UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x				QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o				TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-13913

WADDELL & REED FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

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

6300 Lamar Avenue

Overland Park, Kansas 66202

(Address, including zip code, of Registrant’s principal executive offices)

(913) 236-2000

(Registrant’s telephone number, including area code)

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 x No o .

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

Large accelerated filer x Accelerated Filer o Non-accelerated Filer o

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

Shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:

Class		Outstanding as of October 19, 2007
Class A common stock, $.01 par value		83,443,798

WADDELL & REED FINANCIAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended September 30, 2007

Part I.	Financial Information

Item 1.			Financial Statements (unaudited)

			Consolidated Balance Sheets at September 30, 2007 and December 31, 2006

			Consolidated Statements of Operations for the three months and nine months ended September 30, 2007 and September 30, 2006

			Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2007 and September 30, 2006

			Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2007

			Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and September 30, 2006

			Notes to the Unaudited Consolidated Financial Statements

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Item 4.			Controls and Procedures

Part II.		Other Information

Item 1.			Legal Proceedings

Item 1A.			Risk Factors

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.			Exhibits

			Signatures

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	September 30,			December 31,
	2007			2006
	(unaudited)
Assets:
Cash and cash equivalents	$	152,605		163,887
Cash and cash equivalents - restricted	92,820			32,629
Investment securities	53,514			48,129
Receivables:
Funds and separate accounts	46,299			38,806
Customers and other	66,335			59,863
Deferred income taxes	888			2,923
Prepaid expenses and other current assets	6,606			5,766
Total current assets	419,067			352,003

Property and equipment, net	48,446			50,875
Deferred sales commissions, net	33,658			20,462
Goodwill and identifiable intangible assets	228,432			228,432
Other assets	9,180			10,942
Total assets	$	738,783		662,714

Liabilities:
Accounts payable	$	15,998		16,415
Payable to investment companies for securities	137,641			75,607
Accrued compensation	38,126			32,994
Income taxes payable	6,753			14,804
Other current liabilities	46,496			44,710

Total current liabilities	245,014			184,530

Long-term debt	199,952			199,942
Accrued pension and post-retirement costs	12,708			12,663
Deferred income taxes	8,805			12,082
Other	13,804			8,797

Total liabilities	480,283			418,014

Commitments and contingencies (Note 9)

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; 83,393 shares outstanding (84,660 at December 31, 2006)	997			997
Additional paid-in capital	188,205			189,299
Retained earnings	436,131			388,422
Cost of 16,308 common shares in treasury (15,041 at December 31, 2006)	(362,172		)	(327,966	)
Accumulated other comprehensive loss	(4,661		)	(6,052	)
Total stockholders’ equity	258,500			244,700
Total liabilities and stockholders’ equity	$	738,783		662,714

See accompanying notes to unaudited consolidated financial statements.

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited, in thousands, except for per share data)

	For the three months ended September 30,					For the nine months ended September 30,
	2007			2006		2007		2006

Revenues:
Investment management fees	$	94,806		77,955		267,049		230,194
Underwriting and distribution fees	92,168			77,908		264,740		235,414
Shareholder service fees	23,678			22,719		69,648		67,355

Total revenues	210,652			178,582		601,437		532,963

Operating expenses:
Underwriting and distribution	105,604			87,927		299,529		264,225
Compensation and related costs (including share-based compensation of $6.0 million, $4.9 million, $17.3 million and $16.2 million, respectively)	28,760			25,767		84,004		81,786
General and administrative	12,745			15,539		34,668		90,765
Subadvisory fees	11,459			7,960		31,312		22,108
Depreciation	3,167			2,970		9,272		8,780
Goodwill impairment	—			—		—		20,000

Total	161,735			140,163		458,785		487,664

Operating income	48,917			38,419		142,652		45,299
Investment and other income	4,831			2,960		9,920		7,367
Interest expense	(2,984		)	(3,048	)	(8,950	)	(9,286	)

Income before provision for income taxes	50,764			38,331		143,622		43,380
Provision for income taxes	18,797			13,740		53,222		27,219

Net income	$	31,967		24,591		90,400		16,161

Net income per share:
Basic	$	0.40		0.30		1.12		0.20
Diluted	$	0.39		0.30		1.10		0.19

Weighted average shares outstanding:
Basic	80,365			81,595		80,556		81,458
Diluted	82,099			83,171		82,477		83,162

Dividends declared per common share	$	0.17		0.15		0.51		0.45

See accompanying notes to unaudited consolidated financial statements.

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

	For the three months ended September 30,					For the nine months ended September 30,
	2007			2006		2007		2006

Net income	$	31,967		24,591		90,400		16,161

Other comprehensive income:

Available-for-sale investments:
Net unrealized appreciation of investments during the period, net of income taxes of $407, $251, $1,558 and $552, respectively	670			429		2,699		940

Derivatives:
Net unrealized loss on derivatives during the period, net of income taxes of $0, $0, $0 and $(174), respectively	—			—		—		(297	)

Reclassification adjustment for amounts included in net income, net of income taxes of $(702), $(636), $(742) and $(763), respectively	(1,217		)	(1,083	)	(1,290	)	(1,299	)

Comprehensive income	$	31,420		23,937		91,809		15,505

See accompanying notes to unaudited consolidated financial statements.

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Nine Months Ended September 30, 2007

(Unaudited, in thousands)

										Accumulated
				Additional						other		Total
	Common stock			paid-in		Retained		Treasury		comprehensive		stockholders’
	Shares	Amount		capital		earnings		stock		income (loss)		equity

Balance at December 31, 2006	99,701	$	997	189,299		388,422		(327,966	)	(6,052	)	244,700

Net income	—	—		—		90,400		—		—		90,400
Recognition of equity compensation	—	—		17,305		—		—		—		17,305
Issuance of nonvested shares and other	—	—		(18,730	)	—		18,730		—		—
Dividends accrued	—	—		—		(42,691	)	—		—		(42,691	)
Exercise of stock options	—	—		(2,040	)	—		6,944		—		4,904
Excess tax benefits from share-based payment arrangements	—	—		2,371		—		—		—		2,371
Other stock transactions	—	—		—		—		(5,521	)	—		(5,521	)
Repurchase of common stock	—	—		—		—		(54,359	)	—		(54,359	)
Unrealized gain on available for sale investment securities	—	—		—		—		—		2,699		2,699
Reclassification for amounts included in net income	—	—		—		—		—		(1,290	)	(1,290	)
Pension and postretirement plan adjustment	—	—		—		—		—		(18	)	(18	)

Balance at September 30, 2007	99,701	$	997	188,205		436,131		(362,172	)	(4,661	)	258,500

See accompanying notes to unaudited consolidated financial statements.

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	For the nine months ended September 30,
	2007			2006

Cash flows from operating activities:
Net income	$	90,400		16,161
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,295			8,972
Share-based compensation	17,305			16,183
Excess tax benefits from share-based payment arrangements	(2,371		)	(1,959	)
Gain on sale of available-for-sale investment securities	(1,862		)	(2,702	)
Net purchases and sales of trading securities	(857		)	(852	)
Unrealized gain on trading securities	(1,237		)	(156	)
Goodwill impairment	—			20,000
Write down of investment securities	—			750
Loss on sale and retirement of property and equipment	187			163
Capital gains and dividends reinvested	(202		)	(157	)
Deferred income taxes	(2,074		)	1,812
Changes in assets and liabilities:
Cash and cash equivalents - restricted	(60,191		)	(8,244	)
Receivables from funds and separate accounts	(7,493		)	(2,572	)
Other receivables	(6,472		)	693
Other assets	(12,275		)	(4,355	)
Accounts payable and payable to investment companies	61,618			11,094
Other liabilities	4,813			(12,046	)

Net cash provided by operating activities	$	88,584		42,785

Cash flows from investing activities:
Purchases of available-for-sale investment securities	(5,650		)	(3,350	)
Proceeds from sales of available-for-sale investment securities	6,633			11,774
Proceeds from maturities of available-for-sale investment securities	—			435
Additions to property and equipment	(7,030		)	(6,969	)

Net cash provided by (used in) investing activities	$	(6,047	)	1,890

Cash flows from financing activities:
Proceeds from long term debt and interest rate swap termination	—			199,862
Repayment of long term debt	—			(200,000	)
Dividends paid	(41,214		)	(38,001	)
Repurchase of common stock	(54,359		)	(22,530	)
Exercise of stock options	4,904			6,164
Excess tax benefits from share-based payment arrangements	2,371			1,959
Other stock transactions	(5,521		)	(4,684	)

Net cash used in financing activities	$	(93,819	)	(57,230	)

Net decrease in cash and cash equivalents	(11,282		)	(12,555	)

Cash and cash equivalents at beginning of period	163,887			136,694

Cash and cash equivalents at end of period	$	152,605		124,139

See accompanying notes to unaudited consolidated financial statements.

WADDELL & REED FINANCIAL, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Significant Accounting Policies

Waddell & Reed Financial, Inc. and Subsidiaries

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

Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements included herein pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented. The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006 (the “2006 Form 10-K”). Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation.

The accompanying unaudited consolidated financial statements have been prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements included in our 2006 Form 10-K, which include the following: use of estimates, cash and cash equivalents, disclosures about fair value of financial instruments, investment securities and investments in affiliated mutual funds, property and equipment, software developed for internal use, goodwill and intangible assets, deferred sales commissions, revenue recognition, advertising and promotion, share-based compensation and derivatives and hedging activities. Due to the implementation of Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 ” (“FIN 48”), we modified our accounting policy related to accounting for income taxes, which is listed below. In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at September 30, 2007 and December 31, 2006, the results of operations for the three months and nine months ended September 30, 2007 and 2006 and cash flows for the nine months ended September 30, 2007 and 2006 in conformity with accounting principles generally accepted in the United States.

Accounting for Income Taxes

tax expense related to uncertain tax positions is determined under the guidance as prescribed by 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.

2. Cash and Cash Equivalents

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

3. Investment Securities

Investment securities are as follows:

	Fair Value
	September 30,		December 31,
	2007		2006
	(in thousands)

Available-for-sale securities:
Affiliated mutual funds	$	33,088	29,716
Municipal bonds	7,133		7,184
Mortgage-backed securities	12		13
	40,233		36,913

Trading securities:
Affiliated mutual funds	12,413		10,196
Municipal bonds	506		510
Corporate bonds	188		340
Mortgage-backed securities	117		124
Common stock	57		46
	13,281		11,216

Total investment securities	$	53,514	48,129

Certain information related to our available-for-sale securities is as follows:

	September 30,			December 31,
	2007			2006
	(in thousands)

Cost	$	30,409		29,483
Gross unrealized gains	9,848			7,546
Gross unrealized losses	(24		)	(116	)

Fair value	$	40,233		36,913

Purchases and sales of trading securities during the nine months ended September 30, 2007 were $1.2 million and $359 thousand, respectively.

In the first quarter of 2006, the Company recorded a $750 thousand write-down for other-than-temporary impairment of a municipal bond classified as available-for-sale. In the third quarter of 2006, the Company sold the same bond and realized a gain on the sale (after the first quarter write-down) of $183 thousand.

4. Stockholders’ Equity

Earnings per Share

The components of basic and diluted earnings per share were as follows:

	Three months ended			Nine months ended
	September 30,			September 30,
	2007		2006	2007	2006
	(in thousands, except per share amounts)

Net income, as reported	$	31,967	24,591	90,400	16,161

Weighted average shares outstanding - basic	80,365		81,595	80,556	81,458
Dilutive potential shares from stock options and certain nonvested stock awards	1,734		1,576	1,921	1,704
Weighted average shares outstanding - diluted	82,099		83,171	82,477	83,162

Earnings per share
Basic	$	0.40	0.30	1.12	0.20
Diluted	$	0.39	0.30	1.10	0.19

Anti-dilutive Securities

Options to purchase 2.3 million shares and 2.7 million shares of common stock were excluded from the dilutive earnings per share calculation for the three and nine months ended September 30, 2007, respectively, and options to purchase 2.8 million shares of common stock were excluded from the dilutive earnings per share calculation for the three and nine months ended September 30, 2006 because they were anti-dilutive. Also excluded from the diluted earnings per share calculation were 7,500 shares of anti-dilutive nonvested stock for the three and nine months ended September 30, 2007 and 1,944 shares of anti-dilutive nonvested stock for the nine months ended September 30, 2006.

Dividends

On July 12, 2007, the Board of Directors (the “Board”) approved a dividend on our Class A common stock (“common stock”) in the amount of $0.17 per share to stockholders of record as of October 5, 2007 to be paid on November 1, 2007. The total dividend to be paid is approximately $14.2 million.

Common Stock Repurchases

The Board has authorized the repurchase of our common stock in the open market and/or private purchases. Our stock repurchase program does not have an expiration date or an aggregate maximum number or dollar value of shares that may be repurchased. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs. There were 524,600 shares and 2,194,600 shares repurchased in the open market during the three and nine months ended September 30, 2007. There were 933,229 shares repurchased in the open market and in private purchases during the three and nine months ended September 30, 2006.

5. Share-Based Compensation

On April 2, 2007, we granted 833,976 shares of nonvested stock with a fair value of $23.46 per share under the Company’s 1998 Stock Incentive Plan, as amended and restated. The fair value of those shares at April 2, 2007, aggregating $19.6 million, will be amortized to expense over a four year vesting period.

6. Goodwill and Identifiable Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the tangible assets and identifiable intangible assets of an acquired business. At September 30, 2007 and December 31, 2006, gross goodwill was $212.0 million and accumulated amortization was $38.6 million. Our goodwill is not deductible for tax purposes.

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

Based on our annual review of goodwill in the second quarter of fiscal 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 (“ACF”). The goodwill impairment was not deductible for income tax purposes and as a result, no tax benefit was recognized for the goodwill impairment charge. ACF’s remaining unamortized goodwill balance at September 30, 2007 and 2006 was $7.2 million.

Identifiable Intangible Assets

Identifiable intangible assets (all considered indefinite lived) are summarized as follows:

	September 30,		December 31,
	2007		2006
	(in thousands)
Unamortized intangible assets:
Mutual fund management advisory contracts	$	38,699	38,699
Mutual fund subadvisory management contracts	16,300		16,300
Total	$	54,999	54,999

7. Income Taxes

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

As of January 1, 2007, the Company had unrecognized tax benefits, including penalties and interest, of $5.1 million ($3.5 million net of federal benefit) that, if recognized, would impact the Company’s effective tax rate. As of September 30, 2007, the Company had unrecognized tax benefits, including penalties and interest, of $7.1 million ($4.8 million net of federal benefit) that, if recognized, would impact the Company’s effective tax rate. During the three month and nine month period ended September 30, 2007, the Company reduced its unrecognized tax benefits by $257 thousand ($232 thousand net of federal benefit) due to the lapse of the statute of limitations on certain positions. The unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the accompanying consolidated balance sheet; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable. The Company had no cumulative effect of adopting FIN 48, and therefore, no adjustment was recorded to retained earnings upon such adoption.

The Company’s historical accounting policy with respect to interest and penalties related to tax uncertainties has been to classify these amounts as income taxes, and the Company continued this classification upon the adoption of FIN 48. As of January 1, 2007, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $1.9 million ($1.3 million net of federal benefit). The total amount of penalties and interest, net of federal benefit, related to tax uncertainties recognized in the statement of income for the nine month period ended September 30, 2007 was $338 thousand. The total amount of accrued penalties and interest related to uncertain tax positions at September 30, 2007 of $2.4 million ($1.7 million net of federal benefit) is included in the total unrecognized tax benefits described above.

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

The Company is currently being audited in four state jurisdictions. It is reasonably possible that the Company will settle the audits in all four jurisdictions within the next 12-month period. It is estimated that the Company’s FIN 48 liability could decrease by approximately $2.7 million to $3.3 million ($1.6 million to $2.2 million net of federal benefit) upon settlement of these audits. Such settlements are not anticipated to have a significant impact on the reported income.

8. 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.

The following table presents the components of net periodic pension and other postretirement costs related to these plans.

						Other Postretirement								Other Postretirement
	Pension Benefits					Benefits				Pension Benefits				Benefits
	Three months ended September 30,					Three months ended September 30,				Nine months ended September 30,				Nine months ended September 30,
	2007			2006		2007		2006		2007		2006		2007		2006
				(in thousands)								(in thousands)
Components of net periodic benefit cost:
Service cost.	$	1,429		1,362		73		75		4,288		4,085		219		224
Interest cost.	1,373			1,187		61		52		4,118		3,561		183		156
Expected return on plan assets.	(1,611		)	(1,405	)	—		—		(4,832	)	(4,216	)	—		—
Actuarial loss (gain) amortization	203			208		(10	)	(10	)	607		625		(29	)	(27	)
Prior service costs amortization	109			109		10		6		327		327		29		17
Transition obligation amortization	1			1		—		—		4		4		—		—
Total	$	1,504		1,462		134		123		4,512		4,386		402		370

During the nine month period ended September 30, 2007 we made a $5.0 million contribution to the Pension Plan. We anticipate that our contribution to the Pension Plan for the remainder of 2007 will range from $0 to $5.0 million.

9. 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. All statements, other than statements of historical fact included in this Form 10-Q regarding our financial position, business strategy and other plans and objectives for future operations are forward-looking statements. All forward-looking statements included in this Form 10-Q are based on information available to us on the date hereof, and we assume no obligation to update such forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct or that we will take any actions that may presently be planned and neither us nor any other person will be responsible for the accuracy or completeness of any such forward-looking statements. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the “ Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2006, which include, without limitation, the adverse effect from regulatory settlements, a decline in securities markets or a decline in our products’ performance, reduction of investment management fees, failure to renew investment management or subadvisory agreements, a decline in distribution sources, the unsuccessful implementation of new information systems, a change in the classification of our advisors as independent contractors, increased redemptions in funds with a high concentration of assets, adverse results of litigation and/or arbitration, acts of terrorism and/or war, competition, changes in government regulation, and availability and terms of capital. Should one or more of these risks materialize or should the underlying assumptions prove incorrect, actual results could differ materially from those forecasted or expected. All subsequent written or oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such factors.

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in our 2006 Annual Report on Form 10-K, as well as a more detailed explanation of risk factors at the end of this Item 2 under the heading entitled “Forward Looking Information.”

Overview

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. We derive our revenues primarily from providing investment management, investment product underwriting and distribution, and shareholder services administration to the 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, Rule 12b-1 asset-based service and distribution fees, distribution fees on certain variable products, fees earned on fee-based asset allocation products, and related advisory services. The products sold have various commission structures and the revenues received from product sales vary based on the type and amount sold. We operate our business through three distinct 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 (together with Legend, the “Wholesale channel”). We also market our investment advisory services to institutional investors, either directly or through consultants (the “Institutional channel”).

Recent Accounting Developments

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115,” (“SFAS No. 159”), which provides companies with an option to report select financial assets and liabilities at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of the 2008 fiscal year. We do not believe the adoption of SFAS No. 159 will have a material impact on our results of operations and financial condition.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective as of the beginning of the 2008 fiscal year. We are evaluating the impact, if any, the adoption of SFAS No. 157 will have on our results of operations and financial condition.

In June 2006, the Emerging Issues Task Force (the “EITF”) reached a consensus on EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4”) which requires the application of the provisions of Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS No. 106”) to split-dollar life insurance arrangements. SFAS No. 106 would require the Company to recognize a liability for the discounted future benefit obligation that the Company will have to pay upon the death of the underlying insured employee. EITF 06-4 is effective as of the beginning of the 2008 fiscal year . We currently have a policy subject to the provisions of this new pronouncement and are evaluating the impact, if any, the adoption of EITF 06-4 will have on our results of operations and financial condition.

Third Quarter Highlights

Highlights for the current quarter:

• Overall gross sales increased 68% to $3.7 billion compared to the third quarter of 2006, driven by sales in our Wholesale channel.

• The Wholesale channel generated net sales of $1.8 billion for the quarter and the Advisors channel improved from $47 million in net outflows during the third quarter of 2006 to just $21 million in net outflows for the current quarter.

• Total assets under management increased $13.8 billion compared to the third quarter of 2006, due to a combination of organic growth and market action.

• Sales of fee-based allocation products increased significantly during the quarter, to $206 million, primarily driven by modified products introduced in April 2007.

Additionally, we repurchased 524,600 shares of our Class A common stock (“common stock”) in the open market during the quarter.

Results of Operations – Three and Nine Months Ended September 30, 2007 as Compared with Three and Nine Months Ended September 30, 2006

Net Income

	Three months ended			Nine months ended
	September 30, 2007		September 30, 2006	September 30, 2007	September 30, 2006
	(in thousands, except per share amounts)

Net Income	$	31,967	24,591	90,400	16,161
Earnings per share:
Basic	$	0.40	0.30	1.12	0.20
Diluted	$	0.39	0.30	1.10	0.19

Net income for the third quarter of 2007 was $32.0 million, or $0.39 per diluted share, compared to net income of $24.6 million, or $0.30 per diluted share, for the same period in 2006. Net income for the nine months ended September 30, 2007 was $90.4 million, or $1.10 per diluted share, compared to net income of $16.2 million, or $0.19 per diluted share, for the same period in 2006. The decline in 2006 year-to-date net income was primarily attributable to our settlement with the SEC, the New York Attorney General and the Kansas Securities Commission regarding market timing allegations that resulted in a charge of $55 million, $12 million of which represented non-deductible penalties. In addition, effective October 1, 2006, we instituted an annual $5.0 million investment management fee waiver pursuant to the New York Attorney General settlement by adjusting management fee rates on certain funds. Net income in 2006 was also impacted by a non-deductible goodwill impairment charge of $20 million related to our subsidiary, Austin, Calvert & Flavin, Inc. (“ACF”) based on the negative impact of the continued decline in ACF’s assets under management and diminished involvement of ACF’s investment staff in mutual fund advisory responsibilities.

The following series of tables, including Average Assets Under Management and Changes in Assets Under Management, provide data that should be helpful in understanding the Company’s business and should be referred to while reading the discussions that follow the tables.

Average Assets Under Management

The following tables provide information regarding the composition of our average assets under management by asset class and distribution channel.

	Third Quarter 2007
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	27,304	14,742	6,957	$	49,003
Fixed Income	4,142		388	609	5,139
Money Market	1,077		67	—	1,144
Total	$	32,523	15,197	7,566	$	55,286

	Third Quarter 2006
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	23,288	8,752	6,865	$	38,905
Fixed Income	3,887		340	627	4,854
Money Market	839		88	—	927
Total	$	28,014	9,180	7,492	$	44,686

	Year to Date 2007
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	26,389	12,821	6,969	$	46,179
Fixed Income	4,100		373	615	5,088
Money Market	999		61	—	1,060
Total	$	31,488	13,255	7,584	$	52,327

	Year to Date 2006
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	23,573	8,070	7,137	$	38,780
Fixed Income	3,874		339	619	4,832
Money Market	763		68	—	831
Total	$	28,210	8,477	7,756	$	44,443

Change in Assets Under Management

The following tables summarize changes in our assets under management by distribution channel. All sales are net of commissions. The activity includes all activity of the Funds and institutional and separate accounts, including money market funds and transactions at net asset value for which we receive no commissions.

	Third Quarter 2007
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	32,153		14,247		7,564		$	53,964

Sales (net of commissions)	902			2,500		282		3,684
Redemptions	(922		)	(701	)	(542	)	(2,165		)
Net Sales	(20		)	1,799		(260	)	1,519

Net Exchanges	(67		)	65		—		(2		)
Reinvested Dividends & Capital
Gains	80			18		24		122
Net Flows	(7		)	1,882		(236	)	1,639

Market Appreciation	1,923			1,276		580		3,779
Ending Assets	$	34,069		17,405		7,908		$	59,382

	Third Quarter 2006
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	28,361		8,952		7,688		$	45,001

Sales (net of commissions)	759			1,088		345		2,192
Redemptions	(806		)	(513	)	(404	)	(1,723		)
Net Sales	(47		)	575		(59	)	469

Net Exchanges	(38		)	37		—		(1		)
Reinvested Dividends & Capital
Gains	64			10		28		102
Net Flows	(21		)	622		(31	)	570

Market Appreciation (Depreciation)	212			(91	)	(79	)	42
Ending Assets	$	28,552		9,483		7,578		$	45,613

	Year to Date 2007
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	29,905		10,819		7,677		$	48,401

Sales (net of commissions)	2,551			5,503		772		8,826
Redemptions	(2,864		)	(1,932	)	(1,760	)	(6,556		)
Net Sales	(313		)	3,571		(988	)	2,270

Net Exchanges	(151		)	146		—		(5		)
Reinvested Dividends & Capital
Gains	253			65		80		398
Net Flows	(211		)	3,782		(908	)	2,663

Market Appreciation	4,375			2,804		1,139		8,318
Ending Assets	$	34,069		17,405		7,908		$	59,382

	Year to Date 2006
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	27,187		6,729		7,947		$	41,863

Sales (net of commissions)	2,449			3,414		739		6,602
Redemptions	(2,465		)	(1,367	)	(1,223	)	(5,055		)
Net Sales	(16		)	2,047		(484	)	1,547

Net Exchanges	(142		)	135		—		(7		)
Reinvested Dividends & Capital
Gains	224			47		87		358
Net Flows	66			2,229		(397	)	1,898

Market Appreciation	1,299			525		28		1,852
Ending Assets	$	28,552		9,483		7,578		$	45,613

Total Revenues

Total revenues increased 18% to $210.7 million and 13% to $601.4 million for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. Increases in both periods can be attributed to growth in average assets under management of 24% and 18% for the three and nine months ended September 30, 2007, respectively, and an increase in gross sales of 68% and 34% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in the prior year.

	Three months ended
	September 30, 2007		September 30, 2006	Variance Percentage
	(in thousands, except percentage data)

Investment management fees	$	94,806	77,955	22	%
Underwriting and distribution fees	92,168		77,908	18	%
Shareholder service fees	23,678		22,719	4	%
Total revenues	$	210,652	178,582	18	%

	Nine months ended
	September 30, 2007		September 30, 2006	Variance Percentage
	(in thousands, except percentage data)

Investment management fees	$	267,049	230,194	16	%
Underwriting and distribution fees	264,740		235,414	12	%
Shareholder service fees	69,648		67,355	3	%
Total revenues	$	601,437	532,963	13	%

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 $16.9 million, or 22%, from last year’s third quarter and $36.9 million, or 16%, for the nine month period ended September 30, 2007 compared to the same period in the prior year.

Revenues from investment management services provided to our retail mutual funds, which are distributed through the Advisors and Wholesale channels, were $85.1 million for the quarter ended September 30, 2007. Revenues increased $17.1 million, or 25%, compared to the third quarter of 2006, while the related retail average assets increased 28% to $47.7 billion. For the nine months ended September 30, 2007, revenues from investment management services provided to our retail mutual funds increased $38.7 million, or 19%, to $237.8 million compared to the first nine months of 2006, while the related retail average assets increased 22% to $44.7 billion. Investment management fee revenues increased less than the related retail average assets primarily due to the decrease to management fee rates on certain funds, effective October 1, 2006, in compliance with our settlement with the New York Attorney General. This decrease in management fee rates has reduced management fees by approximately $5.0 million on an annual basis. Retail sales in the third quarter of 2007 were $3.4 billion, an 84% increase over sales in the third quarter of 2006 and were $8.1 billion for the nine months ended September 30, 2007, a 37% increase over the same period in 2006.

Institutional and separate account revenues were $9.7 million for the quarter ended September 30, 2007, representing a decrease of $0.3 million, or 3%, from last year’s third quarter. The decrease was primarily due to a management fee rate decrease on certain institutional accounts. Year-to-date institutional and separate account revenues decreased 6% to $29.2 million in 2007 compared to the same period in 2006 due

to a management fee rate decrease on certain institutional accounts and a reduction in management fee revenues of $1.0 million earned by ACF based on a decline in average assets of 30% over the same period.

Gross sales of subadvised funds were $805 million for the three months ended September 30, 2007 compared to $523 million for the third quarter of 2006 and were $2.4 billion and $2.1 billion for the nine months ended September 30, 2007 and 2006, respectively.

The long-term redemption rate (which excludes money market fund redemptions) in the Advisors channel was 8.8% in this year’s third quarter and 9.5% year-to-date, compared to 9.0% in the third quarter of 2006 and 9.3% for the first nine months of 2006. In the Wholesale channel, long-term redemption rates were lower in this year’s third quarter, at 17.9%, compared to 21.5% in the third quarter last year due to the growth rate in average assets under management, which was higher than the redemption growth rate. For the nine months ended September 30, 2007, the Wholesale channel’s long-term redemption rates also decreased to 19.1% compared to 21.1% for the comparable period in 2006. We expect the Advisors channel long-term redemption rate to remain lower than that of the Wholesale channel due to the personal and customized manner in which our financial advisors provide service to clients. The long-term redemption rate for our Institutional channel increased to 28.4% for the third quarter of 2007 compared to 21.4% for the third quarter of 2006, and increased from 21.1% to 31.0% for the nine month period ended September 30, 2007 compared to the same period in 2006. The higher redemption rate for the nine months ended September 30, 2007, which is based on total redemptions for the period of $1.8 billion in this channel, reflected redemptions across multiple investment disciplines, including large cap growth, small cap growth, core equity and international growth. During July 2007, we were notified that a large state pension and retirement fund intended to withdraw over $300 million from our institutional large-cap core strategy. During the third quarter of 2007, this fund redeemed approximately $130 million. ACF’s redemptions were $168 million for the first nine months of 2007 compared to $501 million for the same period in 2006.

Underwriting and Distribution Fee Revenues and Expenses

The following tables illustrate our underwriting and distribution fee revenues and expenses segregated by distribution method within the respective Advisors or Wholesale channel:

	Third Quarter 2007
				Wholesale
	Advisors			Third-Party		Legend	Total
	(in thousands)

Revenue	$	57,728		19,271		15,169	$	92,168
Expenses
Direct	39,539			25,340		10,158	75,037
Indirect	21,145			6,304		3,118	30,567
	60,684			31,644		13,276	105,604
Net Underwriting & Distribution	$	(2,956	)	(12,373	)	1,893	$	(13,436	)

	Third Quarter 2006
				Wholesale
	Advisors			Third-Party		Legend	Total
	(in thousands)

Revenue	$	54,398		10,465		13,045	$	77,908
Expenses
Direct	37,323			14,722		8,855	60,900
Indirect	19,899			4,222		2,906	27,027
	57,222			18,944		11,761	87,927
Net Underwriting & Distribution	$	(2,824	)	(8,479	)	1,284	$	(10,019	)

	Year to Date 2007
				Wholesale
	Advisors			Third-Party		Legend	Total
	(in thousands)

Revenue	$	172,374		47,848		44,518	$	264,740
Expenses
Direct	119,052			62,316		29,801	211,169
Indirect	61,977			17,463		8,920	88,360
	181,029			79,779		38,721	299,529
Net Underwriting & Distribution	$	(8,655	)	(31,931	)	5,797	$	(34,789	)

	Year to Date 2006
				Wholesale
	Advisors			Third-Party		Legend	Total
	(in thousands)

Revenue	$	168,402		27,842		39,170	$	235,414
Expenses
Direct	116,525			38,520		26,502	181,547
Indirect	61,288			12,972		8,418	82,678
	177,813			51,492		34,920	264,225
Net Underwriting & Distribution	$	(9,411	)	(23,650	)	4,250	$	(28,811	)

The following table illustrates commissionable investment product sales by our financial advisors, including sales of our InvestEd portfolios. Sales are shown gross of commissions and exclude sales by Legend retirement 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.

	Third Quarter		Third Quarter	Variance
	2007		2006	Amount		Percentage
	(in millions, except percentage data)

Front-end load sales	$	301	386	(85	)	-22	%
Variable annuity products	123		89	34		38	%
Front-load product total	424		475	(51	)	-11	%

Deferred-load sales	28		40	(12	)	-30	%
Fee-based allocation products	206		14	192		NM	⁽¹⁾
Total advisor sales	$	658	529	129		24	%

	Year to Date		Year to Date	Variance
	2007		2006	Amount		Percentage
	(in millions, except percentage data)

Front-end load sales	$	1,058	1,322	(264	)	-20	%
Variable annuity products	300		236	64		27	%
Front-load product total	1,358		1,558	(200	)	-13	%

Deferred-load sales	102		148	(46	)	-31	%
Fee-based allocation products	407		43	364		NM	⁽¹⁾
Total advisor sales	$	1,867	1,749	118		7	%

(1) Not meaningful (“NM”).

Underwriting and distribution revenues earned in this year’s third quarter increased $14.3 million, or 18%, compared with the third quarter of last year. The increase in revenues was due to higher Rule 12b-1 asset-based service and distribution fees of $12.4 million as a result of an increase in average mutual fund assets under management. Higher advisory fees and Rule 12b-1 service fee revenues earned by Legend drove a $2.1 million revenue increase compared to last year as their assets under administration increased. Additionally, revenues from fee-based allocation products increased $1.2 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 $1.3 million related to revenue on front-load product sales sold in the Advisors channel. Variable annuity revenues

increased $2.2 million quarter over quarter. While we expect this shift from front-load to fee-based sales to put some short-term pressure on both the underwriting and distribution margin and the operating margin in the Advisors channel, the asset-based fee structure has the opportunity for better long-term margin characteristics.

Underwriting and distribution revenues earned for the nine months ended September 30, 2007 increased $29.3 million, or 12%, compared with the same period in the prior year. The increase in revenues was due to higher Rule 12b-1 asset-based service and distribution fees of $28.2 million as a result of an increase in average mutual fund assets under management. Higher advisory fees, point of sale commissions and Rule 12b-1 service fee revenues earned by Legend drove a $5.3 million revenue increase compared to last year as their assets under administration increased. Revenues from the sale of insurance products increased $2.3 million compared to the same period in the prior year and revenues from fee-based allocation products increased $1.3 million. These increases were offset by an overall decrease of $6.4 million related to revenue on front-load product sales sold in the Advisors channel. Variable annuity revenues increased $4.6 million year over year.

Underwriting and distribution expenses increased by $17.7 million, or 20%, when compared with the third quarter of 2006. A majority of this increase was attributed to higher direct expenses (Rule 12b-1 asset-based service and distribution expenses, dealer compensation paid to third party distributors and wholesaler commissions) in the Wholesale channel of $10.6 million. These increased costs were a result of higher sales volume and an increase in average Wholesale channel assets under management. Indirect expenses increased $3.5 million quarter over quarter. The indirect expenses increase of $2.1 million in the Wholesale channel was driven by higher marketing, business travel and compensation costs. The indirect expenses increase of $1.2 million in the Advisors channel was primarily due to higher compensation costs.

Underwriting and distribution expenses for the nine months ended September 30, 2007 increased by $35.3 million, or 13%, when compared with the same period in 2006. A majority of this increase was attributed to higher direct expenses (Rule 12b-1 asset-based service and distribution expenses, dealer compensation paid to third party distributors and wholesaler commissions) in the Wholesale channel of $23.8 million. These increased costs were a result of higher sales volume and an increase in average Wholesale channel assets under management. Indirect expenses contributed $5.7 million to the overall increase in expenses for the nine months ended September 30, 2007 compared to the prior year. The indirect expenses increase of $4.5 million in the Wholesale channel was due to higher costs for marketing, business travel and compensation.

Shareholder Service Fees Revenue

Shareholder service fee revenues for the quarter from transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees increased 4% over the third quarter of 2006 compared to an 9% increase in the average number of accounts. For the nine months ended September 30, 2007, shareholder service fee revenues increased 3% over the same period in the prior year compared to an 9% increase in the average number of accounts. 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.

Compensation and Related Costs

On April 2, 2007, we granted 833,976 shares of nonvested stock with a fair value of $23.46 per share under the Company’s 1998 Stock Incentive Plan, as amended and restated. The value of those shares, aggregating $19.6 million, will be amortized to expense over a four year vesting period.

In the third quarter of 2007, compensation and related costs increased $3.0 million compared to the third quarter of 2006 . The third quarter of 2007 reflects higher incentive compensation accruals of $1.5 million

and higher salaries, wages and related payroll taxes of $1.2 million based on increased headcount. Share-based compensation increased $1.1 million quarter over quarter, primarily due to nonvested stock grants in December 2006 and April 2007.

Compensation and related costs for the nine months ended September 30, 2007 increased $2.2 million compared to the same period in 2006. The first nine months of 2007 reflect higher salaries, wages and related payroll taxes of $2.2 million based on increased headcount, higher incentive compensation accruals of $1.0 million, offset by lower group insurance costs of $800 thousand due to favorable experience in claims activity and increased capitalization of software development activities of $800 thousand. Share-based compensation increased $1.1 million compared to 2006 due to nonvested stock grants in December 2006 and April 2007. Share-based compensation in 2006 included charges of $1.5 million at ACF for employee separation costs in response to a decline in investment performance and related loss of assets under management and a credit of $0.5 million related to a cumulative change in accounting principle upon adoption of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment, (revised 2004)” .

General and Administrative Costs

General and administrative expenses decreased to $12.7 million for the third quarter of 2007 compared to $15.5 million for the third quarter in the prior year. The third quarter of 2006 included approximately $5.0 million of legal and related expenses associated with the resolution of legal matters and prior regulatory settlements. Excluding these expenses, general and administrative expenses increased approximately $2.2 million. This increase is primarily due to other legal costs in the current year and increased fund related compliance and reporting expenses associated with the New York Attorney General settlement.

General and administrative expenses decreased to $34.7 million for the nine months ended September 30, 2007 compared to $90.8 million for the same period in 2006. In addition to the $5.0 million in legal and related expenses described above, the nine months ended September 30, 2006 included a $55.0 million charge for the settlement with the SEC and state regulators. Excluding these charges, general and administrative expenses increased $3.9 million for the nine months ended September 30, 2007 compared to the prior year. The increase is primarily due to increased fund related compliance and reporting expenses associated with the New York Attorney General settlement.

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. The growth trend in the sales of our own managed products (70% for the first nine months of 2007 compared to 63% for the same period in 2006) should help to improve our future operating margin. Subadvisory expenses increased $3.5 million this quarter compared to last year’s third quarter. For the nine months ended September 30, 2007, subadvisory expenses increased $9.2 million compared to the same period in the prior year. Significant sales growth in our Wholesale channel, particularly sales of our subadvised specialty mutual fund products, has driven these increased expenses. As this expense is a function of sales, redemptions and market action for subadvised assets, a continuation of the growth trend of these assets would likely result in future increases to subadvisory expenses. The asset value of subadvised funds at September 30, 2007 exceeded the average over the third quarter by 8%.

Other Income and Expenses

Investment and Other Income, Interest Expense and Taxes

Investment and other income increased 63% from last year’s third quarter to $4.8 million for the third quarter of 2007. The increase was due to a write-down of other investments in 2006 of $1.0 million, higher earnings of $600 thousand from mutual funds in the trading portfolio compared to 2006, and increased gains from the sale of available-for-sale securities of $400 thousand, offset by decreased earnings from lower average balances of commercial paper holdings of $400 thousand.

For the nine months ended September 30, 2007, investment and other income increased 35% to $9.9 million compared to the same period in the prior year. The increase was due to a write-down of other investments in 2006 of $1.0 million, higher earnings of $1.0 million from mutual funds in the trading portfolio compared to 2006, and higher interest earned on cash balances of $600 thousand, offset by decreased gains from the sale of available-for-sale securities of $700 thousand.

Interest expense was $3.0 million for the third quarter of both 2007 and 2006. Interest expense for the nine months ended September 30, 2007 decreased 4% to $9.0 million compared to the same period in the prior year primarily due to refinancing our senior notes in January 2006 at a lower effective interest rate.

Our effective tax rate was 37.0% for the third quarter of 2007 and 37.1% for the nine months ended September 30, 2007. The decrease to our effective tax rate in the third quarter of 2007 was primarily due to the release of Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 ” (“FIN 48”), liability related to a tax year where the statute of limitations closed during the quarter. This decrease was partly offset by an increase in the Company’s state effective tax rate resulting from new state tax legislation passed during the quarter that requires the Company to file future returns in certain state tax jurisdictions on a combined basis and using a market based approach. The Company expects its future effective tax rate, exclusive of any state tax incentives, unanticipated state tax legislative changes and the impact of state tax audit settlements, to range from 36.9% to 37.4%.

The higher effective tax rate in 2006 reflects the impact of non-deductible charges recorded in connection with a portion of the settlement of litigation with the SEC and state regulators and a non-deductible goodwill impairment charge for ACF.

Liquidity and Capital Resources

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

• Finance internal growth

• Pay dividends

• Repurchase our common 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, payment to our distribution partners, and commissions to third parties on deferred load product sales. The growth we have experienced in our Wholesale channel also requires that we add additional resources and infrastructure to manage this growth. We also continue to invest in our Advisors channel by providing additional support to our advisors through training, wholesaling efforts and enhanced technology tools.

Pay Dividends

We paid quarterly dividends on our common stock of $.17 per share, which resulted in financing cash outflows of $41.2 million for the first nine months of 2007.

Repurchase Our Common Stock

We repurchased 2,194,600 shares of our common stock in the first nine months of 2007.

Operating Cash Flows

Cash from operations is our primary source of funds and increased $45.8 million for the nine months ended September 30, 2007 compared to the previous year. The increase in operating cash flows is primarily due to decreased 2006 net income attributable to our settlement with the SEC, the New York Attorney General and the Kansas Securities Commission regarding market timing allegations that resulted in a charge of $55 million.

During the nine month period ended September 30, 2007 we made a $5.0 million contribution to the non-contributory retirement plan. We anticipate that our contribution to this plan for the remainder of 2007 will also be made from cash generated from operations and will be in the range of $0 to $5.0 million.

Investing Cash Flows

Investing activities in the first nine months of 2007 consisted of proceeds from the sale of available-for-sale investment securities, purchases of available-for-sale investment securities, additions to property and equipment for the purchase of leasehold improvements and computer software, and capitalization of software development costs during the period. In the first nine months of 2006, proceeds from the sale or maturity of available-for-sale investment securities were offset by purchases of available-for-sale investment securities and capital expenditures, mainly for home office expansion, data processing equipment, computer software and software development.

Financing Cash Flows

As noted previously, dividends and stock repurchases accounted for a majority of our financing cash outflows in the first nine months of 2007. We repurchased 933,229 shares of our common stock in the first nine months of 2006.

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

In 2005, we entered into a three year revolving credit facility with various lenders, which initially provides for borrowings of up to $200 million. Borrowings under the credit facility bear interest at various rates including adjusted LIBOR or an alternate base rate plus, in each case, an incremental margin based on the Company’s credit rating. The credit facility also provides for a facility fee on the daily aggregate amount of commitment under the revolving facility (whether or not utilized). The facility fee is also based on the Company’s credit rating level. The credit facility contains financial covenants with respect to leverage and interest coverage, both of which we were in compliance with through the third quarter of 2007. At September 30, 2007, there were no borrowings outstanding under the credit facility.

Future Capital Requirements

We expect significant uses of cash in 2007 to 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. Management believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund its operating and capital requirements for 2007. We may continue to repurchase shares of our common stock from time to time, as management deems appropriate. Share repurchases should be financed by our available cash and investments and/or cash from operations.

Long-term capital requirements could include capital expenditures for enhancement of technology infrastructure and home office improvements, strategic acquisitions, payment of dividends, income tax payments, seed money for new products, payment of upfront fund commissions for fee-based products, Class B shares and Class C shares, and repurchases of our common stock.

Critical Accounting Policies and Estimates

Management believes certain critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Due to the implementation of FIN 48, we modified our critical accounting policy related to accounting for income taxes, which is listed below. The Company’s other critical accounting policies and estimates are disclosed in the “Critical Accounting Policies and Estimates” section of our 2006 Form 10-K.

Accounting for Income Taxes

Income tax expense is based on pre-tax financial accounting income, including adjustments made for the recognition or derecognition related to uncertain tax positions. The recognition or derecognition of income tax expense related to uncertain tax positions is determined under the guidance as prescribed by 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.

Supplemental Information

	Third		Third				Year to		Year to
	Quarter		Quarter				Date		Date
	2007		2006		Change		2007		2006		Change
Redemption rates - long term (annualized)
Advisors	8.8	%	9.0	%			9.5	%	9.3	%
Wholesale	17.9	%	21.5	%			19.1	%	21.1	%
Institutional	28.4	%	21.4	%			31.0	%	21.1	%
Total	14.1	%	13.7	%			15.2	%	13.6	%

Sales per advisor (000’s) (1)
Total	296		233		27.0	%	852		760		12.1	%
2+ Years (2)	439		327		34.3	%	1,242		1,116		11.3	%
0 to 2 Years (3)	91		72		26.4	%	221		194		13.9	%

Gross production per advisor (000’s)	15.2		14.8		2.7	%	47.2		46.3		1.9	%

Number of financial advisors (1)	2,273		2,276		-0.1	%	2,273		2,276		-0.1	%
Average number of financial advisors (1)	2,222		2,272		-2.2	%	2,190		2,301		-4.8	%

Number of shareholder accounts (000’s)	3,142		2,833		10.9	%	3,142		2,833		10.9	%

Number of shareholders	696,139		653,810		6.5	%	696,139		653,810		6.5	%

(1) Excludes Legend retirement advisors

(2) Financial advisors licensed with the Company for two or more years

(3) Financial advisors licensed with the Company less than two years

Forward Looking Information

From time-to-time, information or statements provided by or on behalf of the Company, including those within this Quarterly Report on Form 10-Q may contain certain “forward-looking information,” including information relating to anticipated growth in our revenues or earnings, anticipated changes in the amount and composition of assets under management, our anticipated expense levels, and our expectations regarding financial markets and other conditions. Readers are cautioned that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise.

Our future revenues will fluctuate due to many factors, such as the total value and composition of assets under our management and related cash inflows or outflows in the Funds and other investment portfolios; fluctuations in national and worldwide financial markets resulting in appreciation or depreciation of assets under our management; the relative investment performance of the Funds and other investment portfolios as compared to competing offerings; the expense ratios of the Funds; investor sentiment and investor confidence; the ability to maintain our investment management and administrative fees at current levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; our introduction of new mutual funds and investment portfolios; our ability to contract with the Funds for

payment for investment advisory-related administrative services provided to the Funds and their shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; potential misuse of client funds and information in the possession of our financial advisors; and the development of additional distribution channels may not be successful. Our revenues are substantially dependent on fees earned under contracts with the Funds and could be adversely affected if the independent directors of one or more of the Funds determined to terminate or significantly alter the terms of the investment management or related administrative services agreements.

Our future operating results are also dependent upon the level of our operating expenses, which are subject to fluctuation for the following or other reasons: variations in the level of compensation expense due to, among other things, performance-based bonuses, changes in our employee count and mix, and competitive factors; unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; legal expenses; and disruptions of services, including those provided by third parties such as communications, power and the mutual fund transfer agent system. In addition, our future operating results may also be impacted by our ability to incur additional debt, by adverse litigation and/or arbitration judgments or settlements, failure to retain key personnel and financial advisors, regulatory enforcement exams, actions or settlements and acts of terrorism and/or war. The Company’s business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax and compliance requirements may have a substantial effect on our operations and results, including, but not limited to, effects on costs we incur and effects on investor interest in mutual funds and investing in general or in particular classes of mutual funds or other investments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has had no significant changes in its Quantitative and Qualitative Disclosures About Market Risk from that previously reported in the Company’s 2006 Form 10-K.

Item 4. 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 Rule 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 quarterly report, have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

The Company’s internal control over financial reporting (as defined in Exchange Act Rule 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. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Part II. Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

The Company has had no significant changes to its Risk Factors from those previously reported in the Company’s 2006
Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program

July 1 - July 31	52,663	$	25.51	52,663	n/a	(1)
August 1 - August 31	407,731	23.75		407,731	n/a	(1)
September 1 - September 30	75,000	23.99		75,000	n/a	(1)

Total	535,394	$	23.96	535,394

(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 New York Stock Exchange, 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. During the third quarter of 2007, all stock repurchases were made pursuant to this repurchase program. Of the total number of share repurchases in the third quarter of 2007, 524,600 were repurchased in the open market, 2,663 shares were purchased in connection with funding employee income tax withholding obligations arising from the vesting of nonvested shares and 7,121 were 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”). In addition, 1,010 newly issued shares from the SORP exercise were repurchased from the participants to cover their statutory minimum tax withholdings.

Item 6. Exhibits

	10.1	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.*

	10.2	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.*

	10.3	Form of Restricted Stock Award Agreement for awards pursuant to the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated.*

	10.4	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.*

	31.1	Section 302 Certification of Chief Executive Officer

	31.2	Section 302 Certification of Chief Financial Officer

	32.1	Section 906 Certification of Chief Executive Officer

	32.2	Section 906 Certification of Chief Financial Officer

* Indicates management contract or compensatory plan, contract or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 23rd day of October 2007.

WADDELL & REED FINANCIAL, INC.


By:		/s/ Henry J. Herrmann
		Chief Executive Officer
	(Principal Executive Officer)


By:		/s/ Daniel P. Connealy
	Senior Vice President
	and Chief Financial Officer
	(Principal Financial Officer)


By:		/s/ Brent K. Bloss
	Senior Vice President - Finance
	and Treasurer
	(Principal Accounting Officer)

Exhibit 10.1

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 _______________ (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 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

33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___
33 ¹ / 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 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.

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 Awardee may (a) upon election at the time and in the manner prescribed by the Company, direct the Company to purchase from the Awardee the number of shares of Stock to be issued upon vesting equal in value to the amount of such obligation, based on the shares’ Fair Market Value at the time such obligation is incurred; (b) deliver to the Company sufficient shares of Stock to satisfy such obligation, based on the shares’ Fair Market Value at the time such obligation is incurred; or (c) deliver sufficient cash to the Company to satisfy such obligation. Notwithstanding the foregoing, in the event of the Awardee’s death, the Company will withhold the number of shares of Stock necessary to satisfy its withholding obligation, based upon the shares’ Fair Market Value at the time such obligation is incurred. The Committee may, in its sole discretion, deny any request to satisfy withholding obligations through Stock instead of cash. In the event the Company subsequently determines that the aggregate Fair Market Value of any shares of Stock withheld 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.

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 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”





		“Awardee”

STOCK POWER

FOR VALUE RECEIVED, _______________ 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___.

Exhibit 10.2

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 _____________ (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

TERMS OF AWARD

2. Number of Shares . In consideration of future services to the Company, the Awardee is hereby granted __________ and ____________ shares of Restricted Stock (collectively, 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.

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 serves as a Director of the Company 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

33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___

TERMINATION OF AWARD

5. Termination of Service on the Board.

(a) Termination of Service Due to Death or Disability . If an Awardee’s service on the Board 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 Service Other Than Due to Death or Disability . If an Awardee’s service on the Board 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.

GENERAL TERMS AND PROVISIONS

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.

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 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. 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. Tax Obligations . The Awardee shall be responsible for satisfaction of any current or future federal, state or local income or other tax obligation incurred by the Awardee as a result of the Award. With respect to any such required tax obligation, the Awardee may (a) upon election, at the time and in the manner prescribed by the Company, direct the Company to purchase from the Awardee the number of shares of Stock to be issued upon vesting equal in value to the amount of such obligation, based on the shares’ Fair Market Value at the time such obligation is determined, at which time the Company shall deliver to the Awardee an amount in cash equal to the aggregate Fair Market Value of the shares purchased by the Company, or (b) if no such election is made by the Awardee, the Awardee shall otherwise satisfy such tax obligation by such other means as the Awardee may determine.

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

14. 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.

15. 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.

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

17. 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.

18. 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.

19. Rules of Construction . This Agreement has been executed and delivered by the Company in Kansas and shall be construed and enforced in accordance with the laws of said State, other than any choice of law rules calling for the application of laws of another 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.

20. 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 provisions of this Section 20, 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.

21. 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”





		“Awardee”

STOCK POWER

FOR VALUE RECEIVED, ________________ 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___.

Exhibit 10.3

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 _____________ (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 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.

Percentage of Shares Vesting		Vest Date

33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___

TERMINATION OF AWARD

5. Termination of Employment .

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

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.

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.

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”





		“Awardee”

STOCK POWER

FOR VALUE RECEIVED, __________________ 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___.

Exhibit 10.4

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 ____________________ (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. Non-Employee Director Stock Award Plan . The Restricted Stock is granted under the provisions of the Waddell & Reed Financial, Inc. 1998 Non-Employee Director 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 . Pursuant to the Conversion Election Form dated _______________, 20___, the Awardee is hereby granted _____________ 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.

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 serves as a Director of the Company 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

33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___
33 ¹ / ₃ %		____________, 20___

TERMINATION OF AWARD

5. Termination of Service on the Board .

GENERAL TERMS AND PROVISIONS

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

21. 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”





		“Awardee”

STOCK POWER

FOR VALUE RECEIVED, _______________ 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___.

Exhibit 31.1

I, Henry J. Herrmann, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: October 22, 2007

	/s/ Henry J. Herrmann
	Henry J. Herrmann
	Chief Executive Officer

Exhibit 31.2

I, Daniel P. Connealy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Waddell & Reed Financial, Inc.;

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: October 22, 2007

	/s/ Daniel P. Connealy
	Daniel P. Connealy
	Senior Vice President and
	Chief Financial Officer

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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (the “Report”) dated October 23, 2007 and filed with the United States Securities and Exchange Commission on October 23, 2007, 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: October 22, 2007

	/s/ Henry J. Herrmann
	Henry J. Herrmann
	Chief Executive Officer

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:

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 22, 2007

	/s/ Daniel P. Connealy
	Daniel P. Connealy
	Senior Vice President and
	Chief Financial Officer

OR

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Item 6.

Exhibits

Overview

Third Quarter Highlights

Item 3. Quantitative and Qualitative Disclosures About Market Risk

SIGNATURES

Senior Vice President

Senior Vice President - Finance

and Treasurer

(Principal Accounting Officer)