:

Nationwide Life Insurance Company

John L. Carter

Senior Vice-President, Nationwide Life Insurance Company

One Nationwide Plaza

Columbus, OH 43216

To Waddell & Reed:

Waddell & Reed, Inc.

Tom Butch

President and Chief Marketing Officer

6300 Lamar Avenue

Overland Park, KS 66202

With a copy to:

Waddell & Reed, Inc.

Attn: Legal Department

6300 Lamar Avenue

Overland Park, KS 66202

GOVERNING LAW

This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio.

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PRIVACY/CONFIDENTIALITY OF INFORMATION

Confidentiality Obligation.  Each party (in such capacity, the “Receiving Party”) shall hold the Confidential Information (as defined below) of the other party (in such capacity, the “Disclosing Party”) in strict confidence.  Each party shall take all reasonable steps to assure that any material or information considered by either party to be confidential which has or will come into the possession or knowledge of the other in connection with this Agreement shall not be disclosed to others, in whole or in part, without the prior written permission of the other party or as otherwise provided herein.  In addition, each party agrees not to use, disclose or distribute any Confidential Information except as necessary to perform the terms of this Agreement.  Each party warrants that it will protect and maintain the other party’s Confidential Information with reasonable care, which shall not be less than the degree of care it uses to protect and maintain is own Confidential Information.  Each party represents and agrees that it shall not disclose Confidential Information on other than a “need to know basis” and then only to (a) Receiving Party’s employees, officers or agents engaged in a use permitted hereby, (b) affiliates of Receiving Party provided they shall be restricted in use and subsequent disclosure to the same extent as Receiving Party, and (c) third party service providers of Customer and customer’s affiliated and subsidiary companies solely for use in connection with the provision of services to Customer and affiliated and subsidiary companies; provided that Customer’s third party service providers shall in advance sign a confidentiality agreement that includes reasonable nondisclosure provisions and that is no less restrictive than the terms of this Agreement.  The Receiving Party shall not duplicate any material containing Confidential Information except in the direct performance of its obligations under this Agreement.

CONFIDENTIAL INFORMATION

As used herein, “Confidential Information” shall mean information, including trade secrets, know-how, proprietary information, formulae, processes, techniques and information relating to the Disclosing Party’s past, present and future marketing, financial, research and development activities, and personal information about employees, policyholders, customers, licensors, contractors and others, that may be disclosed, whether orally or in writing, to the Receiving Party, or that may be otherwise received or accessed by the Receiving Party in connection with this Agreement, whether transmitted prior to or after the Effective Date, and which is information either identified as being Confidential Information, or which is information that a reasonable business person would understand to be confidential Information.  Examples of Confidential Information include, but are not limited to, the terms and conditions of this Agreement and any Order, the Disclosing Party’s (or its third party business partner’s, who shall be an express third party beneficiary under this Agreement) customer lists, pricing policies, market analyses, market projections, consulting and sales methods and techniques, expansion plans, programs, program decks, routines, subroutines, operating systems, internal controls, security procedures, inventions, methods of operation or proposed methods of operation, object and source codes, updates thereto, and related items, including, but not limited, specifications, layout, charts and other like

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materials and documents, together with all information, data, and know-how, technical or otherwise, included therein, manuals printouts, notes and annotations on disks, diskettes, tapes or cassettes, both master and duplicate.

Notwithstanding the foregoing, “Confidential Information” shall not include information: (i) previously known to the Receiving Party without an obligation of confidence; (ii) independently developed by or for the Receiving Party or Receiving Party’s employees, consultants or agents without reference to or use of the Confidential Information; (iii) was lawfully acquired by the Receiving Party form a third party which is not, to the Receiving Party’s knowledge, under an obligation of confidence with respect to such information; or (iv) which is or becomes publicly available through not fault of the Receiving Party or by no breach of this Agreement.  If the Receiving Party receives a subpoena or other validly issued administrative or judicial process demanding confidential Information, it shall promptly notify the Disclosing Party of such receipt and tender to it the defense of such demand.  After providing such notification, the Receiving Party shall be entitled to comply with such subpoena or other process to the extent permitted by Law.  Notwithstanding the fact that a portion of Confidential Information is or may become non-confidential, each party’s obligations under this Agreement will continue to apply to all other Confidential Information.

Customer Information: As used herein, “Customer Information” means non-public personally identifiable information as defined in the Gramm-Leach-Bliley Act and the rules and regulations promulgated there under.  Each party agrees to comply with all applicable provisions of the Gramm-Leach-Bliley Act.

Customer Information shall not include information that is not personally identifiable (de-identified information).  De-identified information may be used by NWL and/or its service providers, either alone or in aggregate, for research, studies, and for other business purposes.

Unauthorized Disclosure.  Receiving Party shall:  (a) promptly notify Disclosing Party of any unauthorized possession, use or knowledge, or attempt thereof, of Disclosing Party’s Confidential Information by any person or entity that may become known to Receiving Party, (b) promptly furnish to Disclosing Party full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist Disclosing Party in investigating or preventing the recurrence of any unauthorized possession, use or knowledge, or attempt thereof, of Disclosing Party’s Confidential Information, (c) cooperate with Disclosing Party in any litigation and investigation against third parties deemed necessary by Disclosing Party to protect its proprietary rights, and (d) use reasonable steps to prevent a recurrence of any such unauthorized possession, use or knowledge, or attempt thereof, of Disclosing Party’s Confidential Information.  Receiving Party shall bear the cost it incurs as a result of compliance with this Section.

Return or Destruction of Confidential Information.  Upon the Disclosing Party’s written request or following the completion or termination of any Statement of Work, the Receiving Party shall promptly (i) return to NWL all documents and other media

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containing Confidential Information that is in Receiving Party’s possession or control, and (ii) purge, delete or destroy, to the extent reasonably practical, any Confidential Information that cannot feasibly be returned to Disclosing Party, and (iii) safeguard all other documents or media, containing personal information, that cannot be returned, purged, deleted or destroyed.  With respect to identical copies of documents or other media whose originals have been returned to Disclosing Party, Receiving Party will purge, delete or destroy such copies.

Data Security.  In addition to complying with Customer Policies relating to security of and access to Customer Information, in performing the Services here under, Supplier shall adhere to industry standard best practices for security customer data so as to reasonably ensure that Customer Information is not lost or stolen or otherwise used, modified or accessed by any other party without Customer’s prior written approval.

Indemnification and Limitation on Liability.  The parties understand and agree that there shall be no cap on liability for direct damages arising out of breaches of confidentiality involving breaches of data that lead to the release and misuse of data pertaining to Customer or its employees (“Identified Breaches”).  All damages arising out of or relating to Identified Breaches shall be deemed direct damages for purposes of this Agreement.

This Section shall survive and continue in full force and effect notwithstanding the expiration or termination of the Agreement.

TERM OF AGREEMENT

This Agreement shall remain in full force and effect for three (3) years from October 2008 or unless terminated for cause, and may be amended only by mutual agreement of the parties, in writing. Any decision by either party to cease issuance or distribution of any specific product contemplated under this Agreement shall not effect a termination of the Agreement unless mutually agreed upon, or unless notice is given pursuant to the Notices section hereof.

TERMINATION

Either party may terminate this Agreement for cause at any time, upon written notice to the other, if the other knowingly and willfully (a) materially fails to comply with the laws or regulations of any state or governmental agency or body having jurisdiction over the sale of insurance or securities, (b) misappropriates any money or property belonging to the other, (c) subjects the other to any material actual or potential liability due to misfeasance, malfeasance, or nonfeasance, (d) commits any fraud upon the other, (e) has an assignment for the benefit of creditors, (f) incurs bankruptcy, or (g) commits a material breach of this Agreement; and does not cure such breach within 30 days following its receipt of written notice from the terminating party.

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NWL shall support the retention of Waddell & Reed Investment Management Company as sub-advisor of certain Nationwide separate accounts, unless Waddell & Reed experiences a change in control and materially violates the Exclusivity provision described herein.

Either party may terminate this Agreement, without regard to cause, upon six months prior written notice.

In the event of termination of this Agreement, NWL and Waddell & Reed will use “best efforts,” as defined below, to preserve in force the business relating to the products issued pursuant to this Agreement.

“Best efforts” with respect to Waddell & Reed shall mean that Waddell & Reed shall endeavor to ensure that the various sales representatives appointed by it shall not recommend to an owner of a product that the product be exchanged for a non-NWL policy unless there are reasonable grounds that the exchange of the product is suitable for the product owner, with both Waddell & Reed and NWL acknowledging the limitations on Waddell & Reed’s ability to do so due to the independent contractor status of its sales representatives. “Best efforts” with respect to NWL shall include, but not be limited to, efforts by NWL to make available new product features, contractual benefits and administrative and service enhancements which can, if economically feasible, be introduced to owners of the products, thereby discouraging the surrender, cancellation, exchange or transfer of the products identified in Appendix A.

IN WITNESS WHEREOF, the parties hereto execute this Agreement effective as of the date written above.

Waddell & Reed, Inc.

By: /s/ Thomas W. Butch

Title: President

NATIONWIDE LIFE INSURANCE COMPANY

NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY

By: /s/ John L. Carter

Title: Senior Vice President Non-Affiliated Sales, Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company

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APPENDIX A

PRODUCT TYPES

Exclusivity refers to the following product types:

Variable Annuities

Variable Universal Life Insurance

Retirement Plans

This APPENDIX may be amended from time to time with the addition of certain other annuity or insurance product types.

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Exhibit A
Administration Services Agreement
Analysis of Functions and Responsibilities

Administration and Customer Service

NWL - Applies underwriting issue criteria to application. Notifies agent and/or customer of any error or missing data necessary to underwrite application and establish Contract Owner records. -Receives and processes all Policyholder service requests, including but not limited to informational requests, beneficiary changes, payments, deposits, and transfers of contract value between eligible investment options. Receives and processes surrenders, loans, death claims in accordance with established guidelines. -Prepares checks for surrenders, loans, death claims and forwards to payee. Prepares and mails confirmation statement of disbursement to Contract Owner/Beneficiary, with copy to agent. -Maintains daily records of all changes made to Contract Owner accounts and values those accounts daily. -Researches and responds to all customer/broker policy inquiries. Keeps all required policyholder records. -Prints and provides all forms ancillary to contract policy issue. - Maintain adequate number of toll-free lines to service customer-broker policy inquiries. WADDELL & REED - Forwards completed application and associated forms to NWL. - Waddell & Reed shall maintain its registration under the 1934 Act and shall continue registration in good standing with the FINRA. Waddell & Reed shall promptly notify NWL in the event that any appointed agent fails to maintain required licenses, or materially fails to adhere to supervisory standards in connection with the sale of the products established jointly by NWL and Waddell & Reed. - Accommodates customer service function by providing any supporting information or documentation which may be in the control of Waddell & Reed. - Researches and responds to customer/broker inquiries regarding fund performance and distribution practices. - Promptly communicates complaints (formal written complaints and all inquires or complaints from any federal or state regulatory body) received by Waddell & Reed and assists in resolution. -Communicates responsibilities to producers and supports the process as appropriate.

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NWL

- Maintains a 24 hour “voice response” system for unit values and contract values and other applications as developed.

- Responds to formal complaints from state insurance departments, the SEC, and other outside agencies.

-Provides payout quotes information for customers.

-   Provides service support for all new contract sales.

-   Provides several daily outbound data feeds on existing contracts, including registration, transaction, unit values, and production history files in lieu of paper delivery of producer confirmation, quarterly statements, and commission statements.

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Accounting, Daily Trades and Valuations

This Section is governed by the fund participation agreement which has been entered into by NWL and the W&R Target Funds-such agreement is hereby incorporated by reference into this Agreement.

Banking

NWL- - Balances, edits, endorses and prepares daily deposit. -Places deposits in depository account. Prepares daily cash journal summary reports and maintains same for review by Waddell & Reed. WADDELL & REED

Proxy Processing

This section is governed by the fund participation agreement which has been entered into by NWL and the W&R Target Funds-such agreement is hereby incorporated by reference into this Agreement.

Premium Taxes

NWL -   Collects, pays and accounts for premium taxes as appropriate. -   Prepares and maintains all premium tax records by state. Maintains liabilities in General Account ledger for accrual of premium taxes collected. Integrates all company premium taxes due and performs related accounting. WADDELL & REED

Regulatory and Other Reporting

 NWL - Prepares and files all contracts and registrations required by SEC and state insurance departments as related to the annuity product. –    Prepares and files Separate Account Semi-Annual and Annual Statements. –    Prepares and mails the appropriate, required IRS reports at the Contract Owner level. Files same with required regulatory agencies. –    Prepares and files N-SAR for the Separate Account. -    Responsible for all audits related to the separate account and registration. Provides periodic reports in accordance with Schedule of Reports to be jointly prepared by NWL and Waddell & Reed. WADDELL & REED - Prepares and files registrations as required by the SEC relative to the mutual fund investments. –    - Prepares and files form N-SAR for the mutual funds. -Responsible for all audits related to the mutual funds. -Provides periodic reports in accordance with Schedule of Reports to be jointly prepared by NWL and Waddell & Reed.

Sales and Marketing

NWL -   Supports the wholesaling effort of the Products. -   Provides input into the Sales and Marketing plan. Responsible for planning service and administration support to appropriately support the sales efforts. -   Responsible for leading joint development of all sales and marketing materials and for all costs associated with printing, storing, postage and delivery. WADDELL & REED -     Responsible for wholesaling the Products to prospective producers including seminars, one-on-one presentations, training, and other normal wholesaling activities. -   Participates in joint development of all sales and marketing materials, and files with state insurance authorities as required, -   Responsible for filing sales and marketing material with FINRA. -   Responsible for development and

-  Provides input and prior approval on advertising materials. Files with regulatory agencies as required. associated costs of all advertising developed by Waddell & Reed.

EXHIBIT B

ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES

In order to assure compliance with state and federal regulatory requirements and to maintain control over the distribution of promotional materials dealing with the Products, NWL and Waddell & Reed require that all variable contract promotional materials be reviewed and approved by both NWL and Waddell & Reed prior to their use. These guidelines are intended to provide appropriate regulatory and distribution controls.

Sufficient lead time must be allowed in the submission of all promotional material. NWL and Waddell & Reed shall approve in writing all promotional material. Such approval shall not be unreasonably withheld and shall be given as promptly as possible within a reasonable period of time as agreed.

All promotional material will be submitted in “draft” form to permit any changes or corrections to be made prior to the printing.

NWL and Waddell & Reed will provide each other with the information below regarding the intended use of promotional material submitted. Approval for one use will not constitute approval for any other use. Different standards of review may apply when the same advertising material is intended for different uses. The following information will be provided for each item of promotional material:

i)	In what jurisdiction(s) the material will be used.
ii)	Whether distribution will be for “public” or “broker dealer only” use.
iii)	How the material will be used (e.g., brochure, mailings, 482 ads, etc.)
iv)	The projected date of initial use and, if a special promotion, the projected date of last use.

NWL and Waddell & Reed will advise each other of the date on which any material is discontinued from use.

Any changes to previously approved promotional material must be resubmitted, following these procedures. When approved material is to be put to a different use, request for approval of the material for the new use must be submitted.

NWL and Waddell & Reed will assign a form number to each item of advertising on each piece of advertising and sales promotional material. It will be used to aid in necessary filings, and to maintain appropriate controls.

NWL and Waddell & Reed will provide written approval for all material to be used.

Waddell & Reed will provide NWL with a minimum of 50 copies of all material

in final print form to effect necessary state insurance regulatory filings.

Waddell & Reed will coordinate, perform and be responsible for FINRA and any state securities regulatory filings of sales and promotional material to be used by Waddell & Reed registered representatives.

All telephone communication and written correspondence should be directed to Compliance Director, Nationwide Life Insurance Company, One Nationwide Plaza 1-33-401, Columbus, OH 43216 and if to Waddell & Reed, to, Tom Kennedy, Waddell & Reed, Inc, 6300 Lamar Avenue, Overland Park, KS 66202 (phone 913-236-2059).

EX-10.6

Exhibit 10.6

WADDELL & REED FINANCIAL, INC.

1998 STOCK INCENTIVE PLAN

As Amended and Restated

Waddell & Reed Financial, Inc., previously established the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as Amended and Restated, as amended effective December 12, 2002 and as further amended effective on each of January 16, 2003 (which January 16, 2003 amendment was submitted to and approved by the Company’s stockholders at the Company’s 2003 Annual Meeting of Stockholders), January 1, 2004, October 14, 2004, October 15, 2005, April 11, 2007 (which April 11, 2007 amendment was submitted to and approved by the Company’s stockholders at the Company’s 2007 Annual Meeting of Stockholders) (as amended and restated, the “Original Plan”) and September 12, 2008.  Pursuant to the powers reserved in Section 11 of the Original Plan, the Original Plan is amended effective January 1, 2009 as follows (the Original Plan as amended and restated hereby, the “Plan”).

SECTION 1.  Purposes of the Plan; Definitions.

The purposes of the Plan are to enable the Company, its Subsidiaries and Affiliates to attract and retain employees, directors and consultants who contribute to the Company’s success by their ability, ingenuity and industry, and to enable such employees, directors and consultants to participate in the long-term success and growth of the Company through an equity interest in the Company.

For purposes of the Plan, the following terms shall be defined as set forth below:

“Accounting Firm” has the meaning assigned to such term in Section 12(b).

“Affiliate” means (a) any corporation (other than a Subsidiary), partnership, joint venture or any other entity in which the Company owns, directly or indirectly, at least a 10% beneficial ownership interest, and (b) the Company’s parent company, if any.

“Annual SORP Exercise Date” has the meaning assigned to such term in Section 5(m).

“Award Agreement” means a written agreement by and between the Company and an awardee evidencing an award of Stock Options, Director Stock Options, Stock Appreciation Rights, Restricted Stock, Director Restricted Stock or Deferred Stock, as applicable, under the Plan.

“Board” means the Board of Directors of the Company.

“Business Day” means a day on which the New York Stock Exchange or other national securities exchange or over-the-counter market on which the Shares are then traded is open for business.

“Cause” means a participant’s willful misconduct or dishonesty, either of which is directly and materially harmful to the business or reputation of the Company or any Subsidiary or Affiliate; provided, however, that in the case where there is an employment or consulting agreement between a participant and the Company or any Subsidiary or Affiliate at the time of grant which defines “cause” (or words of like import), it shall have the meaning ascribed to such term (or words of like import) under such agreement.

“Change of Control” has the meaning assigned to such term in Section 11(b).

“Change of Control Price” has the meaning assigned to such term in Section 11(d).

“Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto.

“Committee” means the Compensation Committee of the Board.

“Commission” means the United States Securities and Exchange Commission.

“Company” means Waddell & Reed Financial, Inc., a Delaware corporation, and its successors.

“Covered Employee” means (a) the chief executive officer of the Company, and (b) a person designated by the Committee, at the time of grant of Performance Awards, whom the Committee believes is likely to be a “covered employee” (within the meaning of Section 162(m)(3) of the Code) with respect to the fiscal year during which the Performance Award is granted or in the foreseeable future.

“Deferral Period” means the period of time during which the receipt of Shares underlying a Deferred Stock award is deferred.

“Deferred Stock” means an award of the right to receive Shares at the end of a specified Deferral Period granted pursuant to Section 9.

“Director Restricted Stock” means any Shares of Restricted Stock granted pursuant to Section 6 to an Outside Director.

“Director Stock Option” means any option to purchase Shares granted pursuant to Section 6 to an Outside Director.

“Disability” means total and permanent disability as determined under the Company’s long-term disability program, whether or not the participant is covered under such program.  If no such program is in effect, the Disability of a director shall be determined in good faith by the Board (excluding such director).

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“Early Retirement” means retirement from active employment with the Company, any Subsidiary, or any Affiliate pursuant to the early retirement provisions of the applicable tax-qualified Company pension plan.

“Excess Parachute Payment” has the meaning assigned to such term in Section 12(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor thereto.

“Fair Market Value” means, unless otherwise determined in good faith by the Committee or required by applicable law, as of any given date, the closing sale price of a Share on such date on the New York Stock Exchange or other principal national securities exchange or over-the-counter market on which the Shares are then traded or, if there is no sale on that day, then on the last previous Business Day on which a sale was reported.

“Gross-Up Payment” has the meaning assigned to such term in Section 12(a).

“Immediate Family” means the children, grandchildren or spouse of any optionee.

“Normal Retirement” means retirement from active employment with the Company, any Subsidiary, or any Affiliate pursuant to the normal retirement provisions specified in the applicable tax-qualified Company pension plan.

“Outside Director” means any director of the Company who is not an officer or employee of the Company, any Subsidiary or any Affiliate.

“Performance Award” means any Stock Option, Stock Appreciation Right, or Restricted Stock or Deferred Stock award to a Covered Employee that the Committee intends to be “performance-based compensation” under Section 162(m)(4)(C) of the Code.

“Plan” means the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as Amended and Restated, as set forth herein and as may be amended, modified or supplemented from time to time.

“Potential Change of Control” has the meaning assigned to such term in Section 11(c).

“Restricted Stock” means Shares that are subject to certain restrictions and/or a risk of forfeiture granted pursuant to Section 8.

“SAR/Option Performance Award” means any Performance Award that is a Stock Option or Stock Appreciation Right.

“Shares” means the Company’s Class A common stock, par value $.01.

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“SORP” has the meaning assigned to such term in Section 5(m).

“SORP Option” has the meaning assigned to such term in Section 5(m).

“Stock Appreciation Right” means a right to surrender to the Company all or a portion of a Stock Option in exchange for an amount in cash or Shares as determined in the manner prescribed in Section 7(b)(ii), granted pursuant to Section 7.

“Stock Option” means an option to purchase Shares granted pursuant to Section 5 that is not intended to be, nor designated as, an “incentive stock option” within the meaning of Section 422 of the Code.

“Stock Performance Award” means any Performance Award other than a SAR/Option Performance Award.

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

“Tax Counsel” has the meaning assigned to such term in Section 12(a).

SECTION 2.  Administration.

The Plan shall be administered by the Committee which shall at all times comply with any applicable requirements of Rule 16b-3 of the Exchange Act. All members of the Committee shall also be “outside directors” within the meaning of Section 162(m) of the Code.  If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board.

The Board shall have the power and authority to determine all terms, conditions and provisions of Director Stock Option and Director Restricted Stock awards pursuant to Section 6.

The Committee shall have the power and authority to grant to eligible persons, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock Appreciation Rights; (iii) Restricted Stock and/or (iv) Deferred Stock.  In particular, the Committee shall have the authority:

(a)           to select the consultants, officers and other key employees of the Company, its Subsidiaries, and its Affiliates to whom Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock, or a combination of the foregoing, from time to time will be granted hereunder;

(b)           to determine whether and to what extent Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock, or a combination of the foregoing, are to be granted hereunder;

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(c)           to determine the number of Shares to be covered by each such award granted hereunder; and

(d)           to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder, including, but not limited to, any restriction on any award and/or the Shares relating thereto based on performance and/or such other factors as the Committee may determine, in its sole discretion, and any vesting acceleration features based on performance and/or such other factors as the Committee may determine, in its sole discretion.

The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan, any award issued thereunder, and any Award Agreements relating thereto; and to otherwise supervise the administration of the Plan.

All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.

Each award granted under the Plan shall be evidenced by, and subject to terms of, an Award Agreement, in such form as the Committee shall from time to time approve, which shall be executed by an authorized officer of the Company and the awardee.  Director Stock Options and Director Restricted Stock under the Plan shall be evidenced by an Award Agreement, in such form as the Committee shall from time to time approve, in conformity with the terms and conditions the Board has specified with respect to such awards and the terms of Section 6 and the Plan.  The Award Agreement shall contain provisions regarding (i) the number of Shares subject to the award, (ii) the exercise price per Share, if any, of the award and the means of payment therefor, (iii) the term of the award, and (iv) such other terms and conditions not inconsistent with the Plan as may be determined from time to time by the Committee.  A prospective awardee shall not have any rights with respect to any such award, unless and until such awardee has executed an Award Agreement evidencing the award, has delivered a fully executed copy thereof to the Company, and has otherwise complied with the then applicable terms and conditions.

SECTION 3.  Shares Subject to Plan.

Subject to adjustment as provided in this Section 3, the total number of Shares reserved and available for issuance in connection with awards under the Plan shall not exceed 30,000,000 Shares.

If any Shares subject to any award granted pursuant to the Plan are forfeited or such award otherwise terminates, such Shares shall again be available for distribution in connection with future awards under the Plan.

In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Shares, an equitable substitution or adjustment shall be made in (i) the aggregate number of Shares reserved for issuance under the Plan, (ii) the number and exercise price of Shares subject to outstanding Stock Options granted under the Plan,

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(iii) the number of Shares subject to Restricted Stock or Deferred Stock awards granted under the Plan, (iv) the aggregate number of Shares available for issuance to any participant pursuant to Section 4A(a), and (v) the number and exercise price, if any, of Shares subject to Director Stock Option and Director Restricted Stock awards to be granted each year pursuant to Section 6, as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of Shares subject to any award shall always be a whole number. Such adjusted number and exercise price of Shares shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option.

SECTION 4.       Eligibility.

(a)           Consultants and Employees.  Consultants, officers and other key employees of the Company, its Subsidiaries or its Affiliates who are responsible for or contribute to the management, growth and/or profitability of the business of the Company, its Subsidiaries, or its Affiliates are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock.  Except as provided in Section 6, Plan participants shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion and subject to Section 4A(a), the number of Shares covered by each award.

(b)           Outside Directors.  Each Outside Director is eligible to receive Director Stock Option and/or Director Restricted Stock awards pursuant to Section 6.

SECTION 4A.    Performance Awards and Award Limit.

(a)           Individual Award Limitations.  The Committee may grant awards to a Covered Employee that are either Performance Awards or not Performance Awards.  In any calendar year during any part of which the Plan is in effect, a participant (whether or not a Covered Employee) may not be granted awards under the Plan (Performance Awards or otherwise) that have, in the aggregate, more than 3,750,000 “points,” with each Stock Appreciation Right and Stock Option having one “point” for each Share granted with respect thereto, and each Restricted Stock and Deferred Stock award having three “points” with respect to each Share granted with respect thereto.  For illustrative purposes, a grant of a Stock Option for 10 Shares has 10 “points,” and a grant of 10 Shares of Restricted Stock has 30 “points.”  If an award is canceled, such award continues to be counted against the maximum number of Shares for which awards may be granted to the participant under the Plan, as set forth in this Section 4A(a).

(b)           Performance Goals for Performance Awards.  Each Performance Award shall be structured so as to qualify as “performance-based compensation” under Section 162(m)(4)(C) of the Code, as described below.

(i)            SAR/Option Performance Awards.  The exercise price (in the case of a Stock Option) or the base price (in the case of a Stock Appreciation Right) of a SAR/Option Performance Award shall not be less than 100% of the Fair Market Value of the Shares on the date of grant of such SAR/Option Performance Award.

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(ii)           Stock Performance Awards.  The grant, vesting and/or settlement of a Stock Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 4A(b)(ii).

(A)          Performance Goals Generally.  The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each such criteria, as specified by the Committee consistent with this Section 4A(b)(ii).  Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the level or levels of performance targeted by the Committee result in the achievement of such performance goals being “substantially uncertain.”  The Committee may condition the grant, vesting, exercise and/or settlement of any Performance Award upon achievement of any one or more performance goals.  Performance goals may differ for Performance Awards granted to any one awardee or to different awardees.

(B)           Business Criteria.  One or more of the following business criteria (including or excluding extraordinary and/or non-recurring items to be determined by the Committee in advance) for the Company, on a consolidated basis, and/or for specified Subsidiaries or business or geographical units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used by the Committee in establishing performance goals for Performance Awards:  (1) earnings per share; (2) increase in revenues; (3) increase in cash flow; (4) increase in cash flow return; (5) return on net assets; (6) return on assets; (7) return on investment; (8) return on capital; (9) return on equity; (10) economic value added; (11) operating margin; (12) contribution margin; (13) net income; (14) pre-tax earnings; (15) pre-tax earnings before interest, depreciation and amortization; (16) pre-tax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (17) operating income; (18) total stockholder return; (19) debt reduction; and (20) any of the above goals determined on an absolute or relative basis, or as adjusted in any manner which may be determined in the discretion of the Committee, or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of competitor companies, including the group selected by the Company for purposes of the stock performance graph contained in the proxy statement for the Company’s most recent annual meeting of stockholders.

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(C)           Performance Period; Timing for Establishing Performance Goals.  Achievement of performance goals shall be measured over a performance period of up to ten years, as specified by the Committee.  Performance goals shall be established not later than 90 days (or, for performance periods of less than 1 year, the passage of 25% of the performance period) after the beginning of any performance period applicable to such Performance Award, or at such other date as may be required or permitted for “performance-based compensation” under Section 162(m) of the Code.

(D)          Settlement of Performance Awards; Other Terms.  After the end of each performance period, the Committee shall determine the amount, if any, of such Performance Award payable to a Covered Employee.  Settlement of such Performance Awards shall be in cash, Shares, or other awards or property, as determined in the sole discretion of the Committee.  The Committee may, in its discretion, reduce the amount of any Performance Award to be settled upon achievement of the associated performance goal or goals, but may not exercise discretion to increase any such amount payable to a Covered Employee with respect to such Performance Award.

(c)           General.  The Committee shall retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of a Performance Award that is not mandatory under the Plan; provided, however, that notwithstanding any other provision of the Plan, the Committee shall not have any discretion to accelerate, waive or modify any term or condition of an award that is intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code if such discretion would cause such Performance Award not to so qualify.

(d)           Written Determinations.  The Committee may not delegate any responsibility relating to Performance Awards.  All determinations by the Committee as to the establishment of performance goals, the amount of any potential individual Performance Award, and the achievement of performance goals relating to Stock Performance Awards shall be made in writing in the case of any award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.  The determination as to whether any performance goal, with respect to any Performance Award, has been satisfied shall be made prior to the payment of any compensation relating to a Performance Award.

(e)           Performance Awards under Section 162(m) of the Code.  It is the intent of the Company that Performance Awards granted to persons who are or likely will become “covered employees” within the meaning of Section 162(m) of the Code shall constitute “performance-based compensation” within such Section of the Code.  Accordingly, the terms of this Section 4A, including the definitions of “Covered Employee” and other terms used herein, shall be interpreted in a manner consistent with Section 162(m) of the Code.  If any provision of the Plan as in effect on the date of adoption thereof or as of the

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date of any Award Agreements relating to Performance Awards intended to comply with Section 162(m) of the Code does not comply or is inconsistent with the requirements of such Section of the Code, then such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

(f)            Conflicts Among Plan Provisions.  To the extent this Section 4A conflicts with any other provision of the Plan, this Section 4A shall control.

SECTION 5.  Stock Options for Consultants and Employees.

Stock Options may be granted either alone or in addition to other awards granted under the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve, and the provisions thereof need not be the same with respect to each optionee.

The Committee shall have the authority to grant any consultant, officer or key employee Stock Options (with or without Stock Appreciation Rights).  Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

(a)           Exercise Price.  The exercise price per Share of any Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100% of the Fair Market Value of the Shares on the date of grant, and shall be indicated in the Award Agreement.

(b)           Option Term.  The term of each Stock Option shall be fixed by the Committee.

(c)           Exercisability.  Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; provided, however, that except as provided in Sections 5(f), 5(g), 5(h) or 11, no Stock Option shall be exercisable prior to six months from the date of grant.  Notwithstanding the limitations set forth in the preceding sentence, the Committee may accelerate the exercisability of any Stock Option, at any time in whole or in part, based on performance and/or such other factors as the Committee may determine in its sole discretion.

(d)           Exercise of Stock Options.  A Stock Option, or portion thereof, may be exercised in whole or in part only with respect to whole Shares.  Stock Options may be exercised in whole or in part at any time during the exercise 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 exercise price, in cash, by check or such other instrument as may be acceptable to the Committee (including instruments providing for “cashless exercise”).  To the extent provided by the Committee, payment in full or in part may also be made in the form of unrestricted Shares already owned by the optionee (based on the Fair Market Value of the Shares on the date the Stock Option is exercised).  An optionee shall have rights to

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dividends and other stockholder rights with respect to Shares subject to a Stock Option only after the optionee has given written notice of exercise and has paid in full for such Shares.

(e)           Transferability of Options.  A Stock Option Award Agreement may permit an optionee to transfer such Stock Option to members of his or her Immediate Family, 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) the Award Agreement setting forth such Stock Option expressly provides for the transfer thereof with the express written consent of the Committee, and (ii) the optionee does not receive any consideration in any form whatsoever for such transfer.  Any Stock Option so transferred shall continue to be subject to the same terms and conditions in the hands of the transferee as were applicable to such Stock Option immediately prior to the transfer thereof.  Any Stock Option (A) not granted pursuant to an Award Agreement expressly allowing the transfer of such Stock Option, or (B) that the Award Agreement for which has not been amended expressly to permit its transfer shall not be transferable by the optionee other than by will or by the laws of descent and distribution.

(f)            Termination by Death.  Unless otherwise determined by the Committee, if an optionee’s employment with the Company, any Subsidiary, or any Affiliate terminates by reason of death, any Stock Option held by such optionee shall become immediately exercisable, and thereupon (or if an optionee dies following termination of employment by reason of Disability or Early or Normal Retirement), such Stock Option may thereafter be 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 first anniversary of the optionee’s death.

(g)           Termination by Reason of Disability.  Unless otherwise determined by the Committee, if an optionee’s employment with the Company, any Subsidiary or any Affiliate terminates by reason of Disability, any Stock Option held by such optionee shall be immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of such Stock Option.

(h)           Termination by Reason of Retirement.  Unless otherwise determined by the Committee, if an optionee’s employment with the Company, any Subsidiary or any Affiliate terminates by reason of (i) Normal Retirement, any Stock Option held by such optionee shall become immediately exercisable and shall expire at the end of the stated term of such Stock Option, or (ii) Early Retirement, any Stock Option held by such optionee shall terminate three years from the date of such Early Retirement or upon the expiration of the stated term of the Stock Option, whichever is earlier.  In the event of Early Retirement, there shall be no acceleration of vesting of the Stock Option, unless otherwise determined by the Committee at or after grant, and such Stock Option may only be exercised to the extent it is or has become exercisable prior to termination of the Stock Option.

(i)            Termination for Cause.  If the optionee’s employment with the Company, any Subsidiary or any Affiliate is terminated for Cause, any Stock Option held by such optionee shall immediately be terminated upon the giving of notice of termination of employment.

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(j)Other Termination.  Unless otherwise determined by the Committee, if the optionee’s employment with the Company, any Subsidiary or any Affiliate is (i) involuntarily terminated by the optionee’s employer without Cause, any Stock Option held by such optionee shall terminate three months from the date of termination of employment or upon the expiration of the stated term of the Stock Option, whichever is earlier, or (ii) voluntarily terminated for any reason, any Stock Option held by such optionee shall terminate one month from the date of termination of employment or upon the expiration of the stated term of the Stock Option, whichever is earlier.  In either event, there shall be no acceleration of vesting of the Stock Option unless otherwise determined by the Committee and such Stock Option may only be exercised to the extent it is or has become exercisable prior to termination of the Stock Option.

(k)Termination upon Change of Control.  Notwithstanding the provisions of Section 5(j), but subject to Section 11, if the optionee’s employment with the Company, any Subsidiary or any Affiliate is involuntarily terminated by the optionee’s employer without Cause by reason of, or within three months after, a Change of Control, any Stock Option held by such optionee shall terminate six months and one day after such Change of Control.

(l)For purposes of the Plan, all references to termination of employment shall be construed to mean termination of all service relationships with the Company and its Subsidiaries and Affiliates, including employees, independent contractors or consultants; provided, however, that nothing in the Plan shall be construed to create or continue a common law employment relationship with any individual characterized by the Company, a Subsidiary or an Affiliate as an independent contractor or consultant.  For purposes of clarity, if a common law employee ceases to perform services for the Company, its Subsidiaries or their Affiliates as a common law employee but continues to perform services for the Company, its Subsidiaries or their Affiliates as a consultant or independent contractor, then the transition from employee to consultant or independent contractor will not be deemed to be a termination of employment of the individual for purposes of the Plan; provided, however, that nothing in the Plan shall be construed to create or continue a common law employment relationship with any individual characterized by the Company, a Subsidiary or an Affiliate as an independent contractor or consultant.

(m)The Committee, in its discretion, may include in any Stock Option Award Agreement, a “stock option restoration program” (“SORP”) provision. Such provision shall provide, without limitation, that, if payment on exercise of a Stock Option is made in the form of Shares, and the exercise occurs on the Annual SORP Exercise Date, an additional Stock Option to purchase Shares (a “SORP Option”) will automatically be granted to the optionee effective as of the Annual SORP Exercise Date.  A SORP Option shall (i) have an exercise price equal to 100% of the Fair Market Value of the Shares on the Annual SORP Exercise Date, (ii) have a term equal to that of the originally exercised Stock Option giving rise to the SORP Option, not to exceed a maximum term of 10 years and two days from the issuance date of the SORP Option (subject to any forfeiture provision or shorter limitation on exercise required under the Plan), (iii) have an initial vesting date no earlier than six months after the date of its issuance, and (iv) cover a number of Shares equal to the number

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of Shares used to pay the exercise price of the originally exercised Stock Option, plus the number of Shares (if any) withheld or sold to cover income and employment taxes (plus any selling commissions) with respect to such original exercise.  “Annual SORP Exercise Date” shall mean August 1, or if August 1 is not a Business Day, “Annual SORP Exercise Date” shall mean the next succeeding Business 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.

SECTION 6.  Director Stock Options and Director Restricted Stock.

(a)Awards.  For each calendar year, either (i) Director Stock Options, or (ii) an award of Shares of Director Restricted Stock shall be automatically granted to each Outside Director on the first Business Day of each calendar year, such number of Director Stock Options or Shares as the Board in its sole discretion determines.  The determination as to whether an award is made pursuant to clause (i) or (ii) of this Section 6(a) shall be made in the sole discretion of the Board.  The exercise price per Share of any Director Stock Option granted pursuant to this Section 6(a) shall be 100% of the Fair Market Value per Share on the date of grant.  Subject to Sections 6(d) and 11, (A) Director Stock Options granted pursuant to this Section 6(a) shall become exercisable six months from the date of grant for a term of ten years and two days from the date of grant, and (B) the price, if any, to be paid, and the time or times within which Director Restricted Stock may be subject to forfeiture, or may be nontransferable, will be determined by the Board in its sole discretion.  Except to the extent otherwise provided in this Section 6 and Section 11, all terms and conditions of Director Stock Option and Director Restricted Stock awards shall be established by the Board in its sole discretion including, without limitation, the nontransferability thereof and the time or times within which such Restricted Stock may be subject to forfeiture.  Director Restricted Stock shall be subject to the provisions of Sections 8(b) and 8(c).

(b)Exercise of Director Stock Options.  Any Director Stock Option, or portion thereof, granted pursuant to the Plan may be exercised in whole or in part only with respect to whole Shares.  Director Stock Options may be exercised in whole or in part at any time during the exercise 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 exercise price, in cash, by check or such other instrument as may be acceptable to the Committee (including instruments providing for “cashless exercise”).  As determined by the Committee, in its sole discretion, payment in full or in part may also be made in the form of unrestricted Shares already owned by the optionee (based on the Fair Market Value of the Shares on the date the Director Stock Option is exercised).  An optionee shall have rights to dividends and other stockholder rights with respect to Shares subject to a Director Stock Option only after the optionee has given written notice of exercise and has paid in full for such Shares.

(c)Transferability.  No Director Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and all Director Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee;

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provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes, in its sole discretion, that such transferability (i) does not result in accelerated taxation, and (ii) is otherwise appropriate and desirable, taking into account any factors considered relevant by the Committee, including, without limitation, any state or Federal securities laws applicable to transferable options.

(d)Termination of Service.  Upon an optionee’s termination of status as an Outside Director for any reason, any Director Stock Options held by such optionee shall become immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of such Director Stock Option or, upon such optionee’s death, during the period ending on the first anniversary thereof.  Notwithstanding the foregoing sentence, but subject to Section 11, if the optionee’s status as an Outside Director terminates by reason of or within three months after a Change of Control, each Director Stock Option held by such optionee shall terminate upon the latest of (i) six months and one day after the Change in Control, or (ii) the expiration of the stated term of such Director Stock Option.  Upon the termination of an awardee’s status as an Outside Director by reason of death or Disability, all restrictions, including restrictions regarding forfeiture and nontransferability, placed upon any Director Restricted Stock held by such awardee shall immediately lapse and such shares shall be deemed fully vested and nonforfeitable.  Upon the termination of an awardee’s status as an Outside Director for any reason other than death or Disability, all Shares of Director Restricted Stock granted pursuant to this Section 6 still subject to restriction shall be forfeited by such Outside Director, and the Outside Director shall only receive the amount, if any, paid by the Outside Director for such forfeited Director Restricted Stock.

SECTION 7.  Stock Appreciation Rights.

(a)Grant and Exercise.  Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan either at or after the time of the grant of such Stock Option.

A Stock Appreciation Right, or applicable portion thereof, granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise provided by the Committee at the time of grant, a Stock Appreciation Right granted with respect to less than the full number of Shares covered by a related Stock Option shall only be reduced if and to the extent that the number of Shares covered by the exercise or termination of the related Stock Option exceeds the number of Shares not covered by the Stock Appreciation Right.

A Stock Appreciation Right may be exercised by an optionee in accordance with Section 7(b), by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 7(b).  Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.

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(b)Terms and Conditions.  Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following:

(i)Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the related Stock Options shall be exercisable in accordance with the provisions of Section 5 and this Section 7; provided, however, that any Stock Appreciation Right granted subsequent to the grant of the related Stock Option shall not be exercisable during the first six months of the term of the Stock Appreciation Right, except that this additional limitation shall not apply in the event of death or Disability of the optionee prior to the expiration of the six-month period.

(ii)Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive up to, but not more than, an amount in cash or Shares equal in value to the excess of the Fair Market Value of one Share over the exercise price per Share specified in the related Stock Option Award Agreement multiplied by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment.

(iii)Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under Section 5(e) of the Plan.

(iv)Upon the exercise of a Stock Appreciation Right, the related Stock Option or part thereof shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 on the number of Shares to be issued under the Plan.

(v)In its sole discretion, the Committee may provide, at the time of grant of a Stock Appreciation Right, that such Stock Appreciation Right can be exercised only in the event of a Change of Control and/or a Potential Change of Control and that upon such event, the amount to be paid upon the exercise of a Stock Appreciation Right shall be based on the Change of Control Price.

SECTION 8.  Restricted Stock.

(a)Administration.  Shares of Restricted Stock may be granted either alone or in addition to other awards granted under the Plan.  Any Restricted Stock award granted under the Plan shall be in such form as the Committee may from time to time approve, and the provisions thereof need not be the same with respect to each awardee.  The Committee shall determine the consultants, officers, and key employees of the Company and its Subsidiaries and Affiliates to whom, and the time or times at which, Restricted Stock will be awarded; the number of Shares of Restricted Stock to be awarded to any awardee; the price, if any, to

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be paid by the awardee; the time or times within which such awards may be subject to forfeiture and nontransferability; and all other terms and conditions of the awards (subject to this Section 8 and Section 11). The Committee may also condition the grant and/or vesting of Restricted Stock upon the attainment of one or more specified performance goals, or such other criteria as the Committee may determine, in its sole discretion.

(b)Restrictions and Conditions.  Shares of Restricted Stock awarded shall be subject to the following restrictions and conditions:

(i)Subject to the provisions of the Plan and the applicable Award Agreement, during such period as may be set by the Committee commencing on the grant date, Restricted Stock awarded pursuant to the Plan shall not be sold, assigned, transferred, pledged or otherwise encumbered.  The Committee may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, before or after the awardee’s termination of employment, based on performance and/or such other factors as the Committee may determine, in its sole discretion.

(ii)Except as provided in clause (i) above, the awardee shall have, with respect to the Shares of Restricted Stock, all of the rights of a stockholder of the Company, including the right to receive any dividends. Dividends paid in stock of the Company or stock received in connection with a stock split with respect to Restricted Stock shall be subject to the same restrictions as on such Restricted Stock.  Certificates, if issued, for unrestricted Shares, shall be delivered to the awardee promptly after, and only after, the period of forfeiture shall expire without forfeiture with respect to such Shares of Restricted Stock.

(c)Book-Entry Accounts; Certificates for Restricted Stock.  An account for each awardee shall be opened with the Company’s transfer agent or such other administrator designated by the Committee for the deposit of the Shares of Restricted Stock subject to the award, or, in the sole discretion of the Committee, each awardee may be issued a stock certificate registered in the name of the awardee evidencing such Shares of Restricted Stock. The Committee shall specify that any such certificate bear a legend, as provided in clause (i) below, and/or be held in custody by the Company, as provided in clause (ii) below.

(i)Any certificate evidencing Restricted Stock shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, substantially in the following form:

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as Amended and Restated (the “Plan”) and a Restricted Stock Award Agreement entered into between the registered owner and Waddell & Reed Financial, Inc. (the “Agreement”).  Copies of the Plan and

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Agreement are on file in the offices of Waddell & Reed Financial, Inc., 6300 Lamar Avenue, Overland Park, Kansas 66202.”

(ii)The Committee shall require that stock certificates evidencing such Restricted Stock be held in custody by the Company or the transfer agent or such other administrator designated by the Committee until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the awardee shall have delivered to the Company a stock power, endorsed in blank, relating to the Shares covered by such award.

(d)Termination.  Subject to the provisions of the Award Agreement and this Section 8, upon termination of employment by reason of death or Disability, the restrictions upon any Restricted Stock granted pursuant to Section 8(a) held by the awardee shall immediately lapse and such shares shall become fully vested and nonforfeitable.  Upon termination of employment for any reason other than death or Disability, all Shares of Restricted Stock granted pursuant to Section 8(a) still subject to restriction shall be forfeited by the awardee, and the awardee shall only receive the amount, if any, paid by the awardee for such forfeited Restricted Stock.

SECTION 9.  Deferred Stock Awards.

(a)Administration.  Deferred Stock may be granted either alone or in addition to other awards granted under the Plan.  Any Deferred Stock granted under the Plan shall be in such form as the Committee may from time to time approve, and the provisions thereof need not be the same with respect to each awardee.  The Committee shall determine the consultants, officers and key employees of the Company, its Subsidiaries or Affiliates to whom, and the time or times at which, Deferred Stock shall be awarded; the number of Shares of Deferred Stock to be awarded to any awardee; the Deferral Period during which, and the conditions under which, receipt of the Shares will be deferred; and all other terms and conditions of the award (subject to this Section 9 and Section 11).  The Committee may also condition the grant and/or vesting of Deferred Stock upon the attainment of specified performance goals, or such other criteria as the Committee shall determine, in its sole discretion.

(b)Terms and Conditions.  Shares of Deferred Stock awarded pursuant to this Section 9 shall be subject to the following terms and conditions:

(i)Subject to the provisions of the Plan and the applicable Award Agreement, during the Deferral Period, Deferred Stock awarded pursuant to the Plan may not be sold, assigned, transferred, pledged or otherwise encumbered.  At the expiration of the Deferral Period, stock certificates shall be delivered to the awardee, or his legal representative, in a number equal to the Shares covered by the Deferred Stock award.

(ii)At the time of the award, the Committee may, in its sole discretion, determine that amounts equal to any dividends declared during the Deferral Period

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with respect to the number of Shares covered by a Deferred Stock award will be paid to the awardee currently, deferred and deemed to be reinvested, or that such awardee has no rights with respect thereto.

(iii)Subject to the provisions of the applicable Award Agreement and this Section 9, upon termination of employment for any reason during the Deferral Period, the Deferred Stock held by such awardee shall be forfeited by the awardee.

(iv)Based on performance and/or such other criteria as the Committee may determine, the Committee may, at or after grant (including after the awardee’s termination of employment), accelerate the vesting of all or any part of any Deferred Stock award and/or waive the deferral limitations for all or any part of such award.

SECTION 10.  Amendments and Termination.

The Board may amend, alter, or discontinue the Plan, but no such amendment, alteration, or discontinuation shall be made which would impair the right of an optionee or awardee under a Stock Option, Director Stock Option, Stock Appreciation Right, Restricted Stock, Director Restricted Stock or Deferred Stock award granted prior thereto, without the optionee’s or awardee’s consent.

Amendments may be made without stockholder approval except as required to satisfy Sections 162(m) of the Code, stock exchange listing requirements, or other applicable law or regulatory requirements.

The Committee may amend the terms of any Stock Option, Stock Appreciation Right, Restricted Stock or Deferred Stock award granted, and the Board may amend the terms of any Director Stock Option or Director Restricted Stock award, prospectively or retroactively, but no such amendment shall be made which would impair the rights of an optionee or awardee without the optionee’s or awardee’s consent.

SECTION 11.  Change of Control.

The following acceleration and valuation provisions shall apply in the event of a Change of Control or Potential Change of Control:

(a)In the event of (1) a Change of Control, unless otherwise determined by the Committee in writing at or after grant, but prior to the occurrence of such Change of Control, or (2) a Potential Change of Control, only if and to the extent so determined by the Committee in writing at or after grant (subject to any right of approval expressly reserved by the Committee at the time of such determination):

(i)any Stock Appreciation Rights, Stock Options and Director Stock Options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested;

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(ii)           the restrictions and deferral limitations applicable to any Restricted Stock, Director Restricted Stock and Deferred Stock awards under the Plan shall lapse and such Shares and awards shall be deemed fully vested and nonforfeitable; and

(iii)          the value of all outstanding Stock Option, Director Stock Option, Stock Appreciation Right, Restricted Stock, Director Restricted Stock and Deferred Stock awards, shall, to the extent determined by the Committee at or after grant, be settled on the basis of the Change of Control Price as of the date the Change of Control occurs or Potential Change of Control is determined to have occurred, or such other date as the Committee may determine prior to the Change of Control or Potential Change of Control. In the sole discretion of the Committee, such settlements may be made in cash, stock or other property, or any combination thereof; provided, however, to the extent any such settlement is made in Shares, such Shares will be deemed to have been distributed under the Plan.

(b)           A “Change of Control” means the occurrence of any of the following:

(i)            when any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or a Subsidiary or any Company employee benefit plan), is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities;

(ii)           the effective date of any transaction or event relating to the Company required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of the Exchange Act;

(iii)          when, during any period of two consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board cease, for any reason other than death, to constitute at least a majority thereof, unless each director who was not a director at the beginning of such period was elected by, or on the recommendation of, at least two-thirds of the directors at the beginning of such period; or

(iv)          the effective date of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.

(c)           A “Potential Change of Control” means the occurrence of any of the following:

(i)            the entering into of an agreement by the Company, the consummation of which would result in a Change of Control; or

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(ii)           the acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan) of securities of the Company representing 5% or more of the combined voting power of the Company’s then outstanding securities and the adoption by the Board of Directors of a resolution to the effect that a Potential Change of Control of the Company has occurred for purposes of the Plan.

(d)           “Change of Control Price” means the highest price per Share paid in any transaction reported on the New York Stock Exchange or other national securities exchange or over-the-counter market on which the Shares are then traded, or paid or offered in any transaction related to a potential or actual Change of Control at any time during the preceding 60-day period as determined by the Committee, except that in the case of Director Stock Options and Director Restricted Stock, the 60-day period shall be the period immediately prior to a potential or actual Change of Control.

SECTION 12.  Limitations on Payments.

(a)           Notwithstanding any other provision of the Plan or any other agreement, arrangement or plan, in no event shall the Company pay or be obligated to pay any participant an amount which would be an Excess Parachute Payment, except as provided in Section 12(f) and except as the Committee specifically provides otherwise in the participant’s Award Agreement.  For purposes of the Plan, the term “Excess Parachute Payment” shall mean any payment or any portion thereof which would be an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code, and would result in the imposition of an excise tax under Section 4999 of the Code, in the opinion of tax counsel selected by the Company (“Tax Counsel”).  In the event it is determined that an Excess Parachute Payment would result if the full acceleration of vesting and exercisability provided in Section 11 were made (when added to any other payments or benefits contingent on a change of control under any other agreement, arrangement or plan), the payments due under Section 11(a) shall be reduced to the minimum extent necessary to prevent an Excess Parachute Payment; then, if necessary to prevent an Excess Parachute Payment, benefits or payments under any other plan, agreement or arrangement shall be reduced. If it is established pursuant to a final determination of a court or an Internal Revenue Service administrative appeals proceeding that, notwithstanding the good faith of the participant and the Company in applying the terms of this Section 12(a), a payment (or portion thereof) made is an Excess Parachute Payment, then, the Company shall pay to the participant an additional amount in cash (a “Gross-Up Payment”) equal to the amount necessary to cause the amount of the aggregate after-tax compensation and benefits received by the participant hereunder (after payment of the excise tax under Section 4999 of the Code with respect to any Excess Parachute Payment, and any state and Federal income taxes with respect to the Gross-Up Payment) to be equal to the aggregate after-tax compensation and benefits the participant would have received as if Sections 280G and 4999 of the Code had not been enacted.

(b)           Subject to the provisions of Section 12(c), the amount of any Gross-Up Payment and the assumptions to be utilized in arriving at such amount shall be determined

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by a nationally recognized certified public accounting firm designated by the Company (the “Accounting Firm”). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to Section 12(a), shall be paid by the Company to the participant within five Business Days after the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the participant.

(c)           A participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given no later than ten Business Days after the participant is informed in writing of such claim and shall apprise the Company of the nature of the claim and the date of requested payment.  A participant shall not pay the claim prior to the expiration of the 30-day period following the date on which it gives notice to the Company. If the Company notifies such participant in writing prior to the expiration of the 30-day period that it desires to contest such claim, the participant shall:

(i)            provide the Company with any information reasonably requested by the Company relating to such claim;

(ii)           take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to the participant;

(iii)          cooperate with the Company in good faith in order to effectively contest such claim; and

(iv)          permit the Company to participate in any proceedings relating to such claim.

Without limitation on the foregoing provisions of this Section 12(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority with respect to such claim and may, at its sole option, either direct the participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the participant agrees to prosecute such contest to a determination before any administration tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the participant harmless, on an after-tax basis, for any excise tax or income tax (including interest and penalties with respect thereto) imposed as a result of the contest; provided, further, that if the Company directs the participant to pay any claim and sue for a refund, the Company shall advance the amount of the payment to the participant, on an interest-free basis, and shall indemnify and hold the participant harmless, on an after-tax basis, from any excise tax or income tax (including interest or penalties with respect

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thereto) imposed with respect to the advance or with respect to any imputed income with respect to the advance.

(d)           In the event the Company exhausts its remedies pursuant to Section 12(c) and the participant thereafter is required to make a payment of any excise tax, the Accounting Firm shall determine the amount of the Gross-Up Payment required and such payment shall be promptly paid by the Company to or for the benefit of such participant.

(e)           If, after the receipt by the participant of an amount advanced by the Company pursuant to Section 12(c), the participant becomes entitled to receive any refund with respect to such claim, the participant shall promptly, after receiving such refund, pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the participant of an amount paid by the Company pursuant to Section 12(c), a determination is made that the participant shall not be entitled to any refund with respect to such claim and the Company does not notify the participant in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such payment shall be forgiven and shall not be required to be repaid and the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

(f)            Notwithstanding the foregoing, the limitation set forth in Section 12(a) shall not apply to a participant if, in the opinion of Tax Counsel or the Accounting Firm, the total amounts payable to the participant hereunder and under any other agreement, arrangement or plan as a result of a change of control (calculated without regard to the limitation of Section 12(a)), reduced by the amount of excise tax imposed on the participant under Section 4999 of the Code with respect to all such amounts and reduced by the state and Federal income taxes on amounts paid in excess of the limitation set forth in Section 12(a), would exceed such total amounts payable after application of the limitation of Section 12(a). No Gross-Up Payment shall be made in such case.

SECTION 13.  General Provisions.

(a)           All certificates for Shares delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Commission, any stock exchange upon which the Shares are then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference thereto.

(b)           Nothing set forth in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required.  The adoption of the Plan shall not confer upon any employee or director of the Company, any Subsidiary or any Affiliate, any right to continued employment (or, in the case of a director, continued retention as a director) with the Company, a Subsidiary or an Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company,

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a Subsidiary or an Affiliate to terminate the employment of any of its employees at any time.

(c)           Each participant shall, no later than the date as of which the value of an award first becomes includible in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee, in its sole discretion, regarding payment of, any Federal, FICA, state, or local taxes of any kind required by law to be withheld with respect to such award.  The obligations of the Company under the Plan shall be conditional on such payment or arrangements.  The Committee may permit participants to elect to satisfy their Federal, and where applicable, FICA, state and local tax withholding obligations with respect to all awards, other than Stock Options which have related Stock Appreciation Rights, by the reduction, in an amount necessary to pay all such withholding tax obligations, of the number of Shares or amount of cash otherwise issuable or payable to such participants with respect to an award. 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 hereunder by a participant from any payment of any kind otherwise due to such participant.

(d)           At the time of grant or purchase, the Committee may provide, in connection with any grant or purchase made under the Plan, that the Shares received as a result of such grant or purchase shall be subject to a right of first refusal, pursuant to which the participant shall be required to offer to the Company any Shares that the participant wishes to sell, with the price being the then Fair Market Value of the Shares, subject to the provisions of Section 11 and to such other terms and conditions as the Committee may specify at the time of grant.

(e)           No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation.

(f)            The Plan is not intended to be a “non-qualified deferred compensation plan” under Section 409A of the Code and shall not be construed or administered accordingly.  If any term or provision contained herein would otherwise cause the Plan to be characterized as a “nonqualified deferred compensation plan” under Section 409A of the Code, then, without further action by the Company, such term or provision shall automatically be modified to the extent necessary to avoid such characterization.

SECTION 14.  Effective Date of Plan.

The Plan became effective on March 3, 1998, the date it was originally approved by a majority vote of the Company’s stockholders.

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EX-10.11

Exhibit 10.11

WADDELL & REED FINANCIAL, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

As Amended and Restated Effective as of January 1, 2005

WADDELL & REED FINANCIAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated Effective January 1, 2005

PURPOSE

The purpose of the Waddell & Reed Financial, Inc. Supplemental Executive Retirement Plan is to provide deferred compensation that otherwise would be paid currently to a select group of management or highly compensated employees of the Company (as defined below) and any subsidiaries or affiliates of the Company that may adopt this Plan (as defined below) with the consent of the Board of Directors of the Company.  This Plan is designed to constitute a nonqualified deferred compensation arrangement.  This amendment and restatement, effective January 1, 2005, is intended to bring the Plan into compliance with section 409A of the Code (as defined below) and guidance issued pursuant thereto.

ARTICLE I
DEFINITION OF TERMS

The following words and phrases when used herein, unless the context clearly requires otherwise, will have the following respective meanings:

1.1“Administrator” means the Compensation Committee.

1.2“Approved Domestic Relations Order” means a Domestic Relations Order that is determined by the Administrator, in its sole discretion, to be an Approved Domestic Relations Order in accordance with the provisions of Section 6.2.

1.3“Aggregate Contribution Amount” means the amount, if any, determined by the Compensation Committee in its sole discretion, to be credited as a Supplemental Executive Retirement Benefit among Participants’ Deferred Compensation Accounts for a Plan Year in accordance with the provisions of Section 4.2(b).

1.4“Base Pay” means a Participant’s base salary for a Plan Year, excluding extraordinary pay such as bonuses, commissions, incentive payments, benefits, expense allowances, expense reimbursements, or income from restricted stock or stock option awards, as designated by the Compensation Committee in its sole discretion.

1.5“Claim for Benefits” has the meaning specified in Section 6.6(a).

1.6“Code” means the Internal Revenue Code of 1986, as amended.

1.7“Company” means Waddell & Reed Financial, Inc., a Delaware corporation.

1.8“Compensation Committee” means the Compensation Committee of the Board of Directors of Waddell & Reed Financial, Inc.

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1.9“Deferred Compensation Account” means the memorandum account established pursuant to Section 4.1 and maintained for each Participant on the Company’s books and records.

1.10“Domestic Relations Order” means a final judgment, decree, order, or property settlement agreement made pursuant to a state domestic relations law.

1.11“Effective Date” means January 1, 2005.  The Plan was originally effective December 10, 1998 and was subsequently amended and restated effective July 14, 2004.

1.12“Employee” means a common-law employee of the Company or a Participating Employer who is a member of a select group of management or highly compensated employees.

1.13“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.14“Notice of Denial” has the meaning specified in Section 6.6(b).

1.15“401(k) Plan” means the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan, as such plan may be amended from time to time, or any similar plan in which a Participating Employer participates.

1.16“Participant” means an Employee who has satisfied the requirements for eligibility under Article III and is participating in the Plan.

1.17“Participating Employer” means a subsidiary or affiliate of the Company that adopts this Plan by a properly executed document evidencing such intent with the consent of the Board of Directors of the Company.

1.18“Plan” means the Waddell & Reed Financial, Inc. Supplemental Retirement Benefit Plan, as may be amended, modified or supplemented from time to time.

1.19“Plan Year” means the period commencing January 1 and ending December 31.

1.20“Request for Review” has the meaning specified in Section 6.6(d).

1.21“Separation from Service” has the definition of the same term in Treasury Regulation Section 1.409A-1(h), and will be determined by analyzing all of the facts and circumstances surrounding the separation, but in no event, however, shall a Participant be considered to have separated from service if the amount of services provided to the Company (or a Participating Employer) has not decreased to 20% or less of the services the Participant was providing to the Company (or a Participating Employer) during the previous 36-month period (or the full period of services provided to the Company (or a Participating Employer) in the event that the Participant has not been employed for 36 months).  The Participant shall not be considered to have separated from service if the amount of services that Participant is still providing to the Company (or a Participating Employer) is 50% or more of the services the Participant was providing to the Company (or a Participating Employer) during the previous 36-month period (or the full period of services provided to the Company (or a Participating

2

Employer) in the event that the Participant has not been employed for 36 months). In the event that the Participant is providing services to the Company (or a Participating Employer) in the amount of 21% to 49% of the services the Participant was providing to the Company (or a Participating Employer) during the previous 36-month period (or the full period of services provided to the Company (or a Participating Employer) in the event that the Participant has not been employed for 36 months), the Administrator shall retain the sole discretion to determine whether or not all of the facts and circumstances surrounding the decrease in services constitute a separation from service in accordance with Treasury Regulation Section 1.409A-1(h).

1.22“Supplemental Executive Retirement Benefit” means the allocations, if any, made pursuant to Section 4.2(b).

1.23“Total Disability” means a Participant is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve months, receiving long-term disability benefits under the Company’s (or his or her Participating Employer’s) long-term disability insurance plan.

1.24“Valuation Date” means December 31 and such other or additional dates as provided herein or otherwise designated by the Administrator as Valuation Dates for the purpose of making valuation adjustments to the Deferred Compensation Accounts in accordance with Section 4.2(c).

ARTICLE II
ADMINISTRATION

The Plan will be administered by the Administrator and benefits under the Plan will be paid only if the Administrator decides, in its sole discretion, that a Participant is entitled to them.  The decision of a majority of the members of the Compensation Committee will control; provided, however, that a member will not be entitled to participate in discretionary decisions directly related to such person’s own participation in the Plan.

The Administrator will have full power and authority to adopt rules, regulations, and practices governing the administration of the Plan, to interpret and apply the provisions of the Plan in its sole discretion, to alter, amend, or revoke any rules and regulations so adopted, to enter into contracts on behalf of the Company with respect to the Plan, and to make discretionary decisions under the Plan, except where that authority is retained by the Company under the Plan.  The Administrator will administer this Plan and render decisions in a uniform and consistent manner so that all Participants in similar circumstances are generally treated similarly.  The Administrator’s decision as to all aspects of Plan operations, including but not limited to, the eligibility of persons to participate in this Plan, the benefits payable under this Plan, and the interpretation of this Plan, cannot be overturned unless it has no foundation.

ARTICLE III
ELIGIBILITY

An Employee who has been designated by the Administrator as eligible for participation in the Plan will be eligible for participation beginning in the Plan Year with respect to which the designation is made.  A Participant will continue to participate in the Plan until he or she ceases

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to be a member of a select group of management or highly compensated employees, or until the Administrator in its sole discretion determines otherwise.

ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS

4.1Establishment of Deferred Compensation Accounts.  At the time an Employee becomes a Participant in the Plan, the Company will establish a Deferred Compensation Account for the Participant on its books.

4.2Additions to Deferred Compensation Accounts.

(a)401(k) Plan Benefit Restoration.  For each Plan Year, the Administrator will credit the Deferred Compensation Account of each Participant with an amount equal to four percent (4%) of his or her Base Pay, less the amount of the maximum employer matching contribution that could be made pursuant to the terms of the 401(k) Plan on the Participant’s behalf under the 401(k) Plan with respect to that Plan Year.

(b)Supplemental Executive Retirement Benefit.  For each Plan Year, the Compensation Committee will credit the Aggregate Contribution Amount among the Deferred Compensation Accounts of Participants in proportion to their Base Pay for the Plan Year.

(c)Valuation and Adjustments.  As of each Valuation Date, the Administrator will also credit (or charge) the Participant’s Deferred Compensation Account with valuation adjustments determined in accordance with this Section 4.2(c).  The valuation adjustment to be credited (or charged) to the Participant’s Deferred Compensation Account as of any Valuation Date will be an amount equal to the performance of certain hypothetical investments or investment vehicles since the last preceding Valuation Date as described below.  The performance of such hypothetical investments or investment vehicles taken into account for purposes of this Section 4.2(c) will include, but not be limited to, in the sole discretion of the Administrator, interest, expenses, and realized and unrealized gains and losses.  The crediting (or charging) of amounts under this Section 4.2(c) will occur so long as there is a balance in the Participant’s Deferred Compensation Account; provided, however, the crediting (or charging) of amounts under this Section 4.2(c) will cease as close as reasonably practicable (as determined by the Administrator in its sole discretion) prior to the date a complete distribution of a Participant’s benefit under this Plan is made.  The value of the Participant’s Deferred Compensation Account as of the relevant Valuation Date will be determined as if the balance of the Deferred Compensation Account as of the preceding Valuation Date, together with any amounts subsequently credited to (less any amounts distributed from) such Deferred Compensation Account, had been invested since the preceding Valuation Date or the date credited to the Deferred Compensation Account, as the case may be, in the hypothetical investments or investment vehicles specified for the Participant’s Deferred Compensation Account.

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(d)Investments.  Each Participant, in a manner prescribed by the Administrator, may designate the hypothetical investments or investment vehicles in which his or her Deferred Compensation Account is to be deemed invested under the investment options permitted by the Administrator.  Notwithstanding any other provision of this Plan, a Participant may not designate the hypothetical investment of his or her Deferred Compensation Account in stock or other securities of the Company or a Participating Employer.  The Administrator (or trustee of a grantor trust if a grantor trust is used in connection with this Plan), in its sole discretion, may determine whether any Deferred Compensation Accounts will, in fact, be invested according to the hypothetical investments or investment vehicles or will be invested otherwise.  Such hypothetical investment designations may be made up to two times per calendar year for each Participant by making an election with the Administrator, in a manner prescribed by the Administrator.  The designation will continue until changed by the submission of a new designation, which change will be effective as soon as administratively feasible.

4.3Forfeiture.  All amounts credited to, and not withdrawn from, a Participant’s Deferred Compensation Account are nonforfeitable, except as otherwise provided in this Section 4.3 and Sections 6.1 and 6.4.

Notwithstanding any other provision of this Plan, a Participant’s Deferred Compensation Account will be forfeited in its entirety if the Administrator determines that the Participant has engaged in any activity that is (a) illegal and involves fraud, dishonesty, or theft, or (b) intentionally detrimental to the Company, a Participating Employer, or any subsidiary or affiliate thereof.

ARTICLE V
DISTRIBUTION OF BENEFITS

5.1Distribution on Termination of Employment.  Subject to the limitations described in Section 5.5 and unless otherwise elected pursuant to Section 5.4, amounts credited to, and not withdrawn from, a Participant’s Deferred Compensation Account (less applicable tax and other withholdings pursuant to Section 5.6) will be distributed in a single lump sum payment in cash, other property, or both, in the Administrator’s sole discretion, within 90 days after the Participant’s Separation from Service with the Company or, if applicable, the Participating Employer.

5.2Distribution on Total Disability.  Unless otherwise elected pursuant to Section 5.4, amounts credited to, and not withdrawn from, a Participant’s Deferred Compensation Account (less applicable tax and other withholdings pursuant to Section 5.6) as of the date the Participant has sustained a Total Disability will be distributed in a single lump sum payment in cash, other property, or both, in the Administrator’s sole discretion, within 90 days after such determination.

5.3Distribution on Death.  Unless otherwise elected pursuant to Section 5.4, payment of the amounts credited to, and not withdrawn from, a Participant’s Deferred Compensation Account (less applicable tax and other withholdings pursuant to Section 5.6) as of the date of the Participant’s death will be distributed in a single lump sum payment in cash, other

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property, or both, in the Administrator’s sole discretion, within 90 days after the Participant’s death, to the Participant’s designated beneficiary in accordance with the last such designation received by the Administrator, or if none, to the Participant’s surviving spouse, or if there is no surviving spouse, to the personal representative of the Participant’s estate.

A Participant will have the right, at any time prior to his or her death, to submit, in a manner prescribed by the Administrator, a written designation of primary and secondary beneficiaries to whom payment under this Plan will be made in the event of his or her death prior to complete distribution of the benefits due and payable to the Participant under this Plan.  Each beneficiary designation will become effective only when received by the Administrator.

5.4Form and Timing of Benefit Distribution.  A Participant or beneficiary, in a manner prescribed by the Administrator, may elect, or elect to change, the form and timing, subject to the Administrator’s approval, of distribution of his or her benefits pursuant to this Section 5.4, by delivering such election to the Administrator, in accordance with procedures established by the Administrator.

(a)Initial Election.  On or before December 31, 2006, a Participant may elect the time and/or form of distribution of his or her Deferred Compensation Account; provided, however, that such election, to the extent made in calendar year 2006, will apply only to amounts that are not otherwise payable in 2006 and may not cause a payment to be made in 2006 that would not otherwise be payable in 2006.  In the case of the first year in which a Participant becomes a Participant, such Participant will be entitled to deliver his or her election, with respect to amounts credited to his or her Deferred Compensation Account for services to be performed subsequent to the election, within 30 days after the date the Participant has been designated by the Administrator as eligible for participation in the Plan.

(b)Time of Payment.  A Participant may elect, pursuant to an initial election under Section 5.4(a) or a subsequent election under Section 5.4(d), to receive, within 90 days of the distribution time or event, the amounts credited to, and not withdrawn from, the Participant’s Deferred Compensation Account (less applicable tax and other withholdings pursuant to Section 5.6) in the form elected or specified in Section 5.4(c) upon the earlier of death (which amount will be payable pursuant to Section 5.3) or the following:

(1)The Participant’s Separation from Service with the Company or, if applicable, the Participating Employer;

(2)The determination by the Administrator that the Participant has sustained a Total Disability; or

(3)January 1 of a calendar year specified by the Participant, which calendar year may be specified as a number of years following a Participant’s Separation from Service with the Company or, if applicable, the Participating Employer.

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(c)Form of Payment.  A Participant may elect, pursuant to an initial election under Section 5.4(a) or a subsequent election under Section 5.4(d), distribution of benefits under the Plan in one of the following forms:

(1)Lump Sum — a single payment of the entire balance in the Participant’s Deferred Compensation Account (less applicable tax and other withholdings pursuant to Section 5.6).

(2)Installments — periodic payments over a specified period of time (less applicable tax and other withholdings pursuant to Section 5.6), beginning as of the date specified in the Participant’s election, which time period may not extend beyond the life expectancy of the Participant (or the Participant’s designated beneficiary) as determined under the 1983 Group Annuity Mortality Table or such other mortality table prescribed by the Internal Revenue Service as the prevailing commissioners’ standard table described in Code section 807(d)(5)(A), as determined by the Administrator in its sole discretion.

(d)Change in Form and Timing of Benefit Distribution.  A Participant may change the time and/or form of settlement elected pursuant to a “Distribution Election Form” with respect to his or her Deferred Compensation Account by delivering a subsequent “Distribution Election Form” in accordance with procedures set forth by the Administrator; provided, that, such election may not result in the acceleration of the time or schedule of any payment.   For purposes of this Section 5.4(d), installment payments will be treated as a single payment.  In addition, any change in the form or timing of benefits may not:

(1)take effect for at least 12 months after the date on which the election is made;

(2)in the case of an election related to a payment described in Sections 5.1, or 5.4(c) or (d), the first payment with respect to which the new election is made must be deferred for a period of not less than five years from the date the payment would otherwise have been made; and

(3)any election to delay a payment previously elected pursuant to this Section 5.4 may not be made less than 12 months prior to the date of the first scheduled payment under the prior election.

5.5Specified Employees.  If the Company is publicly traded on an established securities market or otherwise on the date of the Participant’s Separation from Service, any distribution pursuant to Section 5.1 shall not be distributed prior to the date that is six months following the Participant’s Separation from Service if Participant is deemed a “specified employee” as defined in Treasury Regulation Section 1.409A-1(i).  Any payments delayed pursuant to this provision will be paid in a lump sum on the date that is six months following the date of the Participant’s Separation from Service (or, if earlier, the date of death of the “specified employee”).

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5.6Incapacity.  In the event of the Participant’s incapacity (as determined by the Administrator), payment pursuant to Sections 5.1 through 5.4 will be made to the Participant, to the legal guardian or conservator of the Participant, or to an adult with whom the Participant maintains his or her residence, as the Administrator in its sole discretion will determine.  Such payment to a legal guardian, conservator, or adult will fully discharge the Administrator, the Company, each Participating Employer, and this Plan from further liability on account thereof.

5.7Withholding.  The Company may withhold or cause to be withheld from, or with respect to, any benefit under this Plan any federal, state, or local taxes required by law to be withheld with respect to such benefit and such sum as the Company may reasonably estimate as necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such payment.

ARTICLE VI
GENERAL PROVISIONS

6.1Non-Transferability of Interests.  Notwithstanding any other provision of this Plan, all Deferred Compensation Accounts maintained by the Company will be general assets of the Company and will be subject to the claims of such Employer’s general creditors.

Except as provided in Section 6.2, benefits payable to Participants under this Plan may not in any manner be anticipated, assigned (either at law or in equity), alienated, sold, transferred, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal or equitable process by creditors of the Participant.

6.2Domestic Relations Orders.

(a)The Administrator shall establish written procedures to determine whether any Domestic Relations Order directed to this Plan is an Approved Domestic Relations Order in its sole discretion.  To the extent required under an Approved Domestic Relations Order, any portion of a Participant’s Deferred Compensation Account may be paid or set aside for payment to a spouse, former spouse, or child of the Participant in cash, other property, or both, in the Administrator’s sole discretion.

(b)Where necessary to carry out the terms of an Approved Domestic Relations Order, a separate account may be established with respect to the spouse, former spouse, or child.  Any amount so set aside for a spouse, former spouse, or child shall be paid out in a single lump sum payment in cash, other property, or both, in the Administrator’s sole discretion, at the earliest date that benefits may be paid to the Participant, unless the Domestic Relations Order directs a different form of payment.  Nothing in this Section 6.2 shall be construed to authorize any amount to be distributed under this Plan at a time or in a form that is not permitted under the Plan or the Code.

(c)A Participant’s right to receive benefits under this Plan will be reduced to the extent that any portion of a Participant’s Deferred Compensation Account has been paid or set side for payment to a spouse, former spouse, or child pursuant to an Approved Domestic Relations Order or to the extent that the Company, a Participating Employer, or the Plan is otherwise subject to a binding Domestic Relations Order for the attachment,

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garnishment, or execution of any portion of the Participant’s Deferred Compensation Account or of any distributions therefrom.  The Participant shall be deemed to have released the Company, each Participating Employer, the Administrator, and the Plan from any claim with respect to such amounts in any case in which (1) the Company, a Participating Employer, the Plan, or any Plan representative has been served with legal process or otherwise joined in a proceeding relating to such amounts, (2) the Participant has been notified of the pendency of such proceeding in the manner prescribed by the law of the jurisdiction in which the proceeding is pending for service of process or by mail from the Company, a Participating Employer, the Plan, or a Plan representative to the Participant’s last known mailing address, and (3) the Participant fails to obtain an order of the court in the proceeding relieving the Company, each Participating Employer, the Administrator, or this Plan from the obligation to comply with the Domestic Relations Order.

(d)Neither the Company, any Participating Employer, the Plan, nor any Plan representative will be obligated to incur any cost to defend against or set aside any Domestic Relations Order relating to the division, attachment, garnishment, or execution of the Participant’s Deferred Compensation Account or of any distribution therefrom.  Notwithstanding the foregoing, if the Company, a Participating Employer, the Plan, or a Plan representative is joined in any such proceeding, a Plan representative will take such steps as it deems necessary and appropriate to protect the terms of the Plan.

6.3Amendment, Suspension, and Termination.  The Company, in its sole discretion, at any time may amend, suspend, or terminate this Plan or any portion thereof in any manner and to any extent.  Such amendment, suspension, or termination of the Plan will be final and binding on each Participating Employer.  No amendment, suspension, or termination will alter or impair any then existing Deferred Compensation Accounts without the consent of the affected Participant.  Upon termination of the Plan, but only if and to the extent allowed by section 409A of the Code and guidance published thereunder, amounts credited to each Participant’s Deferred Compensation Account will be distributed at the Administrator’s election (provided such election applies uniformly to all such Participants) in a single lump sum payment (in cash, other property, or both, at the Administrator’s election) either (a) at any time after 30 days following the termination of the Plan, or (b) at such time and in such event as are otherwise provided under the Plan.

6.4Unfunded Obligation.  This Plan is intended to be, and will be operated and administered so as to be, a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.  Neither the Company nor any Participating Employer will make any provision for funding or insuring the Deferred Compensation Accounts that would cause the Plan to be (a) a “funded” plan for purposes of Section 404(a)(5) of the Code or Title I of ERISA, or (b) other than an “unfunded and unsecured promise to pay money or property in the future” under Treasury Regulations Section 1.83-3(e).  A Participant will be treated as a general, unsecured creditor of the Company and, if applicable, his or her Participating Employer at all times under the Plan.  This Plan constitutes a mere promise by the Company to make the benefit payments as provided in the future.  It is the intention of the Company that the Deferred Compensation Accounts be unfunded for tax purposes and for purposes of Title I of ERISA.

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The foregoing notwithstanding, the Company may establish a grantor trust described in Treasury Regulation Sections 1.677(a)-(d) to accumulate assets to pay the Deferred Compensation Accounts, provided that the trust assets will be subject to the claims of the Company’s general creditors and will be required to be used to satisfy the claims of the Company’s general creditors in the event the Company or a Participating Employer is “insolvent” under the terms of such trust.

6.5No Right to Employment or Other Benefits.  Nothing contained herein will be construed as conferring upon any Participant the right to continue in the employ of the Company or any Participating Employer.  Any compensation deferred and any benefits paid under this Plan will be disregarded in computing benefits under any employee benefit plan of the Company or any Participating Employer.

6.6Claims Procedures.

(a)In the event benefits provided under this Plan are not timely paid, any Participant or, if the Participant is deceased, the Participant’s designated beneficiary, may file a claim requesting benefits under this Plan by submitting to the Administrator (or such officer or agent of the Company as the Administrator may designate for such purpose) a written statement setting out the general nature of the claim (the “Claim for Benefits”).

(b)If a duly submitted Claim for Benefits has not been granted within 90 days of the submission of the claim, the Claim for Benefits will be deemed denied for the purposes hereof.  If a duly submitted Claim for Benefits is wholly or partly denied, written notice of the denial (the “Notice of Denial”) will be furnished as provided in Section 6.6(c) hereunder to the Participant within 90 days after receipt of the Claim for Benefits by the Administrator.

(c)Any Notice of Denial provided to a Participant shall set forth in a manner reasonably calculated to be understood by the Participant:

(1)The specific reason or reasons for the denial;

(2)Reference to the specific Plan provisions on which the denial is based;

(3)A description of any additional material or information necessary for the Participant to perfect the Claim for Benefits and an explanation of why such material or information is necessary; and

(4)A description of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the Participant’s right to bring a civil action under section 502(a) of ERISA following denial of the Claim for Benefits or Request for Review (as defined below).

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(d)Within 60 days after receipt of any Notice of Denial as herein provided, the Participant may request review of the denied Claim for Benefits by submitting a written request therefor to the Administrator (the “Request for Review”).

(e)Upon submission of the Request for Review, and before issuance of the decision on review, the Participant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant, in the Administrator’s sole discretion, to the Participant’s Claim for Benefits.

(f)Within 30 days after submission of the Request for Review, the Participant may submit written comments, documents, records, and other information relating to the Claim for Benefits to the Administrator.  In addition, upon request of the Participant, or upon its own motion, the Administrator may, but will not be required to, provide the Participant an opportunity for a hearing before the Administrator.

(g)Within 60 days after receipt of a Request for Review, the Administrator will render its decision unless special circumstances (such as the need to hold a hearing) require an extension of time for processing the Request for Review and the Administrator furnishes written notice of the extension to the Participant, in which case a decision will be rendered as soon as possible, but in no event later than 120 days after receipt of the Request for Review.

(h)The decision on review will be in writing and will include:

(1)Specific reasons for the decision, written in a manner reasonably calculated to be understood by the Participant;

(2)Reference to the specific Plan provisions on which the decision is based;

(3)A statement that the Participant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Participant’s Claim for Benefits; and

(4)A statement of the Participant’s right to bring an action under section 502(a) of ERISA.

6.7Inurement.  This Plan will be binding upon and inure to the benefit of the Company, each Participating Employer, their successors and assigns, the Participant, and his or her heirs, executors, personal representatives, administrators and beneficiaries.

6.8Notice.  Any notice, consent, or demand required or permitted to be given under the provisions of this Plan will be in writing, and will be signed by the party giving or making the same.  If such notice, consent, or demand is mailed to a party pursuant hereto, it will be sent by United States certified mail, postage prepaid, addressed to such party’s last known address as shown in the records of the Company.  The date of such mailing will be deemed the date of notice, consent, or demand.  Either party may change the address to which notice is to be sent by giving notice of change of address in the manner aforesaid.

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6.9Governing Law.  This Plan, and the rights of the parties hereunder, will be governed by and construed in accordance with the laws of the State of Kansas, without reference to the principles of conflict of laws.

6.10Taxation.  This Plan is intended to provide tax-deferred benefits under certain provisions of the Code, including section 409A of the Code and the guidance promulgated thereunder.  To the extent the Plan fails to satisfy the requirements of section 409A of the Code and related guidance, the Company may, but shall not be required to, modify the Plan, in its sole discretion, to the limited extent necessary to satisfy section 409A of the Code and related guidance without the consent of any Participant.  Upon any Internal Revenue Service finding that compensation intended to be deferred for federal income tax purposes pursuant to this Plan is immediately taxable to a Participant for such purposes, the Company may, but shall not be required to, amend this Plan to comply with the Internal Revenue Service requirements necessary to achieve the desired federal income tax benefits relating to this Plan without the consent of any Participant.  Notwithstanding the foregoing, each Participant agrees to be liable for any tax that may be imposed by the Internal Revenue Service or any other taxing entity with respect to any benefits provided pursuant to this Plan (including, without limitation, any and all withholding taxes), irrespective of whether such tax consequences were intended pursuant to this Plan.

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EX-10.26

Exhibit 10.26

FIRST AMENDMENT TO THE CHANGE IN CONTROL

EMPLOYMENT AGREEMENT

This Amendment to the Change in Control Employment Agreement (the "Amendment") is made and entered into this 17th day of December, 2008 by and between Waddell & Reed Financial, Inc., a Delaware corporation (the "Company"), and Henry J. Herrmann (the "Executive").

WITNESSETH:

WHEREAS, the Company and the Executive are parties to a certain Change in Control Employment Agreement dated as of December 14, 2001, (the "Agreement"); and

WHEREAS, the Company and the Executive have agreed to make certain modifications to the Agreement to comply with the provisions of section 409A of the Internal Revenue Code of 1986, as amended (the "Code").

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, to avoid adverse tax consequences under section 409A of the Code and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.Section 6(f) of the Agreement is hereby amended in its entirety to read as follows:

(f)            the Company shall, at its sole expense as incurred, provide you with outplacement services, the scope and provider of which shall be selected by you in your sole discretion, provided that such outplacement services shall not be provided beyond the last day of the second year following the year that includes your Date of Termination.

2.A new sentence is hereby added to the end of Section 13 to read as follows:

The terms "terminate," "termination," "termination of employment," and similar terms used herein are intended to mean a termination of employment that constitutes the Executive's "Separation from Service" as such term is defined in Treasury Regulation Section 1.409A-1(h).

3.A new Section 17 is hereby added to the Agreement to read as follows:

17.  SECTION 409A.  The terms of this Agreement shall be construed in accordance with Section 409A of the Code.

(a)           If the Company is publicly traded on an established securities market or otherwise on the Executive's Date of Termination, any payments payable pursuant to Sections 6(b), (c), and (e) shall not be distributed prior to the day following the six month anniversary of the Executive's Date of Termination if Executive is deemed a "specified employee" as defined in Treasury Regulation Section 1.409A-1(i).  Any payments delayed pursuant to this provision will be paid in a lump sum on the day following the six

month anniversary of the Executive's Date of Termination (or, if earlier, the date of death of the "specified employee").

(b)           Anything herein to the contrary notwithstanding, any payments, reimbursements or tax gross-up payments payable pursuant to this Agreement shall be paid in accordance with the requirements of Treasury Regulation Sections 1.409A-3(i)(1)(iv) and (v).

IN WITNESS WHEREOF, the Company and the Executive have executed this Amendment as of the date first written above.

WADDELL & REED FINANCIAL, INC.
By:	/s/ Daniel P. Connealy
	Daniel P. Connealy
	Senior Vice President and Chief Financial Officer
EXECUTIVE
/s/ Henry J. Herrmann
Henry J. Herrmann

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EX-10.27

Exhibit 10.27

Summary of Compensation Arrangements With Executive Officers of the Company

I.2008 Executive Officer Salaries.         On December 24, 2008, 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, 2009) 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 2009:

Named Executive Officer	Salary
Henry J. Herrmann	$1,000,000
Chief Executive Officer
Daniel P. Connealy	$390,000
Senior Vice President and Chief Financial Officer
Michael L. Avery	$550,000
Senior Vice President and Chief Investment Officer
Thomas W. Butch	$475,000
Senior Vice President and Chief Marketing Officer
Daniel C. Schulte	$365,000
Senior Vice President and General Counsel

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 2008, the Committee designated Mr. Herrmann as a participant of the SERP and did not award him a non-formula award in 2008.  None of the other Named Executive Officers were eligible to participate in the SERP for 2008.

II.2008 Executive Incentive Plan Awards.            Pursuant to the Company 2003 Executive Incentive Plan, as amended and restated (the “EIP”), eligible participants may receive (1) an annual incentive plan award of cash, and (2) an annual incentive plan award of restricted stock, both based upon the annual financial performance of the Company.

A.            Cash Awards.  On December 24, 2008, 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, 2008 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 2008.  As permitted by the EIP, the Committee exercised its discretion to reduce the amount of the cash incentive awards payable to Messrs. Herrmann, Connealy, Avery, Butch and Schulte, but in accordance with the EIP, the reductions did not increase the cash incentive award amounts for any other participant.   The

following table sets forth the annual cash incentive plan awards for the Named Executive Officers for 2008:

Named Executive Officer	Cash Award
Henry J. Herrmann	$1,000,000
Chief Executive Officer
Daniel P. Connealy	$220,000
Senior Vice President and Chief Financial Officer
Michael L. Avery	$500,000
Senior Vice President and Chief Investment Officer
Thomas W. Butch Senior	$288,000
Vice President and Chief Marketing Officer
Daniel C. Schulte	$220,000
Senior Vice President and General Counsel

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 2008, none of the Named Executive Officers 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 24, 2008, 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, 2008 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 2008.  As permitted by the EIP, the Committee exercised its discretion to reduce the amount of the incentive award of restricted stock payable to Mr. Herrmann and did not award Mr. Herrmann an annual incentive award of restricted stock for 2008.  In accordance with the EIP, the reduction of Mr. Herrmann’s award did not increase the restricted stock incentive award amounts for any other participant.  The Committee awarded Messrs. Connealy, Avery, Butch and Schulte the full amount of the incentive award of restricted stock each was eligible to receive.  The following table sets forth the annual incentive plan awards of restricted stock granted to the Named Executive Officers for 2008:

Named Executive Officer	Incentive Plan Restricted Stock Award
Henry J. Herrmann	0 shares
Chief Executive Officer
Daniel P. Connealy	42,000 shares
Senior Vice President and Chief Financial Officer

Michael L. Avery	63,000 shares
Senior Vice President and Chief Investment Officer
Thomas W. Butch	63,000 shares
Senior Vice President and Chief Marketing Officer
Daniel C. Schulte	42,000 shares
Senior Vice President and General Counsel

These shares were granted on December 31, 2008 pursuant to the 1998 Stock Incentive Plan, as amended and restated (the “SIP”), in accordance with the form of restricted stock agreement filed as Exhibit             to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

III.           2008 Discretionary Awards.  On December 24, 2008, the Committee also authorized the grant discretionary awards of restricted stock to the executive officers participating in the EIP, which included Messrs. Herrmann, Connealy, Avery, Butch and Schulte.  The Committee did not grant Mr. Herrmann a discretionary award of restricted stock.  The discretionary awards of restricted stock were granted pursuant to the terms of the SIP.  The following table sets forth the discretionary awards of restricted stock granted to the Named Executive Officers for 2008:

Named Executive Officer	Discretionary Restricted Stock Award
Henry J. Herrmann	0 shares
Chief Executive Officer
Daniel P. Connealy	18,900 shares
Senior Vice President and Chief Financial Officer
Michael L. Avery	28,350 shares
Senior Vice President and Chief Investment Officer
Thomas W. Butch	28,350 shares
Senior Vice President and Chief Marketing Officer
Daniel C. Schulte	18,900 shares
Senior Vice President and General Counsel

These shares were granted on December 31, 2008 pursuant to the SIP, in accordance with the form of restricted stock agreement filed as Exhibit             to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

EX-10.28

Exhibit 10.28

Summary of Board of Director Compensation Effective January 1, 2009

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 discretionary award of $125,000 in restricted Class A stock, the number of shares to be determined based on the closing market price of the Company’s Class A common stock on the grant date, which is the first business day of January, unless otherwise determined by the Board of Directors;

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-10.29

Exhibit 10.29

WADDELL & REED FINANCIAL, INC.

RESTRICTED STOCK AWARD AGREEMENT

WADDELL & REED FINANCIAL, INC., a corporation organized and existing under the laws of the state of Delaware (or any successor corporation) (the “Company”), does hereby grant and give unto «Name» (the “Awardee”), an award of restricted shares of Company Class A common stock (the “Restricted Stock”) upon the terms and conditions hereinafter set forth (the “Award”).

AUTHORITY FOR GRANT

1.Stock Incentive Plan.  The Restricted Stock is granted under the provisions of the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended and restated (the “Plan”), and is subject to the terms and conditions set forth in this Restricted Stock Award Agreement (the “Agreement”) and not inconsistent with 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 AWARD

2.Number of Shares.  In consideration of future services to the Company, the Awardee is hereby granted «Shares» shares of Restricted Stock (the “Shares”) of the Company’s Class A common stock, par value $.01 (the “Stock”) on                           , 20       (the “Grant Date”), subject to repurchase of a portion thereof by the Company pursuant to Section 12 below.

3.Restrictions; Forfeiture.  The Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until its restrictions are removed or expire.  The Restricted Stock may be forfeited to the Company pursuant to Section 5(b), at which time the Company shall have the right to instruct the Company’s transfer agent to transfer the Restricted Stock to the Company to be held by the Company in treasury or by any designee of the Company.

4.Expiration of Restrictions and Risk of Forfeiture.  The restrictions and risk of forfeiture for the Restricted Stock will expire as set forth in this Section 4, as of the vesting dates set forth in this Section 4, provided that (a) Awardee is an employee of the Company, a Subsidiary or an Affiliate continuously from the Grant Date through the applicable vesting date, and (b) the restrictions and risk of forfeiture have not previously expired pursuant to this Agreement.

Percentage of Shares Vesting	Vest Date
331/3%	, 20
331/3%	, 20
331/3%	, 20

TERMINATION OF AWARD

For purposes of the following Sections, all references to termination of employment shall be construed to mean termination of all service relationships with the Company and its Subsidiaries and Affiliates, including employees, independent contractors and consultants; however, nothing in this Agreement or the Plan shall be construed to create or continue a common law employment relationship with any individual characterized by the Company, a Subsidiary or an Affiliate as an independent contractor or consultant.

5.Termination of Employment.

(a)Termination of Employment Due to Death or Disability.  If an Awardee’s employment with the Company or any of its Subsidiaries or Affiliates terminates by reason of death or Disability, the restrictions and risk of forfeiture with respect to the Restricted Stock which have not expired shall immediately lapse and all shares of the Restricted Stock shall be deemed fully vested and nonforfeitable.

(b)Termination of Employment Other Than Due to Death or Disability.  If an Awardee’s employment with the Company or any of its Subsidiaries or Affiliates terminates for a reason other than death or Disability, the shares of Restricted Stock for which the restrictions and risk of forfeiture have not expired as of the date of termination shall be immediately forfeited without further action by the Company; provided, however, that the portion, if any, of those shares of Restricted Stock for which the restrictions and risk of forfeiture have expired as of the date of such termination shall not be forfeited.

6.Change in Control or Potential Change in Control of the Company.  In the event of (a) a Change in Control, unless otherwise determined by the Committee in writing at or after the Grant Date, but prior to the occurrence of such Change in Control, or (b) a Potential Change in Control, if and to the extent so determined by the Committee in writing at or after the Grant Date (subject to any right of approval expressly reserved by the Committee at the time of such determination), the restrictions with respect to the Restricted Stock shall lapse and such shares shall be deemed fully vested and nonforfeitable.

7.No Limitation on Excess Parachute Payments.  The provisions of Section 12 of the Plan regarding the payment of any “Excess Parachute Payment” within the meaning of Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended, shall not apply to this Agreement.

GENERAL TERMS AND PROVISIONS

8.Administration of Award.  The Restricted Stock shall be maintained in a book-entry account (the “Account”) by and at the Company’s transfer agent until the restrictions associated with such Restricted Stock expire pursuant to Sections 4, 5 or 6.  The Awardee shall execute and deliver to the transfer agent one or more stock powers in blank for the Restricted Stock.  The Awardee hereby agrees that the transfer agent shall maintain such Account and the related stock power(s) pursuant to the terms of this Agreement until such restrictions expire pursuant to Sections 4, 5 or 6.

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9.Ownership of Restricted Stock.  From and after the time that the Account representing the Restricted Stock has been activated and prior to forfeiture, the Awardee will be entitled to all the rights of absolute ownership of the Restricted Stock, including the right to vote those shares and to receive dividends thereon if, as, and when declared by the Board, subject, however, to the terms, conditions and restrictions set forth in this Agreement.  Dividends paid in stock of the Company or stock received in connection with a Stock split with respect to the Restricted Stock shall be subject to the same restrictions as on such Restricted Stock.  The shares of Restricted Stock subject to this Award are not eligible to be enrolled in any dividend re-investment program until the restrictions thereon expire.

10.           Adjustment of Shares for Recapitalization, Etc.  In the event there is any change in the outstanding Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend, combination of shares or otherwise, there shall be substituted for or added to each share of Stock theretofore appropriated or thereafter subject, or which may become subject, to this Award, the number and kind of shares of stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be.  Adjustment under the preceding provisions of this Section 10 will occur automatically upon any such change in the outstanding Stock of the Company.  No fractional interest will be issued under the Plan on account of any such adjustment.

11.Conditions to Delivery of Stock and Registration.  Nothing herein shall require the Company to issue or the transfer agent to deliver any shares with respect to the Award if (a) that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act of 1933, as amended, or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect; or (b) the withholding obligation as provided in Section 12 of this Agreement has not been satisfied.  From time to time, the Board and appropriate officers of the Company are authorized to and shall take whatever actions are necessary to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make shares of Stock available for issuance.

12.Payment of Taxes.  The delivery of shares of Stock pursuant to this Award is conditioned upon satisfaction of any withholding obligation described in this Section 12.  The Awardee may be required, from time to time, in the Company’s discretion, to pay to the Company (or any Subsidiary or Affiliate as applicable), the amount that the Company deems necessary to satisfy the Company’s or its Subsidiary’s or Affiliate’s current or future obligation to withhold federal, state or local income or other taxes incurred by the Awardee as a result of the Award.  With respect to any required tax withholding obligation, the Company will withhold from the gross number of shares of Stock to be issued upon vesting a number of shares equal in value to the amount of such obligation, based on the shares’ Fair Market Value at the time such obligation is incurred or, upon timely request by the Awardee, the Company may, in its sole discretion, allow the Awardee to deliver to the Company (a) sufficient shares of Stock to satisfy any required tax withholding obligation, based on the shares’ Fair Market Value at the time such obligation is incurred or (b) sufficient cash to satisfy such obligation in lieu of such withholding by the Company.  In the event that the Company subsequently determines that the aggregate Fair Market Value of any shares of Stock withheld by the Company or submitted by the Awardee as

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payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Awardee shall pay to the Company, immediately upon the Company’s request, the amount of that deficiency in cash.

13.Company Records.  Records of the Company or its Subsidiaries or Affiliates regarding any period(s) of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

14.Right of the Company and Subsidiaries to Terminate Employment.  Nothing contained in this Agreement shall confer upon the Awardee the right to continue in the employ of the Company or any Subsidiary or Affiliate, or interfere in any way with the rights of the Company or any Subsidiary or Affiliate to terminate the Awardee’s employment at any time.

15.No Liability for Good Faith Determinations.  The members of the Board and the Committee shall not be liable for any act, omission, interpretation or determination taken or made in good faith with respect to this Agreement or the Restricted Stock granted hereunder and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation.

16.Severability.  If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

17.Successors.  This Agreement shall be binding upon the Awardee, their legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

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.Headings.  The titles and headings herein are included for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

20.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 jurisdiction.  Should there be any inconsistency or discrepancy between the provisions of this Agreement and the terms and conditions of the Plan under which this Award is granted, the provisions in the Plan shall govern and prevail.

21.Amendment.  This Agreement may be amended by the Committee; provided, however, that no amendment may decrease rights inherent in this Award prior to such

4

amendment without the express written consent of the parties hereto.  Notwithstanding the provisions of this Section 21, this Agreement may be amended by the Committee to the extent necessary to comply with applicable laws and regulations and to conform the provisions of this Agreement to any changes thereto.

22.Effective Date.  This Agreement has been executed this          day of                       , 20      , effective as of                                   , 20      .

WADDELL & REED FINANCIAL, INC.
By:
	Daniel P. Connealy, Senior Vice President
	and Chief Financial Officer
	“Company”
	«Name»
	“Awardee”

5

STOCK POWER

FOR VALUE RECEIVED, «Name» does hereby assign and transfer unto Waddell & Reed Financial, Inc. (51-0261715)                      shares of Class A common stock of Waddell & Reed Financial, Inc., a Delaware corporation, granted on                           , 20      , as evidenced by the Restricted Stock Award Agreement of even date therewith and standing in the name of the undersigned on the books of Waddell & Reed Financial, Inc.  The undersigned does hereby appoint Computershare Trust Company, N.A. as attorney-in-fact to transfer the said stock on the books of Waddell & Reed Financial, Inc. with full power of substitution in the premises.

Dated as of this          day of                         , 20      .
	«Name»

EX-10.31

Exhibit 10.31

WADDELL & REED FINANCIAL, INC.

RESTRICTED STOCK AWARD AGREEMENT

WADDELL & REED FINANCIAL, INC., a corporation organized and existing under the laws of the state of Delaware (or any successor corporation) (the “Company”), does hereby grant and give unto «Name» (the “Awardee”), an award of restricted shares of Company Class A common stock (the “Restricted Stock”) upon the terms and conditions hereinafter set forth (the “Award”).

AUTHORITY FOR GRANT

1.Executive Stock Award Plan.  The Restricted Stock is granted under the provisions of the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated (the “Plan”), and is subject to the terms and conditions set forth in this Restricted Stock Award Agreement (the “Agreement”) and not inconsistent with 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 AWARD

2.Number of Shares.  In consideration of future services to the Company, the Awardee is hereby granted «shares» shares of Restricted Stock (the “Shares”) of the Company’s Class A common stock, par value $.01 (the “Stock”) on __________, 20___(the “Grant Date”), subject to repurchase of a portion thereof by the Company pursuant to Section 12 below.

3.Restrictions; Forfeiture.  The Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until its restrictions are removed or expire.  The Restricted Stock may be forfeited to the Company pursuant to Section 5(b), at which time the Company shall have the right to instruct the Company’s transfer agent to transfer the Restricted Stock to the Company to be held by the Company in treasury or by any designee of the Company.

4.Expiration of Restrictions and Risk of Forfeiture.  The restrictions and risk of forfeiture for the Restricted Stock will expire as set forth in this Section 4, as of the vesting dates set forth in this Section 4, provided that (a) Awardee is an employee of the Company, a Subsidiary or an Affiliate continuously from the Grant Date through the applicable vesting date, and (b) the restrictions and risk of forfeiture have not previously expired pursuant to this Agreement.

Percentage of Shares Vesting	Vest Date
331/3%	___________, 20___
331/3%	___________, 20___
331/3%	___________, 20___

TERMINATION OF AWARD

5.Termination of Employment.

(a)           Termination of Employment Due to Death or Disability.  If an Awardee’s employment with the Company or any of its Subsidiaries or Affiliates terminates by reason of death or Disability, the restrictions and risk of forfeiture with respect to the Restricted Stock which have not expired shall immediately lapse and all shares of the Restricted Stock shall be deemed fully vested and nonforfeitable.

(b)           Termination of Employment Other Than Due to Death or Disability.  If an Awardee’s employment with the Company or any of its Subsidiaries or Affiliates terminates for a reason other than death or Disability, the shares of Restricted Stock for which the restrictions and risk of forfeiture have not expired as of the date of termination shall be immediately forfeited without further action by the Company; provided, however, that the portion, if any, of those shares of Restricted Stock for which the restrictions and risk of forfeiture have expired as of the date of such termination shall not be forfeited.

6.Change in Control or Potential Change in Control of the Company.  In the event of (a) a Change in Control, unless otherwise determined by the Committee in writing at or after the Grant Date, but prior to the occurrence of such Change in Control, or (b) a Potential Change in Control, if and to the extent so determined by the Committee in writing at or after the Grant Date (subject to any right of approval expressly reserved by the Committee at the time of such determination), the restrictions with respect to the Restricted Stock shall lapse and such shares shall be deemed fully vested and nonforfeitable.

7.No Limitation on Excess Parachute Payments.  The provisions of Article 11 of the Plan regarding the payment of any “Excess Parachute Payment” within the meaning of Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended, shall not apply to this Agreement.

GENERAL TERMS AND PROVISIONS

8.Administration of Award.  The Restricted Stock shall be maintained in a book-entry account (the “Account”) by and at the Company’s transfer agent until the restrictions associated with such Restricted Stock expire pursuant to Sections 4, 5 or 6.  The Awardee shall execute and deliver to the transfer agent one or more stock powers in blank for the Restricted Stock.  The Awardee hereby agrees that the transfer agent shall maintain such Account and the related stock power(s) pursuant to the terms of this Agreement until such restrictions expire pursuant to Sections 4, 5 or 6.

9.Ownership of Restricted Stock.  From and after the time that the Account representing the Restricted Stock has been activated and prior to forfeiture, the Awardee will be entitled to all the rights of absolute ownership of the Restricted Stock, including the right to vote those shares and to receive dividends thereon if, as, and when declared by the Board, subject,

2

however, to the terms, conditions and restrictions set forth in this Agreement.  Dividends paid in stock of the Company or stock received in connection with a Stock split with respect to the Restricted Stock shall be subject to the same restrictions as on such Restricted Stock.  The shares of Restricted Stock subject to this Award are not eligible to be enrolled in any dividend re-investment program until the restrictions thereon expire.

10.           Adjustment of Shares for Recapitalization, Etc.  In the event there is any change in the outstanding Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend, combination of shares or otherwise, there shall be substituted for or added to each share of Stock theretofore appropriated or thereafter subject, or which may become subject, to this Award, the number and kind of shares of stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be.  Adjustment under the preceding provisions of this Section 10 will occur automatically upon any such change in the outstanding Stock of the Company.  No fractional interest will be issued under the Plan on account of any such adjustment.

11.Conditions to Delivery of Stock and Registration.  Nothing herein shall require the Company to issue or the transfer agent to deliver any shares with respect to the Award if (a) that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act of 1933, as amended, or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect; or (b) the withholding obligation as provided in Section 12 of this Agreement has not been satisfied.  From time to time, the Board and appropriate officers of the Company are authorized to and shall take whatever actions are necessary to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make shares of Stock available for issuance.

12.Payment of Taxes.  The delivery of shares of Stock pursuant to this Award is conditioned upon satisfaction of any withholding obligation described in this Section 12.  The Awardee may be required, from time to time, in the Company’s discretion, to pay to the Company (or any Subsidiary or Affiliate as applicable), the amount that the Company deems necessary to satisfy the Company’s or its Subsidiary’s or Affiliate’s current or future obligation to withhold federal, state or local income or other taxes incurred by the Awardee as a result of the Award.  With respect to any required tax withholding obligation, the Company will withhold from the gross number of shares of Stock to be issued upon vesting a number of shares equal in value to the amount of such obligation, based on the shares’ Fair Market Value at the time such obligation is incurred or, upon timely request by the Awardee, the Company may, in its sole discretion, allow the Awardee to deliver to the Company (a) sufficient shares of Stock to satisfy any required tax withholding obligation, based on the shares’ Fair Market Value at the time such obligation is incurred or (b) sufficient cash to satisfy such obligation in lieu of such withholding by the Company.  In the event that the Company subsequently determines that the aggregate Fair Market Value of any shares of Stock withheld by the Company or submitted by the Awardee as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Awardee shall pay to the Company, immediately upon the Company’s request, the amount of that deficiency in cash.

3

13.Company Records.  Records of the Company or its Subsidiaries or Affiliates regarding any period(s) of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

14.Right of the Company and Subsidiaries to Terminate Employment.  Nothing contained in this Agreement shall confer upon the Awardee the right to continue in the employ of the Company or any Subsidiary or Affiliate, or interfere in any way with the rights of the Company or any Subsidiary or Affiliate to terminate the Awardee’s employment at any time.

15.No Liability for Good Faith Determinations.  The members of the Board and the Committee shall not be liable for any act, omission, interpretation or determination taken or made in good faith with respect to this Agreement or the Restricted Stock granted hereunder and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation.

16.Severability.  If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

17.Successors.  This Agreement shall be binding upon the Awardee, their legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

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.Headings.  The titles and headings herein are included for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

20.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 jurisdiction.  Should there be any inconsistency or discrepancy between the provisions of this Agreement and the terms and conditions of the Plan under which this Award is granted, the provisions in the Plan shall govern and prevail.

21.Amendment.  This Agreement may be amended by the Committee; provided, however, that no amendment may decrease rights inherent in this Award prior to such amendment without the express written consent of the parties hereto.  Notwithstanding the

4

provisions of this Section 21, this Agreement may be amended by the Committee to the extent necessary to comply with applicable laws and regulations and to conform the provisions of this Agreement to any changes thereto.

22.Effective Date.  This Agreement has been executed this _____ day of ___________, 20____, effective as of ___________, 20____.

WADDELL & REED FINANCIAL, INC.
By:	_____________________________________
	Daniel P. Connealy, Senior Vice President      and Chief Financial Officer
	“Company”
	______________________________
	«Name»
	“Awardee”

5

STOCK POWER

FOR VALUE RECEIVED, «Name» does hereby assign and transfer unto Waddell & Reed Financial, Inc. (51-0261715) __________ shares of Class A common stock of Waddell & Reed Financial, Inc., a Delaware corporation, granted on _______________, 20___, as evidenced by the Restricted Stock Award Agreement of even date therewith and standing in the name of the undersigned on the books of Waddell & Reed Financial, Inc.  The undersigned does hereby appoint Computershare Trust Company, N.A. as attorney-in-fact to transfer the said stock on the books of Waddell & Reed Financial, Inc. with full power of substitution in the premises.

Dated as of this _____ day of ___________, 20___.

_____________________________________________________________

«Name»

6

EX-11

Exhibit 11

WADDELL & REED FINANCIAL, INC.

COMPUTATION OF EARNINGS PER SHARE

	2008		2007		2006
	(in thousands except for per share data)
Net income		$96,163		$125,497		$46,112
Basic weighted average shares outstanding	82,331		80,781		81,353
Diluted weighted average shares outstanding	83,969		82,824		83,212
Basic net income per share	$1.17		$1.55		$0.57
Diluted net income per share	$1.15		$1.52		$0.55

EX-12

Exhibit 12

WADDELL & REED FINANCIAL, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(in thousands)

	Year Ended
	December 31,
Earnings:	2008		2007		2006		2005		2004		2003
Income from continuing operations before provision for income taxes	$	156,420	$	199,160	$	89,200	$	95,950	$	158,210	$	84,934
Fixed charges	18,824		18,158		18,379		20,323		16,403		15,801
Total earnings	$	175,244	$	217,318	$	107,579	$	116,273	$	174,613	$	100,735
Fixed Charges:
Interest expense	$	12,087	$	11,924	$	12,227	$	14,278	$	10,724	$	9,759
Portion of rentals representative of interest factor	6,737		6,234		6,152		6,045		5,679		6,042
Total fixed charges	$	18,824	$	18,158	$	18,379	$	20,323	$	16,403	$	15,801
Ratio of earnings to fixed charges	9.31		11.97		5.85		5.72		10.65		6.38

EX-21

Exhibit 21

Subsidiaries of the Company

			Jurisdiction of
	Name		Incorporation or Formation
Waddell & Reed Financial Services, Inc.		Missouri
Waddell & Reed, Inc.		Delaware
Waddell & Reed Investment Management Company		Kansas
Waddell & Reed Services Company		Missouri
Ivy Investment Management Company		Delaware
Ivy Funds Distributor, Inc.		Florida
W & R Capital Management Group, Inc.		Delaware
W & R Corporate LLC		Delaware
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 Wisconsin, Inc.		Wisconsin
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 26, 2009, with respect to the consolidated balance sheets of Waddell & Reed Financial, Inc. as of December 31, 2008 and 2007, 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, 2008; and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 annual report on Form 10-K of Waddell & Reed Financial, Inc.

/s/ KPMG LLP

Kansas City, Missouri
February 26, 2009

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 26, 2009

/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 26, 2009

/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, 2008 (the "Report") dated February 27, 2009 and filed with the United States Securities and Exchange Commission 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 26, 2009

/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, 2008 (the "Report") dated February 27, 2009 and filed with the United States Securities and Exchange Commission 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 26, 2009

/s/ Daniel P. Connealy

Daniel P. Connealy

Senior Vice President and

Chief Financial Officer