- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

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 of (I.R.S. Employer
incorporation or organization) Identification No.)

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

------------------------

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Common Stock, $.01 par value New York Stock Exchange
Class B Common Stock, $.01 par value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(Title of class)

Indicate by check mark 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 ___.

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant (excludes officers, directors and stockholders holding 5% or greater
of the registrant's common stock): $782,134,743 at February 26, 1999.

Shares outstanding of each of the registrant's classes of common stock as of
February 26, 1999:

Class A Common Stock, $.01 par value: 30,694,445
Class B Common Stock, $.01 par value: 30,797,556

DOCUMENTS INCORPORATED BY REFERENCE

In Part III of this Form 10-K, the definitive proxy statement for the 1999
annual meeting of stockholders to be held April 28, 1999

- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

Index of Exhibits (Pages B-1 through B-3)
Total Number of Pages Included Are 52

WADDELL & REED FINANCIAL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

PART I PAGE
---------

Item 1. Business................................................................... 3
Item 2. Properties................................................................. 15
Item 3. Legal Proceedings.......................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................ 15
Risk Factors............................................................... 16

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 19
Item 6. Selected Financial Data.................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation................................................................ 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 27
Item 8. Financial Statements and Supplementary Data................................ 27
Item 9. Changes in Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 27

PART III
Item 10. Directors and Executive Officers of the Registrant......................... 27
Item 11. Executive Compensation..................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 27
Item 13. Certain Relationships and Related Transactions............................. 27

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 27

SIGNATURES................................................................................................. 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. A-1
INDEX TO EXHIBITS.......................................................................................... B-1

PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

THIS FORM 10-K INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS OR
STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS FORM 10-K REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS FORM 10-K ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON
THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS
AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT OR
THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY PRESENTLY BE PLANNED. CERTAIN
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ARE DISCLOSED IN THE "RISK FACTORS" SECTION OF THIS FORM
10-K ANNUAL REPORT, WHICH INCLUDE, WITHOUT LIMITATION, THE ADVERSE EFFECT FROM A
DECLINE IN SECURITIES MARKETS OR IF THE COMPANY'S PRODUCTS' PERFORMANCE
DECLINES, FAILURE TO RENEW INVESTMENT MANAGEMENT AGREEMENTS, COMPETITION,
CHANGES IN GOVERNMENT REGULATION, AVAILABILITY AND TERMS OF CAPITAL AND YEAR
2000 UNCERTAINTIES. ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS.

ITEM 1. BUSINESS

BACKGROUND

From 1981 until its initial public offering of Class A Common Stock on March
4, 1998 (the "Offering"), Waddell & Reed Financial, Inc. (the "Company") had
been a wholly-owned subsidiary of Torchmark Corporation ("Torchmark"), and was
known as United Investors Management Company until it effected a name change in
December 1997. The Company is a holding company that conducts its business
through its subsidiaries. One subsidiary, Waddell & Reed, Inc. ("W&R"), is a
registered broker-dealer and registered investment advisor that acts primarily
as the nationwide distributor and underwriter for the shares of mutual funds and
distributor of insurance products issued primarily by United Investors Life
Insurance Company ("UILIC"), a subsidiary of Torchmark. Another subsidiary,
Waddell & Reed Investment Management Company ("WRIMCO"), is a registered
investment advisor that provides investment management and advisory services to
the Company's mutual funds (the "Funds") and to institutions and other private
clients through a subcontract with another subsidiary of Torchmark. Finally,
Waddell & Reed Services Company ("WRSCO") provides transfer agency and
accounting services to the Funds and their shareholders. Waddell & Reed
Financial, Inc., W&R, WRIMCO, and WRSCO are hereafter collectively referred to
as the "Company," unless the context requires otherwise.

After the consummation of the Offering, the Company continued to be
controlled by Torchmark, which owned more than 80% of the combined voting power
of the Class A Common Stock and the Class B Common Stock of the Company. The
holders of Class A Common Stock and Class B Common Stock have identical rights
except that holders of Class A Common Stock are entitled to one vote per share
while holders of Class B Common Stock are entitled to five votes per share on
all matters to be voted on by stockholders.

On November 6, 1998 Torchmark divested its ownership interest in the Company
by means of a special dividend to the stockholders of Torchmark of all of the
Class A Common Stock and Class B Common Stock owned by Torchmark after the
Offering (the "Spin-Off").

OVERVIEW

The Company, founded in 1937, is one of the oldest mutual fund complexes in
the United States, having introduced the United family of funds in 1940. The
Company sells its investment products primarily to middle income Americans
through a virtually exclusive sales force. As of December 31, 1998, the Company
had $27.7 billion of assets under management, of which $24.5 billion were mutual
fund assets and $3.2 billion were managed institutional accounts. The Company
has over 582,000 mutual fund customers having an average investment of $38,000
and 47,000 variable account customers having an average investment of $52,000.

The Company is the exclusive underwriter and distributor of 36 mutual fund
portfolios (the "Funds"), including 17 comprising the United Funds (the "United
Funds"), eight comprising the Waddell & Reed Funds (the "W&R Funds"), and 11
comprising the Target/United Funds (the "Target Funds"). The Company also
distributes Torchmark underwritten variable annuities and life insurance
products to its customers as part of its financial planning services. The
Company sells mutual fund products with a front-end load (sales charges are paid
upon purchase of fund shares) and contingent deferred sales charge (sales
charges are paid upon redemption within specified periods).

The traditional market for the Company has generally been professionals and
working families with annual incomes between $40,000 and $100,000 who are saving
for retirement. The Company believes that demographic trends and shifts in
attitudes toward retirement savings will continue to support increased consumer
demand for its products. According to U.S. Census Bureau projections, the number
of Americans between the ages of 45 and 64 will grow from 53.7 million in 1996
to 71.1 million in 2005, making this "preretirement" age group the fastest
growing segment of the U.S. population.

The Company distributes the Funds and other financial products through a
financial advisor sales force that represents the Company on a virtually
exclusive basis. On December 31, 1998, the Company's sales force consisted of
2,370 financial advisors and 129 division managers operating from 184 sales
offices located throughout the United States. For the year ended December 31,
1998, the Company's financial advisor sales force sold over $1.8 billion of
mutual fund and variable products. The Company believes, based on industry data,
that its financial advisor sales force is currently one of the largest sales
forces in the United States selling primarily mutual funds. As of December 31,
1998, 38% of the Company's financial advisors have been with the Company for
more than 5 years and 26% for more than 10 years.

The financial advisor industry is fragmented, consisting primarily of
relatively small companies generally employing fewer than 100 investment
professionals. The Company's sales force competes primarily with small
broker/dealers and independent financial advisors. The Company's marketing
efforts are currently focused on customers residing in smaller metropolitan
areas and rural communities. The Company conducts investment seminars throughout
the United States to reach a large number of potential clients. The Company also
provides financial plans for clients offering one-on-one consultations
emphasizing long-term relationships through continuing service, rather than a
one-time sale. The Company believes that it is well-positioned to benefit from a
developing industry trend toward "assisted sales"--sales of mutual fund products
through a sales person--driven by the array of options now available to
investors and the need for financial planning advice that has resulted from the
recent increase in the average household's financial assets.

The Company's investment philosophy and financial planning approach
emphasize long-term investments. The Company's portfolio managers seek
consistent long-term performance and downside protection in turbulent markets.
As a result, the Company has developed a loyal customer base with clients
maintaining their accounts for approximately 11 years on average as compared to
five years for the mutual fund industry, according to the Investment Company
Institute. This loyalty is evidenced by a relatively low fund redemption rate
for the five years ended December 31, 1998 of 7.8% for the Funds (other than
money market funds), which is less than one-half of the industry average of
18.6% and a relatively high dividend reinvestment rate of 87.2% for the Funds
for the same period versus 71.3% for the mutual fund

industry. Approximately 47% of the Company's assets under management are in
retirement accounts as of December 31, 1998. The historically low redemption and
high reinvestment rates have provided a stable source of asset and revenue
growth at relatively low cost.

The Company has a seasoned team of portfolio managers and an internal equity
and fixed income investment research staff that have substantial resources
available to them including hundreds of meetings annually with company
management both on and off site. In addition, the Company utilizes research
provided by brokerage firms and independent outside consultants. Portfolio
managers usually were investment research analysts for a substantial length of
time prior to acquiring money management assignments. The predominant style of
the Company's investments is growth equity. As of December 31, 1998
approximately 81% of the Company's mutual fund assets under management were
invested in equity funds and the remainder in fixed income and money market
funds. This investment strategy emphasizes investment at attractive valuations
in companies that the portfolio managers believe can produce above average
growth in earnings.

OPERATIONS

Revenues from operations for the last three years ended were:

FOR YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------

Revenues from:
Investment management......................................................... $ 137,823 117,784 101,466
Underwriting and distribution................................................. 106,615 89,427 85,837
Shareholder service........................................................... 33,808 30,763 28,378
---------- --------- ---------
Revenue excluding investment income........................................... 278,246 237,974 215,681
Investment income............................................................. 9,043 3,798 5,295
---------- --------- ---------
Total revenue................................................................. $ 287,289 241,772 220,976
---------- --------- ---------
---------- --------- ---------

MARKETING

The Company markets its mutual funds through a sales force that represents
the Company on a virtually exclusive basis. As of December 31, 1998, the sales
force comprised 2,370 financial advisors. The Company's financial advisors are
located primarily in smaller metropolitan areas and rural communities. The sales
force is organized into divisions that are supervised, as of December 31, 1998,
by 129 division managers who, in turn, report to eight regional vice presidents.

The Company has taken several steps to increase the productivity of its
sales force. Since 1992, the Company has been developing a more fully-committed
sales force through recruiting and retention initiatives. These initiatives have
resulted in an increase of financial advisors having annual or annualized
production of more than $900,000 of investment product sales from 20% of the
sales force at December 31, 1993 to 34% at December 31, 1998. Prior to 1993,
division managers were engaged in personal sales production as well as sales
management. In order to emphasize the importance of recruiting and developing a
sales force, the Company implemented a compensation system that ties
compensation of division managers to the development of new financial advisors
and to division sales rather than personal sales.

The Company provides training and motivational programs for its sales force.
Sales training specialists provide a regular program of training for new
recruits as well as advanced training for experienced financial advisors.
Programs for new recruits focus on prospecting techniques, product knowledge,
and sales skills. Field office classes provide guidance in identifying target
markets, practical exercises to learn interview skills and data collection,
instruction in basic financial planning software, and guidance in

matching products with various investment objectives. Sales presentation skills
are taught and practiced in the classroom environment as well as on joint sales
calls with field sales management. The programs for experienced advisors focus
on skills related to dealing with larger investment sums (such as IRA rollovers)
and include training in the use of asset allocation and estate planning
software. In addition, the Company offers all new financial advisors the
opportunity to participate in a week long training program at the home office
covering such subjects as product features, financial planning, and the use of
illustrative software packages.

In 1998, the Company launched its first advertising campaign in selected
markets throughout the country which focused on the important aspects of the
Company's business and was intended to increase name recognition of the Company
in those markets. These efforts are expected to continue in 1999.

FUNDS AND ASSET MANAGEMENT

The Company serves as underwriter for, and investment advisor to, the United
Funds, the W&R Funds, and the Target Funds and distributes variable insurance
products related to the Target Funds.

The Company offers the Funds' shareholders a broad range of investment
products designed to attract and retain clients with varying investment
objectives. The predominant style of the Company's investments is growth equity.
This investment strategy emphasizes investment at attractive valuations in
companies that the portfolio managers believe can produce above average growth
in earnings. According to an annual Barron's/Lipper fund-family survey which
ranks investment performance of mutual fund complexes, the Company ranked second
out of 89 mutual fund complexes for 1998 and fifth out of 55 complexes for the
five year period ended December 31, 1998. As of December 31, 1998, 81% of the
assets under management in the Funds were invested in equity funds, 16% were
invested in fixed income funds, and 3% were invested in money market funds.
Lipper, Inc. also ranked 57% of the Company's equity assets in the top quartile
and 50% in the top 10% of their respective categories. The Company periodically
introduces new mutual funds designed to complement and expand its investment
product offerings, respond to competitive developments in the financial
marketplace, and meet the changing needs of clients. The Company's base of
assets under management consists of a broad range of domestic and international
stock, bond, and money market mutual funds that meet the varied needs and
objectives of its individual and institutional investors.

In addition to performing investment management services for the Funds, the
Company acts as an investment advisor and portfolio manager for institutional
and other private investors. The Company receives a fee that is generally based
on a percentage of assets under management for its services as an investment
advisor or portfolio manager. Assets under management for institutional and
private accounts totaled approximately $3.2 billion at December 31, 1998.
Investment management fees from institutional accounts were approximately $6.3
million, or approximately 5%, of total investment management fees, for the year
ended December 31, 1998.

Ending and average assets under management for the last three years were:

1998 1997 1996
-------------------- -------------------- --------------------
ENDING AVERAGE ENDING AVERAGE ENDING AVERAGE
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)

United Funds
Equity.............................................. $ 16,713 15,320 13,687 12,761 11,200 10,463
Fixed-income........................................ 3,637 3,652 3,632 3,499 3,431 3,408
Money market........................................ 644 572 529 498 499 445
--------- --------- --------- --------- --------- ---------
20,994 19,544 17,848 16,758 15,130 14,316

W&R Funds
Equity.............................................. 1,050 906 779 684 586 496
Fixed-income........................................ 85 74 66 58 57 55
--------- --------- --------- --------- --------- ---------
1,135 980 845 742 643 551

Target Funds
Equity.............................................. 2,127 1,859 1,627 1,452 1,204 1,038
Fixed-income........................................ 245 235 223 204 193 182
Money market........................................ 54 45 43 38 38 36
--------- --------- --------- --------- --------- ---------
2,426 2,139 1,893 1,694 1,435 1,256
Total Mutual Funds
Equity.............................................. 19,890 18,085 16,093 14,897 12,990 11,997
Fixed-income........................................ 3,967 3,961 3,921 3,761 3,681 3,645
Money market........................................ 698 617 572 536 537 481
--------- --------- --------- --------- --------- ---------
24,555 22,663 20,586 19,194 17,208 16,123
Institutional Accounts.............................. 3,189 2,947 2,831 2,103 1,862 2,846
--------- --------- --------- --------- --------- ---------
Total Assets Under Management....................... $ 27,744 25,610 23,417 21,297 19,070 18,969
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------

INVESTMENT MANAGEMENT AGREEMENTS

The Company provides investment advisory and management services pursuant to
an investment management agreement with each Fund. While the specific terms of
the investment management agreements vary, the basic terms of the investment
management agreements are similar. The investment management agreements provide
that the Company renders overall management services to each of the Funds,
subject to the oversight of each Fund's board of directors and in accordance
with each Fund's fundamental investment objectives and policies. The investment
management agreements permit the Company to enter into separate agreements for
shareholder services or accounting services with the respective Funds.

Each Fund's board of directors, including a majority of the directors who
are not "interested persons," of the Fund or the Company within the meaning of
the Investment Company Act of 1940, as amended, and its shareholders must have
approved the investment management agreement between the respective Fund and the
Company. These agreements may continue in effect from year to year if
specifically approved at least annually by (i) the Fund's board of directors,
including a majority vote of the directors who are not parties to the agreements
or "interested persons" of any such party, or (ii) the vote of the holders of a
majority of the outstanding voting securities of the Fund and the vote of a
majority of the Fund's directors who are not parties to the agreement or
"interested persons" of any such party, each vote being cast in person at a
meeting called for such purpose. Each agreement automatically terminates in the
event of its "assignment" as defined in the Investment Company Act or the
Investment Advisers Act and may be terminated without penalty by the Fund by
giving the Company 60 days' written notice, if the termination

has been approved by a majority of the Fund's directors or shareholders. The
Company may terminate an investment management agreement without penalty on 120
days' written notice.

SERVICE AGREEMENTS

The Company provides various services to the Funds and their shareholders
pursuant to a shareholder servicing agreement with each Fund (except the Target
Funds) and an accounting service agreement with each Fund. Pursuant to the
shareholder servicing agreements, the Company performs shareholder servicing
functions, including the maintenance of shareholder accounts, the issuance,
transfer, and redemption of shares, distribution of dividends and payment of
redemptions, furnishing information related to the Fund, and handling
shareholder inquiries. The Funds pay a monthly fee to the Company for such
services. Pursuant to the accounting service agreements, the Company provides
the Funds with bookkeeping and accounting services and assistance, including
maintenance of the Fund's records, pricing of the Fund's shares, and preparation
of the prospectuses for existing shareholders, proxy statements, and certain
reports. The Funds pay the Company a monthly fee for such services. A Fund's
shareholder servicing agreement or accounting services agreement may be adopted
or amended with the approval of the Fund's directors. Each of the shareholder
servicing agreements and accounting services agreements have annually renewable
terms of one year expiring on October 1 of each year.

UNDERWRITING AND DISTRIBUTION

The Company distributes the Funds pursuant to an underwriting agreement with
each Fund (except the Target Funds). The Company distributes products relating
to the Target Funds under an underwriting agreement between the Company and
UILIC. General agency commissions paid to the Company by UILIC for distribution
of these products comprised 12%, 12% and 14% of the Company's total revenue for
each of the years ended 1998, 1997 and 1996, respectively. Under each
underwriting agreement with a Fund, the Company offers and sells the Fund's
shares on a continual basis and pays the costs of sales literature and printing
of prospectuses furnished to it by the Fund. The Company receives underwriting
commissions for such services, a major portion of which is paid to financial
advisors and sales managers of the Company. The Company charges a sales charge
to clients upon purchase of shares in the United Funds, which are front-end load
funds, which ranges from zero to 5.75% of the amount invested. The sales charge
for the United Funds typically declines as the net asset value of the account
increases. In addition, investors may combine their purchases of these Funds'
shares within the respective group of Funds to qualify for the reduced sales
charge. Investors in the W&R Funds generally pay contingent deferred sales
charges upon redemption of shares in W&R Funds of up to 3% of the net asset
value of the redeemed shares declining to zero for shares held for more than
four years.

The underwriting agreements are subject to approval annually by the
directors of the respective Funds, including a majority of the directors who are
not "interested persons" of the Funds or the Company within the meaning of the
Investment Company Act of 1940, as amended, or "interested persons" of any such
party and who have no direct or indirect financial interest in the operation of
the distribution and service plan (as described below), as applicable, of the
Funds or any agreements relating thereto ("independent directors"), cast in
person at a meeting called for the purpose of voting on such approval. Each
agreement automatically terminates in the event of its assignment, as defined in
the Investment Company Act, and either party may terminate the agreement without
penalty upon 60 days' written notice.

Under a distribution and service plan for Class A shares of the United Funds
(except the money market fund) and under a distribution and service plan for the
Class B shares of the money market fund and the W&R Funds, each of which plans
are adopted under Rule 12b-1 of the Investment Company Act, the Funds may pay
the Company a fee for its costs and expenses in connection with providing
personal service to shareholders of the Fund, maintaining shareholder accounts
and distributing shares of the funds.

Each distribution and service plan is subject to approval annually by the
directors, including the independent directors, cast in person at a meeting
called for the purpose of voting on such approval. The Fund may terminate the
Plan at any time without penalty.

The Company's investment product sales are summarized as follows:

INVESTMENT PRODUCT SALES

1998 1997 1996
--------- --------- ---------
(IN MILLIONS)

United Funds...................................................................... $ 1,266.8 1,092.7 1,024.8
Waddell & Reed Funds.............................................................. 252.3 175.7 227.4
Variable Products (Target/United)................................................. 308.4 249.8 252.9
--------- --------- ---------
$ 1,827.5 1,518.2 1,505.1
--------- --------- ---------
--------- --------- ---------

FUNDS SUMMARY

The following table sets forth, for each fund within the Fund group, the
year that shares in such Fund were first offered to the public, the net assets
of such Fund or portfolio as of December 31, 1998 and a description of its
investment objective.

NET ASSETS
AT DECEMBER 31,
1998
FIRST (DOLLARS IN
FUND NAME OFFERED MILLIONS) INVESTMENT OBJECTIVE
- - ------------------------------------------- ----------- --------------- ------------------------------------------

UNITED FUNDS

Accumulative Fund........................ 1940 $ 1,868.0 Seeks capital growth, with a secondary
objective of current income.

Asset Strategy Fund...................... 1995 $ 36.2 Seeks high total return over the long term
by allocating its assets among stocks,
bonds and short-term instruments.

Bond Fund................................ 1964 $ 557.1 Seeks to achieve a reasonable return with
more emphasis on preservation of capital.

Cash Management.......................... 1979 $ 644.3 Seeks to maximize current income to the
extent consistent with stability of
principal by investing in money market
instruments.

Continental Income Fund.................. 1970 $ 602.7 Seeks to provide current income to the
extent that market and economic conditions
permit with a secondary objective of
seeking long-term appreciation of capital.

Gold & Government Fund................... 1985 $ 12.8 Seeks high total return through investing
in precious metals, mineral-related
securities and gold, silver and platinum
during periods of actual or expected
inflation or when the environment for
investments in precious metals appears to
be favorable, and U.S. Government
securities during periods of actual or
expected disinflation or low inflation.

Government Securities Fund............... 1982 $ 140.7 Seeks high current income consistent with
safety of principal by investing primarily
in securities issued or guaranteed by the
U.S. Government or its agencies or
instrumentalities.

High Income Fund......................... 1979 $ 1,018.5 Seeks a high level of current income, with
a secondary objective of seeking capital
growth when consistent with its primary
objective.

High Income Fund II...................... 1986 $ 416.2 Seeks a high level of current income, with
a secondary objective of seeking capital
growth when consistent with its primary
objective.

Income Fund.............................. 1940 $ 7,767.3 Seeks maintenance of current income,
subject to market conditions with a
secondary goal of capital growth.

International Growth Fund................ 1970 $ 1,224.1 Seeks long-term capital appreciation, with
a secondary objective of realization of
income, by investing in securities issued
by companies or governments of any nation.

UNITED FUNDS

Municipal Bond Fund...................... 1976 $ 977.0 Seeks income that is not subject to
Federal income taxation by investing
principally in tax-exempt municipal bonds.

Municipal High Income Fund............... 1986 $ 526.8 Seeks a high level of income that is not
subject to Federal income taxation by
investing principally in medium and lower
quality tax-exempt municipal bonds.

New Concepts Fund........................ 1983 $ 956.3 Seeks capital growth by investing in
securities issued by relatively new or
unseasoned companies, companies in the
early stages of development or smaller
companies in new and emerging industries
with above average opportunity for growth.

Retirement Shares Fund................... 1972 $ 822.2 Seeks the highest long-term total return
consistent with reasonable safety of
capital.

Science and Technology Fund.............. 1950 $ 1,674.5 Seeks long-term capital growth through a
portfolio emphasizing science and
technology securities.

Vanguard Fund............................ 1969 $ 1,749.3 Seeks capital appreciation through
diversified holdings of securities issued
primarily by companies that have
appreciation possibilities.
WADDELL & REED FUNDS

Asset Strategy Fund...................... 1995 $ 28.3 Seeks high total return over the long term
by allocating assets among stocks, bonds
and short-term instruments.

Growth Fund.............................. 1992 $ 399.5 Seeks capital appreciation by investing
primarily in securities issued by
companies that offer above-average growth
potential, including relatively new or
unseasoned companies.

High Income Fund......................... 1997 $ 22.6 Seeks a high level of current income, with
a secondary objective of seeking capital
growth when consistent with its primary
objective.

WADDELL & REED FUNDS

International Growth Fund................ 1992 $ 91.1 Seeks long-term appreciation, with a
secondary goal of realization of income,
by investing in securities issued by
companies or governments of any nation.

Limited-Term Bond Fund................... 1992 $ 20.9 Seeks a high level of current income
consistent with preservation of capital by
investing primarily in debt securities of
investment grade, including U.S.
government securities, and maintaining a
dollar-weighted average maturity of the
portfolio of two to five years.

Municipal Bond Fund...................... 1992 $ 41.8 Seeks income that is not subject to
Federal income taxation by investing
primarily in municipal bonds.

Science and Technology Fund.............. 1997 $ 26.0 Seeks long term capital growth through a
portfolio emphasizing science and
technology securities.

Total Return Fund........................ 1992 $ 504.5 Seeks current income and capital growth by
investing primarily in securities issued
by companies that have a record of paying
regular dividends on common stock or have
the potential for capital appreciation.

TARGET/UNITED FUNDS

Asset Strategy fund...................... 1995 $ 14.1 Seeks high total return over the long term
by allocating its assets among stocks,
bonds and short-term instruments.

Balanced fund............................ 1994 $ 92.2 Seeks current income with a secondary
objective of long-term appreciation of
capital.

Bond fund................................ 1987 $ 114.3 Seeks current income with an emphasis on
preservation of capital.

Growth fund.............................. 1987 $ 825.1 Seeks capital growth with current income
as a secondary objective.

High Income fund......................... 1987 $ 126.4 Seeks high current income, with a
secondary objective of capital growth.

Income fund.............................. 1991 $ 811.3 Seeks maintenance of current income,
subject to market conditions with a
secondary objective of capital growth.

TARGET/UNITED FUNDS

International fund....................... 1994 $ 169.0 Seeks long-term appreciation of capital,
with current income as a secondary
objective by investing principally in
securities issued by companies or
governments of any nation.

Limited-Term Bond fund................... 1994 $ 4.5 Seeks a high level of current income
consistent with preservation of capital by
investing primarily in debt securities of
investment grade and maintaining a dollar
weighted average maturity of the portfolio
of two to five years.

Money Market fund........................ 1987 $ 54.0 Seeks maximum current income consistent
with stability of principal by investing
in money market securities.

Science and Technology fund.............. 1997 $ 34.6 Seeks long-term capital growth by
investing primarily in science and
technology securities.

Small Cap fund........................... 1994 $ 180.6 Seeks capital growth by investing
primarily in securities issued by
relatively new or unseasoned companies,
companies in their early stages of
development or smaller companies
positioned in new and emerging industries
with above average opportunity for rapid
growth.

REGULATION

Virtually all aspects of the Company's businesses are subject to various
Federal and state laws and regulations. These laws and regulations are primarily
intended to protect investment advisory clients and shareholders of registered
investment companies. Under such laws and regulations, agencies that regulate
investment advisors and broker-dealers such as the Company have broad
administrative powers, including the power to limit, restrict, or prohibit such
an advisor or broker-dealer from carrying on its business in the event that it
fails to comply with such laws and regulations. In such event, the possible
sanctions that may be imposed include the suspension of individual employees,
limitations on engaging in certain lines of business for specified periods of
time, revocation of investment advisor and other registrations, censures, and
fines.

The business of the Company is subject to regulation at both the Federal and
state level by the Securities and Exchange Commission (the "Commission") and
other regulatory bodies. Certain subsidiaries of the Company are registered with
the Commission under the Investment Advisers Act of 1940, as amended, (the
"Advisers Act") and the Funds are registered with the Commission under the
Investment Company Act of 1940, as amended, (the "ICA") and with various states
under applicable state laws. A

subsidiary of the Company is also registered as a broker-dealer with the
Commission and is subject to regulation by the National Association of
Securities Dealers, Inc. (the "NASD") and various states.

Certain subsidiaries of the Company are registered with the Commission under
the Advisers Act and, as such, are regulated by and subject to examination by
the Commission. The Advisers Act imposes numerous obligations on registered
investment advisors including fiduciary duties, recordkeeping requirements,
operational requirements, and disclosure obligations. The Commission is
authorized to institute proceedings and impose sanctions for violations of the
Advisers Act, ranging from censure to termination of an investment advisor's
registration. The failure of a registered subsidiary of the Company to comply
with the requirements of the Commission could have a material adverse effect on
the Company.

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

A subsidiary of the Company is also a member of the Securities Investor
Protection Corporation. In its capacity as a broker-dealer, the Company is
required to maintain certain minimum net capital and cash reserves for the
benefit of its customers, which may limit its ability to pay dividends. The
Company's net capital, as defined, has consistently met or exceeded all minimum
requirements. Various regulations cover certain investment strategies that may
be used by the Funds for hedging purposes. To the extent that the Funds purchase
futures contracts, the Funds are subject to the commodities and futures
regulations of the Commodity Futures Trading Commission. Under the rules and
regulations of the Commission promulgated pursuant to the Federal securities
laws, the Company is subject to periodic examination by the Commission. The
Company is also subject to periodic examination by the NASD. A subsidiary of the
Company is registered under the Exchange Act as a transfer agent. The most
recent examination of the Company by the Commission was in February 1999. The
most recent examination of the Company by the NASD was in February 1996.

COMPETITION

The Company is subject to substantial competition in all aspects of its
business. The Company competes with hundreds of other mutual fund management,
distribution and service companies that distribute their fund shares through a
variety of methods including affiliated and unaffiliated sales forces,
broker-dealers, and direct sales to the public of shares offered at a low or no
sales charge. Many larger mutual fund complexes have developed relationships
with brokerage houses with large distribution networks, which may enable these
fund complexes to reach broader client bases. The Company competes with firms
offering similar services and products to those of the Company, such as American
Express Financial Advisors Inc. and Edward D. Jones & Co. In addition, the
Company competes with brokerage and investment banking firms, insurance
companies, banks, and other financial institutions and businesses
offering other financial products in all aspects of its business. Although no
one company or group of companies dominates the mutual fund management and
services industry, many are larger than the Company and have greater resources
and offer a wider array of financial services and products. Competition is based
on the methods of distribution of fund shares, the ability to develop investment
products for certain segments of the market, the ability to meet the changing
needs of investors, the ability to achieve superior investment management
performance, the type and quality of shareholder services, and the success of
sales promotion efforts. The Company believes that competition in the mutual
fund industry will increase as a result of increased flexibility afforded to
banks and other financial institutions to sponsor mutual funds and distribute
mutual fund shares, and as a result of consolidation and acquisition activity
within the industry. In addition, barriers to entry to the investment management
business are relatively few, and the Company thus anticipates that it will face
a growing number of competitors. Many of the

Company's competitors in the mutual fund industry are larger, better known, have
penetrated more markets than the Company, and have more resources than those of
the Company.

The distribution of mutual fund products has undergone significant
developments in recent years, which has increased the competitive environment in
which the Company operates. These developments include growth in the number of
mutual funds, introduction of service fees payable to broker-dealers that
provide continual service to clients in connection with their mutual fund
investments, and development of complex distribution systems with multiple
classes of shares.

The Company's financial advisors compete primarily with small broker/dealers
and independent financial advisors. The market for financial advice and planning
is extremely fragmented, consisting primarily of relatively small companies with
fewer than 100 investment professionals. Competition is based on sales
techniques, personal relationships and skills, the quality of financial planning
products and services, the quality of the financial and insurance products
offered, and the quality of service. Competition in this area is intense and
some of the competitors of the Company's financial advisors are larger, better
known, and have more resources.

EMPLOYEES

At December 31, 1998, the Company had 530 full-time employees. Its 2,370
financial advisors are independent contractors.

ITEM 2. PROPERTIES

The Company, through its subsidiary, W&R, owns or leases buildings that are
used in the normal course of business. W&R owns and occupies a 116,000 square
foot office building utilized as its corporate headquarters in United Investors
Park, an approximately thirty-three acre commercial development at 6300 Lamar
Avenue, Overland Park, Kansas. Additional leased space is occupied in the
immediate area for headquarters operations. W&R also leases division and
district office space for its agency sales personnel in various cities and towns
in the United States.

During 1998, land and four income-producing office buildings adjacent to the
Company's headquarters were acquired from Torchmark Income Properties, L.P.
("TIP") in transactions which ended W&R's financial interests in TIP. These
properties had previously been contributed by the Company to TIP in exchange for
a limited partnership interest. The four office buildings total 180,000 square
feet and are 99% leased. As a result of this acquisition, W&R owns 100% of
United Investors Park. The Company began to develop architectural plans for an
additional 110,000 square foot office building for United Investors Park in
1998. This new building, when completed, will be used primarily for owner
occupancy.

ITEM 3. LEGAL PROCEEDINGS

Certain of the Company's subsidiaries are involved from time to time in
various legal proceedings and claims incident to the normal conduct of their
businesses. On the basis of information presently available and advice received
from counsel, it is the opinion of management that such legal proceedings and
claims, individually and in the aggregate, are not likely to have a material
adverse effect on its financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

RISK FACTORS

POTENTIAL ADVERSE EFFECT ON CLASS A COMMON STOCK SHARE VALUE FROM DISPARATE
VOTING RIGHTS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK. The holders of
Class A Common Stock and Class B Common Stock have identical rights except that
(i) holders of Class A Common Stock are entitled to one vote per share while
holders of Class B Common Stock are entitled to five votes per share on all
matters to be voted on by stockholders and (ii) holders of Class A Common Stock
are not eligible to vote on any alteration of the powers, preferences, or
special rights of the Class B Common Stock that would not adversely affect the
Class A Common Stock and vice versa. For example, holders of Class A Common
Stock would not be entitled to vote on proposals to decrease the voting power of
the Class B Common Stock, to decrease the right of Class B Common Stock to
receive dividends, or to diminish the rights of the Class B Common Stock in
liquidation, and vice versa. The differential in the voting rights could,
however, adversely affect the value of the Class A Common Stock to the extent
that investors or any potential future purchaser of the Company views the
superior voting rights of the Class B Common Stock to have value. The existence
of two separate classes of Common Stock could result in less liquidity for
either class of Common Stock than if there was only one class of Common Stock.

POTENTIAL ADVERSE EFFECTS ON THE COMPANY'S BUSINESS AND PROSPECTS FROM A
DECLINE IN SECURITIES MARKETS. The Company's results of operations are affected
by certain economic factors, including the level of the securities markets.
Favorable performance by the United States securities markets in recent years
has attracted a substantial increase in the investments in these markets and has
benefited the Funds and the Company. A decline in the securities markets,
failure of the securities markets to sustain their recent levels of growth, or
short-term volatility in the securities markets could result in investors
withdrawing from the markets or decreasing their rate of investment, either of
which could adversely affect the Company. Because the revenues of the Company
are, to a large extent, based on the value of assets under management, a decline
in the value of these assets would adversely affect revenues of the Company. The
Company's growth is dependent to a significant degree upon the ability of the
Funds to attract and retain mutual fund assets and in an adverse economic
environment, this may prove difficult. The Company's growth rate has varied from
year to year and there can be no assurance that the average growth rates
sustained in the recent past will continue.

POTENTIAL ADVERSE EFFECTS ON THE COMPANY'S BUSINESS AND PROSPECTS IF THE
FUNDS' PERFORMANCE DECLINES. Success in the investment management and mutual
fund businesses is dependent on the investment performance of client accounts.
Good performance stimulates sales of the Funds' shares and tends to keep
redemptions low. Sales of the Funds' shares generate higher management fees and
distribution revenues (which are based on assets of the Funds). Good performance
also attracts private institutional accounts to the Company. Conversely,
relatively poor performance tends to result in decreased sales, increased
redemptions of the Funds' shares, and the loss of private institutional
accounts, with corresponding decreases in revenues to the Company. Failure of
the Funds to perform well could, therefore, have a material adverse effect on
the Company.

ADVERSE EFFECT OF TERMINATION OR FAILURE TO RENEW AGREEMENTS. A substantial
majority of the Company's revenues are derived from investment management
agreements with the Funds that, as required by law, are terminable on 60 days'
notice. In addition, each such investment management agreement must be approved
and renewed annually by the disinterested members of each Fund's board or its
shareholders, as required by law. Any failure to renew or termination of a
significant number of these agreements would have a material adverse effect on
the Company.

POTENTIAL ADVERSE EFFECT IF KEY PERSONNEL AND SALES FORCE CANNOT BE
RECRUITED AND RETAINED. The future success of the Company depends to a
substantial degree on its ability to attract and retain qualified personnel to
conduct its fund management and investment advisory business. The market for
qualified fund managers, investment analysts, and financial advisors is
extremely competitive and has grown more so

in recent periods as the industry has experienced growth. There can be no
assurance that the Company will be successful in its efforts to recruit and
retain the required personnel.

The Company is currently dependent on its sales force to sell its mutual
fund and other investment products. The Company's future growth prospects will
be directly affected by the quality and quantity of financial advisors it is
able to successfully recruit and retain.

COMPETITORS WITH GREATER RESOURCES. The mutual fund distribution and
service and investment management industries are intensely competitive and are
undergoing substantial consolidations. Many organizations in these industries
are attempting to market to and service the same clients as the Company, not
only with mutual fund investments and services but with a wide range of other
financial products and services. Many of the Company's competitors have more
products and product lines, services, and may also have substantially greater
assets under management and financial resources. Many larger mutual fund
complexes have developed relationships with brokerage houses with large
distribution networks, which may enable these fund complexes to reach broader
client bases.

POTENTIAL MISUSE OF FUNDS AND INFORMATION IN POSSESSION OF ADVISORS. The
Company's financial advisors handle a significant amount of funds and financial
and personal information for investors in the Funds and purchasers of other
investment and insurance products. Although the Company has implemented a system
of controls to minimize the risk of fraudulent taking or misuse of such funds
and information, there can be no assurance that such controls will be adequate
or that such taking or misuse can be prevented. The Company could have liability
in the event of such taking or misuse and could also be subject to regulatory
sanctions. Although the Company believes that it is adequately insured against
such risks, there can be no assurance that such insurance will be maintained or
that it will be adequate to meet any future liability.

NO ASSURANCE OF DIVIDENDS; HOLDING COMPANY STRUCTURE MAY LIMIT AVAILABLE
CASH FOR DISTRIBUTION. The Company's Board of Directors currently intends to
declare quarterly dividends on both the Class A Common Stock and the Class B
Common Stock. The declaration and payment of dividends by the Company are
subject to the discretion of its Board of Directors. Any determination as to the
payment of dividends, as well as the level of such dividends, will depend on,
among other things, general economic and business conditions, the strategic
plans of the Company, the Company's financial results and condition,
contractual, legal, and regulatory restrictions on the payment of dividends by
the Company or its subsidiaries, and such other factors as the Board of
Directors of the Company may consider to be relevant. The Company is a holding
company and, as such, its ability to pay dividends is subject to the ability of
the subsidiaries of the Company to provide cash to the Company. There can be no
assurance that the current quarterly dividend level will be maintained or that
any dividends will be paid by the Company in any future period.

POTENTIAL COSTS AND ADVERSE EFFECTS ON THE COMPANY'S BUSINESS RESULTING FROM
YEAR 2000 RISKS. As the year 2000 approaches, an issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. The Company is in the process of modifying its systems and
working with its software vendors to prepare the Company for the year 2000. In
addition, the Company and the Funds have relationships with third parties that
have computer systems that may not be year 2000 compliant. The Company estimates
that its compliance activities will be completed no later than the third quarter
of 1999. To the extent the Company's or such third parties' systems are not
fully year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a material
adverse effect on the Company's business, financial condition, results of
operations, or business prospects.

CHANGES IN REGULATION COULD ADVERSELY AFFECT THE COMPANY. The Company's
investment management business is subject to extensive regulation in the United
States, primarily at the Federal level,

including regulation by the Commission. Changes in laws or regulations or in
governmental policies could materially and adversely affect the business and
operations of the Company.

CHARTER AND BYLAW PROVISIONS COULD DETER TAKEOVER ATTEMPTS. Under the
Company's Certificate of Incorporation, the Board of Directors has the
authority, without action by the Company's stockholders, to fix certain terms
and issue shares of Preferred Stock, par value $1.00 per share (the "Preferred
Stock"). Actions of the Board of Directors pursuant to this authority may have
the effect of delaying, deterring, or preventing a change in control of the
Company. Other provisions in the Certificate of Incorporation and in the Bylaws
of the Company (the "Bylaws") impose procedural and other requirements that
could make it more difficult to effect certain corporate actions, including
replacing incumbent directors. In addition, the Board of Directors of the
Company is divided into three classes, each of which is to serve for a staggered
three-year term after the initial classification and election and, incumbent
directors may not be removed without cause, all of which may make it more
difficult for a third party to gain control of the Board of Directors. With
certain exceptions, Section 203 of the Delaware General Corporation Law (the
"DGCL") imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of the voting stock of the
Company.

POTENTIAL ISSUANCE OF PREFERRED STOCK COULD DETER TAKEOVER ATTEMPTS. The
Board of Directors could issue a series of preferred stock that could have
powers, rights, or preferences superior to that of the Class A or Class B Common
Stock or that could impede the completion of a merger, tender offer, or other
takeover attempt. Such issuance of preferred stock could be effected without a
vote of the holders of the Class A or Class B Common Stock even though some or a
majority of the Company's stockholders might believe that such merger, tender
offer or takeover is in their best interests and even if such transactions could
result in stockholders receiving a premium for their stock over the then current
market price of such stock.

TERMS OF CREDIT FACILITY; AVAILABILITY OF CAPITAL. The Company has entered
into a loan agreement with revolving line of credit and term loan facilities,
which has an aggregate commitment of $200 million which may be increased to $300
million (the "Credit Facility") with The Chase Manhattan Bank (the "Bank") and
various other lenders. The terms and conditions of the Credit Facility impose
restrictions that affect, among other things, the ability of the Company to
incur debt, make capital expenditures, merge, sell assets, make distributions,
or create or incur liens. Availability of the Credit Facility is also subject to
certain financial covenants. The ability of the Company to comply with such
covenants can be affected by events beyond the control of the Company and there
can be no assurance that the Company will achieve operating results that comply
with such provisions. A breach of any of these covenants could result in a
default under the Credit Facility. In the event of a default, the Bank could
elect to declare the outstanding principal amount of the Credit Facility, all
interest thereon and all other amounts payable under the Credit Facility to be
immediately due and payable.

The Company's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic,
financial and business conditions and other factors, some of which are beyond
the control of the Company. The Company anticipates that borrowings from the
Credit Facility or the refinancing of such Credit Facility, and cash provided by
operating activities, will provide sufficient funds to finance anticipated
development plans, meet its operating expenses and service its debt requirements
as they become due. However, in the event that the Company requires additional
capital, there can be no assurance that it will be able to raise such capital
when needed or on satisfactory terms, if at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources".

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Company's Class A and Class B Common Stock are traded on the New York
Stock Exchange under the symbols "WDR" and "WDR.B", respectively. For the period
commencing on March 4, 1998 (the date of the Company's Offering), through
February 26, 1999, high and low closing sale prices for the Common Stock as
reported by the New York Stock Exchange were $27.125 and $16.625, respectively.

The table sets forth, for the periods indicated, the reported high and low
close sale prices of the Company's Class A and Class B Common Stock, as reported
on the New York Stock Exchange, as well as the cash dividends paid for these
time periods:

1998 CLASS A
MARKET PRICE

DIVIDENDS
QUARTER HIGH LOW PER SHARE
- - ------------------- ------------------- ------------------- -------------------

1.................. $27.1250 $25.3750 $--
2.................. 26.5000 21.8125 .1325
3.................. 24.5000 16.6250 .1325
4.................. 24.3750 17.0625 .1325

Year-end closing price . . . . . . . . . . $23.6875

1998 CLASS B
MARKET PRICE

DIVIDENDS
QUARTER HIGH LOW PER SHARE
- - ------------------- ------------------- ------------------- -------------------

4.................. $24.0000 $19.7500 $.1325

Year-end closing price . . . . . . . . . . $23.2500

STOCKHOLDERS

According to the records of the Company's transfer agent, the Company had
5,403 holders of record of the Class A Common Stock as of March 8, 1999 and
5,853 holders of record of the Class B Common Stock as of March 8, 1999. The
Company believes that a substantially larger number of beneficial owners hold
such shares in depository or nominee form.

ITEM 6. SELECTED FINANCIAL DATA

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

FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AND FINANCIAL ADVISORS DATA)

Revenues from:
Investment management.................... $ 137,823 $ 117,784 $ 101,466 $ 85,289 $ 70,711
Underwriting and distribution............ 106,615 89,427 85,837 70,393 72,150
Shareholder service...................... 33,808 30,763 28,378 23,527 22,297
Revenue excluding investment income...... 278,246 237,974 215,681 179,209 165,158
Total revenue............................ 287,289 241,772 220,976 183,504 169,036
Net income................................. 83,735 70,292 66,700 53,501 47,626
per common share......................... 1.27 1.06 1.00 .80 .72
Net income excluding
nonrecurring items (1)................... 88,060 74,696 64,174 50,975 46,381
per common share (1)(2).................. 1.33 1.12 0.97 0.77 0.70
Dividends per common share (3)............. $ 0.40 -- -- -- --

Investment product sales................... $ 1,827,526 $ 1,518,257 $ 1,505,100 $ 1,187,609 $ 1,188,530
Financial advisors (end of period)......... 2,370 2,160 2,010 2,335 2,257
Financial advisors (average)............... 2,175 2,072 2,072 2,251 2,408
Investment product sales per advisor....... $ 840 $ 733 $ 726 $ 528 $ 494

AS OF DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN MILLIONS)

Assets under management $ 27,744 $ 23,417 $ 19,070 $ 18,489 $ 14,498
Balance sheet data:
Goodwill................................. 95.9 98.8 101.7 104.6 107.5
Total assets (4)......................... 327.2 254.3 244.8 226.1 206.8
Short term debt.......................... 40.1 -- -- -- --
Total liabilities (5).................... 120.0 65.3 70.1 51.5 39.2

- - ------------------------

(1) Excludes impact of nonrecurring interest relating to notes with Torchmark
Corporation which were prepaid with proceeds from the Offering and
nonrecurring 1997 charges related to information systems outsourcing.

(2) The number of shares used to compute earnings per share for 1997 and
previous years was the number of shares outstanding at the Offering.

(3) Three quarterly dividends were declared in 1998 ($0.1325 per quarter).

(4) Excludes amounts due from Torchmark of $0, $192.7, $184.5, $57.2 and $96.3
million for 1998, 1997, 1996, 1995 and 1994, respectively.

(5) Excludes amounts due to Torchmark of $0, $611.6, $126.6, $13.6 and $41.7
million for 1998, 1997, 1996, 1995 and 1994, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

THIS ITEM INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS
REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS OR STRATEGIES
REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS FORM 10-K REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS
STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM
10-K ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND
THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS AND EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT OR THAT THE COMPANY WILL TAKE
ANY ACTIONS THAT MAY PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE
DISCLOSED IN THE "RISK FACTORS" SECTION OF THIS FORM 10-K ANNUAL REPORT, WHICH
INCLUDE, WITHOUT LIMITATION, THE ADVERSE EFFECT FROM A DECLINE IN SECURITIES
MARKETS OR IF THE COMPANY'S PRODUCTS' PERFORMANCE DECLINES, FAILURE TO RENEW
INVESTMENT MANAGEMENT AGREEMENTS, COMPETITION, CHANGES IN GOVERNMENT REGULATION,
AVAILABILITY AND TERMS OF CAPITAL AND YEAR 2000 UNCERTAINTIES. ALL SUBSEQUENT
WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR
PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH
FACTORS.

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

RESULTS OF OPERATIONS

OVERVIEW

The Company derives its revenues primarily from providing investment
management, distribution and administrative services to the United, W&R and
Target funds and institutional accounts. Investment management fees, the
Company's most substantial source of revenue, are based on the amount of assets
under management and are affected by sales levels, financial market conditions,
redemptions and the composition of assets. Underwriting and distribution
revenues consist of sales charges and commissions derived from sales of
investment and insurance products and distribution fees. The products sold have
various sales charge structures and the revenues received from sales of products
vary based on the type and amount sold. Rule 12b-1 distribution fees earned for
distributing shares of certain mutual funds are based upon a percentage of
assets and fluctuate based on sales, redemptions, and financial market
conditions. Service fees include transfer agency fees, custodian fees for
retirement plan accounts and portfolio accounting fees.

SUMMARY OF OPERATING RESULTS

1998 1997 1996
--------------------- --------------------- ---------------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
---------- --------- ---------- --------- ---------- ---------
(IN THOUSANDS)

OPERATING REVENUES:
Investment management fees.................... $ 137,823 48.0% 117,784 48.7 101,466 45.9
Underwriting and distribution fees............ 106,615 37.1 89,427 37.0 85,837 38.9
Shareholder service fees...................... 33,808 11.8 30,763 12.7 28,378 12.8
---------- --------- ---------- --------- ---------- ---------
Total operating revenues...................... 278,246 96.9 237,974 98.4 215,681 97.6

Investment and other income................... 9,043 3.1 3,798 1.6 5,295 2.4
---------- --------- ---------- --------- ---------- ---------
Total revenue................................. 287,289 100.0 241,772 100.0 220,976 100.0

OPERATING EXPENSES:
Underwriting and distribution................. 99,575 34.6 79,995 33.1 78,915 35.7
Compensation and related costs................ 31,512 11.0 26,618 11.0 21,913 9.9
General and administrative.................... 8,551 3.0 15,826 6.5 10,180 4.6
Depreciation.................................. 1,892 0.7 1,307 0.6 1,758 0.8
---------- --------- ---------- --------- ---------- ---------
Total operating expense....................... 141,530 49.3 123,746 51.2 112,766 51.0

OTHER ITEMS:
Interest expense.............................. 704 0.2 0 0.0 0 0.0
Amortization of goodwill...................... 2,903 1.0 2,903 1.2 2,903 1.3
---------- --------- ---------- --------- ---------- ---------
Total expense................................. 145,137 50.5 126,649 52.4 115,669 52.3
---------- --------- ---------- --------- ---------- ---------
Income before affiliated items and income
taxes....................................... $ 142,152 49.5% 115,123 47.6 105,307 47.7
---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------

Total operating revenues increased $40.3 million or 17% to $278.2 million in
1998 compared to 1997. This growth follows a $22.3 million or 10% increase from
1996 to 1997. Total revenues, which include investment and other income, were
$287.3 million in 1998, a 19% increase from 1997. Total revenues in 1997 were 9%
higher than in 1996. Income before affiliated items and income taxes increased
23% to $142.2 million in 1998 following a 9% increase from 1996 to 1997. Income
before affiliated items and income taxes as a percentage of revenue was 49.5%,
47.6% and 47.7% in 1998, 1997, and 1996, respectively. In 1997, nonrecurring
charges, as explained in "general and administrative expense" herein, reduced
net income by $4.4 million.

INVESTMENT MANAGEMENT FEES

Investment management fees are earned for providing investment advisory
services to the Funds and institutional accounts. Investment management fees in
1998 were $137.8 million, a 17% increase over 1997. The increase in management
fees was due to growth in assets related to market performance. Average assets
under management were $25.6 million for 1998, an increase of 20% compared with
1997. The asset growth rate exceeded the rate of increase in management fees due
primarily to two factors. First, certain mutual funds have breakpoints in their
fee schedules which provide for reduced fee rates as assets grow resulting in a
slower rate of growth in revenues than growth in assets. Secondly, institutional
assets, which generally have a lower management fee rate than mutual funds,
constituted a higher percentage of total assets for 1998. Management fee
revenues in 1997 were 16% higher than in 1996, while average assets were up 12%.
The percentage of institutional assets to total assets was lower in 1997 than in
1996 resulting in revenue growth exceeding asset growth in 1997.

UNDERWRITING AND DISTRIBUTION FEES

Underwriting and distribution fees are comprised of commissions charged on
sales of front-load mutual funds, variable products and insurance products and
Rule 12b-1 distribution fees and contingent deferred sales charges from back-end
load funds. Underwriting and distribution fees in 1998 increased 19% to $106.6
million. The higher fees are primarily due to increases in sales of front-load
investment products and Rule 12b-1 distribution fees. Sales of front-load
investment products were up 17% from 1997 to $1.6 billion. Distribution revenue,
which consists primarily of Rule 12b-1 distribution fees from the W&R Funds,
increased 36% from $6.5 million in 1997 to $8.8 million in 1998 due to growth in
assets of these funds. Underwriting and distribution fee revenue was $89.4
million for 1997, up $3.6 million or 4% compared with that of 1996. Commission
revenues from front-load investment products increased $1.4 million from $67.0
million in 1996 to $68.4 million in 1997 primarily as a result of higher sales
volumes. Distribution revenue, which consists primarily of Rule 12b-1
distribution fees from the W&R Funds, increased from $4.7 million in 1996 to
$6.5 million in 1997 due to growth in assets of these funds.

SHAREHOLDER SERVICE FEES

Shareholder service fees include transfer agency fees, custodian fees from
retirement plan accounts and portfolio accounting fees. The transfer agency fees
and custodian fees, which comprised 94% of the service fee revenues in 1998, are
primarily based on annual charges per account and fluctuate based on the number
of accounts. In 1998, shareholder service fees increased 10% to $33.8 million
due primarily to an 8% increase in the average number of accounts. A fee
increase in the fourth quarter of 1998, coinciding with the outsourcing of the
data processing component of transfer agency activities, caused the increase in
revenues to exceed the increase in number of accounts serviced. In 1997,
shareholder service fees increased 8% from 1996 to $30.8 million. The average
number of accounts serviced increased 6% during this period. The growth in
revenues exceeded the growth in the number of accounts due to the impact of a
full twelve months of a fee increase implemented in the second quarter of 1996.

UNDERWRITING AND DISTRIBUTION EXPENSE

Underwriting and distribution expense includes costs associated with the
marketing, promotion, and distribution of the Company's products. The primary
costs are compensation paid to financial advisors, sales management and other
marketing personnel plus expenses relating to field offices, sales programs and
advertising. Underwriting and distribution expense for 1998 was $99.6 million,
an increase of $19.6 million or 24% compared with 1997. These costs were higher
than 1997 due primarily to growth in sales volume, an additional $1.5 million of
costs related to an advertising campaign that was implemented during the fourth
quarter of 1998, and an increase of approximately $2.0 million related to
enhancements to field compensation that were effective July 1, 1998. In 1997,
underwriting and distribution expenses increased to $80.0 million, a 1% increase
from 1996. Most of the increase in underwriting and distribution costs was
attributable to selling commissions and other costs associated with higher sales
levels.

COMPENSATION AND RELATED COSTS

Compensation and related costs were up 18% to $31.5 million in 1998 due to
normal increases in compensation and staff additions, primarily in investment
management and shareholder services operations. Management plans to hire
additional staff in 1999, particularly in the investment management and
shareholder services operations, as part of a continuing effort to enhance
investment performance and improve shareholder services. Compensation and
related costs in 1997 of $26.6 million were up $4.7 million or 21% compared with
those of 1996. The increase was attributable to additional expenses of $1.5
million related to staff additions and normal salary and fringe benefit changes,
$1.3 million for incentive compensation and adjustments of $1.9 million to make
total compensation more competitive with the industry generally.

GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense, which reflects operating costs other
than compensation and marketing was down 46% to $8.6 million for 1998 due
primarily to non-recurring charges of $6.8 million in 1997 related to the
outsourcing of the data processing component of transfer agency activities and
the discontinuation of internally developed systems. General and administrative
expense was $15.8 million in 1997, a $5.6 million or 55% increase from that of
1996 due to the $6.8 million non-recurring charges. This increase was partially
offset by lower expenses of $2.2 million in 1997 for year 2000 compliance as
compared to 1996.

INVESTMENT AND OTHER INCOME

Investment and other income increased $5.2 million to $9.0 million in 1998
due to the investment of operating cash flows. Average invested cash and
marketable securities were $144.8 million in 1998 and $82.4 million in 1997.
Investment and other income declined in 1997 from 1996 by $1.5 million due to
the timing of dividend and note payments to Torchmark.

DEPRECIATION

Depreciation of property and equipment increased by $.6 million from 1997
due to additions totaling $7.6 million in late 1998. Depreciation expense
declined $.5 million in 1997 from 1996 due to certain fixed assets becoming
fully depreciated during the year.

INTEREST EXPENSE

Until the third quarter of 1998, the Company had not used debt financing as
a source of capital, and therefore did not incur interest expense. In the third
quarter of 1998, the Company obtained a $200 million credit facility, expandable
to $300 million. During the fourth quarter, $40 million was borrowed against the
facility to fund share repurchases. Interest expense associated with these
borrowings was $.3 million. Costs to establish the facility of $.4 million were
incurred in the third quarter of 1998.

AFFILIATED INTEREST INCOME AND EXPENSE

Prior to the Offering, the Company had various notes payable and notes
receivable with Torchmark and certain subsidiaries of Torchmark. The affiliated
interest income and expense as reported in the consolidated statement of
operations pertain to these notes and were prepaid with proceeds from the
Offering.

INCOME TAXES

The Company's effective income tax rate was 38.2%, 39.0%, and 38.9% in 1998,
1997, and 1996, respectively. The rate declined in 1998 due primarily to
investments in tax-exempt municipal securities.

FINANCIAL CONDITION

At December 31, 1998, the Company's total assets were $327.2 million, down
$119.8 million from December 31, 1997. The decrease in total assets was
primarily related to the prepayment of notes receivable from Torchmark
Corporation that coincided with the closing of the Company's Offering in March
1998. Net proceeds from the sale of 23.9 million shares were $516 million of
which the Company retained approximately $35 million. The remainder of the
proceeds were used to prepay notes to Torchmark. During the third and fourth
quarters, the Company repurchased 3.6 million shares of its common stock at a
total cost of $74.8 million. A $200 million credit facility, expandable to $300
million, was utilized to fund $40.0 million of the repurchases. At December 31,
1998, the Company's outstanding debt, including principal and accrued interest
was $40.1 million. The average interest rate on the amount

outstanding at December 31, 1998 was 5.94%. Interest and related costs related
to the facility were $.7 million during 1998.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities increased $16.4 million to $78.7
million for 1998. Net cash used for investments in 1998 was $97.7 million. Prior
to 1998, cash from operations was paid to Torchmark as dividends. At December
31, 1998, the Company had $133.3 million in cash and marketable investment
securities, of which $10.8 million was restricted for the benefit of customers
in compliance with securities industry regulations. Cash and marketable
securities at December 31, 1997 were $92.8 million, of which $14.9 million was
restricted. A $200 million revolving credit facility, expandable to $300
million, was available to the Company at December 31, 1998, with an amount
borrowed and outstanding of $40.0 million. During 1998, the Company repurchased
1.2 million shares of Class A and 2.4 million shares of Class B Common Stock,
the combined cost of which was $74.8 million.

The Company has decided on a plan to expand existing home office facilities
at an estimated cost of $12 million. This expansion is expected to commence in
1999 and be completed in late 2000. The costs of this expansion will be financed
by invested cash, operating cash flow and/or the use of the Credit Facility.

Management believes its available cash, marketable securities, and expected
cash flow from operations will be sufficient to fund dividends, operations,
advance sales commissions, obligations, and other reasonably foreseeable cash
needs. The Company may also continue to repurchase shares of its common stock
from time to time as management deems appropriate. The share repurchases could
be financed by the Company's available cash and investments and/or the use of
the Credit Facility.

SUBSEQUENT EVENTS

From January 1, 1999 to March 8, 1999, the Company repurchased an additional
.3 million shares of Class A Common Stock and 1.2 million shares of Class B
Common Stock under its stock repurchase program. The average price per share was
$19.82. The total cost of these repurchases was $28.9 million. The repurchases
were partially funded by borrowing $20 million against the Credit Facility.

During 1999, the Company intends to submit a proposal to restructure the
management fee arrangements of the Funds to the shareholders of the United, W&R
and Target Funds. This proposal, if approved by the Funds' shareholders, will
replace the "group" fee structure and "specific fund" add-on fee with a specific
fee schedule for each Fund. The Funds' fee schedules under the proposal would
include breakpoints at which fee rates will decline as assets increase. If
approved by the Funds' shareholders, the Funds' fee schedules generally would
more closely conform with others in the mutual fund industry. Under the
proposal, the overall management fee rates for some Funds would increase, some
would decrease and some would be waived until the net assets in a Fund reached
certain levels. The overall impact to the Company would be an increase in
management fee rates of approximately .06%. There can be no assurance that the
Funds' shareholders will approve the restructuring of the management fee
arrangements with respect to any one or more of the Funds.

RECENT ACCOUNTING DEVELOPMENTS

On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and unrealized
gains (losses) on available-for-sale securities and is presented in a separate
statement of comprehensive income. SFAS No. 130 requires only additional
disclosures in the financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial statements
have been presented to conform to the requirements of SFAS No. 130.

The Company adopted SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND
OTHER POSTRETIREMENT BENEFITS, on January 1, 1998. SFAS No. 132 requires only
additional disclosures in the footnotes to the financial statements regarding
pension and other postretirement benefits. It does not affect the Company's
financial position or results of operations. Prior year disclosures have been
presented to conform to the requirements of SFAS No. 132.

INFORMATION SYSTEMS AND YEAR 2000 READINESS

Some computers, software, and other equipment include computer code in which
the calendar year data is abbreviated to only two digits. As a result, some of
these systems will not operate correctly after 1999 because they may interpret
"00" to mean 1900, rather than 2000. These problems are widely expected to
increase in frequency and severity as the year 2000 approaches, and are commonly
referred to as the "Year 2000 Problem".

The Company believes that is has identified all significant data, computer
hardware, software applications and related equipment, as well as office and
facilities equipment such as telephone switches and security systems used in
connection with its internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to its business.
The Company is currently in the process of modifying, upgrading and replacing
major systems that have been assessed as adversely affected, and expects to
complete this process before the occurrence of any material disruption of its
business. However, there can be no assurance in this regard.

Internal and external resources are being used to make the required
modifications and test Year 2000 compliance. The Company estimates that its
compliance activities will be completed no later than the first quarter of 1999
for all mission critical items and no later than the third quarter of 1999 for
all medium and low risk items and estimates that the total costs of this effort
will be $4.4 million for the five year period ending June 30, 2000. Total costs
incurred through year end are approximately $3.4 million.

The Year 2000 Problem also affects some of the Company's vendors and
suppliers of data, computers, software and other equipment. The Company has been
actively contacting all vendors and suppliers to inquire about their Year 2000
readiness. However, the Company has limited or no control over the actions of
these vendors and suppliers. Accordingly, the Company cannot guarantee that
these vendors and suppliers will resolve any or all Year 2000 Problems. If the
Company's vendors and suppliers fail to resolve Year 2000 Problems, the
Company's business could be materially disrupted.

The Company expects to identify and resolve all Year 2000 Problems that
could materially adversely affect its business operations. However, due to the
number of interactions with internal and external systems, equipment and data,
management believes that it is not possible to determine with complete certainty
that all Year 2000 Problems affecting the Company or its clients have been
identified or corrected. In addition, no one can accurately predict how many
Year 2000 Problem-related failures will occur or the severity, duration or
financial consequences of these potential failures. As a result, management
expects that the Company could suffer a small number of operational
inconveniences and inefficiencies for the Company and its clients that will
divert some of management's time and attention and financial and human resources
from its ordinary business activities.

The Company is developing contingency plans to minimize the impact of
potential Year 2000 Problems on its mission critical systems. The Company
expects to complete its contingency plans by the end of third quarter 1999.

The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance constitutes forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith, could be adversely impacted by, among other things,
the availability and cost of programming and testing resources, vendor ability
to modify proprietary software and unanticipated problems identified in the
ongoing compliance review.

SEASONABILITY AND INFLATION

The Company does not believe its operations are subject to significant
seasonal fluctuations. The Company does not believe that inflation has had a
significant impact on operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to the Company for this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Consolidated Financial Statements referred to in
the Index on page A-1 setting forth the consolidated financial statements of the
Company, together with the report of KPMG LLP dated March 1, 1999.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

No disagreements with accountants on any matter of accounting principles or
practices or financial statement disclosure have been reported on a Form 8-K
within the twenty-four months prior to the date of the most recent financial
statements.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this Item 10 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item 11 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this Item 12 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item 13 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

(a)(2) Financial Statement Schedules. None.

(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fourth quarter of 1998.

(c) Exhibits. Reference is made to the Index to Exhibits on page B-1 for a
list of all exhibits filed as part of this Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Overland Park, State of Kansas, on March 19, 1999.

WADDELL & REED FINANCIAL, INC.

By: /s/ KEITH A. TUCKER
-----------------------------------------
Keith A. Tucker
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER

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

NAME TITLE DATE
- - ------------------------------ -------------------------- -------------------

Chairman of the Board,
/s/ KEITH A. TUCKER Chief Executive Officer
- - ------------------------------ and Director (Principal March 19, 1999
Keith A. Tucker Executive and Financial
Officer)

/s/ HENRY J. HERRMANN President, Chief
- - ------------------------------ Investment Officer, March 19, 1999
Henry J. Herrmann Treasurer and Director

/s/ ROBERT L. HECHLER Chief Operating Officer,
- - ------------------------------ Executive Vice President March 19, 1999
Robert L. Hechler and Director

/s/ MICHAEL D. STROHM Senior Vice President
- - ------------------------------ (Principal Accounting March 19, 1999
Michael D. Strohm Officer)

/s/ HAROLD T. MCCORMICK*
- - ------------------------------ Director March 19, 1999
Harold T. McCormick

/s/ LOUIS T. HAGOPIAN*
- - ------------------------------ Director March 19, 1999
Louis T. Hagopian

NAME TITLE DATE
- - ------------------------------ -------------------------- -------------------

/s/ R.K. RICHEY*
- - ------------------------------ Director March 19, 1999
R.K. Richey

/s/ JOSEPH L. LANIER, JR.*
- - ------------------------------ Director March 19, 1999
Joseph L. Lanier, Jr.

/s/ WILLIAM L. ROGERS*
- - ------------------------------ Director March 19, 1999
William L. Rogers

/s/ JAMES M. RAINES*
- - ------------------------------ Director March 19, 1999
James M. Raines

/s/ GEORGE J. RECORDS, SR.*
- - ------------------------------ Director March 19, 1999
George J. Records, Sr.

/s/ DAVID L. BOREN*
- - ------------------------------ Director March 19, 1999
David L. Boren

/s/ JOSEPH M. FARLEY*
- - ------------------------------ Director March 19, 1999
Joseph M. Farley

*By: /s/ DANIEL C. SCHULTE
-------------------------
Daniel C. Schulte March 19, 1999
ATTORNEY-IN-FACT

WADDELL & REED FINANCIAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
---------

Waddell & Reed Financial, Inc.:
Independent Auditors' Report............................................................................. A-2

Consolidated Balance Sheets at December 31, 1998 and December 31, 1997................................... A-3

Consolidated Statements of Operations for each of the years in the three-year period ended December 31,
1998................................................................................................... A-5

Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period
ended December 31, 1998................................................................................ A-6

Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended
December 31, 1998...................................................................................... A-7

Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
1998................................................................................................... A-8

Notes to Consolidated Financial Statements............................................................... A-9

A-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors

Waddell & Reed Financial, Inc.:

We have audited the accompanying consolidated balance sheets of Waddell &
Reed Financial, Inc. and subsidiaries, as of December 31, 1998 and 1997 and the
related statements of operations, changes in stockholders' equity, comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Waddell &
Reed Financial, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998, in conformity with generally accepted
accounting principles.

KPMG LLP

Kansas City, Missouri
March 1, 1999

A-2

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1998 AND 1997

ASSETS

1998 1997
---------- ----------
(IN THOUSANDS)

Assets:
Cash and cash equivalents............................................................... $ 30,180 73,820
Investment securities, available-for-sale............................................... 103,153 18,977
Receivables:
United Funds and W&R Funds............................................................ 5,740 4,031
Customers and other................................................................... 28,865 11,840
Due from affiliates..................................................................... -- 17,232
Deferred income taxes................................................................... 1,309 1,241
Prepaid expenses and other current assets............................................... 3,222 2,991
---------- ----------
Total current assets.................................................................. 172,469 130,132
Due from affiliates..................................................................... -- 175,450
Property and equipment, net............................................................. 17,685 12,058
Investment in real estate............................................................... 24,718 17,544
Deferred sales commissions, net......................................................... 15,710 12,316
Goodwill (net of accumulated amortization of $20,382 and $17,479)....................... 95,928 98,831
Other assets............................................................................ 669 633
---------- ----------
Total assets.......................................................................... $ 327,179 446,964
---------- ----------
---------- ----------

See accompanying notes to consolidated financial statements.

A-3

WADDELL & REED FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31, 1998 AND 1997

LIABILITIES AND STOCKHOLDERS' EQUITY

1998 1997
---------- ----------
(IN THOUSANDS)

Liabilities:
Current liabilities:
Accounts payable........................................................................ $ 28,304 22,929
Due to affiliates....................................................................... -- 102,459
Accrued salesforce compensation......................................................... 11,916 8,666
Short term notes payable................................................................ 40,076 --
Income taxes payable.................................................................... 13,464 3,314
Other current liabilities............................................................... 16,034 18,525
---------- ----------
Total current liabilities............................................................. 109,794 155,893
---------- ----------
Due to affiliates....................................................................... -- 509,186
Deferred income taxes................................................................... 208 2,246
Accrued pensions and post-retirement costs.............................................. 10,041 9,530
---------- ----------
Total liabilities..................................................................... 120,043 676,855
---------- ----------
Stockholders' equity:
Common stock ($.01 par value; 150,000,000 class A shares authorized, 32,142,174 issued
and 30,906,445 outstanding and 100,000,000 class B shares authorized, 34,325,000
issued and 31,911,956 outstanding December 31, 1998; 7,975,000 class A shares
authorized, issued and outstanding 34,325,000 class B shares authorized, issued and
outstanding December 31, 1997)........................................................ 665 423
Additional paid-in capital.............................................................. 246,271 --
Retained earnings....................................................................... 47,325 --
Dividends in excess of retained earnings and additional paid-in capital................. -- (230,658)
Deferred compensation................................................................... (12,494) --
Treasury stock (1,235,729 class A shares and 2,413,044 class B shares).................. (74,833) --
Accumulated other comprehensive income, net of
deferred taxes of $122 and $212....................................................... 202 344
---------- ----------
Total stockholders' equity............................................................ 207,136 (229,891)
---------- ----------
Commitments, contingencies and subsequent events
Total liabilities and stockholders' equity................................................ $ 327,179 446,964
---------- ----------
---------- ----------

See accompanying notes to consolidated financial statements.

A-4

WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
---------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER
SHARE DATA)

Revenue:
Investment management fees............................................... $ 137,823 117,784 101,466
Underwriting and distribution fees....................................... 106,615 89,427 85,837
Shareholder service fees................................................. 33,808 30,763 28,378
Investment and other revenue............................................. 9,043 3,798 5,295
---------- --------- ---------
Total revenue.......................................................... 287,289 241,772 220,976
---------- --------- ---------
Expenses:
Underwriting and distribution............................................ 99,575 79,995 78,915
Compensation and related costs........................................... 31,512 26,618 21,913
General and administrative............................................... 8,551 15,826 10,180
Depreciation............................................................. 1,892 1,307 1,758
Amortization of goodwill................................................. 2,903 2,903 2,903
Interest expense......................................................... 704 -- --
---------- --------- ---------
Total expenses......................................................... 145,137 126,649 115,669
---------- --------- ---------
Income before affiliated items and provision for income taxes.......... 142,152 115,123 105,307
Affiliated items:
Interest income.......................................................... 1,950 11,323 4,072
Interest expense......................................................... (8,604) (11,299) (186)
---------- --------- ---------
Income before provision for income taxes............................... 135,498 115,147 109,193
Provision for income taxes................................................. 51,763 44,855 42,493
---------- --------- ---------
Net income............................................................. 83,735 70,292 66,700
---------- --------- ---------
---------- --------- ---------
Net income per share:
Basic and diluted........................................................ $ 1.27 $ 1.06 $ 1.00
---------- --------- ---------
---------- --------- ---------
Weighted average shares outstanding--basic and diluted..................... 66,179 66,467 66,467
Dividends declared per common share........................................ $ 0.40 -- --

See accompanying notes to consolidated financial statements.

A-5

WADDELL & REED FINANCIAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

DIVIDENDS
IN EXCESS
OF RETAINED
EARNINGS
AND
COMMON STOCK ADDITIONAL ADDITIONAL
---------------------- PAID-IN RETAINED PAID-IN DEFERRED TREASURY
SHARES AMOUNT CAPITAL EARNINGS CAPITAL COMPENSATION STOCK
--------- ----------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)

Balance at December 31, 1995......... 42,300 $ 423 203,958 13,561 -- -- --
Net income........................... -- -- -- 66,700 -- -- --
Contributions from parent............ -- -- 121,358 -- -- -- --
Other distributions.................. -- -- (93,348) (70,261) -- -- --
Cash dividends to parent............. -- -- -- (10,000) -- -- --
Unrealized loss on investment
securities......................... -- -- -- -- -- -- --
--------- ----- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1996......... 42,300 423 231,968 -- -- -- --
Net income........................... -- -- -- 70,292 -- -- --
Contributions from parent............ -- -- 47,980 -- -- -- --
Other distributions.................. -- -- (279,948) (18,627) (230,658) -- --
Cash dividends to parent............. -- -- -- (51,665) -- -- --
Unrealized gain on investment
securities......................... -- -- -- -- -- -- --
--------- ----- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1997......... 42,300 423 -- -- (230,658) -- --
Net income........................... -- -- -- 73,712 10,023 -- --
Issuance of restricted shares........ 297 3 5,260 -- -- (12,494) --
IPO proceeds......................... 23,870 239 295,140 -- 220,635 -- --
Dividends paid....................... -- -- -- (26,387) -- -- --
Other distributions.................. -- -- (54,129) -- -- -- --
Treasury stock repurchases........... (3,649) -- -- -- -- -- (74,833)
Unrealized loss on investment
securities......................... -- -- -- -- -- -- --
--------- ----- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1998 62,818 $ 665 246,271 47,325 -- (12,494) (74,833)
--------- ----- ----------- ----------- ----------- ------------- -----------
--------- ----- ----------- ----------- ----------- ------------- -----------

ACCUMULATED TOTAL
OTHER STOCKHOLDER'S
COMPREHENSIVE EQUITY
INCOME (DEFICIT)
--------------- ------------

Balance at December 31, 1995......... 264 218,206
Net income........................... -- 66,700
Contributions from parent............ -- 121,358
Other distributions.................. -- (163,609)
Cash dividends to parent............. -- (10,000)
Unrealized loss on investment
securities......................... (100) (100)
----- ------------
Balance at December 31, 1996......... 164 232,555
Net income........................... -- 70,292
Contributions from parent............ -- 47,980
Other distributions.................. -- (529,233)
Cash dividends to parent............. -- (51,665)
Unrealized gain on investment
securities......................... 180 180
----- ------------
Balance at December 31, 1997......... 344 (229,891)
Net income........................... -- 83,735
Issuance of restricted shares........ -- (7,231)
IPO proceeds......................... -- 516,014
Dividends paid....................... -- (26,387)
Other distributions.................. -- (54,129)
Treasury stock repurchases........... -- (74,833)
Unrealized loss on investment
securities......................... (142) (142)
----- ------------
Balance at December 31, 1998 202 207,136
----- ------------
----- ------------

See accompanying notes to consolidated financial statements.

A-6

WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)

Net income.......................................................................... $ 83,735 70,292 66,700
Other comprehensive income:
Net unrealized appreciation (depreciation) of investments during the period, net
of income taxes of $(150), $110 and $(35)....................................... (249) 180 (100)
Reclassification adjustment for amounts included in net income, net of income
taxes of $64, $0 and $0......................................................... 107 -- --
--------- --------- ---------
Comprehensive income.............................................................. $ 83,593 70,472 66,600
--------- --------- ---------
--------- --------- ---------

See accompanying notes to consolidated financial statements.

A-7

WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
----------- --------- ----------
(IN THOUSANDS)

Cash flows from operating activities:
Net income.................................................................. $ 83,735 70,292 66,700
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 4,795 4,210 4,661
Recognition of deferred compensation...................................... 1,333 -- --
Loss on sale of investments............................................... 171 -- --
Loss on sale and retirement of fixed assets............................... 75 65 311
Capital gains and dividends reinvested.................................... (399) (78) (60)
Deferred income taxes..................................................... (1,988) 27 827
Changes in assets and liabilities:
Receivables from funds.................................................. (1,709) (452) 1,172
Other receivables....................................................... (23,818) (1,195) 2,725
Due to/from affiliates--operating....................................... 4,509 (4,217) 1,703
Other assets............................................................ (3,661) (5,383) (9,913)
Accounts payable........................................................ 5,375 (1,883) (252)
Other liabilities....................................................... 10,237 898 18,369
----------- --------- ----------
Net cash provided by operating activities..................................... 78,655 62,284 86,243
----------- --------- ----------
Cash flows from investing activities:
Additions to investment securities.......................................... (110,652) (40) (116)
Proceeds from sales of investment securities................................ 24,020 1 --
Proceeds from maturity of investment securities............................. 2,424 1,260 1,355
Purchase of property and equipment.......................................... (7,602) (3,218) (1,689)
Investment in real estate................................................... (5,913) -- (298)
Other....................................................................... 7 50 18
----------- --------- ----------
Net cash used in investing activities......................................... (97,716) (1,947) (730)
----------- --------- ----------
Cash flows from financing activities:
Cash dividends to parent.................................................... -- (51,665) (10,000)
Proceeds from IPO........................................................... 516,014 --
Notes payable............................................................... 40,000 -- --
Cash dividends.............................................................. (26,387) -- --
Change in due to/from affiliates--nonoperating.............................. (479,373) (37,888) (170,016)
Purchase of treasury stock.................................................. (74,833) -- --
Cash contributions from parent.............................................. -- 44,033 111,718
----------- --------- ----------
Net cash used in financing activities......................................... (24,579) (45,520) (68,298)
----------- --------- ----------
Net increase (decrease) in cash and cash equivalents.......................... (43,640) 14,817 17,215
Cash and cash equivalents at beginning of year................................ 73,820 59,003 41,788
----------- --------- ----------
Cash and cash equivalents at end of year...................................... $ 30,180 73,820 59,003
----------- --------- ----------
----------- --------- ----------
Cash paid for:
Income taxes................................................................ $ 48,830 65,754 43,667
Interest.................................................................... 628 -- --

See accompanying notes to consolidated financial statements

A-8

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998, 1997, AND 1996

1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION

BUSINESS

Waddell & Reed Financial, Inc. and subsidiaries (the "Company") derive their
revenues primarily from investment management, investment product distribution,
and shareholder services administration provided to the United mutual funds,
Waddell & Reed mutual funds, Target/United mutual funds collectively ("the
Funds") and managed institutional accounts. The Funds and institutional accounts
operate under various rules and regulations set forth by the Securities and
Exchange Commission (the "Commission"). Services to the Funds are provided under
contracts that set forth the fees to be charged for these services. The majority
of these contracts are subject to annual review and approval by each Fund's
Board of Directors and shareholders. Company revenues are largely dependent on
the total value and composition of assets under management, which include
domestic and international equity and debt securities, accordingly, fluctuations
in financial markets and composition of assets under management impact revenues
and results of operations. For 1998, management fees from the United Income fund
were $39.8 million or 14% of total revenues. The United Income Fund had a market
value of $7.8 billion at December 31, 1998.

Prior to December 1997, the Company was known as United Investors Management
Company. In the first quarter of 1998, the insurance operations of the Company,
United Investors Life Insurance Company, were distributed to Torchmark
Corporation and a subsidiary of Torchmark (together, "Torchmark"). The Company
was wholly owned by Torchmark until March 4, 1998, when the Company completed
the initial public offering ("Offering") of its Class A common stock, with the
Company realizing net proceeds of approximately $516 million. Approximately $481
million of the proceeds were used to prepay notes payable to Torchmark. After
giving effect to the Offering and prior to November 6, 1998, Torchmark
controlled in excess of 60% of the outstanding Class A and Class B common stock,
and in excess of 80% of the voting power of the outstanding Class A and Class B
common stock of the Company. On November 6, 1998 Torchmark distributed its
remaining ownership interest in the Company by means of a tax-free spin-off to
the stockholders of Torchmark of all common stock of the Company held by
Torchmark.

BASIS OF PRESENTATION

The accompanying financial statements include the accounts of the Company
and its subsidiaries for all periods presented. All significant intercompany
accounts and transactions are eliminated in consolidation. Amounts in the
accompanying financial statements and notes are rounded to the nearest thousand.
Certain amounts in the prior year financial statements have been reclassified to
conform to the 1998 presentation.

USE OF ESTIMATES

The management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

A-9

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION
(CONTINUED)
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Given the nature of the Company's assets and liabilities, the Company
believes the amounts in the financial statements approximate fair value.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and short-term investments.
The Company considers all highly liquid debt instruments with original
maturities of ninety days or less to be cash equivalents.

INVESTMENT SECURITIES AND INVESTMENT IN AFFILIATED MUTUAL FUNDS

All investments in debt securities and mutual funds are classified as
available-for-sale. As a result, these investments are recorded at fair value.
Unrealized holding gains and losses, net of related tax effects, are excluded
from earnings until realized and are reported as a separate component of
comprehensive income. Realized gains and losses are computed using the specific
identification method for investment securities other than mutual funds. For
mutual funds, realized gains and losses are computed using the average cost
method.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATIONS OF CREDIT RISK, consist primarily of investments in U.S.
government and agency securities, municipal securities, corporate securities,
and affiliated money market and fixed income mutual funds and accounts
receivable. Credit risk is believed to be minimal in that the U.S. government
and agency securities are backed by the full faith and credit of the U.S.
government, municipal securities are backed by the full taxing power of the
issuing municipality or revenues from a specific project, corporate bonds are
backed by the assets of the corporations, and the affiliated mutual funds have
substantial net assets.

COMPREHENSIVE INCOME

PROPERTY AND EQUIPMENT AND INVESTMENT IN REAL ESTATE

Property and equipment and investment real estate are carried at cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets.

A-10

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION
(CONTINUED)
GOODWILL

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, arose in connection with the acquisition of the Company by
Torchmark. Amortization is on a straight-line basis over forty years. The
Company assesses the recoverability of goodwill by determining whether the
unamortized balance can be recovered through undiscounted future operating cash
flows over its remaining life. Impairment, if any, is measured by the excess of
the unamortized balance over discounted future operating cash flows.

DEFERRED SALES COMMISSIONS

The Company defers certain costs, principally selling commissions, which are
paid to financial advisors in connection with the sale of the Class B shares of
the Waddell & Reed funds, which do not charge a commission at the time of the
sale. These costs are amortized on a straight-line basis over the estimated life
of shareholder investments not to exceed ten years. The Company recovers such
costs through 12b-1 distribution fees, which are paid by the Waddell & Reed
funds and a contingent deferred sales charge paid by shareholders who redeem
their shares prior to completion of the required holding periods.

RETIREMENT PLAN AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

REVENUE RECOGNITION

Investment advisory and administrative service fees are recognized when
earned. Commission revenues and expenses (and related receivables and payables)
resulting from securities transactions are recorded on the date on which the
order to buy or sell securities is executed.

ADVERTISING

Advertising costs are expensed as incurred. Amounts incurred were
$2,845,000, $1,046,000 and $841,000 for 1998, 1997 and 1996, respectively.

EARNINGS PER SHARE

Earnings per share are calculated in accordance with SFAS No. 128 "Earnings
Per Share", which requires that both basic and diluted earnings per share be
presented. Diluted amounts are computed to reflect the potential impact of stock
options and restricted stock awards. The weighted average number of shares
outstanding was 65,787,000, 66,467,000 and 66,467,000 for 1998, 1997 and 1996
respectively. The weighted average number of shares used in computing diluted
earnings per share was 66,179,000, 66,467,000 and 66,467,000 for 1998, 1997 and
1996, respectively. The average number of shares used for 1997 and 1996 is the
actual shares outstanding at the Offering.

A-11

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents at December 31, 1998 and 1997 include reserves of
$10,810,000 and $14,943,000, respectively, for the benefit of customers in
compliance with securities industry regulations. Substantially all such reserves
are in excess of federal deposit insurance limits.

3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE

Investments at December 31, 1998 and 1997 are as follows:

AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
- - ---------------------------------------------- ---------- ----------- ----------- ---------
(IN THOUSANDS)

United States government-backed mortgage
securities.................................. $ 2,944 50 -- 2,994
Municipal bonds............................... 47,030 1,300 (56) 48,274
Corporate bonds............................... 41,012 120 (1,125) 40,007
Preferred stock............................... 8,292 119 -- 8,411
Affiliated mutual funds....................... 3,547 25 (105) 3,467
---------- ----- ----------- ---------
$ 102,825 1,614 (1,286) 103,153
---------- ----- ----------- ---------
---------- ----- ----------- ---------

(IN THOUSANDS)
-----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- - ---------------------------------------------- ---------- ----------- ----------- ---------

United States government-backed mortgage
securities.................................. $ 4,749 86 -- 4,835
Municipal bonds............................... 12,723 422 (2) 13,143
Affiliated mutual funds....................... 949 50 -- 999
---------- ----- ----------- ---------
$ 18,421 558 (2) 18,977
---------- ----- ----------- ---------
---------- ----- ----------- ---------

An investment maturity schedule for municipal and corporate bonds held as of
December 31, 1998 is as follows:

AMORTIZED FAIR
COST VALUE
----------- ---------
(IN THOUSANDS)

Within one year.......................................................... $ -- $ --
One to five years........................................................ 17,276 17,581
After five years but within ten years.................................... 36,382 36,378
After ten years.......................................................... 34,384 34,322
----------- ---------
$ 88,042 88,281
----------- ---------
----------- ---------

In 1998, investment securities with fair value of $6,983,000 were sold, which
resulted in realized losses of $171,000. There were no sales of securities in
1997 or 1996.

A-12

WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENT IN REAL ESTATE

A summary of investment in real estate at December 31, 1998 and 1997 is as
follows:

ESTIMATED
USEFUL
1998 1997 LIVES
--------- --------- -----------
(IN THOUSANDS)

Land...................................................... $ 3,809 -- --
Buildings................................................. 20,909 -- 40 years
--------- ---------
Investment in real estate, at cost........................ 24,718 --
Less accumulated depreciation............................. -- --
--------- ---------
Investment real estate, net............................... $ 24,718 --
--------- ---------
--------- ---------
Investment in real estate limited partnership............. $ -- 17,544
--------- ---------
--------- ---------

Effective January 1, 1997, the Company contributed its investment in real
estate, which consisted of commercial properties located adjacent to its offices
in Overland Park, Kansas to TMK Income Properties, LP ("TIP") in exchange for a
limited partnership interest in TIP. TIP is a limited partnership with Torchmark
affiliates that was formed for the purpose of acquiring, developing, and
managing real estate property. The property was transferred at its net book
value. Effective July 1, 1997, the Company contributed additional land and
improvements with a net book value of $5,113,000 for an additional 5% interest
in TIP. In late 1998, the Company ceased its participation in TIP. In exchange
for its partnership interest, the Company received the property which it had
originally contributed. Additionally, the Company paid TIP $5,913,000 for
improvements made to that property while it was in the partnership.

Real estate partnership income of $465,000 and $199,000 for the years ended
December 31, 1998 and 1997 and rental income of $1,682,000 for the year ended
December 31, 1996 is included in investment and other revenue. Depreciation
expense for the years ended December 31, 1998, 1997 and 1996 was $0, $18,000 and
$383,000, respectively.

5. PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31, 1998 and 1997 is as
follows:

ESTIMATED
USEFUL
1998 1997 LIVES
--------- --------- -----------
(IN THOUSANDS)

Land...................................................... $ 1,717 1,717 --
Building.................................................. 6,257 6,257 40 years
Furniture and fixtures.................................... 6,992 5,862 3-10 years
Equipment and machinery................................... 13,903 7,859 3-10 years
--------- ---------
Property and equipment, at cost........................... 28,869 21,695
Less accumulated depreciation............................. 11,184 9,637
--------- ---------
Property and equipment, net............................... $ 17,685 12,058
--------- ---------
--------- ---------

A-13

WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. REVOLVING CREDIT AGREEMENT

The Company entered into a $200 million revolving credit facility,
expandable to $300 million, on October 15, 1998 with a syndicate of nine banks.
The credit facility is a 364-day revolving facility at an interest rate of LIBOR
plus .35%. The facility is in place to provide an additional source of capital
to finance share repurchases, acquisitions and other general corporate needs. As
of December 31, 1998, the Company had borrowed $40 million on this facility,
which was used to repurchase the Company's stock that is held in treasury. The
credit agreement stipulates two financial condition covenants. The consolidated
leverage ratio cannot exceed 3.0 to 1.0 for four consecutive quarters. The
consolidated leverage ratio is defined as consolidated total debt to
consolidated earnings before interest costs, income taxes, depreciation and
amortization ("EBITDA"). The consolidated interest coverage ratio cannot be less
than 4.0 to 1.0 for four consecutive quarters. Consolidated interest coverage
ratio is defined as consolidated EBITDA to consolidated interest expense. The
Company was in compliance with the covenant provisions for 1998.

7. TRANSACTIONS WITH RELATED PARTIES

The Company serves as investment advisor to Torchmark and its affiliates and
receives advisory fees for this service. Advisory fees, which are based on
assets under management, amounted to $2,401,000, $1,241,000 and $1,037,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. These
commissions were earned under contracts, which have been renewed for 1999 with
substantially the same terms.

The Company earns commissions from Torchmark for marketing life and health
insurance products and variable annuities. For the years ended December 31,
1998, 1997 and 1996, the commissions amounted to $36,724,000, $30,612,000 and
$30,778,000, respectively. These commissions were earned under contracts, which
have been renewed for 1999 with substantially the same terms.

Prior to the Offering, Torchmark performed certain administrative services
for the Company. Charges for such services, which were allocated based on a
defined formula that allocated Torchmark's total costs for services provided
based on each affiliate's assets and compensation expense as a percentage of the
total affiliates assets and compensation expense. These charges were $2,008,000
and $2,189,000 for the years ended December 31, 1997 and 1996, respectively.
During 1998 no charges were made pertaining to these administrative services and
no future charges are expected since the Company is no longer an affiliate of
Torchmark.

Effective September 1997, Waddell & Reed Asset Management Company
("WRAMCO"), a subsidiary of the Company, was distributed to Torchmark at its net
book value of $2,977,000. WRAMCO provides investment management services to
institutional investors and privately managed accounts. Subsequent to the
distribution date, the Company provides investment advisory services to WRAMCO
and receives a fee based on assets under management.

At December 31, 1998, there were no amounts due from Torchmark other than
normal non-interest bearing amounts for current operating expenses and
commissions due from the sale of Torchmark products. At December 31, 1997,
current amounts due from affiliates included $11,672,000 of 5.5% demand notes
plus accrued interest. At December 31, 1997 the noncurrent amounts due from
affiliates included a $123,947,000 note receivable with an interest rate of 6%
from Torchmark, plus $1,239,000 of accrued interest. Also included in the
noncurrent portion at December 31, 1997 is a $40,000,000 note receivable with an
interest rate of 8.1% from Torchmark. During 1998, the proceeds from the
offering were used to prepay these notes. In 1997, amounts due from Torchmark
aggregating $38,124,000 were forgiven and charged against stockholders' equity.

The current amounts due to affiliates at December 31, 1997 include amounts
due for administrative services. Included in the 1997 noncurrent amounts due to
affiliates was a $123,947,000 note payable to

A-14

WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Torchmark, plus $1,239,000 of accrued interest. This 6% note was prepaid with
the proceeds from the Offering.

On November 25, 1997, the Company declared a $480,000,000 dividend evidenced
by two 8% promissory notes to Torchmark and a subsidiary of Torchmark. Notes
aggregating $96,000,000 were due in 1998 and, accordingly, were classified in
the current portion of due to affiliates. The remaining $384,000,000 of these
notes were included in the long-term portion of due to affiliates. These notes
were prepaid with the proceeds from the Offering.

8. INCOME TAXES

The components of total income tax expense are as follows:

1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)

Currently payable:
Federal.................................................... $ 46,845 38,939 36,197
State...................................................... 6,934 5,889 5,469
--------- --------- ---------
53,779 44,828 41,666
Deferred taxes............................................... (2,016) 27 827
--------- --------- ---------
Income tax expense from operations........................... $ 51,763 44,855 42,493
--------- --------- ---------
Stockholders' equity--unrealized gain (loss) on investment
securities available-for-sale............................... (86) 110 (36)
--------- --------- ---------
Total income taxes........................................... $ 51,677 44,965 42,457
--------- --------- ---------
--------- --------- ---------

The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at December 31,
1998 and 1997 are as follows:

1998 1997
--------- ---------
(IN THOUSANDS)

Deferred tax liabilities:
Deferred acquisition costs............................................ $ (5,732) (4,680)
Fixed assets.......................................................... -- (824)
Other................................................................. (648) (500)
--------- ---------
Total gross deferred liabilities........................................ (6,380) (6,004)
--------- ---------

Deferred tax assets:
Benefit plans......................................................... 3,824 3,557
Accrued expenses...................................................... 2,674 1,442
Fixed assets.......................................................... 983 --
--------- ---------
Total gross deferred assets............................................. 7,481 4,999
--------- ---------
Net deferred tax asset (liability)...................................... $ 1,101 (1,005)
--------- ---------
--------- ---------

A-15

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)

A valuation allowance for deferred tax assets was not necessary at December
31, 1998 and 1997. The following table reconciles the statutory federal income
tax rate to the Company's effective income tax rate:

1998 1997 1996
--------- --------- ---------

Statutory federal income tax rate....................................... 35.0% 35.0 35.0
State income taxes, net of federal tax benefits......................... 3.3 3.3 3.1
Other items............................................................. (0.1) 0.7 0.8
--- --- ---
Effective income tax rate............................................... 38.2% 39.0 38.9
--- --- ---
--- --- ---

9. RETIREMENT PLAN

The Company participates in a noncontributory retirement plan which covers
substantially all employees of the Company and certain vested former employees
of Torchmark. Benefits payable under the plan are based on employees' years of
service and compensation during the final ten years of employment.

1998 1997
--------- ---------
(IN THOUSANDS)

Change in benefit obligation
Benefit obligation at beginning of year............................... $ 28,979 24,786
Service cost.......................................................... 1,612 1,511
Interest cost......................................................... 2,294 2,148
Actuarial loss........................................................ 2,733 2,431
Benefits paid......................................................... (4,364) (1,897)
--------- ---------
Benefit obligation at end of year..................................... $ 31,254 28,979
--------- ---------
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year........................ $ 25,689 23,483
Actual return on plan assets.......................................... 5,249 4,103
Company contribution.................................................. 1,492 --
Benefits paid......................................................... (4,364) (1,897)
--------- ---------
Fair value of plan assets at end of year.............................. $ 28,066 25,689
--------- ---------
--------- ---------

Funded status of plan................................................... $ (3,188) (3,290)
Unrecognized actuarial gain............................................. (3,097) (2,989)
Unrecognized prior service cost......................................... 673 717
Unrecognized net transition obligation.................................. 103 108
--------- ---------
Net amount recognized................................................... $ (5,509) (5,454)
--------- ---------
--------- ---------

A-16

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RETIREMENT PLAN (CONTINUED)

1998 1997
--------- ---------

Weighted average assumptions as of December 31:
Discount rate......................................................... 6.75% 7.50%
Expected return on plan assets........................................ 9.25% 9.25%
Rate of compensation increase......................................... 3.75% 4.50%

Components of net periodic benefit cost:
Service cost.......................................................... $ 1,612 1,511
Interest cost......................................................... 2,294 2,148
Expected return on assets............................................. (2,407) (2,164)
Prior service cost amortization....................................... 44 44
Transition obligation amortization.................................... 5 5
--------- ---------
Net periodic benefit cost....................................... $ 1,548 1,544
--------- ---------
--------- ---------

10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company sponsors an unfunded defined benefit postretirement medical plan
that covers substantially all employees. The plan is contributory with retiree
contributions adjusted annually.

1998 1997
--------- ---------
(IN THOUSANDS)

Change in benefit obligation
Benefit obligation at beginning of year............................... $ 1,142 872
Service cost.......................................................... 64 48
Interest cost......................................................... 92 68
Actuarial (gain) loss................................................. (85) 314
Retiree contributions................................................. 75 56
Benefits and expenses paid............................................ (137) (216)
--------- ---------
Benefit obligation at end of year..................................... $ 1,151 1,142
--------- ---------
--------- ---------

Change in plan assets:
Fair values of plan assets at beginning of year....................... -- --
Company contribution.................................................. 77 160
Retiree contributions................................................. 75 56
Benefits and expenses paid............................................ (152) (216)
--------- ---------
Fair value of plan assets at end of year.............................. $ -- --
--------- ---------
--------- ---------
Funded status........................................................... $ (1,151) (1,142)
Unrecognized loss....................................................... 62 102
Unrecognized prior service cost......................................... (175) (191)
--------- ---------
Accrued benefit cost at December 31................................... $ (1,264) (1,231)
--------- ---------
--------- ---------

A-17

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)

Weighted average assumptions as of December 31:
Discount rate......................................................... 7.50% 7.50%

Components of net periodic benefit cost:
Service cost.......................................................... 64 48
Interest cost......................................................... 92 67
Unrecognized amortization of prior service cost....................... (15) (16)
Unrecognized net actuarial gain....................................... -- (2)
--------- ---------
Net periodic benefit cost............................................. $ 141 97
--------- ---------
--------- ---------

For measurement purposes, the health care cost trend rate was 8% and 9% in 1998
and 1997, respectively. The effect of a 1% annual increase in assumed cost trend
rates would increase the December 31, 1998 accumulated postretirement benefit
obligation by approximately $1,375,000, and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1998 by approximately $210,000. The effect of a 1%
annual decrease in assumed cost trend rates would decrease the December 31, 1998
accumulated postretirement benefit obligation by approximately $956,000, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1998 by
approximately $130,000.

11. SAVINGS AND INVESTMENT PLANS

The company has a savings and investment plan covering substantially all
employees. The plan provides for a matching corporate contribution of 50% of the
employee's investment in mutual fund shares and/or stock, not to exceed 3% of
the employee's salary.

The Company's contribution to the savings and investment plan for the years
ended December 31, 1998, 1997 and 1996 was $858,000, $716,000 and $641,000,
respectively.

12. EMPLOYEE STOCK OPTIONS

The Company has a fixed employee stock-based compensation plan ("Option
plan"), whereby the Company may grant options on its common stock. The exercise
price of each option is equal to the market price of the stock on the date of
grant. The maximum term of the options is ten years and generally vests
one-third in each of the three years starting one year after grant date. In
October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), which was effective for the Company beginning
January 1, 1996. SFAS No. 123 defines the "fair value method" of accounting for
employee stock options. It also allows accounting for such options under the
"intrinsic value method" in accordance with Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB No. 25) and related
interpretations. If a company elects to use the intrinsic value method, pro
forma disclosures of earnings and earnings per share are required as if the fair
value method of accounting was applied.

A-18

WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. EMPLOYEE STOCK OPTIONS (CONTINUED)
Pursuant to SFAS No 123, the fair value of each option has been estimated
using a Black-Scholes option-pricing model with the following assumptions:

Dividend yield...................................................... 2.34%
Risk-free interest rate............................................. 5.20
Expected volatility................................................. 29.70
Expected life (in years)............................................ 4.70

After the spin off from Torchmark, holders of Torchmark stock options
granted prior to 1998 were given a choice to retain their Torchmark options or
convert their options into options of the Company ("Conversion Options").
Employees and directors of the Company who held Torchmark options could elect to
convert all of their Torchmark options into Conversion Options. In total
3,694,100 Conversion Options were converted from Torchmark options. The
Conversion Options retained the same terms as the previous Torchmark options
except that the exercise price and the number of shares were adjusted so that
the aggregate intrinsic value of the options remained the same.

Prior to 1998, there were no Company stock options outstanding. A summary of
stock option activity and related information for the year ended December 31,
1998 follows:

WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------

Outstanding, beginning of year................................. -- --
Granted........................................................ 4,389,088 $ 22.63
Converted...................................................... 3,694,100 13.96
Exercised...................................................... -- --
Expired........................................................ -- --
---------- ------
Outstanding, end of year....................................... 8,083,188 $ 18.67
---------- ------
Exercisable, end of year....................................... 2,957,826 $ 14.42
---------- ------
---------- ------

The range of fair values of options granted during the year was $4.78 to
$7.43, with a weighted average fair value of $5.75.

Had compensation cost for the options granted in 1998 been determined on the
basis of fair value pursuant to SFAS No. 123, net income and earnings per share
would have been reduced as follows:

Net income
As reported...................................................... $ 83,735
Pro forma........................................................ $ 79,744

Basic and diluted earnings per share...............................
As reported...................................................... $ 1.27
Pro forma........................................................ $ 1.21

A-19

WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. UNIFORM CAPITAL RULE REQUIREMENTS

Waddell & Reed, Inc. ("W&R") a subsidiary of the Company, is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. and is therefore subject to a requirement of the Commission's Uniform Net
Capital Rule, requiring the maintenance of certain minimal capital levels. At
December 31, 1998, W&R had net capital, as defined by the Uniform Capital Rule,
of $11,582,000 which is $8,247,000 in excess of the required net capital.

14. COMMITMENTS AND CONTINGENCIES

RENTAL EXPENSE AND LEASE COMMITMENTS

The Company rents certain sales and other office space under long-term
operating leases. Rent expense was $4,937,000, $4,397,000 and $3,824,000 for the
years ended, December 31, 1998, 1997 and 1996, respectively. Future minimum
rental commitments under noncancelable operating leases are as follows:

Minimum remaining rental commitment years ended December 31 in thousands:

1999................................................................ $ 3,564
2000................................................................ 1,603
2001................................................................ 805
2002................................................................ 427
2003................................................................ 186
Thereafter.......................................................... --
---------
$ 6,585
---------
---------

New leases are expected to be executed as existing leases expire. Thus,
future minimum lease commitments are not expected to be less than those in 1999.

CONTINGENCIES

From time to time, the Company is a party to various claims arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, it is unlikely that any adverse determination in one or more
pending claims would have a material adverse effect on the Company's financial
position or results of operations.

15. SUBSEQUENT EVENTS

As of January 1, 1999, the Company enacted a 401(k) plan for employees. This
plan provides for a matching of 100% corporate contribution on the first 3% of
income and 50% on the next 2% of income, not to exceed 5% of the employee's
salary.

From January 1, 1999 through February 28, 1999 the Company repurchased an
additional .2 million shares of its class A common stock and 1.1 million shares
of its class B common stock at an average price of $19.91. Total costs of $26.5
million for the repurchase was funded partially by an additional borrowing of
$20.0 million on the credit facility.

A-20

WADDELL & REED FINANCIAL, INC.

INDEX TO EXHIBITS

EXHIBIT
NO. EXHIBIT DESCRIPTION
- - ----------- ---------------------------------------------------------------------------------------------------------

3.1 Amended and Restated Certificate of Incorporation of the Company. Filed as Exhibit 3.1 to the Company's
Form S-1 Registration Statement Number 333-43687 (the "Registration Statement") and incorporated herein
by reference.

3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2 to the Company's Registration Statement
and incorporated herein by reference.

4.1 Specimen of Class A Common Stock Certificate. Filed as Exhibit 4.1 to the Company's Registration
Statement and incorporated herein by reference.

4.2 Specimen of Class B Common Stock Certificate. Filed as Exhibit 4.1 to the Company's Form 8-A Registration
Statement, Accession Number 0000930661-98-002062, dated October 1, 1998 and incorporated herein by
reference.

10.1 Public Offering and Separation Agreement, dated as of March 3, 1998, by and between the Company and
Torchmark Corporation. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by reference.

10.2 Tax Disaffiliation Agreement, dated as of March 3, 1998, by and between the Company and Torchmark
Corporation. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference.

10.3 Investment Services Agreement, dated as of March 3, 1998, by and between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company. Filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.4 General Agent Contract, dated January 1, 1985, by and between United Investors Life Insurance Company and
W & R Insurance Agency, Inc. Filed as Exhibit 10.4 to the Company's Registration Statement and
incorporated herein by reference.

10.5 Amendment Extending General Agent Contract, dated as of March 31, 1998, by and between United Investors
Life Insurance Company and W & R Insurance Agency, Inc. Filed as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.6 Second Amendment of General Agent Contract, dated as of December 21, 1998, by and between United
Investors Life Insurance Company and W & R Insurance Agency, Inc.

10.7 Independent Agent Contract, dated June 25, 1997, by and among United American Insurance Company, W & R
Insurance Agency, Inc., and affiliates identified therein. Filed as Exhibit 10.6 to the Company's
Registration Statement and incorporated herein by reference.

10.8 Amendment Extending Independent Agent Contract, dated as of March 3, 1998 by and among United American
Insurance Company, W & R Insurance Agency, Inc., and affiliates identified therein. Filed as Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference.

B-1

WADDELL & REED FINANCIAL, INC.

INDEX TO EXHIBITS

10.9 Second Amendment of Independent Agent Contract, dated as of December 31, 1998, by and among United
American Insurance Company, W & R Insurance Agency, Inc. and affiliates identified herein.

10.10 Distribution Contract, dated April 4, 1997, by and between United Investors Life Insurance Company and
Target/United Funds, Inc. Filed as Exhibit 10.16 to the Company's Registration Statement and
incorporated herein by reference.

10.11 Agreement Amending Distribution Contract, dated as of March 3, 1998, by and between United Investors Life
Insurance Company and Target/United Funds, Inc. Filed as Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.12 Second Amendment of Distribution Contract, dated as of December 31, 1998, by and between United Investors
Life Insurance Company and Target/United Funds, Inc.

10.13 Principal Underwriting Agreement, dated May 1, 1990, by and between United Investors Life Insurance
Company and Waddell & Reed, Inc. Filed as Exhibit 10.18 to the Company's Registration Statement and
incorporated herein by reference.

10.14 Agreement Amending Principal Underwriting Agreement, dated as of March 3, 1998, by and between United
Investors Life Insurance Company and Waddell & Reed, Inc. Filed as Exhibit 10.17 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.15 Second Amendment of Principal Underwriting Agreement, dated as of December 31, 1998, by and between
United Investors Life Insurance Company and Waddell & Reed, Inc.

10.16 Services Agreement, dated as of March 3, 1998, by and between Waddell & Reed Investment Management
Company and Waddell & Reed Asset Management Company. Filed as Exhibit 10.19 to the Company's Quarterly
Report on a Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.17 Addendum to Services Agreement, dated as of December 31, 1998, by and between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.

10.18 Reciprocity Agreement, dated as of March 3, 1998, by and between the Company and Torchmark Corporation.
Filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and incorporated herein by reference.

10.19 Administrative Services Agreement, dated as of March 3, 1998, by and between the Company and Torchmark
Corporation. Filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference.

10.20 The Company 1998 Stock Incentive Plan.

10.21 The Company 1998 Non-Employee Director Stock Option Plan. Filed as Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.22 The Company 1998 Executive Deferred Compensation Stock Option Plan. Filed as Exhibit 10.10 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by
reference.

10.23 First Amendment to 1998 Executive Deferred Compensation Stock Option Plan.

B-2

WADDELL & REED FINANCIAL, INC.

INDEX TO EXHIBITS

10.24 The Company 401(k) and Thrift Plan. Filed as Exhibit 4(a) to the Company's Form S-8 Registration
Statement Number 333-69897 and incorporated herein by reference.

10.25 The Company Retirement Income Plan. Filed as Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 and incorporated herein by reference.

10.26 Waddell & Reed, Inc. Career Field Retirement Plan. Filed as Exhibit 10.13 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.

10.27 Credit Agreement dated October 15, 1998, by and among the Company, Lenders and The Chase Manhattan Bank.

10.28 The Company Supplemental Executive Retirement Plan.

10.29 The Company Management Incentive Plan of 1999.

10.30 Form of Accounting Services Agreement by and between each of the Funds and Waddell & Reed Services
Company.

10.31 Form of Investment Management Agreement by and between each of the United Funds and Waddell & Reed, Inc.

10.32 Form of Investment Management Agreement by and between the Waddell & Reed Funds and Waddell & Reed
Investment Management Company.

10.33 Form of Investment Management Agreement by and between the Target/United Funds and Waddell & Reed, Inc.

10.34 Form of Shareholder Servicing Agreement by and between the Funds and Waddell & Reed Services Company.

10.35 Form of Underwriting Agreement by and between each of the United Funds and Waddell & Reed, Inc.

10.36 Form of Underwriting Agreement by and between each of the Waddell & Reed Funds and Waddell & Reed, Inc.

10.37 Form of Amended and Restated Custodian Agreement by and between each of the Funds and UMB Bank, n.a.

11 Statement regarding computation of per share earnings.

21 Subsidiaries of the Company.

23 Consent of KPMG LLP.

24 Powers of Attorney.

27 Financial Data Schedule.

B-3