Waddell & Reed Financial Inc – ‘424B2’ on 1/16/01

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Prospectus   —   Rule 424(b)(2)
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Document/Exhibit                   Description                      Pages   Size 

 1: 424B2       Prospectus                                            99    492K 

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                                                Filed Pursuant to Rule 424(b)(2)
                                                      Registration No. 333-43862

PROSPECTUS SUPPLEMENT                                                           
(TO PROSPECTUS DATED JANUARY 12, 2001)                                          

$200,000,000

WADDELL & REED FINANCIAL, INC.

7 1/2% NOTES DUE JANUARY 18, 2006 

----------- 

We will pay interest on the notes on January 18 and July 18 of each year
beginning July 18, 2001. The notes will mature on January 18, 2006. We will not 
redeem the notes before maturity.                                               

 We expect the notes to be rated "Baa2" by Moody's Investor's Service Inc.
and "BBB" by Standard & Poor's Ratings Group.                                   

  The notes will be unsecured and will rank equally with our other unsecured
senior indebtedness. We will issue the notes only in registered form in         
denominations of $1,000 and integral multiples thereof.                         

INVESTING IN THE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK   
FACTORS" SECTION BEGINNING ON PAGE S-4 OF THIS PROSPECTUS SUPPLEMENT.           

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

                                                                [Download Table]

                                                             PER NOTE     TOTAL    
                                                             --------     -----    
                                                                                   
Public offering price(1).................................... 99.607%   $199,214,000
Underwriting discount.......................................     .6%     $1,200,000
Proceeds, before expenses, to Waddell & Reed................ 99.007%   $198,014,000

   (1) Plus accrued interest from January 18, 2001, if settlement occurs after
that date                                                         

Neither the Securities and Exchange Commission nor any state securities 
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.   
Any representation to the contrary is a criminal offense.                       

The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about January 18, 2001.                          

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

MERRILL LYNCH & CO.                                                             

JP MORGAN                                             

MORGAN STANLEY DEAN WITTER          

                                                                   STEPHENS INC.

--------- 

The date of this prospectus supplement is January 12, 2001. 

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TABLE OF CONTENTS 

Prospectus Supplement 

                                                                [Download Table]
                                                                    
Risk Factors................................................     S-4
Use of Proceeds.............................................     S-7
Capitalization..............................................     S-7
Selected Consolidated Financial Data........................     S-8
Management's Discussion and Analysis of Financial Conditions        
  and Results of Operations.................................     S-9
Business....................................................    S-20
Description of the Notes....................................    S-28
Underwriting................................................    S-30
Validity of the Notes.......................................    S-32
Index To Consolidated Financial Statements..................     F-1

Prospectus

                                                                [Download Table]
                                                                    
Summary.....................................................       1
Where you can find more information about the Company and           
  Waddell & Reed Capital Trust I............................       2
Forward-Looking Statements..................................       3
The Company.................................................       5
Ratio of Earnings to Fixed Charges..........................       6
Use of Proceeds.............................................       6
Waddell & Reed Capital Trust I..............................       6
Description of Senior Debt Securities.......................       9
Description of Junior Subordinated Debt Securities..........      15
Description of Warrants.....................................      20
Description of Capital Stock................................      22
Description of the Trust Preferred Securities...............      29
Description of the Preferred Securities Guarantees..........      32
Effect of obligations under the Junior Subordinated Debt            
  Securities and the Preferred Securities Guarantee.........      35
Plan of Distribution........................................      36
Legal Matters...............................................      37
Experts.....................................................      37

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You should rely only on the information contained or incorporated by    
reference in this prospectus supplement and the accompanying prospectus in      
considering your investment in the notes. We have not, and the underwriters have
not, authorized any other person to provide you with different information. If  
anyone provides you with different or inconsistent information, you should not  
rely on it. We are not, and the underwriters are not, making an offer to sell   
these securities in any jurisdiction where the offer or sale is not permitted.  
You should assume that the information in this prospectus supplement is accurate
only as of the date on the front cover of this prospectus supplement and that   
the information in the accompanying prospectus is accurate only as of the date  
on the first page of the accompanying prospectus. Our business, financial       
condition, results of operations and prospects may have changed since those     
dates.                                                                          

When used in this prospectus supplement, the terms "we," "our", "us" and
"Waddell & Reed" refer to Waddell & Reed Financial, Inc., unless the context    
otherwise requires.                                                             

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RISK FACTORS

Potential investors should carefully consider the risk factors set forth
below and the other information in this prospectus supplement and the           
accompanying prospectus and in any documents incorporated herein and therein by 
reference, before making an investment decision.                                

THERE MAY BE ADVERSE EFFECTS ON OUR REVENUES, EARNINGS AND PROSPECTS IF THE     
SECURITIES MARKETS DECLINE.                                                     

Our results of operations are affected by certain economic factors,     
including the level of the securities markets. We benefited from the favorable  
performance of the securities markets in recent years which attracted a         
substantial increase in investments in the securities markets. The securities   
markets have declined in recent months, however, and the continuation of adverse
market conditions or continued 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 our revenues, earnings and   
growth prospects. Because our revenues are, to a large extent, based on the     
value of assets under management, a decline in the value of these assets        
adversely affects our revenues. Our growth is dependent to a significant degree 
upon our ability to attract and retain mutual fund assets and, in an adverse    
economic environment, this may prove difficult. Our growth rate has varied from 
year to year and there can be no assurance that the average growth rates        
sustained in the recent past will continue.                                     

THERE MAY BE ADVERSE EFFECTS ON OUR REVENUES AND EARNINGS IF OUR FUNDS'         
PERFORMANCE DECLINES.                                                           

    Success in the investment management and mutual fund businesses is dependent
on the investment performance of client accounts. Good relative performance     
stimulates sales of the shares of the 43 mutual fund portfolios (the "Funds")   
for which we are the exclusive underwriter and distributor and tends to keep    
redemptions low. Sales of the Funds' shares in turn generate higher management  
fees and distribution revenues. Good relative performance also attracts private 
separately managed accounts. Conversely, poor relative performance results in   
decreased sales, increased redemptions of the Funds' shares, and the loss of    
private separately managed accounts, resulting in decreases in revenues. Failure
of our Funds to perform well could, therefore, have a material adverse effect on
our revenues and earnings.                                                      

THERE MAY BE AN ADVERSE EFFECT ON OUR BUSINESS IF OUR INVESTORS REMOVE THE      
ASSETS WE MANAGE ON SHORT NOTICE.                                               

A substantial majority of our revenues are derived from investment      
management agreements with our Funds that are terminable on 60 days notice. Each
investment management agreement must be approved and renewed annually by the    
disinterested members of each Fund's board or its shareholders. Some of these   
investment management agreements may be terminated or not renewed, and new      
agreements may be unavailable. In addition, mutual fund investors may redeem    
their investments in the Funds at any time without any prior notice. Investors  
can terminate their relationship with us, reduce the aggregate amount of assets 
under management, or shift their funds to other types of accounts with different
rate structures for any of a number of reasons, including investment            
performance, changes in prevailing interest rates and financial market          
performance. The decrease in revenues that could result from any such event     
could have a material adverse effect on our business.                           

WE FACE INCREASED COMPETITION IN HIRING AND RETAINING KEY PERSONNEL AND SALES   
FORCE.                                                                          

Our continued success depends to a substantial degree on our ability to 
attract and retain qualified personnel to conduct our 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 because of the growth in the industry. We are dependent on our
sales force to sell                                                             

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our mutual funds and other investment products. Our growth prospects will be    
directly affected by the quality and quantity of financial advisors we are able 
to successfully recruit and retain. There can be no assurances that we will be  
successful in our efforts to recruit and retain the required personnel.         

WE FACE STRONG COMPETITION FROM NUMEROUS AND SOMETIMES LARGER COMPANIES.        

We compete with stock brokerage and investment banking firms, insurance 
companies, banks, online and Internet investment sites and other financial      
institutions. Many of these companies not only offer mutual fund investments and
services but also offer other financial products and services. Many of our      
competitors have more products and product lines, services, and may also have   
substantially greater assets under management. Many larger mutual fund complexes
have developed relationships with brokerage houses with large distribution      
networks, which may enable these fund complexes to reach broader client bases.  
In recent years, there has been a trend of consolidation in the mutual fund     
industry resulting in stronger competitors with greater financial resources than
us. There has also been a trend toward online Internet financial services. If   
existing customers stop investing with us and instead invest with our           
competitors, or if potential customers decide to invest with our competitors, it
would cause our market share, revenues and income to decline.                   

POTENTIAL MISUSE OF FUNDS AND INFORMATION IN THE POSSESSION OF OUR ADVISORS     
COULD RESULT IN LIABILITY TO OUR CLIENTS.                                       

 Our financial advisors handle a significant amount of funds and financial
and personal information for our clients. Although we have implemented a system 
of controls to minimize the risk of fraudulent taking or misuse of funds and    
information, there can be no assurance that our controls will be adequate or    
that a taking or misuse by our employees can be prevented. We could have        
liability in the event of a taking or misuse by our employees and we could also 
be subject to regulatory sanctions. Although we believe that we have adequately 
insured against these risks, there can be no assurance that our insurance will  
be maintained or that it will be adequate to meet any future liability.         

REGULATORY RISK IS SUBSTANTIAL IN OUR BUSINESS.                                 

   Our investment management business is heavily regulated. Noncompliance with
applicable laws or regulations could result in sanctions being levied against   
us, including fines and censures, suspension or expulsion from a certain        
jurisdiction or market or the revocation of licenses. Noncompliance with        
applicable laws or regulations would adversely effect our reputation, prospects,
revenues and earnings. In addition, changes in current laws or regulations or in
governmental policies could adversely affect our operations, revenues and       
earnings.                                                                       

THE TERMS OF OUR CREDIT FACILITY IMPOSE RESTRICTIONS ON OUR OPERATIONS. THERE   
ARE NO ASSURANCES WE WILL BE ABLE TO RAISE ADDITIONAL CAPITAL.                  

   We have entered into a 364-day revolving credit facility with various banks
for a total of $220 million. The facility is expandable to $330 million, whereby
the banks could, at their option upon our request, increase the loans by        
$110 million. At September 30, 2000, there was $45 million outstanding under    
this line of credit. In August of 2000, we also began utilizing a money market  
loan program, which functions similarly to commercial paper. At September 30,   
2000, there was $155 million outstanding under the money market loan program.   
The terms and conditions of the revolving credit facility and money market loan 
program impose restrictions that affect, among other things, our ability to     
incur debt, make capital expenditures, merge, sell assets, make distributions,  
or create or incur liens. Availability of our credit facility is also subject to
certain financial covenants. Our ability to comply with the covenants can be    
affected by events beyond our control and there can be no assurance that we will
achieve operating results that comply with the provisions of the credit         
agreement. A breach of any of these covenants could result in a default under   
our credit facility. In the event of a default, the banks                       

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could elect to declare the outstanding principal amount of our credit facility, 
all interest thereon and all other amounts payable under our credit facility to 
be immediately due and payable.                                                 

Our ability to satisfy our debt obligations will depend upon our future 
operating performance, which will be affected by prevailing economic, financial 
and business conditions and other factors, some of which are beyond our control.
We anticipate that borrowings from our existing revolving credit facility, or   
the refinancing of our revolving credit facility, and cash provided by operating
activities, will provide sufficient funds to finance anticipated development    
plans, meet our operating expenses and service our debt requirements as they    
become due. However, in the event that we require additional capital, there can 
be no assurance that we will be able to raise such capital when needed or on    
satisfactory terms, if at all. Also, there can be no assurance that we will be  
able to refinance our current credit facility upon its maturity or on favorable 
terms. See "Management's Discussion and Analysis of Financial Condition and     
Results of Operations -- Liquidity and Capital Resources".                      

SYSTEMS FAILURE MAY DISRUPT OUR BUSINESS.                                       

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

THE RESTRUCTURING OF OUR MUTUAL FUND PRODUCTS TO ENHANCE OUR COMPETITIVENESS AND
DISTRIBUTION CHANNELS MAY NOT BE SUCCESSFUL.                                    

  In October 1999 and July 2000, we restructured our mutual fund products by
offering additional classes of mutual fund shares, closing non-industry standard
classes and adding new Funds in an effort to enhance our competitiveness and    
strategic distribution alternatives and favorably impact our distribution       
margin. We anticipate that the product restructuring will result in our product 
line (1) being more consistent with the industry, (2) providing our clients with
more choices and greater value and (3) accommodating additional changes for     
strategic distribution flexibility. There can be no assurances that the         
restructuring of our mutual fund products will enhance our competitiveness and  
distribution channels or that it will favorably impact our distribution margin. 

OUR HOLDING COMPANY STRUCTURE RESULTS IN STRUCTURAL SUBORDINATION AND MAY AFFECT
OUR ABILITY TO MAKE PAYMENTS ON THE NOTES.                                      

  The notes are obligations exclusively of Waddell & Reed Financial, Inc. We
are a holding company and, accordingly, substantially all of our operations are 
conducted through our subsidiaries. As a result, our cash flow and our ability  
to service our debt, including the notes, is dependent upon the earnings of our 
subsidiaries. In addition, we are dependent on the distribution of earnings,    
loans or other payments by our subsidiaries to us.                              

   Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes or to provide us with    
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or  
advances by our subsidiaries to us could be subject to statutory or contractual 
restrictions.                                                                   

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Payments to us by our subsidiaries will also be contingent upon our             
subsidiaries' earnings and business considerations.                             

Our right to receive any assets of any of our subsidiaries upon their   
liquidation or reorganization, and therefore the right of the holders of the    
notes to participate in those assets, would be effectively subordinated to the  
claims of that subsidiary's creditors, including trade creditors. In addition,  
even if we were a creditor of any of our subsidiaries, our rights as a creditor 
would be subordinate to any security interest in the assets of our subsidiaries 
and any indebtedness of our subsidiaries senior to that held by us.             

USE OF PROCEEDS 

  We estimate that the net proceeds to us from the sale of the notes that we
are selling in this offering will be approximately $197.6 million, after        
deducting the underwriting discount and estimated expenses of this offering. The
net proceeds will be used to repay Waddell & Reed's short-term debt and for     
general corporate purposes. The short-term debt was incurred for general        
corporate purposes and acquisitions. As of September 30, 2000, Waddell & Reed   
had outstanding approximately $200.3 million of short-term debt. The average    
interest rate for Waddell & Reed's short-term credit facilities during the third
quarter of 2000 was 7.2%.                                                       

Pending the application of the net proceeds, we expect to invest the net
proceeds from the sale of the notes in short-term interest-bearing securities.  

CAPITALIZATION

  The following table sets forth our unaudited capitalization and short-term
debt as of September 30, 2000, (1) on a historical basis, and (2) as adjusted to
give effect to the issuance and sale of the notes offered hereby, net of our    
estimated offering expenses and underwriting discounts, and the application of  
such proceeds. You should read this table together with our financial statements
and notes thereto and other financial and operating data included elsewhere in  
this prospectus supplement or in the prospectus or incorporated by reference    
into this prospectus supplement or the prospectus.                              

                                                                [Download Table]

                                                             SEPTEMBER 30, 2000 
                                                             -------------------
                                                                           AS   
                                                              ACTUAL    ADJUSTED
                                                             --------   --------
                                                               (IN THOUSANDS)   
                                                                                
Short-term debt............................................. $200,341      2,777
Long-term liabilities.......................................   13,131     13,131
7 1/2% Notes offered hereby.................................       --    199,214
                                                             --------   --------
Total long-term liabilities.................................   13,131    212,345
                                                             --------   --------
Stockholders' equity........................................  127,217    127,217
                                                             --------   --------
Total capitalization........................................ $340,689   $342,339
                                                             ========   ========

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SELECTED CONSOLIDATED FINANCIAL DATA

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

                                                        [Enlarge/Download Table]

                                               FOR THE NINE MONTHS                                                              
                                                      ENDED                                                                     
                                                  SEPTEMBER 30,                                                                 
                                                   (UNAUDITED)                     FOR THE YEARS ENDED DECEMBER 31,             
                                             -----------------------   ---------------------------------------------------------
                                                2000         1999        1999        1998        1997        1996        1995   
                                             ----------   ----------   ---------   ---------   ---------   ---------   ---------
                                                         (IN THOUSANDS EXCEPT PER SHARE AND FINANCIAL ADVISORS DATA)            
                                                                                                                                
Revenues from:                                                                                                                  
  Investment management..................... $  190,725      124,114     178,612     137,823     117,784     101,466      85,289
  Underwriting and distribution.............    150,872       94,056     126,318     106,615      89,427      85,837      70,393
  Shareholder service.......................     38,836       30,716      41,525      33,808      30,763      28,378      23,527
                                             ----------   ----------   ---------   ---------   ---------   ---------   ---------
  Revenues excluding investment and other                                                                                       
    income..................................    380,433      248,886     346,455     278,246     237,974     215,681     179,209
  Total revenues............................    388,443      256,447     356,657     287,289     241,772     220,976     183,504
Net income..................................    104,367       69,452      81,767      83,735      70,292      66,700      53,501
Net income excluding                                                                                                            
  special items(1)..........................    104,367       69,452      96,382      88,060      70,276      64,174      50,975
Retail investment product sales.............  2,240,284    1,611,987   2,149,842   1,827,526   1,518,257   1,505,100   1,187,609
Financial advisors (end of period)..........      2,713        2,483       2,611       2,370       2,160       2,010       2,335
Financial advisors (average)................      2,578        2,392       2,432       2,175       2,072       2,072       2,251
Investment product sales-retail per                                                                                             
  advisor...................................        869          674         884         840         733         726         528
Earnings before interest, taxes,                                                                                                
  depreciation and amortization(1).......... $  187,976      119,946     167,530     147,651     119,333     109,968      89,524

                                                        [Enlarge/Download Table]

                                                      AS OF                                                                    
                                                  SEPTEMBER 30,                          AS OF DECEMBER 31,                    
                                             -----------------------  ---------------------------------------------------------
                                                2000         1999       1999        1998        1997        1996        1995   
                                             ----------   ----------  ---------   ---------   ---------   ---------   ---------
                                                                               (IN MILLIONS)                                   
                                                                                                                               
Assets under management..................... $   40,020       30,746     37,302      27,744      23,417      19,070      18,489
Balance sheet data:                                                                                                            
  Goodwill..................................        169          114        113          96          99         102         105
  Total assets(2)...........................        410          364        335         327         447         429         284
  Short term debt...........................        200          155        125          40           0           0           0
  Total liabilities(3)......................        283          238        209         120         677         197          65

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

(1) Excludes a write-off of of $19.0 million relating to restructuring mutual   
fund products and a loss of $4.6 million from the sale of real estate   
    properties, combined net of taxes of $14.6 million, in 1999. Excludes impact
of interest relating to notes with Torchmark Corporation ("Torchmark"), 
    which were prepaid with proceeds from our initial public offering, for 1998,
1997, 1996, and 1995.                                                   

(2) Includes amounts due from Torchmark of $0, $0, $192.7, $184.5, and          
$57.2 million for 1999, 1998, 1997, 1996, and 1995, respectively.       

(3) Includes amounts due to Torchmark of $0, $0, $611.6, $126.6, and            
$13.6 million for 1999, 1998, 1997, 1996, and 1995, respectively.       

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS 

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

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

RESULTS OF OPERATIONS                                                           

OVERVIEW                                                                        

We derive our revenues primarily from providing investment management,  
distribution and administrative services to the Funds and separately managed    
accounts. Investment management fees, our 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.      

In June of 1999, the Funds' boards of directors approved the proposal to
restructure the management fee arrangements of the Funds. This restructuring    
replaced the group fee structure and specific fund add-on fee with a specific   
fee schedule for each Fund. The Funds' fee schedules include breakpoints at     
which fee rates decline as assets increase. These schedules more closely conform
with others in the mutual fund industry and, as of September 30, 2000, it had a 
favorable impact on our overall management fee rate of approximately .08% of    
mutual fund assets under management.                                            

On August 9, 1999, we acquired Austin Calvert & Flavin, Inc. ("ACF"), a 
privately-held investment management firm based in San Antonio, TX. ACF manages 
investments for trusts, high net worth families and individuals, and pension    
plans of corporations, hospitals, schools, labor unions, endowments and         
foundations.                                                                    

 In October of 1999, we restructured our Advisors Funds and the W&R Funds.
Commencing October 4, 1999, the Advisors Funds began offering Class B shares    
("back-end sales charge shares") and Class C shares ("level sales charge        
shares"). These were in addition to the already offered Class A                 

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shares ("front-end sales charge shares") and Class Y shares ("institutional     
shares"). Concurrently, the W&R Funds began offering Class C shares ("level     
sales charge shares"). These were in addition to the already offered Class Y    
shares ("institutional shares"). At the same time, the W&R Funds' Class B shares
were no longer offered for new sales due to their non-industry standard         
structure. The existing W&R Funds' Class B shares converted to W&R Fund Class C 
shares in the first quarter of 2000. Upon conversion of the W&R Funds' Class B  
shares, no contingent deferred sales charges were collected for any converted   
share redemptions. As a result of the discontinuation of the W&R Funds' Class B 
shares, we wrote off $19.0 million (on a pretax basis) of deferred acquisition  
costs in the fourth quarter of 1999. We expect that this restructuring of shares
will enhance competitiveness and strategic distribution alternatives.           

On February 23, 2000, we declared a three-for-two stock split on our    
Class A and Class B common stock payable on April 7, 2000 to stockholders of    
record as of March 17, 2000. All per-share and share-outstanding data in the    
consolidated financial statements and related notes have been restated to       
reflect the stock split for all periods presented.                              

    On March 31, 2000, we acquired The Legend Group ("Legend"), a privately held
mutual fund distribution and retirement planning company based in Palm Beach    
Gardens, Florida. Through its network of 298 financial advisors, Legend serves  
employees of school districts and other not-for-profit organizations nationwide.

   In July of 2000, we renamed our two retail mutual fund families. The United
Funds family was renamed the "Waddell & Reed Advisors Funds". This family of    
funds will continue to be available for sale only through Waddell & Reed's      
proprietary sales force. Concurrently, the Waddell & Reed Funds family was      
renamed the "W&R Funds". We plan to make this family of funds available for sale
through both Waddell & Reed's proprietary sales force and selected third-party  
distribution channels. At the same time as we renamed our fund families, we     
added W&R Funds' Class A and Class B shares to the existing Class C and Class Y 
shares.                                                                         

  On October 23, 2000, we executed an agreement with Nationwide Financial to
provide a broad span of private label insurance and retirement products for use 
by Waddell & Reed, Inc.'s financial advisors. The selection of Nationwide       
Financial to provide insurance and retirement products increases the breadth and
competitiveness of such products available to its financial advisors. Nationwide
Financial has developed for distribution by our investment advisors two variable
annuities, a flexible-premium variable universal life product, a survivorship   
life product, and a qualified group retirement plan. United Investors Life      
Insurance Company, a subsidiary of Torchmark Corporation and formerly an        
affiliate of the Company ("UILIC"), also provides insurance products for the    
Company.                                                                        

During the fourth quarter of 2000, the S&P 500 index, a broad measure of
stock market valuation, declined 8.1%. This is likely to impact firms in the    
asset management industry, including our own, and effect our investment         
management fees and our investment product sales growth during the quarter.     
Because of our advice-based, retirement-focused business model, we historically 
have been less impacted by market volatility than the industry in general and   
expect, but can not assure, this will hold true in the current case.            

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SUMMARY OF OPERATING RESULTS                                                    

                                                        [Enlarge/Download Table]

                                              FOR THE NINE MONTHS ENDED                      FOR THE YEAR ENDED            
                                      -----------------------------------------   -----------------------------------------
                                        SEPTEMBER 2000        SEPTEMBER 1999         DECEMBER 1999         DECEMBER 1998   
                                      -------------------   -------------------   -------------------   -------------------
                                                     (UNAUDITED)                                                           
                                                   % OF                  % OF                  % OF                  % OF  
                                       AMOUNT    REVENUE     AMOUNT    REVENUE     AMOUNT    REVENUE     AMOUNT    REVENUE 
                                      --------   --------   --------   --------   --------   --------   --------   --------
                                                                        ($ IN THOUSANDS)                                   
                                                                                                                           
OPERATING REVENUES:                                                                                                        
  Investment management fees........  $190,725     49.1%    124,114      48.4%     178,612     50.1%    137,823      48.0% 
  Underwriting and distribution                                                                                            
    fees............................   150,872     38.8      94,056      36.7      126,318     35.4     106,615      37.1  
  Shareholder service fees..........    38,836     10.0      30,716      12.0       41,525     11.6      33,808      11.8  
                                      --------              -------               --------              -------            
  Total operating revenues..........   380,433     97.9     248,886      97.1      346,455     97.1     278,246      96.9  
  Investment and other revenues.....     8,010      2.1       7,561       2.9       10,202      2.9       9,043       3.1  
                                      --------              -------               --------              -------            
  Total revenues....................   388,443    100.0     256,447     100.0      356,657    100.0     287,289     100.0  
OPERATING EXPENSES:                                                                                                        
  Underwriting and distribution.....   136,746     35.2      92,947      36.3      124,938     35.1      99,575      34.6  
  Compensation and related costs....    42,550     11.0      29,734      11.6       44,944     12.6      31,512      11.0  
  General and administrative........    21,171      5.5      13,820       5.4       19,245      5.4       8,551       3.0  
  Amortization of goodwill..........     3,977      1.0       2,297       0.9        3,224      0.9       2,903       1.0  
  Depreciation......................     2,433      0.6       1,613       0.6        2,162      0.6       1,892       0.7  
                                      --------              -------               --------              -------            
  Total operating expense(1)........   206,877     53.3     140,411      54.8      194,513     54.6     144,433      50.3  
OTHER ITEMS:                                                                                                               
  Interest expense..................    10,825      2.7       3,910       1.5        6,546      1.8         704       0.2  
                                      --------              -------               --------              -------            
  Total expense.....................   217,702     56.0     144,321      56.3      201,059     56.4     145,137      50.5  
                                      --------              -------               --------              -------            
  Income before affiliated items and                                                                                       
    income taxes(1).................  $170,741     44.0%    112,126      43.7%     155,598     43.6%    142,152      49.5% 


                                      FOR THE YEAR ENDED                                                                   
                                      -------------------                                                                  
                                         DECEMBER 1997                                                                     
                                      -------------------                                                                  

                                                   % OF                                                                    
                                       AMOUNT    REVENUE                                                                   
                                      --------   --------                                                                  
                                       ($ IN THOUSANDS)                                                                    
                                                                                                                           
OPERATING REVENUES:                                                                                                        
  Investment management fees........  117,784      48.7%                                                                   
  Underwriting and distribution                                                                                            
    fees............................   89,427      37.0                                                                    
  Shareholder service fees..........   30,763      12.7                                                                    
                                      -------                                                                              
  Total operating revenues..........  237,974      98.4                                                                    
  Investment and other revenues.....    3,798       1.6                                                                    
                                      -------                                                                              
  Total revenues....................  241,772     100.0                                                                    
OPERATING EXPENSES:                                                                                                        
  Underwriting and distribution.....   79,995      33.1                                                                    
  Compensation and related costs....   26,618      11.0                                                                    
  General and administrative........   15,826       6.5                                                                    
  Amortization of goodwill..........    2,903       1.2                                                                    
  Depreciation......................    1,307       0.6                                                                    
                                      -------                                                                              
  Total operating expense(1)........  126,649      52.4                                                                    
OTHER ITEMS:                                                                                                               
  Interest expense..................        0       0.0                                                                    
                                      -------                                                                              
  Total expense.....................  126,649      52.4                                                                    
                                      -------                                                                              
  Income before affiliated items and                                                                                       
    income taxes(1).................  115,123      47.6%                                                                   

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

(1) Excludes a $19.0 million charge for write-off of deferred acquisition costs 
and a $4.6 million loss on the sale of real estate in 1999.             

TOTAL REVENUES                                                                  

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

Total operating revenues increased by $131.5 million or 53% to          
$380.4 million in 2000 compared to 1999. Total revenues, which include          
investment and other income, were $388.4 million in 2000, a 51% increase from   
1999. Income before income taxes increased by 52% to $170.7 million in 2000 from
1999. Income before income taxes as a percentage of total revenues were 44.0% in
2000 and 43.7% in 1999.                                                         

1999 OVER 1998                                                                  

Total operating revenues increased by $68.2 million, or 25%, to         
$346.5 million in 1999 compared to 1998. Total revenues, which include          
investment and other income, were $356.7 million in 1999, a 24% increase from   
1998. Income before affiliated items and income taxes increased by 9% to        
$155.6 million in 1999 compared to 1998. Income before affiliated items and     
income taxes as a percentage of total revenues were 43.6% in 1999 and 49.5% in  
1998.                                                                           

1998 OVER 1997                                                                  

Total operating revenues increased by $40.3 million or 17% to           
$278.2 million in 1998 compared to 1997. Total revenues, which include          
investment and other income, were $287.3 million in 1998, a 19% increase from   
1997. Income before affiliated items and income taxes increased by 23% to       
$142.2 million in 1998 when compared to 1997. Income before affiliated items and
income taxes as a percentage of total revenues were 49.5% and 47.6% in 1998 and 
1997, respectively. In 1997, we                                                 

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incurred charges related to outsourcing transfer agency data processing         
activities and the discontinuation of internally developed systems, which       
resulted in a $6.8 million pretax expense.                                      

INVESTMENT MANAGEMENT FEE REVENUES                                              

INVESTMENT MANAGEMENT FEE REVENUES ARE EARNED FOR PROVIDING INVESTMENT  
ADVISORY SERVICES TO THE FUNDS AND OTHER SEPARATELY MANAGED ACCOUNTS.           

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

   Investment management fees in 2000 were $190.7 million, a 54% increase over
1999. Average assets under management were $39.5 billion for 2000, an increase  
of 35% compared with 1999. The increase in management fee revenues came from    
both mutual fund and separately managed account business. Mutual fund management
fees increased by 46% year over year, contributing $53.4 million or 80% of the  
increase. Investment performance, net sales, plus reinvested dividends pushed   
average mutual fund assets under management to $33.6 billion in the first nine  
months of 2000, a 31% increase compared to the same period in 1999. Mutual fund 
management fee revenues increased at a greater rate than average assets due     
primarily to the restructuring of the fund management fee arrangements in       
July 1999 and, secondly, due to the fact that a greater composition of assets   
were in funds with higher management fee rates. Management fee revenues from    
separately managed accounts increased by $12.9 million to $20.0 million in 2000.
Managed assets of ACF, acquired on August 9, 1999, contributed $6.4 million of  
this increase. Also contributing to this increase in revenues was the addition  
of institutional growth equity accounts during 1999 and 2000 that had higher    
management fee rates.                                                           

1999 OVER 1998                                                                  

   Investment management fees in 1999 were $178.6 million, a 30% increase over
1998. Average assets under management were $30.3 billion for 1999, an increase  
of 18% compared with 1998. The increase in management fee revenues were due to  
several factors. First, the restructuring of the Fund's management fee          
arrangements that became effective July 1, 1999 added approximately             
$11.2 million to management fee revenues. Secondly, the acquisition of ACF in   
August of 1999 contributed approximately $3.6 million. Finally, strong market   
performance and relative performance resulted in a greater composition of       
average assets in equity funds, especially growth, small cap, and technology    
funds, which have higher management fee rates.                                  

1998 OVER 1997                                                                  

   Investment management fees in 1998 were $137.8 million, a 17% increase over
1997. The increase in management fees was due primarily to growth in assets     
related to market performance. Average assets under management were             
$25.6 billion 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.                                   

UNDERWRITING AND DISTRIBUTION FEE REVENUES                                      

UNDERWRITING AND DISTRIBUTION FEE REVENUES ARE COMPRISED OF: COMMISSIONS
CHARGED ON SALES OF FRONT-LOAD MUTUAL FUNDS, VARIABLE PRODUCTS AND INSURANCE    
PRODUCTS; RULE 12B-1 ASSET-BASED DISTRIBUTION FEES; AND CONTINGENT DEFERRED     
SALES CHARGES FROM BACK-END AND LEVEL-LOAD FUNDS.                               

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NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

Underwriting and distribution fees in 2000 increased by 60% to          
$150.9 million. Legend, acquired on March 31, 2000, contributed $20.8 million to
the current year's underwriting and distribution fee revenues. Excluding        
Legend's contribution, the increase was 38%. This increase is primarily         
attributable to a 39% increase in retail investment product sales growth, fueled
by new advisors and productivity gains.                                         

1999 OVER 1998                                                                  

Underwriting and distribution fees in 1999 increased by 18% to          
$126.3 million. This increase is primarily attributable to increases in sales   
volume of front-load investment products. Commission revenues from front-load   
investment products, primarily the Advisors Funds and variable annuity products,
accounted for 75%, or $14.7 million of this $19.7 million increase in 1999 over 
1998. Distribution revenues from back-end and level-load funds increased by     
$2.5 million, or 28%, to $11.3 million due to growth in the asset value of these
funds, partially offset by lower contingent deferred sales charges. Commission  
revenues from insurance product sales were up by $2.5 million to $19.1 million  
for 1999 due to increased sales of variable universal life insurance.           

1998 OVER 1997                                                                  

Underwriting and distribution fees in 1998 increased by 19% to          
$106.6 million. The higher fees were 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 by 17% from 1997 to $1.6 billion.        
Distribution revenues from back-end sales charge shares, which consist primarily
of Rule 12b-1 distribution fees, increased 36% from $6.5 million in 1997 to     
$8.8 million in 1998 due to growth in assets of these share classes.            

SHAREHOLDER SERVICE FEE REVENUES                                                

SHAREHOLDER SERVICE FEE REVENUES INCLUDE TRANSFER AGENCY FEES, CUSTODIAN
FEES FROM RETIREMENT PLAN ACCOUNTS AND PORTFOLIO ACCOUNTING FEES.               

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

In 2000, shareholder service fees increased by 26% to $38.8 million.    
Excluding Legend's $3.4 million contribution to shareholder service fee revenues
in 2000, shareholder service fees increased by 15% due primarily to a 16%       
increase in the average number of accounts serviced. Transfer agency and        
retirement plan custodian fees are primarily based on annual charges per account
and fluctuate based on the number of accounts serviced.                         

1999 OVER 1998                                                                  

  The transfer agency and custodian fees, which comprised 95% of the service
fee revenues in 1999, are primarily based on annual charges per account and     
fluctuate based on the number of accounts serviced. In 1999, shareholder service
fees increased by 23% to $41.5 million due primarily to a 12% increase in the   
average number of accounts. In addition, 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. This fee increase contributed          
$4.8 million to the growth in revenue in 1999.                                  

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1998 OVER 1997                                                                  

    The transfer agency fees and custodian fees comprised 94% of the service fee
revenues in 1998. In 1998, shareholder service fees increased by 10% to         
$33.8 million due primarily to an 8% increase in the average number of accounts 
serviced. 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.                                                                       

UNDERWRITING AND DISTRIBUTION EXPENSES                                          

 UNDERWRITING AND DISTRIBUTION EXPENSES INCLUDES COSTS ASSOCIATED WITH THE
MARKETING, PROMOTION, AND DISTRIBUTION OF OUR 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.                                                                    

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

Underwriting and distribution expenses for 2000 were $136.7 million, an 
increase of $43.8 million or 47% compared with 1999. Legend's operations        
contributed $16.4 million to underwriting and distribution expenses. Excluding  
Legend's contribution, the increase was 30%. This provided for a distribution   
margin excluding Legend of 7.5%, compared with 1.2% for the same period in 1999.
Sales grew at a faster rate than that of fixed indirect costs contributing to   
margin improvement.                                                             

1999 OVER 1998                                                                  

Underwriting and distribution expenses for 1999 were $124.9 million, an 
increase of $25.4 million, or 25%, compared with 1998. The largest contributor  
to the increase in distribution expenses was commission expense, and other sales
force compensation related to sales volume. Other factors included higher       
production and asset retention incentive compensation of $6.0 million, higher   
net costs relating to field offices, marketing and national advertising of      
$5.5 million and increased sales program costs of $2.7 million. We began        
restructuring our mutual fund products in the fourth quarter of 1999. Due to    
their non-industry standard structure, the W&R Funds' Class B shares were closed
for new sales and converted into Class C shares, which have an industry standard
structure. Concurrently, the Advisors Funds began offering Class B shares and   
Class C shares. Upon conversion of the W&R Funds' Class B shares, no contingent 
deferred sales charges will be collected for any converted share redemptions.   
The deferred selling costs of $19.0 million related to the W&R Funds' Class B   
share conversion were written off on November 30th, concurrent with the         
necessary approvals for share conversion. It is estimated that underwriting and 
distribution expenses will be reduced by approximately $3.0 million per year as 
a result of the restructuring and related write-off, primarily through foregone 
amortization of deferred selling costs.                                         

1998 OVER 1997                                                                  

Underwriting and distribution expenses for 1998 were $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.            

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COMPENSATION AND RELATED COSTS                                                  

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

  Compensation and related costs for 2000 were $42.6 million, an increase of
$12.8 million, or 43%, compared to 1999. ACF contributed $2.9 million in the    
first nine months of 2000 and $406 thousand from the time of its acquisition in 
August of 1999 until September 30, 1999. Legend contributed $831 thousand in    
2000. Excluding these acquisitions, compensation increased by 33%. The average  
number of employees increased by 21% as we continued to invest in investment    
management, client service, and support personnel. Annual raises in salaries and
performance incentive bonuses also contributed to the increase.                 

1999 OVER 1998                                                                  

  Compensation and related costs for 1999 were $44.9 million, an increase of
$13.4 million, or 43%, compared to 1998. The growth in our operations added 25% 
to the average employee headcount. Additional performance-based compensation    
accounted for $3.8 million of the increase in compensation costs due primarily  
to investment performance compensation paid to portfolio managers and, to a     
lesser extent, to the inclusion of middle management in incentive compensation  
plans. Higher pension and health insurance costs were additional factors for the
increase in compensation costs. Pension and related costs were $0.8 million     
higher due to personnel additions and a higher rate of compensation increase.   
Higher health insurance costs contributed $1.1 million to the increase as       
reserves were increased to reflect higher claims exposure.                      

1998 OVER 1997                                                                  

  Compensation and related costs were up 18% to $31.5 million in 1998 due to
an increase in the average number of employees of 8% as well as higher          
performance-based compensation for investment management personnel. In late     
1997, adjustments were made to make total compensation more competitive with    
industry standards. Annual raises accounted for the remaining increase.         

GENERAL AND ADMINISTRATIVE EXPENSES                                             

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

 General and administrative expenses, which reflects operating costs other
than compensation and underwriting and distribution, increased by $7.4 million, 
or 53%, to $21.2 million for 2000. ACF contributed $812 thousand in the first   
nine months of 2000 and $160 thousand from the time of its acquisition, in      
August of 1999, until September 30, 1999. Legend contributed $2.1 million in    
2000. Excluding these acquisitions, general and administrative expenses         
increased by 34%, a result of investments made to facilitate growth, notably in 
computer systems and services and costs associated with implementing new funds  
and share classes. Also contributing to the increase were higher rental and     
facilities costs from expanding operations.                                     

1999 OVER 1998                                                                  

 General and administrative expenses were up by $10.7 million, or 125%, to
$19.2 million for 1999. Approximately $5.4 million of this increase was         
attributable to the implementation of a new transfer agency system in the fourth
quarter of 1998. Higher shareholder service fee revenues coinciding with this   
implementation offset most of the increased costs. The growth of our operations 
added to higher administrative costs, including the acquisition of ACF, new     
consulting arrangements, proxy and shareholder meeting costs, and additional    
facilities rental to accommodate growth.                                        

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1998 OVER 1997                                                                  

General and administrative expenses were down by 46% to $8.6 million for
1998 due primarily to 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.                                

INVESTMENT AND OTHER INCOME                                                     

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

  Investment and other income increased by $0.4 million from $7.6 million in
1999 to $8.0 million in 2000. In 1999, approximately $793 thousand was          
attributable to income from real estate investments which were sold. In 2000,   
investment and other income included $2.5 million of realized gains from the    
sale of investment securities sold to partially fund the Legend acquisition.    
Excluding these items, interest income declined by $1.3 million to $5.5 million 
due to lower amounts invested in interest bearing corporate and municipal bonds.

1999 OVER 1998                                                                  

 Investment and other income increased by $1.2 million to $10.2 million in
1999. Average invested cash and marketable securities were $149.3 million in    
1999 compared with $144.8 million in 1998. Substantially all of the increase in 
investment and other income was attributable to higher net rental income from   
investment in real estate properties. These properties were sold on             
December 28, 1999 for net proceeds of $16.5 million. Pretax income realized from
rental operations of these properties in 1999 was $1.0 million.                 

1998 OVER 1997                                                                  

Investment and other income increased by $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 compared with $82.4 million in
1997. All growth in average cash and marketable securities was in securities    
which have higher investment yields than cash and cash equivalents.             

DEPRECIATION                                                                    

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

   Depreciation of property and equipment increased by $820 thousand or 51% in
2000 to $2.4 million. The acquisitions of ACF on August 9, 1999 and Legend on   
March 31, 2000 accounted for $193 thousand of the increase. The remaining       
difference was primarily the result of additions to furniture and equipment in  
field offices and information systems in the home office.                       

1999 OVER 1998                                                                  

   Depreciation of property and equipment increased by $270 thousand or 14% in
1999 to $2.2 million primarily due to opening additional field offices and      
upgrading and enhancing existing offices.                                       

1998 OVER 1997                                                                  

    Depreciation of property and equipment increased by $585 thousand or 45%, to
$1.9 million due to additions of property and equipment in late 1998. Property  
and equipment was $20.6 million at year end 1998, up $8.6 million from 1997. A  
reclassification was made to transfer $3.0 million of land from investment in   
real estate to property and equipment. The addition of depreciable assets in    
1998 was $5.6 million.                                                          

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INTEREST EXPENSE                                                                

NINE MONTHS ENDED SEPTEMBER 30, 2000 OVER NINE MONTHS ENDED SEPTEMBER 30, 1999  

We entered into a $200 million credit facility arrangement in October of
1998. This facility is renewable annually in October and has been increased to  
$220.0 million. This facility is expandable to $330.0 million, whereby banks    
could, at their option upon our request, increase the loans by $110.0 million.  
The credit facility has been used to fund share repurchases and facilitate the  
acquisitions of Legend and ACF. Additionally, a money market loan program was   
implemented in August of 2000. The money market loan program, which is similar  
to commercial paper, has been utilized to repay amounts borrowed under the      
credit facility. At September 30, 2000, short term debt had an outstanding      
balance of $200.0 million, comprised of $45.0 million on the credit facility and
$155.0 million under the money market loan program. In October 2000, all amounts
borrowed on the facility were repaid. We intend to use the credit facility as a 
"back-up" source of capital. The average balance on combined short term debt was
$195.0 million for 2000 and $90.1 million for 1999. The average interest rate   
applied, excluding other costs, was 6.99% for 2000 and 5.48% for 1999.          

1999 OVER 1998                                                                  

    We utilized the credit facility in 1999 to fund share repurchases during the
year and acquire ACF in August of 1999. The average interest rate applied to    
this facility, excluding facility costs, was 5.73% in 1999. The average amount  
outstanding on this facility was $106.0 million. In 1999, interest expense and  
related facility costs were $6.5 million, compared to $704 thousand for 1998. At
the end of 1999 we had an outstanding balance of $125.3 million under our credit
facility, compared to $40.1 million at the end of 1998.                         

LOSS ON THE SALE OF REAL ESTATE                                                 

  On December 28, 1999, we completed the sale of all multi-tenant properties
to unrelated third parties. Proceeds from the sale were $16.5 million, resulting
in a $4.6 million pretax loss.                                                  

WRITE-OFF OF DEFERRED ACQUISITION COSTS                                         

We began restructuring our mutual fund products in the fourth quarter of
1999. Due to their non-industry-standard structure, the W&R Funds' Class B      
shares were closed for new sales and converted into Class C shares, which have  
an industry standard structure. Concurrently, the Advisors Funds began offering 
Class B shares and Class C shares. Upon conversion of the W&R Funds' Class B    
shares, no contingent deferred sales charge were collected for any converted    
share redemptions. The deferred selling costs related to the W&R Funds' Class B 
shares in the amount of $19.0 million (pre-tax) were written off on             
November 30, concurrent with the necessary approvals for share conversion. By   
offering additional classes of mutual fund shares and closing funds with non    
industry-standard structures, the restructuring is more consistent with that of 
the industry, provides our clients with more choices and greater value, and     
accommodates additional changes for strategic distribution flexibility.         

AFFILIATED INTEREST INCOME AND EXPENSE                                          

   Prior to our initial public offering in March of 1998, we had various notes
payable and notes receivable with Torchmark and certain subsidiaries of         
Torchmark. The affiliated interest income and expense as reported for 1998 and  
1997 pertain to these notes and were prepaid with proceeds from the offering.   

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INCOME TAXES                                                                    

   Our effective income tax rate was 38.9% and 38.1% at September 30, 2000 and
1999, respectively, and 38.1%, 38.2%, and 39.0% in 1999, 1998, and 1997,        
respectively.                                                                   

FINANCIAL CONDITION                                                             

   At September 30, 2000, our total assets were $410.4 million, an increase of
$75.3 million from December 31, 1999. In the first nine months of 2000, we      
repurchased 4.7 million shares of our common stock at a total cost of           
$96.2 million, compared to 8.7 million shares of our common stock at a total    
cost of $132.2 million in the full year 1999, and 5.5 million shares of our     
common stock at a total cost of $74.8 million during the third and fourth       
quarters of 1998. Cash flow from operations, the credit facility, and the money 
market loan program were utilized to fund these share repurchases. At           
September 30, 2000, our outstanding short term debt, including principal and    
accrued interest, was $200.3 million, compared to $125.3 million on             
December 31, 1999.                                                              

LIQUIDITY AND CAPITAL RESOURCES                                                 

Cash provided by operating activities increased by $37.3 million to     
$120.8 million for the first nine months of 2000 due to higher net income from  
operations, excluding non-cash items, as well as the timing of cash received and
cash paid on assets and liabilities. Net cash used in investing activities in   
the first nine months of 2000 was $60.4 million, compared to net cash used by   
investing activities of $12.7 million used in the same period last year.        
Proceeds from the sale and maturity of investment securities exceeded purchases 
of investment securities by $22.0 million in the first nine months of 2000. At  
September 30, 2000, we had $130.6 million in cash and marketable investment     
securities, of which $13.7 million was restricted for the benefit of customers  
in compliance with securities industry regulations. Cash and marketable         
securities at December 31, 1999 were $151.2 million, of which $17.1 million was 
restricted. Other investing activities in the first nine months of 2000 used    
$22.2 million from the additions to property and equipment, and $60.3 million   
for the acquisition of Legend. In the first nine months of 2000, we used        
$62.3 million in net financing activities, compared with $43.1 million in 1999. 
In 2000, we repurchased 3.0 million shares of Class A and 1.7 million shares of 
Class B common stock, the combined cost of which was $96.2 million, and paid    
$22.1 million in cash dividends. Net borrowings of $75.0 million on the credit  
facility and the money market loan program were utilized in 2000 to finance     
share repurchases and the acquisition of Legend. The $220 million, 364-day      
revolving credit facility, expandable to $330 million at the bank's option upon 
our request, had $45.0 million outstanding at September 30, 2000.               

   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. We may also continue to repurchase shares of our common stock from time  
to time as management deems appropriate. The share repurchases could be financed
by our available cash and investments and/or the use of the money market loan   
program and the credit facility.                                                

SUBSEQUENT EVENTS                                                               

    On October 23, 2000, we reached an agreement, subject to due diligence, with
Mesirow Realty Sale-Leaseback, Inc. to sell our two home office buildings and to
lease them back for a period of fifteen years. Net proceeds from the sale are   
expected to be approximately $28.5 million, resulting in a gain of approximately
$2.0 million. This gain will be deferred and amortized over the term of the     
operating lease. If the transaction closes, it is expected to be closed early in
the first quarter of 2001. It is estimated that, going forward we will incur    
approximately $3.4 million annually in lease expense and additional operating   
expenses that will be reflected in general and administrative expenses.         

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 The sale of these properties and the sale of multi-tenant properties last
year were made because real estate is not viewed to be part of our core         
business. The proceeds from the sale will initially be used to repay debt, but  
will ultimately increase our capacity to invest in our core business and to     
repurchase our common stock.                                                    

On October 23, 2000, we announced the execution of an agreement with    
Nationwide to provide a broad span of private label insurance and retirement    
products for use by Waddell & Reed, Inc.'s financial advisors. The selection of 
Nationwide to provide insurance and retirement products increases the breadth   
and competitiveness of such products available to our financial advisors.       
Nationwide has developed for distribution by our investment advisors two        
variable annuities, a flexible-premium variable universal life product, a       
survivorship life product, and a qualified group retirement plan.               

We are in litigation with UILIC and others over terms of a compensation 
agreement signed in July 1999 by UILIC and Waddell & Reed, Inc. The compensation
is paid by UILIC to us on variable products underwritten by UILIC and           
distributed by us. The agreement provides for us to be paid annual compensation 
on all variable annuity policies issued after January 1, 2000, and a slightly   
lower annual compensation on variable annuity policies issued before that date. 
Payments are continuing, but that agreement has been challenged by UILIC in a   
complaint filed in May 2000 in the Circuit Court of Jefferson County, Alabama.  
We have subsequently named Torchmark as a third party defendant in that action  
in a tortious interference claim. We believe that the court will uphold the     
agreement as a contract, and that we will prevail on the merits of the case.    
Moreover, we do not foresee any additional risk to existing variable policy     
assets and anticipate continued growth in sales of variable annuity products.   

In a related development, a number of Torchmark affiliates terminated   
Waddell & Reed Investment Management Company as investment adviser for certain  
insurance company general account assets and pension plan assets totaling       
$768 million. These assets had an average management fee of 25 basis points (one
quarter of 1%) per annum. The accounts paid approximately $1.9 million in annual
investment management fees. The only other Torchmark-affiliated assets for which
Waddell & Reed Investment Management Company serves as investment adviser are   
approximately $40 million in 401(k) plans of Torchmark affiliates.              

RECENT ACCOUNTING DEVELOPMENTS                                                  

In June of 1998, the Financial Accounting Standards Board issued SFAS   
No. 133, Accounting for Derivative Instruments and Hedging Activities, which was
amended in June 2000 by SFAS No. 138. These Statements are not expected to have 
a material impact on us.                                                        

SEASONABILITY AND INFLATION                                                     

We do not believe our operations are subject to significant seasonal    
fluctuations. We do not believe that inflation has had a significant impact on  
our operations.                                                                 

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BUSINESS

OVERVIEW                                                                        

   We were founded in 1937, and are one of the oldest mutual fund complexes in
the United States, having introduced the Waddell & Reed Advisors Funds (formerly
the United Funds) family in 1940. We sell our investment products primarily to  
middle income Americans through a virtually exclusive sales force. As of        
September 30, 2000, we had $40.0 billion of assets under management, of which   
$34.1 billion were mutual fund assets and $5.9 billion were separately managed  
accounts. We have over 641,500 mutual fund customers having an average          
investment of $47,000 and 65,600 variable account customers having an average   
investment of $59,300.                                                          

   As of year-end 2000, we are the exclusive underwriter and distributor of 43
mutual fund portfolios, including 20 comprising the Waddell & Reed Advisors     
Funds (the "Advisors Funds"), 12 comprising the W&R Funds (the "W&R Funds"), and
11 comprising our variable annuity-related funds, the W&R Target Funds (the     
"Target Funds" and with the Advisors Funds and the W&R Funds, sometimes         
collectively referred to as the "Funds."). On July 1, 2000, we renamed our two  
retail mutual fund families. The United Funds family was renamed the "Waddell & 
Reed Advisors Funds". This family of funds is available for sale only through   
Waddell & Reed's proprietary sales force. Concurrently, the Waddell & Reed Funds
family was renamed the "W&R Funds". We plan to make this family of funds        
available for sale through both our proprietary sales force and selected        
third-party distribution channels. Both the Advisors Funds and the W&R Funds    
families offer the customer multiple classes of shares consistent with industry 
standards. As part of our financial planning services, we also distribute       
variable annuities and life insurance products, underwritten primarily by United
Investors Life Insurance Company ("UILIC"), to our customers. On October 23,    
2000, we announced the agreement for Nationwide Financial ("Nationwide") to     
provide a broad span of private label insurance and retirement products for use 
by our financial advisors.                                                      

 Our traditional target market has been professionals and working families
with annual incomes between $40,000 and $100,000 who are saving for retirement. 
We believe that demographic trends and shifts in attitudes toward retirement    
savings will continue to support increased consumer demand for our products.    
According to U.S. Census Bureau projections, the number of Americans between the
ages of 45 and 64 will grow from 57.3 million in 1998 to 76.2 million in 2008,  
making this "preretirement" age group the fastest growing segment of the U.S.   
population.                                                                     

We distribute the Funds and other financial products through a financial
advisor sales force that represents us on a virtually exclusive basis. On       
September 30, 2000, our sales force consisted of 2,713 financial advisors,      
including 214 district managers and 64 district supervisors. The sales force is 
managed by eight regional vice presidents, 143 division managers operating from 
152 division and region sales offices located throughout the United States. In  
addition to these division sales offices, there were another 63 NASD registered 
branch offices representing districts or individual sales offices. For the nine 
months ended September 30, 2000, our financial advisor sales force sold over    
$2.2 billion of mutual fund and variable products. The Funds are also available 
for sale to Legend's 298 retirement advisors operating from 22 sales offices. We
believe, based on industry data, that our financial advisor sales force is      
currently one of the largest sales forces in the United States selling primarily
mutual funds. As of September 30, 2000, 39% of our financial advisors have been 
with us for more than 5 years, and 25% for more than 10 years. Our financial    
advisors are located primarily in smaller metropolitan areas and rural          
communities.                                                                    

The financial advisor industry is fragmented, consisting primarily of   
relatively small companies employing fewer than 100 investment professionals.   
Our sales force competes primarily with small broker-dealers and independent    
financial advisors. Our marketing efforts are currently focused on customers    
residing in smaller metropolitan areas and rural communities. We conduct        
investment seminars throughout the United States to reach a large number of     
potential clients. We also provide                                              

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financial plans for clients offering one-on-one consultations emphasizing       
long-term relationships through continuing service, rather than a one-time sale.
We believe that we are well-positioned to benefit from a continuing 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.                                           

Our investment philosophy and financial planning approach emphasize     
long-term investments. Our portfolio managers seek consistent long-term         
performance and downside protection in turbulent markets. As a result, we have  
developed a loyal customer base with clients maintaining their accounts for     
approximately 14 years on average as compared to four years for the mutual fund 
industry, according to the Investment Company Institute. This loyalty is        
evidenced by a relatively low retail fund redemption rate for the five years    
ended September 30, 2000 of 7.7% for the Funds (other than money market funds), 
which is less than one-half of the industry average of 20.0%. We have also      
realized a relatively high dividend reinvestment rate of 86.8% for the Funds for
the same period, which has consistently been over 20% higher than the industry. 
Approximately 50% of our assets under management are in retirement accounts as  
of September 30, 2000. The historically low redemption and high reinvestment    
rates have provided a stable source of asset and revenue growth at relatively   
low cost.                                                                       

We have 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, we utilize 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 our investments is growth      
equity. As of September 30, 2000, approximately 88% of our mutual fund assets   
under management were invested in equity funds and the remainder in fixed income
and money market funds. This investment strategy generally emphasizes investment
at attractive valuations in companies that the portfolio managers believe can   
produce above average growth in earnings.                                       

ACQUISITIONS                                                                    

On March 31, 2000, we completed the acquisition of The Legend Group     
("Legend"), a privately held mutual fund distribution and retirement planning   
company based in Palm Beach Gardens, Florida. Through its network of 295        
financial advisors, it serves employees of school districts and other           
not-for-profit organizations nationwide. As of March 31, 2000, Legend had       
approximately 61,000 clients with $3.1 billion in third-party mutual fund assets
under advisement. Formed in 1965, Legend is a leader in the 403(b) business and 
its concentration in the kindergarten through 12th grade market aligns well with
our strategy of concentrating primarily on underserved middle-income and upper  
middle-income Americans. Together, we have a very strong position in the public 
education market, and are well positioned for continued expansion. The          
acquisition of Legend, by increasing the number of advisors in the overall      
Waddell & Reed family of companies by 298, provides us greater overall          
asset-generating capacity. Together, we are developing numerous opportunities,  
including the addition of our fund families to The Legend Group platform, and   
the utilization of each other's proprietary products and systems with clients.  
Waddell & Reed and Legend will work closely together in the recruitment and     
training of financial advisors.                                                 

On August 9, 1999, we completed the acquisition of Austin, Calvert &    
Flavin, Inc. ("ACF"), a privately held investment management firm based in San  
Antonio, Texas. It was founded in 1981 and manages investments for trusts, high 
net worth families and individuals, and pension plans of corporations,          
hospitals, schools, labor unions, endowments, and foundations. The acquisition  
of ACF added nine investment professionals to our investment team and           
$1.5 billion of assets under management as of the date of our acquisition.      

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MARKETING                                                                       

    We have taken several steps to increase the productivity of our sales force.
Since 1992, we have 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 44% at September 30, 2000. 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, we      
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.                                                                 

We provide training and motivational programs for our sales force. Sales
training specialists provide training programs 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, we    
offer 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, we launched our first national advertising campaign in selected
markets throughout the country which focused on the important aspects of our    
business and was intended to increase our name recognition in those markets. The
campaign was continued in 1999 and 2000, and will continue throughout 2001. In  
November of 1999, we named Thomas W. Butch as Chief Marketing Officer. In this  
newly created position, Mr. Butch is responsible for marketing and distribution 
strategy, product development, and all core marketing and communication         
activities.                                                                     

FUNDS AND ASSET MANAGEMENT                                                      

   We serve as underwriter for, and investment advisor to, the Advisors Funds,
the W&R Funds, and the Target Funds. We also serve as distributor of the        
Advisors Funds, the W&R Funds, and variable annuity and variable life insurance 
products related to the Target Funds.                                           

We offer the Funds' shareholders a broad range of investment products   
designed to attract and retain clients with varying investment objectives. The  
predominant style of our investments is growth equity. Our investment strategy  
emphasizes investments at attractive valuations in companies that the portfolio 
managers believe can produce above average growth in earnings. An annual        
Barron's/Lipper fund-family survey which ranks investment performance of mutual 
fund complexes, ranked us seventeenth out of 92 mutual fund complexes for 1999  
and seventh out of 68 complexes for the five year period ended December 31,     
1999.                                                                           

Our funds had the following characteristics for the twelve months ended 
September 30, 2000:                                                             

- 88% invested in equity funds, 9% in fixed-income funds and 3% in money
market funds                                                        

  - 71% of our equity funds ranked in the top quartile of funds with similar
objectives, as ranked by Lipper, Inc.                               

- 38% of our equity funds ranked in the top 10% of funds with similar   
objectives, as ranked by Lipper, Inc.                               

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    - 88% of our mutual fund assets--excluding money market funds that are rated
     by Morningstar have four or five stars. This is the second highest of the
25 largest fund complexes.                                          

Our largest mutual fund, the Core Investment Fund, is focused on large  
capitalization in core equity and had the following fees and net asset values:  

  - management fees of $37.6 million (10% of total revenues) and a net asset
    value of $9.0 billion at or for the nine months ended September 30, 2000

  - management fees of $44.4 million (12% of total revenues) and a net asset
value of $8.4 billion at or for the year ended 1999                 

  - management fees of $39.8 million (14% of total revenues) and a net asset
value of $7.8 billion at or for the year ended 1998                 

  - management fees of $32.8 million (14% of total revenues) and a net asset
value of $6.5 billion at or for the year ended 1997                 

 Our 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. We   
periodically introduce new mutual funds designed to complement and expand our   
investment product offerings, respond to competitive developments in the        
financial marketplace, and meet the changing needs of our clients. As part of   
broadening fund distribution, we have added the following funds:                

- Advisors Value (December 15, 2000)                                    

- Advisors Municipal Money Markets (December 15, 2000)                  

- W&R Large Cap Growth Fund (June 26,2000)                              

- W&R Mid Cap Growth Fund (June 26,2000)                                

- W&R Tax-Managed Equity Fund (June 26, 2000)                           

- W&R Money Market Fund (June 26, 2000)                                 

- Advisors Tax Managed Equity (April 3, 2000)                           

- Advisors Small Cap (October 2, 1999)                                  

   Effective June 30, 2000, we also renamed the W&R Growth Fund the "W&R Small
Cap Growth Fund".                                                               

Effective September 18, 2000, we transformed the Waddell & Reed Advisors
High Income Fund II to the "Waddell & Reed Advisors Global Bond Fund" by        
changing its name and its strategy.                                             

  In addition to performing investment management services for the Funds, we
act as an investment advisor and portfolio manager for institutional and other  
private investors. We receive a fee that is generally based on a percentage of  
assets under management for our services as an investment advisor or portfolio  
manager. Assets under management for institutional and private accounts totaled 
$5.9 billion at September 30, 2000. Investment management fees from             
institutional and private accounts were $20.1 million, or 10.5%, of total       
investment management fees, for the nine months ended September 30, 2000.       

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Ending and average assets under management for the nine months ended    
September 30, 2000 and 1999 and for last three years were:                      

                                                        [Enlarge/Download Table]

                                                 NINE MONTHS ENDED SEPTEMBER 30,           
                                       ----------------------------------------------------
                                              2000                  1999             1999  
                                       -------------------   -------------------   --------
                                        ENDING    AVERAGE     ENDING    AVERAGE     ENDING 
                                       --------   --------   --------   --------   --------
                                                          (IN MILLIONS)                    
                                                                                           
Advisors Funds                                                                             
  Equity.............................. $24,660    $24,219    $17,756    $17,527    $22,626 
  Fixed-income........................   2,844      2,967      3,337      3,525      3,190 
  Money market........................     889        800        728        677        812 
                                       -------    -------    -------    -------    ------- 
                                        28,393     27,986     21,821     21,729     26,628 
W&R Funds                                                                                  
  Equity..............................   1,742      1,822      1,326      1,181      1,785 
  Fixed-income........................      65         70         90         89         82 
                                       -------    -------    -------    -------    ------- 
                                         1,807      1,892      1,416      1,270      1,867 
Target Funds                                                                               
  Equity..............................   3,617      3,449      2,441      2,309      3,113 
  Fixed-income........................     226        228        239        245        237 
  Money market........................      50         58         60         56         64 
                                       -------    -------    -------    -------    ------- 
                                         3,893      3,735      2,740      2,610      3,414 
Total Mutual Funds                                                                         
  Equity..............................  30,019     29,490     21,523     21,017     27,524 
  Fixed-income........................   3,135      3,265      3,666      3,859      3,509 
  Money market........................     939        858        788        733        876 
                                       -------    -------    -------    -------    ------- 
                                        34,093     33,613     25,977     25,609     31,909 
Institutional and Separate Accounts...   5,927      5,847      4,769      3,635      5,393 
                                       -------    -------    -------    -------    ------- 
Total Assets Under Management......... $40,020    $39,460    $30,746    $29,244    $37,302 
                                       =======    =======    =======    =======    ======= 


                                                     YEAR ENDED DECEMBER 31,               
                                       ----------------------------------------------------
                                         1999            1998                  1997        
                                       --------   -------------------   -------------------
                                       AVERAGE     ENDING    AVERAGE     ENDING    AVERAGE 
                                       --------   --------   --------   --------   --------
                                                          (IN MILLIONS)                    
                                                                                           
Advisors Funds                                                                             
  Equity.............................. $18,123    $16,713    $15,320    $13,687    $12,761 
  Fixed-income........................   3,464      3,637      3,652      3,632      3,499 
  Money market........................     693        644        572        529        498 
                                       -------    -------    -------    -------    ------- 
                                        22,280     20,994     19,544     17,848     16,758 
W&R Funds                                                                                  
  Equity..............................   1,261      1,050        906        779        684 
  Fixed-income........................      88         85         74         66         58 
                                       -------    -------    -------    -------    ------- 
                                         1,349      1,135        980        845        742 
Target Funds                                                                               
  Equity..............................   2,415      2,127      1,859      1,627      1,452 
  Fixed-income........................     243        245        235        223        204 
  Money market........................      58         54         45         43         38 
                                       -------    -------    -------    -------    ------- 
                                         2,716      2,426      2,139      1,893      1,694 
Total Mutual Funds                                                                         
  Equity..............................  21,799     19,890     18,085     16,093     14,897 
  Fixed-income........................   3,795      3,967      3,961      3,921      3,761 
  Money market........................     751        698        617        572        536 
                                       -------    -------    -------    -------    ------- 
                                        26,345     24,555     22,663     20,586     19,194 
Institutional and Separate Accounts...   3,953      3,189      2,947      2,831      2,103 
                                       -------    -------    -------    -------    ------- 
Total Assets Under Management......... $30,298    $27,744    $25,610    $23,417    $21,297 
                                       =======    =======    =======    =======    ======= 

INVESTMENT MANAGEMENT AGREEMENTS                                                

We provide 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 we render 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  
investment objectives and policies. The investment management agreements permit 
us to enter into separate agreements for shareholder services or accounting     
services with the respective Funds.                                             

SERVICE AGREEMENTS                                                              

   We provide 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, we perform 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.                                       

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The Funds pay a monthly fee to us for such services. Pursuant to the    
accounting service agreements, we provide 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 shareholder reports. The Funds pay  
us a monthly fee for such services. A Fund's shareholder servicing agreement and
accounting service agreement may be adopted or amended with the approval of the 
Fund's directors who are not interested persons. Each of the shareholder        
servicing agreements and accounting service agreements has annually renewable   
terms of one year expiring on October 1st of each year.                         

UNDERWRITING AND DISTRIBUTION                                                   

    We distribute the Funds pursuant to an underwriting agreement with each Fund
(except the Target Funds). We distribute products relating to the Target Funds  
under an underwriting agreement between Waddell & Reed and UILIC, and as        
announced on October 23, 2000, we will distribute products relating to the      
Target Funds under an underwriting agreement between Waddell & Reed and         
Nationwide. Commissions paid to us by UILIC for distribution of these products  
comprised 12% of our total revenues for the nine months ended September 30,     
2000, and 13%, 12% and 12% of our total revenues for each of the years ended    
1999, 1998 and 1997, respectively. In addition, the Target Funds will also be   
sold through Nationwide. Under each underwriting agreement with a Fund, we offer
and sell the Fund's shares on a continual basis and pay the costs of sales      
literature and printing of prospectuses furnished to it by the Fund. We receive 
underwriting commissions for such services, a major portion of which is paid to 
our financial advisors and sales managers. Class A shares have front-end sales  
charges, Class B shares have back-end sales charges on early redemptions and    
convert to Class A shares by the eighth year, Class C shares are level-load     
shares with no conversion feature, and Class Y shares are shares intended for   
institutional investors. We charge a sales charge to clients upon purchase of   
Class A shares, which ranges from zero to 5.75% of the amount invested. The     
sales charge for the Class A shares typically declines as the net asset value of
the account increases. In addition, investors may combine their purchases of the
Funds' shares to qualify for the reduced sales charge. Investors in the Class B 
shares pay no sales charge at the point of sale, but generally pay contingent   
deferred sales charges upon redemption of shares of up to 5% of the net asset   
value of the redeemed shares declining to zero for shares held for more than six
years. Class B shares convert to Class A shares by the end of the eighth year.  
Investors in the Class C shares pay no sales charge at the point of sale, but   
generally pay a contingent deferred sales charge of 1% declining to zero for    
shares held for more than 12 months. Class C shares do not convert.             

Under a distribution and service plan, shareholders of the Class B and C
shares pay a Rule 12b-1 distribution fee of 1.00% (.75% distribution and .25%   
service) of the average daily net assets as compensation for distributing shares
and servicing shares of those classes. Class A shareholders (except money market
funds) may pay up to a maximum Rule 12b-1 fee of .25% of the average daily net  
assets as compensation and reimbursement for expenses in connection with        
distributing shares, providing personal service to shareholders of the Funds,   
and maintaining shareholder accounts of the Funds. Likewise, Class Y shares are 
subject to a .25% fee pursuant to a distribution and service plan and           
shareholders of the Target Funds may pay a .25% fee pursuant to a service plan, 
both computed as stated above. Each distribution and/or service plan is subject 
to annual approval by the Funds' board of directors, including a majority of the
independent directors, cast in person at a meeting called for the purpose of    
voting on such approval. The Funds may terminate the distribution and service   
plans at any time without penalty.                                              

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Our investment product sales are summarized as follows:                 

INVESTMENT PRODUCT SALES                                                        

                                                        [Enlarge/Download Table]

                                              NINE MONTHS ENDED,              YEAR ENDED          
                                                 SEPTEMBER 30,               DECEMBER 31,         
                                              -------------------   ------------------------------
                                                2000       1999       1999       1998       1997  
                                              --------   --------   --------   --------   --------
                                                                 (IN $MILLIONS)                   
                                                                                                  
Front-load (Class A)......................... $1,259.1    1,025.3    1,329.0    1,266.8    1,092.7
Back-load (Class B)..........................    303.3      289.3      355.8      252.3      175.7
Level-load (Class C).........................    201.1         --       51.3         --         --
Target Funds (variable Products).............    476.8      297.4      413.7      308.4      249.8
                                              --------   --------   --------   --------   --------
Total retail................................. $2,240.3    1,612.0    2,149.8    1,827.5    1,518.2
Institutional................................    813.8      731.2    1,091.7      491.4      831.0
                                              --------   --------   --------   --------   --------
Total........................................ $3,054.1    2,343.2    3,241.5    2,318.9    2,349.2
                                              ========   ========   ========   ========   ========

FUNDS SUMMARY 

The following table sets forth for each management style the net assets 
under management as of September 30, 2000, the family and fund names as well as 
the year in which each Fund was first offered to the public.                    

                                                        [Enlarge/Download Table]

                      ASSETS (IN $                                                    
MANAGEMENT STYLE       MILLIONS)                  FUNDS              YEAR OF INCEPTION
----------------      ------------                -----              -----------------
                                                                                      
Large Capitalization    $ 1,448     Advisors Retirement Shares              1972      
Growth                    2,588     Advisors Accumulative                   1940      
                          3,972     Advisors Science and Technology         1950      
                          3,049     Advisors Vanguard                       1969      
                             19     W&R Large Cap Growth                    2000      
                            224     W&R Science and Technology              1997      
                          1,374     Target Growth                           1987      
                            319     Target Science and Technology           1997      
                             26     Advisors Tax-Managed Equity             2000      
                              3     W&R Tax-Managed                         2000      
                        -------                                                       
                        $13,022                                                       

Mid Capitalization      $ 1,889     Advisors New Concepts                   1983      
Growth                       10     W&R Mid Cap Growth                      2000      
                        -------                                                       
                        $ 1,899                                                       

Small Capitalization    $   385     Advisors Small Cap                      1999      
Growth                      668     W&R Small Cap Growth                    1992      
                            363     Target Small Cap                        1994      
                        -------                                                       
                        $ 1,416                                                       

Large Capitalization    $ 9,037     Core Investment                         1940      
Core Equity                 574     W&R Core Equity                         1992      
                          1,088     Target Income                           1991      
                        -------                                                       
                        $10,699                                                       

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                                                        [Enlarge/Download Table]

                                ASSETS (IN $                                                   
MANAGEMENT STYLE                 MILLIONS)                  FUNDS             YEAR OF INCEPTION
----------------                ------------                -----             -----------------
                                                                                               
International Equity              $ 1,590     Advisors International Growth          1970      
                                      186     W&R International Growth               1992      
                                      285     Target International                   1994      
                                  -------                                                      
                                  $ 2,061                                                      

Balanced and Asset Allocation     $   577     Advisors Continental Income            1970      
                                       98     Advisors Asset Strategy                1995      
                                       57     W&R Asset Strategy                     1995      
                                       44     Target Asset Strategy                  1995      
                                      145     Target Balanced                        1994      
                                  -------                                                      
                                  $   921                                                      

Tax Exempt Bonds                  $   741     Advisors Municipal Bond                1976      
                                      419     Advisors Municipal High Income         1986      
                                       26     W&R Municipal Bond                     1992      
                                  -------                                                      
                                  $ 1,186                                                      

High Yield Bonds                  $   758     Advisors High Income                   1979      
                                      302     Advisors Global Income                 1986      
                                       20     W&R High Income                        1997      
                                      109     Target High Income                     1987      
                                  -------                                                      
                                  $ 1,189                                                      

Taxable Investment-grade Bonds    $   504     Advisors Bond                          1964      
                                       19     W&R Limited-Term Bond                  1992      
                                      119     Advisors Government Securities         1982      
                                        6     Target Limited-Term Bond               1994      
                                      112     Target Bond                            1987      
                                  -------                                                      
                                  $   760                                                      

Money Markets                     $   886     Advisors Cash Management               1979      
                                       50     Target Money Market                    1987      
                                        4     W&R Money Market                       2000      
                                  -------                                                      
                                  $   940                                                      
                                  -------                                                      
TOTAL                             $34,093                                                      
                                  =======                                                      

EMPLOYEES                                                                       

    At September 30, 2000, we had 1,283 full-time employees. Our 2,713 financial
advisors are made up of 2,435 independent contractors, and 278 district managers
and supervisors, that are employees. In addition, Legend has 298 retirement     
advisors.                                                                       

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DESCRIPTION OF THE NOTES

We will issue the notes under a senior indenture to be dated as of      
January 18, 2001, as supplemented by a supplemental indenture to be dated as of 
January 18, 2001, between Waddell & Reed and Chase Manhattan Trust Company,     
National Association, as trustee. When we refer to the indenture in this        
prospectus supplement, we are referring to the senior indenture as supplemented 
by the supplemental indenture. The following summarizes some of the material    
provisions of the notes. The notes are a series of senior debt securities       
described in the accompanying prospectus. The following description supplements,
and to the extent it is inconsistent, supercedes, the statements under          
"Description of Senior Debt Securities" in the accompanying prospectus. We refer
you to the accompanying prospectus for a description of the debt securities and 
the senior indenture. The following summary does not purport to be complete and 
is subject to, and qualified by reference to, all of the provisions of the      
indenture. As used in this description, the words "we," "us," "our" or          
"Waddell & Reed" do not include any current or future subsidiary of Waddell &   
Reed Financial, Inc.                                                            

GENERAL                                                                         

The notes will be initially limited to $200,000,000 aggregate principal 
amount at maturity. The notes will be issued only in fully registered form in   
denominations of $1,000 and integral multiples of $1,000, and will bear interest
from and including January 18, 2001 to but excluding the date of maturity, at   
the annual rate set forth on the cover page of this prospectus supplement. The  
notes will mature on January 18, 2006. Waddell & Reed will pay interest twice a 
year on January 18 and July 18 of each year, beginning July 18, 2001, to the    
persons in whose names the notes (or any predecessor notes) are registered in   
the security register at the close of business on the applicable regular record 
date, which is the January 3 or July 3 next preceding such interest payment     
date. Interest on the notes will be computed on the basis of a 360-day year of  
twelve 30-day months. Waddell & Reed will have the ability to reopen the series 
of notes and issue additional notes of the series. Waddell & Reed will not be   
able to redeem the notes before their stated maturity date, and the notes do not
provide for any sinking fund.                                                   

RANKING OF NOTES                                                                

  The notes will be unsecured and unsubordinated obligations. The notes will
rank equal in right of payment with all of our existing and future unsecured and
unsubordinated indebtedness. See "Risk Factors -- Our Holding Company Structure 
Results in Structural Subordination and May Affect Our Ability to Make Payments 
on the Notes".                                                                  

RATING OF NOTES                                                                 

 We expect the notes to be rated "Baa2" by Moody's Investor's Service Inc.
and "BBB" by Standard & Poor's Ratings Group.                                   

EVENTS OF DEFAULT                                                               

The following will be events of default for the notes:                  

  (1) default in payment of any interest when it becomes due and payable and
such default continues for a period of 30 days;                                 

(2) default in payment of the principal amount at maturity;             

  (3) default in the performance or breach by Waddell & Reed of any covenant
or warranty in the notes or the indenture upon receipt by Waddell & Reed of     
notice of such default by the trustee or by holders of not less than 10% in     
aggregate principal amount at maturity of the notes then outstanding,           

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and Waddell & Reed's failure to cure (or obtain a waiver of) such default within
60 days after receipt by Waddell & Reed of such notice;                         

   (4) (A) the failure of Waddell & Reed to make any payment by the end of any
applicable grace period after maturity of indebtedness, which term as used in   
the indenture means obligations (other than nonrecourse obligations) of         
Waddell & Reed for borrowed money or evidenced by bonds, debentures, notes or   
similar instruments (in an amount (taken together with amounts in (B)) in excess
of $10 million and continuance of such failure, or (B) the acceleration of      
indebtedness in an amount (taken together with the amounts in (A)) in excess of 
$10 million because of a default with respect to such indebtedness without such 
indebtedness having been discharged or such acceleration having been cured,     
waived, rescinded or annulled in case of (A) or (B) above, for a period of      
30 days after written notice to Waddell & Reed by the trustee or to Waddell &   
Reed and the trustee by the holders of not less than 25% in aggregate principal 
amount at maturity of the notes then outstanding; or                            

(5) certain events of bankruptcy, insolvency or reorganization affecting
Waddell & Reed.                                                                 

If an event of default shall have happened and be continuing, either the
trustee or the holders of not less than 25% in aggregate principal amount at    
maturity of the notes then outstanding may declare the issue price of the notes,
plus all accrued and unpaid interest, to be immediately due and payable.        
However, in the event of a default described under (5), above, the issue price  
of the notes, plus all accrued and unpaid interest, shall automatically become  
and be immediately due and payable.                                             

MODIFICATION                                                                    

  In addition to those modifications that require the consent of each holder
set forth under "Description of the Senior Debt Securities--Modification of the 
Senior Indenture; Waiver of Covenants" in the accompanying prospectus, the      
following modifications would require the consent of the holders of each        
outstanding note affected:                                                      

- alter the rate of interest on any note;                               

    - make any note payable in money or securities other than that stated in the
note;                                                               

- reduce the principal amount at maturity with respect to any note; and 

    - impair the right to institute suit for the enforcement of any payment with
respect to the notes.                                               

GOVERNING LAW                                                                   

    The indenture and the notes will be governed by, and construed in accordance
with, the laws of the State of New York, without regard to conflicts of laws    
principles.                                                                     

INFORMATION CONCERNING THE TRUSTEE                                              

Chase Manhattan Trust Company, National Association is the trustee.     

BOOK-ENTRY SYSTEM                                                               

The notes will only be issued in the form of global securities held in  
book-entry form. The Depositary Trust Company ("DTC") or its nominee will be the
sole registered holder of the notes for all purposes under the indenture. Owners
of beneficial interests in the notes represented by the global securities will  
hold their interests pursuant to the procedures and practices of DTC. As a      
result, beneficial interests in any such securities will be shown on, and       
transfers will be effected only through, records maintained by DTC and its      
direct and indirect participants and any such interest may not be exchanged for 
certificated securities, except in limited circumstances. Owners of beneficial  
interests must exercise any rights in respect of their interests in accordance  
with the procedures and practices of                                            

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DTC. Beneficial owners will not be holders and will not be entitled to any      
rights under the global securities or the indenture provided to the holders of  
the notes. Waddell & Reed and the trustee, and any of their respective agents,  
may treat DTC as the sole holder and registered owner of the global securities. 

EXCHANGE OF GLOBAL SECURITIES                                                   

   Each of the notes represented by a global security will be exchangeable for
certificated securities with the same terms only if:                            

  - DTC is unwilling or unable to continue as depositary or if DTC ceases to
     be a clearing agency registered under the Securities Exchange Act of 1934
and a successor depositary is not appointed by us within 90 days;   

   - We decide to discontinue use of the system of book-entry transfer through
DTC (or any successor depositary); or                               

- a default under the indenture occurs and is continuing.               

DTC has advised us as follows: DTC is a limited-purpose trust company   
organized under the New York Banking Law, a "banking organization" within the   
meaning of the New York Uniform Commercial Code, and a "clearing agency"        
registered participants, and it facilitates the settlement of transactions among
its participants in those securities through electronic computerized book-entry 
changes in participants' accounts, eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and      
dealers, including the agents, banks, trust companies, clearing corporation and 
other organizations, some of whom and/or their representatives own DTC. Access  
to DTC's book-entry system is also available to others, such as banks, brokers, 
dealers and trust companies that clear through or maintain a custodial          
relationship with a participant, either directly or indirectly.                 

UNDERWRITING

  We intend to offer our notes through the underwriters named below. Merrill
Lynch, Pierce, Fenner & Smith Incorporated is acting as representative of the   
underwriters named below. Subject to the terms and conditions set forth in the  
pricing agreement between us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from       
Waddell & Reed, the principal amount of the notes set forth opposite their names
below.                                                                          

                                                                [Download Table]

                                                               PRINCIPAL  
UNDERWRITER                                                      AMOUNT   
                                                              ------------
                                                                          
Merrill Lynch, Pierce, Fenner & Smith                                     
          Incorporated......................................  $140,000,000
Chase Securities Inc. ......................................    25,000,000
Morgan Stanley & Co. Incorporated ..........................    25,000,000
Stephens Inc. ..............................................    10,000,000
                                                              ------------
           Total............................................  $200,000,000
                                                              ============

  The underwriters have agreed to purchase all of the notes sold pursuant to
the pricing agreement if any of these notes are purchased. If an underwriter    
defaults, the pricing agreement provides that the purchase commitments of the   
nondefaulting underwriters may be increased or the pricing agreement may be     
terminated.                                                                     

Waddell & Reed has agreed to indemnify the underwriters against certain 
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those           
liabilities.                                                                    

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    The underwriters are offering the notes, subject to prior sale, when, as and
if issued to and accepted by them, subject to approval of legal matters by their
counsel, including the validity of the notes and other conditions contained in  
the pricing agreement, such as receipt by the underwriters of officers'         
certificates and legal opinions. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in whole or in part. 

COMMISSIONS AND DISCOUNTS                                                       

 The underwriters have advised us that they propose initially to offer the
notes to the public at the public offering price on the cover page of this      
prospectus supplement, and to dealers at that price less a concession not in    
excess of .35% of the principal amount of the notes. The underwriters may allow,
and the dealers may reallow, a discount not in excess of .25% of the principal  
amount of the notes to other dealers. After the initial offering, the public    
offering price, concession and discount may be changed.                         

  The expenses of the offering, not including the underwriting discount, are
estimated at $450,000 and are payable by Waddell & Reed.                        

NEW ISSUE OF NOTES                                                              

   The notes are a new issue of securities with no established trading market.
We do not intend to apply for listing of the notes on any national securities   
exchange or for quotation of the notes on any automated dealer quotation system.
We have been advised by the underwriters that they presently intend to make a   
market in the notes after the completion of the offering. However, they are     
under no obligation to do so and may discontinue any market-making activities at
any time without any notice. We cannot assure the liquidity of the trading      
market for the notes or that an active public market for the notes will develop.
If an active public trading market for the notes does not develop, the market   
price and liquidity of the notes may be adversely affected.                     

PRICE STABILIZATION AND SHORT POSITIONS                                         

    In connection with the offering, the underwriters are permitted to engage in
transactions that stabilize the market price of the notes. Such transactions    
consist of bids or purchases to peg, fix or maintain the price of the notes. If 
the underwriters create a short position in the notes in connection with the    
offering, that is, if they sell more notes than is set forth on the cover page  
of this prospectus supplement, the underwriters may reduce that short position  
by purchasing notes in the open market. Purchases of a security to stabilize the
price or to reduce a short position could cause the price of the security to be 
higher than it might be in the absence of such purchases.                       

Neither we nor any of the underwriters makes any representation or      
prediction as to the direction or magnitude of any effect that the transactions 
described above may have on the price of the notes. In addition, neither        
Waddell & Reed nor any of the underwriters makes any representation that the    
underwriters will engage in these transactions or that these transactions, once 
commenced, will not be discontinued without notice.                             

OTHER RELATIONSHIPS                                                             

In the ordinary course of their businesses, some of the underwriters and
their affiliates have engaged, and in the future may engage, in investment      
banking or commercial banking transactions with us or our affiliated companies, 
including acting as lenders under certain of Waddell & Reed's credit facilities.
A portion of the proceeds of the offering may be paid to affiliates of certain  
of the underwriters. In the event that more than 10% of the net proceeds of the 
offering are paid to affiliates of the underwriters, the offering will be made  
pursuant to Rule 2710(c)(8) of the Conduct Rules of the                         

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National Association of Securities Dealers, Inc. Chase Manhattan Trust Company, 
National Association, the trustee, is an affiliate of Chase Securities Inc.     

VALIDITY OF THE NOTES 

The validity of the notes offered hereby will be passed upon for us by  
Daniel C. Schulte, Vice President and General Counsel of Waddell & Reed, and by 
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, and for the       
underwriters by Brown & Wood LLP, New York, New York.                           

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                [Download Table]
                                                                  
Independent Auditors' Report................................  F-2 

Consolidated Balance Sheets at December 31, 1999 and 1998...  F-3 

Consolidated Statements of Operations for the Years Ended         
  December 31, 1999, 1998 and                                     
  1997......................................................  F-4 

Statement of Changes in Stockholders' Equity for the Years        
  Ended December 31, 1999, 1998 and 1997....................  F-5 

Consolidated Statements of Comprehensive Income for the           
  Years Ended December 31, 1999, 1998 and 1997..............  F-6 

Consolidated Statements of Cash Flows for the Years Ended         
  December 31, 1999, 1998 and                                     
  1997......................................................  F-7 

Notes to Consolidated Financial Statements..................  F-8 

Consolidated Balance Sheets at December 31, 1999 and              
  September 30, 2000 (Unaudited)............................  F-22

Consolidated Statements of Operations for the Three and Nine      
  Month Periods Ended September 30, 2000 and 1999                 
  (Unaudited)...............................................  F-23

Statement of Changes on Stockholders' Equity for the for the      
  Nine Month Period Ended September 30, 2000 (Unaudited)....  F-24

Consolidated Statements of Comprehensive Income for the           
  Three and Nine Month Periods Ended September 30, 2000 and       
  1999 (Unaudited)..........................................  F-25

Consolidated Statements of Cash Flows for the Nine Month          
  Period Ended September 30, 2000 and 1999 (Unaudited)......  F-26

Notes to Unaudited Consolidated Financial Statements........  F-27

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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, 1999 and 1998 and the  
related consolidated 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, 1999. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audits.         

We conducted our audits in accordance with 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, 1999 and 1998 and the  
results of their operations and their cash flows for each of the years in the   
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.                                                          

KPMG LLP                                                                        

Kansas City, Missouri                                                           
February 11, 2000, except as to note 16, which is as of April 7, 2000.          

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                             DECEMBER 31,  DECEMBER 31,
                                                                 1999          1998    
                                                             ------------  ------------
                                                                                       
                           ASSETS                                                      
Assets:                                                                                
  Cash and cash equivalents.................................   $ 60,977       30,180   
  Investment securities, available-for-sale.................     90,245      103,153   
  Receivables:                                                                         
    United funds and W&R funds..............................      7,597        5,740   
    Customers and other.....................................     19,541       28,865   
  Deferred income taxes.....................................         37        1,309   
  Prepaid expenses and other current assets.................      7,111        3,222   
                                                               --------      -------   
    Total current assets....................................    185,508      172,469   
                                                               --------      -------   
  Property and equipment, net...............................     27,633       20,649   
  Investment in real estate.................................         --       21,754   
  Deferred sales commissions, net...........................      1,851       15,710   
  Goodwill (net of accumulated amortization of $26,493 and                             
    $23,269)................................................    112,994       95,928   
  Deferred income taxes.....................................      5,665           --   
  Other assets..............................................      1,422          669   
                                                               --------      -------   
    Total assets............................................   $335,073      327,179   
                                                               ========      =======   
            LIABILITIES AND STOCKHOLDERS' EQUITY                                       
Liabilities:                                                                           
  Accounts payable..........................................   $ 34,002       28,304   
  Accrued sales force compensation..........................     14,578       11,916   
  Short term notes payable..................................    125,307       40,076   
  Income taxes payable......................................      8,284       13,464   
  Other current liabilities.................................     16,456       16,034   
                                                               --------      -------   
    Total current liabilities...............................    198,627      109,794   
                                                               --------      -------   
  Deferred income taxes.....................................         --          208   
  Accrued pensions and post-retirement costs................     10,103       10,041   
                                                               --------      -------   
    Total liabilities.......................................    208,730      120,043   
                                                               --------      -------   
Stockholders' equity:                                                                  
  Common stock (See table below)............................        997          997   
  Additional paid-in capital................................    238,434      245,939   
  Retained earnings.........................................     97,129       47,325   
  Deferred compensation.....................................    (11,246)     (12,494)  
  Treasury stock (See table below)..........................   (198,360)     (74,833)  
  Accumulated other comprehensive income....................       (611)         202   
                                                               --------      -------   
    Total stockholders' equity..............................    126,343      207,136   
                                                               --------      -------   
Total liabilities and stockholders' equity..................   $335,073      327,179   
                                                               ========      =======   

                                                        [Enlarge/Download Table]

                                                     1999                       1998           
COMMON STOCK                               -------------------------  -------------------------
($.01 PAR VALUE)                             CLASS A       CLASS B      CLASS A       CLASS B  
----------------                           -----------   -----------  -----------   -----------
                                                                                               
Authorized................................ 225,000,000   150,000,000  225,000,000   150,000,000
Issued....................................  48,213,261    51,487,500   48,213,261    51,487,500
Outstanding...............................  44,478,318    41,971,870   46,359,668    47,867,934
Treasury Stock............................   3,734,943     9,515,630    1,853,593     3,619,566

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 

(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                     FOR THE YEARS          
                                                                   ENDED DECEMBER 31,       
                                                             ------------------------------ 
                                                               1999       1998       1997   
                                                             --------   --------   -------- 
                                                                                            
Revenue:                                                                                    
  Investment management fees................................ $178,612   $137,823   $117,784 
  Underwriting and distribution fees........................  126,318    106,615     89,427 
  Shareholder service fees..................................   41,525     33,808     30,763 
  Investment and other revenue..............................   10,202      9,043      3,798 
                                                             --------   --------   -------- 
    Total revenue...........................................  356,657    287,289    241,772 
                                                             --------   --------   -------- 
Expenses:                                                                                   
  Underwriting and distribution.............................  124,938     99,575     79,995 
  Compensation and related costs............................   44,944     31,512     26,618 
  General and administrative................................   19,245      8,551     15,826 
  Depreciation..............................................    2,162      1,892      1,307 
  Interest expense..........................................    6,546        704         -- 
  Amortization of goodwill..................................    3,224      2,903      2,903 
  Loss on sale of real estate...............................    4,592         --         -- 
  Write-off of deferred acquisition costs...................   18,981         --         -- 
                                                             --------   --------   -------- 
    Total expenses..........................................  224,632    145,137    126,649 
                                                             --------   --------   -------- 
Income before affiliated items and provision for income                                     
  taxes.....................................................  132,025    142,152    115,123 
Affiliated items:                                                                           
  Interest income...........................................       --      1,950     11,323 
  Interest expense..........................................       --     (8,604)   (11,299)
                                                             --------   --------   -------- 
Income before provision for income taxes....................  132,025    135,498    115,147 
Provision for income taxes..................................   50,258     51,763     44,855 
                                                             --------   --------   -------- 
    Net income.............................................. $ 81,767   $ 83,735   $ 70,292 
                                                             ========   ========   ======== 
Net income per share:                                                                       
  -- Basic.................................................. $   0.91   $   0.85   $   0.71 
                                                             ========   ========   ======== 
  -- Diluted................................................ $   0.89   $   0.84   $   0.71 
                                                             ========   ========   ======== 
Weighted average shares outstanding:                                                        
  -- Basic..................................................   89,456     98,681     99,701 
  -- Diluted................................................   91,548     99,269     99,701 
Dividends declared per common share......................... $ 0.3536   $ 0.3536   $ 0.0000 

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

                                                        [Enlarge/Download Table]

                                                                                DIVIDENDS IN                            
                                                                                  EXCESS OF                             
                                                                              RETAINED EARNINGS                         
                                    COMMON STOCK       ADDITIONAL              AND ADDITIONAL                           
                                 -------------------    PAID-IN    RETAINED        PAID-IN         DEFERRED    TREASURY 
                                  SHARES     AMOUNT     CAPITAL    EARNINGS        CAPITAL       COMPENSATION   STOCK   
                                 --------   --------   ----------  --------   -----------------  ------------  -------- 
                                                                     (IN THOUSANDS)                                     
                                                                                                                        
Balance at December 31, 1996....  63,450      $635       231,756        --              --              --          --  

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....  63,450       635          (212)       --        (230,658)             --          --  

Net income......................      --        --            --    73,712          10,023              --          --  
Issuance of restricted shares...     446         4         5,259        --              --         (12,494)         --  
IPO proceeds....................  35,805       358       295,021        --         220,635              --          --  
Dividends paid..................      --        --            --   (26,387)             --              --          --  
Other distributions.............      --        --       (54,129)       --              --              --          --  
Treasury stock repurchases......      --        --            --        --              --              --     (74,833) 
Unrealized loss on investment                                                                                           
  securities....................      --        --            --        --              --              --          --  
                                  ------      ----      --------   -------        --------         -------     -------- 

Balance at December 31, 1998....  99,701       997       245,939    47,325              --         (12,494)    (74,833) 

Net income......................      --        --            --    81,767              --              --          --  
Recognition of deferred                                                                                                 
  compensation..................      --        --            --        --              --           1,370          --  
Issuance of restricted shares...      --        --             6        --              --            (122)        116  
Dividends paid..................      --        --            --   (31,963)             --              --          --  
Exercise of stock options.......      --        --       (15,964)       --              --              --       8,537  
Tax benefit from exercise of                                                                                            
  options.......................      --        --         8,453        --              --              --          --  
Treasury stock repurchases......      --        --            --        --              --              --     (132,180)
Unrealized loss on investment                                                                                           
  securities....................      --        --            --        --              --              --          --  
                                  ------      ----      --------   -------        --------         -------     -------- 

Balance at December 31, 1999....  99,701       997       238,434    97,129              --         (11,246)    (198,360)
                                  ======      ====      ========   =======        ========         =======     ======== 



                                  ACCUMULATED                                                                           
                                     OTHER            TOTAL                                                             
                                 COMPREHENSIVE    STOCKHOLDERS'                                                         
                                    INCOME       EQUITY (DEFICIT)                                                       
                                 -------------   ----------------                                                       
                                          (IN THOUSANDS)                                                                
                                                                                                                        
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                                                           
Net income......................       --              81,767                                                           
Recognition of deferred                                                                                                 
  compensation..................       --               1,370                                                           
Issuance of restricted shares...       --                  --                                                           
Dividends paid..................       --             (31,963)                                                          
Exercise of stock options.......       --              (7,427)                                                          
Tax benefit from exercise of                                                                                            
  options.......................       --               8,453                                                           
Treasury stock repurchases......       --            (132,180)                                                          
Unrealized loss on investment                                                                                           
  securities....................     (813)               (813)                                                          
                                     ----            --------                                                           
Balance at December 31, 1999....     (611)            126,343                                                           
                                     ====            ========                                                           

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                  FOR THE YEARS ENDED      
                                                             ------------------------------
                                                               1999       1998       1997  
                                                             --------   --------   --------
                                                                                           
Net income.................................................. $81,767     83,735     70,292 
Other comprehensive income:                                                                
  Net unrealized appreciation (depreciation) of investments                                
    during the period, net of income taxes of $(387),                                      
    $(150), and $110........................................    (616)      (249)       180 
  Reclassification adjustment for amounts included in net                                  
    income, net of income taxes of $(124), $64, and $0......    (197)       107         -- 
                                                             -------     ------     ------ 
Comprehensive Income........................................ $80,954     83,593     70,472 
                                                             =======     ======     ====== 

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                  FOR THE YEARS ENDED      
                                                                      DECEMBER 31,         
                                                             ------------------------------
                                                               1999       1998       1997  
                                                             --------   --------   --------
                                                                                           
Cash flows from operating activities:                                                      
  Net income................................................ $ 81,767     83,735    70,292 
  Adjustments to reconcile net income to net cash provided                                 
    by operating activities:                                                               
    Depreciation and amortization...........................    5,386      4,795     4,210 
    Recognition of deferred compensation....................    1,370      1,333        -- 
    (Gain)/loss on sale of investments......................     (375)       171        -- 
    Loss on sale and retirement of fixed assets.............       67         75        65 
    Write-off of deferred acquisition cost..................   18,981         --        -- 
    Loss on sale of real estate.............................    4,592         --        -- 
    Capital gains and dividends reinvested..................     (471)      (399)      (78)
    Deferred income taxes...................................   (4,089)    (1,988)       27 
    Changes in assets and liabilities net of acquisition:                                  
      Receivables from funds................................   (1,857)    (1,709)     (452)
      Other receivables.....................................   10,788    (23,818)   (1,195)
      Due to/from affiliates -- operating...................       --      4,509    (4,217)
      Other assets..........................................   (9,728)    (3,661)   (5,383)
      Accounts payable......................................    5,457      5,375    (1,883)
      Other liabilities.....................................   (3,596)    10,237       898 
                                                             --------   --------   ------- 
Net cash provided by operating activities...................  108,292     78,655    62,284 
                                                             --------   --------   ------- 
Cash flows from investing activities:                                                      
  Additions to investment securities........................  (16,201)  (110,652)      (40)
  Proceeds from sales of investment securities..............      635     24,020         1 
  Proceeds from maturity of investment securities...........   27,995      2,424     1,260 
  Additions to property and equipment.......................   (9,096)    (7,602)   (3,218)
  Investment in real estate.................................      551     (5,913)       -- 
  Proceeds from sale of real estate.........................   16,452         --        -- 
  Investment in Austin, Calvert, and Flavin, (net of $1,611                                
    cash acquired)..........................................  (19,557)        --        -- 
  Other.....................................................       --          7        50 
                                                             --------   --------   ------- 
Net cash used by/(used in) investing activities.............      779    (97,716)   (1,947)
                                                             --------   --------   ------- 
Cash flows from financing activities:                                                      
  Cash dividends to parent..................................       --         --   (51,665)
  Proceeds from IPO.........................................       --    516,014        -- 
  Net borrowings on credit facility.........................   85,000     40,000        -- 
  Cash dividends............................................  (31,963)   (26,387)       -- 
  Change in due to/from affiliates -- nonoperating..........       --   (479,373)  (37,888)
  Purchase of treasury stock................................ (132,180)   (74,833)       -- 
  Exercise of stock options.................................      869         --        -- 
  Cash contributions from parent............................       --         --    44,033 
                                                             --------   --------   ------- 
Net cash used in financing activities.......................  (78,274)   (24,579)  (45,520)
                                                             --------   --------   ------- 
Net increase (decrease) in cash and cash equivalents........   30,797    (43,640)   14,817 
Cash and cash equivalents at beginning of year..............   30,180     73,820    59,003 
                                                             --------   --------   ------- 
Cash and cash equivalents at end of year.................... $ 60,977     30,180    73,820 
                                                             ========   ========   ======= 
Cash paid for:                                                                             
  Income taxes.............................................. $ 50,551     48,830    65,754 
  Interest..................................................    5,932        628        -- 

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999, 1998, AND 1997 

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 1999, management fees from the   
United Income Fund were $44.4 million or 12% of total revenues. The United      
Income Fund had a net asset value of $8.4 billion at December 31, 1999 and was  
the Company's largest fund.                                                     

    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 Corporation (together, "Torchmark").  
The Company was wholly owned by Torchmark until March 4, 1998, when the Company 
completed the initial public offering of its Class A Common Stock ("Offering"), 
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. 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 1999 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.                                                    

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.        

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION    
(CONTINUED)                                                                     
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 90 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                                                            

    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.                                                           

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.                                                     

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 and the August 1999 acquisition of Austin Calvert & Flavin, Inc.      
("ACF") by the Company. Amortization related to the acquisition of the Company  
by Torchmark is on a straight-line basis over 40 years. Amortization related to 
the acquisition of ACF by the Company is on a straight-line basis over          
25 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.                                                                          

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

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

    The Company defers certain costs, principally selling commissions, which are
paid to financial advisors in connection with the sale of certain shares of     
Waddell & Reed funds and United funds. Beginning in the fourth quarter of 1999, 
the Company began restructuring its mutual fund products at which time the      
Waddell & Reed funds Class B shares were closed for new sales. Existing         
Waddell & Reed funds Class B shares will be converted to Waddell & Reed funds   
Class C shares in March 2000. The deferred acquisition costs associated with the
discontinued Waddell & Reed funds Class B shares were being amortized over the  
life of the shareholder investments not to exceed ten years. As a result of the 
discontinuation of these shares, the Company wrote off the balance of related   
deferred acquisition costs in the amount of $18,981,000 in the fourth quarter of
1999. Upon conversion of the Waddell & Reed Class B shares, no contingent       
deferred sales charge will be collected for any converted share redemptions.    
Concurrent with the restructuring of mutual fund products, the United Funds     
began selling Class B and Class C shares and the Waddell & Reed funds began     
selling Class C shares. The deferred costs associated with the sale of United   
funds Class B shares is amortized on a straight-line basis over the life of the 
shareholders' investments not to exceed six years. The deferred costs associated
with the sale of United funds Class C shares and the Waddell & Reed funds       
Class C shares are amortized on a straight-line basis not to exceed twelve      
months. The Company recovers such costs through 12b-1 distribution fees, which  
are paid by the Waddell & Reed funds and the United funds Class B and C shares  
along with contingent deferred sales charges paid by shareholders who redeem    
their shares prior to completion of the required holding periods.               

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       
$4,592,000, $2,845,000, and $1,046,000 for 1999, 1998 and 1997, respectively.   

EARNINGS PER SHARE                                                              

The weighted average number of shares for basic earnings per share was  
89,455,500, 98,680,500, and 99,700,500 for 1999, 1998 and 1997 respectively. The
weighted average number of shares used in computing diluted earnings per share, 
which reflects the potential impact of stock options and restricted stock       
awards, was 91,548,000, 99,268,500, and 99,700,500 for 1999, 1998 and 1997,     
respectively. The average number of shares used for 1997 is the actual shares   
outstanding at the Offering.                                                    

2. CASH AND CASH EQUIVALENTS                                                    

   Cash and cash equivalents at December 31, 1999 and 1998 include reserves of
$17,114,000 and $10,810,000, respectively, for the benefit of customers in      
compliance with securities industry regulations. Substantially all such reserves
are in excess of federal deposit insurance limits.                              

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE                                    

Investments at December 31, 1999 and 1998 are as follows:               

                                                                [Download Table]

                                      AMORTIZED  UNREALIZED   UNREALIZED            
1999                                    COST       GAINS        LOSSES    FAIR VALUE
----                                  ---------  ----------   ----------  ----------
                                                      (IN THOUSANDS)                
                                                                                    
United States government-backed                                                     
  mortgage securities................  $ 2,136          2           (3)      2,135  
Municipal bonds......................   39,225          7       (1,959)     37,273  
Corporate bonds......................   36,478          0         (822)     35,656  
Preferred stock......................    3,200          0            0       3,200  
Affiliated mutual funds..............   10,202      1,842          (63)     11,981  
                                       -------      -----       ------      ------  
                                       $91,241      1,851       (2,847)     90,245  
                                       =======      =====       ======      ======  

                                                                [Download Table]

                                     AMORTIZED  UNREALIZED   UNREALIZED            
1998                                   COST       GAINS        LOSSES    FAIR VALUE
----                                 ---------  ----------   ----------  ----------
                                                     (IN THOUSANDS)                
                                                                                   
United States government-backed                                                    
  mortgage securities............... $  2,944         50            0        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            0        8,411 
Affiliated mutual funds.............    3,547         25         (105)       3,467 
                                     --------      -----       ------      ------- 
                                     $102,825      1,614       (1,286)     103,153 
                                     ========      =====       ======      ======= 

Municipal and corporate bonds held as of December 31, 1999 mature as    
follows:                                                                        

                                                                [Download Table]

                                                            AMORTIZED     FAIR  
                                                              COST       VALUE  
                                                            ---------   --------
                                                               (IN THOUSANDS)   
                                                                                
Within one year...........................................   $ 2,005      2,035 
After one year but within five years......................    29,663     29,470 
After five years but within ten years.....................    19,262     19,064 
After ten years...........................................    24,773     22,360 
                                                             -------     ------ 
                                                             $75,703     72,929 
                                                             =======     ====== 

   In 1999, investment securities with fair value of $635,000 were sold, which
resulted in realized gain of $6,000. In 1998, investment securities with fair   
value of $24,020,000 were sold, which resulted in realized losses of $171,000.  

4. ACQUISITION OF SUBSIDIARY                                                    

On August 9, 1999, the Company acquired Austin, Calvert & Flavin, Inc.  
("ACF") in a business combination accounted for as a purchase. ACF, based in San
Antonio, TX, is primarily engaged in managing investments for trusts, high net  
worth families and individuals, and pension plans of corporations, hospitals,   
schools, labor unions, endowments, and foundations. The results of operations   

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

4. ACQUISITION OF SUBSIDIARY (CONTINUED)                                        
of ACF are included on the accompanying financial statements since the date of  
acquisition. The total cost of the acquisition, including expenses, was         
$21,168,000, which exceeded the fair value of the net assets of ACF by          
$20,289,000. The excess is being amortized on a straight-line basis over        
25 years. The acquisition agreement provides for additional purchase price      
payments based upon the achievement by ACF of specified earnings levels over the
next five years. These payments could aggregate as much as $8.7 million.        

A summary of the net assets acquired is as follows (in thousands):      

                                                                [Download Table]
                                                                     
Assets acquired                                                      
  Cash......................................................  $ 1,611
  Accounts Receivable.......................................    1,464
  Goodwill..................................................   20,289
  Other assets..............................................      156
                                                              -------
  Total.....................................................   23,520
Liabilities assumed.........................................    2,352
Total Purchase Price........................................  $21,168
                                                              =======

The table below presents supplemental pro forma information for 1999 and
1998 as if the ACF acquisition were made on January 1, 1998 at the same purchase
price, based on estimates and assumptions considered appropriate:               

                                                                [Download Table]

                                                     YEAR ENDED DECEMBER 31,  
                                                   ---------------------------
                                                       1999           1998    
                                                   ------------   ------------
                                                                              
Revenues.........................................  $360,593,000   $293,616,000
Net Income.......................................    81,808,000     83,744,000
Net Income per common share                                                   
  Basic..........................................          0.91           0.85
  Diluted........................................          0.89           0.85

5. INVESTMENT IN REAL ESTATE                                                    

 A summary of investment in real estate at December 31, 1998 is as follows
(in thousands):                                                                 

                                                                [Download Table]

                                                                     ESTIMATED  
                                                                    USEFUL LIVES
                                                                    ------------
                                                                                
Land....................................................    3,886               
Buildings...............................................   17,868   40 years    
                                                          -------               
Investment in real estate, at cost......................   21,754               
Less accumulated depreciation...........................        0               
                                                          -------               
Investment real estate, net.............................  $21,754               
                                                          =======               

 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                                          

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

5. INVESTMENT IN REAL ESTATE (CONTINUED)                                        
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 reimbursed TIP $5,913,000 for improvements made to that property    
while it was in the partnership.                                                

Effective December 28, 1999, the Company sold its investments in        
multi-tenant real estate properties to unrelated third parties. These properties
included four commercial buildings and land. Net proceeds from the sale were    
$16,452,000 which resulted in a $4,592,000 pre-tax loss.                        

Net rental income was $1,026,000 for the year ended 1999 and real estate
partnership income was $465,000 and $199,000 for the years ended December 31,   
1998 and 1997, respectively. Depreciation expense for the years ended           
December 31, 1999, 1998 and 1997 was $0, $0 and $18,000, respectively.          

6. PROPERTY AND EQUIPMENT                                                       

A summary of property and equipment at December 31, 1999 and 1998 is as 
follows:                                                                        

                                                                [Download Table]

                                                                       ESTIMATED  
                                                   1999       1998    USEFUL LIVES
                                                 --------   --------  ------------
                                                   (IN THOUSANDS)                 
                                                                                  
Land............................................ $ 5,260      4,680   --          
Building........................................  10,240      6,258   40 years    
Furniture and fixtures..........................  11,229      6,992   3-10 years  
Equipment and machinery.........................  14,718     13,903   3-10 years  
                                                 -------     ------               
Property and equipment, at cost.................  41,447     31,833               
Less accumulated depreciation...................  13,814     11,184               
                                                 -------     ------               
Property and equipment, net..................... $27,633     20,649               
                                                 =======     ======               

7. REVOLVING CREDIT AGREEMENT                                                   

 In October of 1999, the Company renewed its $220 million revolving credit
facility, expandable to $330 million, with a syndicate of eight banks. The      
credit facility is a 364-day revolving facility with an interest rate of LIBOR  
plus .625% plus an additional .125% fee when utilization of the facility exceeds
50%. The facility provides an additional source of capital to finance share     
repurchases, acquisitions and other general corporate needs. As of December 31, 
1999, the Company had $125 million outstanding on this facility. 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 these covenants at December 31, 1999.            

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

8. TRANSACTIONS WITH RELATED PARTIES                                            

Until the Offering in March of 1998, the Company was 100% owned by      
Torchmark. In November of 1998, Torchmark disposed of its remaining interest in 
the Company through a tax-free distribution to its shareholders. 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 $1,413,000, $2,401,000, and $1,241,000 for the years    
ended December 31, 1999, 1998 and 1997, respectively. These commissions were    
earned under contracts, which have been renewed for 2000 with substantially the 
same terms.                                                                     

The Company earns commissions from UILIC, a Torchmark subsidiary, for   
marketing life and health insurance products and variable annuities. For the    
years ended December 31, 1999, 1998 and 1997, the commissions amounted to       
$46,379,000, $36,724,000, and $30,612,000, respectively.                        

  Prior to the Offering, Torchmark performed certain administrative services
for the Company. Charges for such services were allocated based on a defined    
formula that prorated Torchmark's total costs for services provided based on    
each affiliate's assets and compensation expense. These charges were $2,008,000 
for the year ended December 31, 1997. During 1999 and 1998, no charges were made
pertaining to these administrative services because 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, 1999 and 1998, there were no amounts due from Torchmark and
its affiliates other than normal non-interest bearing amounts for current fees  
and commissions due from the sale of Torchmark products.                        

9. INCOME TAXES                                                                 

The components of total income tax expense are as follows:              

                                                                [Download Table]

                                                      1999       1998       1997  
                                                    --------   --------   --------
                                                            (IN THOUSANDS)        
                                                                                  
Currently payable:                                                                
  Federal.......................................... $46,608     46,845     38,939 
  State............................................   7,044      6,934      5,889 
                                                    -------     ------     ------ 
                                                     53,652     53,779     44,828 
Deferred taxes.....................................  (3,394)    (2,016)        27 
                                                    -------     ------     ------ 
Income tax expense from operations................. $50,258     51,763     44,855 
                                                    -------     ------     ------ 
Stockholders' equity-unrealized gain (loss) on                                    
  investment securities available- for-sale........    (511)       (86)       110 
                                                    -------     ------     ------ 
Total income taxes................................. $49,747     51,677     44,965 
                                                    =======     ======     ====== 

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

9. INCOME TAXES (CONTINUED)                                                     
The tax effect of temporary differences that give rise to significant   
portions of deferred tax liabilities and deferred tax assets at December 31,    
1999, 1998 and 1997 are as follows:                                             

                                                                [Download Table]

                                                       1999       1998       1997  
                                                     --------   --------   --------
                                                             (IN THOUSANDS)        
                                                                                   
Deferred tax liabilities:                                                          
  Deferred acquisition costs........................ $  (703)    (5,732)    (4,680)
  Fixed assets......................................    (328)         0       (824)
  Other.............................................    (391)      (648)      (500)
                                                     -------     ------     ------ 
Total gross deferred liabilities....................  (1,422)    (6,380)    (6,004)
                                                     -------     ------     ------ 
Deferred tax assets:                                                               
  Benefit plans.....................................   4,203      3,824      3,557 
  Accrued expenses..................................   2,921      2,674      1,442 
  Fixed assets......................................       0        983          0 
                                                     -------     ------     ------ 
Total gross deferred assets.........................   7,124      7,481      4,999 
                                                     -------     ------     ------ 
Net deferred tax asset (liability).................. $ 5,702      1,101     (1,005)
                                                     =======     ======     ====== 

A valuation allowance for deferred tax assets was not necessary at      
December 31, 1999, 1998, and 1997. The following table reconciles the statutory 
federal income tax rate to the Company's effective income tax rate:             

                                                                [Download Table]

                                                       1999      1998      1997  
                                                     --------  --------  --------
                                                                                 
Statutory federal income tax rate...................    35.0%     35.0      35.0 
State income taxes, net of federal tax benefits.....     3.3       3.3       3.3 
Other items.........................................    (0.2)     (0.1)      0.7 
                                                     -------    ------    ------ 
Effective income tax rate...........................    38.1%     38.2      39.0 
                                                     =======    ======    ====== 

10. 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                          

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

10. RETIREMENT PLAN (CONTINUED)                                                 
employment. This plan invests in equity securities of large capitalization      
companies, investment grade corporate and government bonds, and cash and cash   
equivalents.                                                                    

                                                                [Download Table]

                                                               1999       1998  
                                                             --------   --------
                                                               (IN THOUSANDS)   
                                                                                
Change in benefit obligation                                                    
  Benefit obligation at beginning of year................... $31,254     28,979 
  Service cost..............................................   2,328      1,612 
  Interest cost.............................................   2,387      2,294 
  Actuarial loss (gain).....................................    (847)     2,733 
  Benefits paid.............................................  (1,294)    (4,364)
                                                             -------     ------ 
  Benefit obligation at end of year......................... $33,828     31,254 
                                                             =======     ====== 
Change in plan assets:                                                          
  Fair value of plan assets at beginning of year............ $28,066     25,689 
  Actual return on plan assets..............................   6,859      5,249 
  Company contribution......................................   3,456      1,492 
  Benefits paid.............................................  (1,294)    (4,364)
                                                             -------     ------ 
  Fair value of plan assets at end of year.................. $37,087     28,066 
                                                             =======     ====== 
Funded status of plan....................................... $ 3,260     (3,188)
Unrecognized actuarial gain.................................  (8,036)    (3,097)
Unrecognized prior service cost.............................     628        673 
Unrecognized net transition obligation......................      98        103 
                                                             -------     ------ 
Net amount recognized....................................... $(4,050)    (5,509)
                                                             =======     ====== 

Weighted average assumptions as of December 31:                                 
  Discount rate.............................................    8.00%      6.75%
  Expected return on plan assets............................    9.25%      9.25%
  Rate of compensation increase.............................    5.50%      3.75%
Components of net periodic benefit cost:                                        
  Service cost.............................................. $ 2,328      1,612 
  Interest cost.............................................   2,387      2,294 
  Expected return on assets.................................  (2,607)    (2,407)
  Prior service cost amortization...........................      44         44 
  Transition obligation amortization........................       5          5 
                                                             -------     ------ 
  Net periodic benefit cost................................. $ 2,157      1,548 
                                                             =======     ====== 

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

11. 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.                                                

                                                                [Download Table]

                                                               1999       1998  
                                                             --------   --------
                                                               (IN THOUSANDS)   
                                                                                
Change in benefit obligation                                                    
  Benefit obligation at beginning of year..................  $ 1,151      1,142 
  Service cost.............................................       76         64 
  Interest cost............................................       90         92 
  Actuarial (gain) loss....................................       28        (70)
  Retiree contributions....................................       71         75 
  Benefits and expenses paid...............................     (147)      (152)
                                                             -------     ------ 
  Benefit obligation at end of year........................  $ 1,269      1,151 
                                                             =======     ====== 

Change in plan assets:                                                          
  Fair values of plan assets at beginning of year..........  $     0          0 
  Company contribution.....................................       76         77 
  Retiree contributions....................................       71         75 
  Benefits and expenses paid...............................     (147)      (152)
  Fair value of plan assets at end of year.................  $     0          0 
                                                             -------     ------ 
Funded status..............................................  $(1,269)    (1,151)
Unrecognized loss..........................................       90         62 
Unrecognized prior service cost............................     (160)      (175)
                                                             -------     ------ 
  Accrued benefit cost at December 31......................  $(1,339)    (1,264)
                                                             =======     ====== 
Weighted average assumptions as of December 31:                                 
  Discount rate............................................     7.75%      7.50%
Components of net periodic benefit cost:                                        
  Service cost.............................................       76         64 
  Interest cost............................................       90         92 
  Unrecognized amortization of prior service cost..........      (15)       (15)
  Unrecognized net actuarial gain..........................        0          0 
                                                             -------     ------ 
  Net periodic benefit cost................................  $   151        141 
                                                             =======     ====== 

    For measurement purposes, the health care cost trend rate was 7.5% and 8% in
1999 and 1998, respectively. The effect of a 1% annual increase in assumed cost 
trend rates would increase the December 31, 1999 accumulated postretirement     
benefit obligation by approximately $286,000, and the aggregate of the service  
and interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1999 by approximately $56,000. The effect of a 1% annual
decrease in assumed cost trend rates would decrease the December 31, 1999       
accumulated postretirement benefit obligation by approximately $249,000, and the
aggregate of the service and interest cost components of net periodic           
postretirement benefit cost for the year ended December 31, 1999 by             
approximately $48,000.                                                          

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

12. SAVINGS AND INVESTMENT PLANS                                                

The Company has a savings and investment plan covering substantially all
employees. Until December 31, 1998, this plan provided for a matching Company   
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 contributions to
the savings and investment plan for the years ended December 31, 1998 and 1997  
were $858,000, and $716,000, respectively. On January 1, 1999, the Company      
adopted a 401(k) plan for employees. This plan provides for a 100% Company match
on the first 3% of income and 50% on the next 2% of income, not to exceed 4% of 
the employee's eligible salary. The Company's contribution to the 401(k) plan   
for the year ended December 31, 1999 was $1,413,000.                            

13. EMPLOYEE STOCK OPTIONS                                                      

The Company has a fixed employee stock-based compensation plan ("Option 
Plan"), whereby the Company may grant options on its Class A 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 generally ten years and two   
days and generally vests one-third in each of the three years starting two years
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 which is the method used by the Company. 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.                                                         

 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:      

                                                                [Download Table]

                                                               1999      1998  
                                                             --------  --------
                                                                               
Dividend yield..............................................   2.10%     2.34% 
Risk-free interest rate.....................................   5.97      5.20  
Expected volatility.........................................  28.60     29.70  
Expected life (in years)....................................   4.71      4.71  

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        
5,541,150 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.                 

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

13. EMPLOYEE STOCK OPTIONS (CONTINUED)                                          
    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,   
1999 follows:                                                                   

                                                        [Enlarge/Download Table]

                                                     1999                           1998             
                                         -----------------------------  -----------------------------
                                                      WEIGHTED AVERAGE               WEIGHTED AVERAGE
                                          OPTIONS      EXERCISE PRICE    OPTIONS      EXERCISE PRICE 
                                         ----------   ----------------  ----------   ----------------
                                                                                                     
Outstanding, beginning of year.......... 12,124,782        $12.45                0             0     
Granted.................................  3,151,646         16.62        6,583,632        $15.09     
Granted in restoration..................  1,887,594         16.76                0             0     
Exercised...............................   (116,213)         7.47                0             0     
Exercised in restoration................ (2,599,208)         8.69                0             0     
Expired.................................   (100,776)        14.87                0             0     
Converted...............................          0             0        5,541,150          9.31     
                                         ----------        ------       ----------        ------     
Outstanding, end of year................ 14,347,825        $14.63       12,124,782        $12.45     
                                         ==========        ======       ==========        ======     
Exercisable, end of year................  2,853,326        $11.08        4,436,739        $ 9.61     
                                         ==========        ======       ==========        ======     

The range of fair values of options granted during the year was $3.31 to
$4.95, with a weighted average fair value of $4.45.                             

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

                                                                [Download Table]

                                                              1999       1998  
                                                            --------   --------
                                                                               
Net income (in thousands)                                                      
  As reported.............................................  $81,767    $83,735 
  Pro forma...............................................  $77,141    $79,744 
Basic earnings per share                                                       
  As reported.............................................  $  0.91    $  0.85 
  Pro forma...............................................  $  0.86    $  0.81 
Diluted earnings per share                                                     
  As reported.............................................  $  0.89    $  0.85 
  Pro forma...............................................  $  0.84    $  0.81 

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

13. EMPLOYEE STOCK OPTIONS (CONTINUED)                                          
Following is a summary of options outstanding at December 31, 1999:     

                                                        [Enlarge/Download Table]

                                           OUTSTANDING OPTIONS                                                     
                                      -----------------------------                                                
                                                   WEIGHTED AVERAGE                        EXERCISABLE OPTIONS     
                                                      REMAINING                        ----------------------------
                      EXERCISE PRICE               CONTRACTUAL LIFE  WEIGHTED AVERAGE              WEIGHTED AVERAGE
YEAR OF GRANT             RANGE         NUMBER        (IN YEARS)      EXERCISE PRICE    NUMBER      EXERCISE PRICE 
-------------         --------------  ----------   ----------------  ----------------  ---------   ----------------
                                                                                                                   
*1991-1996...........  $  5.44-9.23    1,022,111         6.6              $ 7.68       1,006,778        $ 7.71     
*1997................  $ 8.03-12.51    1,809,041         7.8              $11.25       1,378,980        $12.18     
 1998-1999...........  $13.06-17.71   11,516,675         9.1              $15.77         467,568        $15.15     

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

* Options granted prior to 1998 represented options on Torchmark common 
stock granted by Torchmark prior to the Company's March 4, 1998 initial public  
offering. These options were converted to options on the Company's common stock 
on November 6, 1998, concurrent with Torchmark's distribution of the Company's  
stock to its shareholders (spin-off).                                           

14. 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, 1999, W&R had net capital, as defined by the Uniform    
Capital Rule, of $13,013,000 which is $9,061,000 in excess of the required net  
capital.                                                                        

15. 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 $7,074,000, $4,937,000, and $4,397,000 and   
for the years ended, December 31, 1999, 1998 and 1997, respectively. Future     
minimum rental commitments under noncancelable operating leases are as follows: 

The Company had minimum remaining rental commitments for the years ended
December 31 (in thousands):                                                     

                                                                [Download Table]
                                                                    
2000........................................................  $4,767
2001........................................................   1,988
2002........................................................   1,068
2003........................................................     503
2004........................................................     234
Thereafter..................................................       0
                                                              ------
                                                              $8,560
                                                              ======

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 2000.

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WADDELL & REED FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998, AND 1997 

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)                                   
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.                                              

16. SUBSEQUENT EVENTS                                                           

STOCK SPLIT                                                                     

 On February 23, 2000, the Company declared a three-for-two stock split on
the Company's Class A and Class B common stock payable April 7, 2000 to         
stockholders of record as of March 17, 2000. All per share and share outstanding
data in the consolidated financial statements and related notes have been       
restated to reflect the stock split for all periods presented.                  

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                             SEPTEMBER 30,  DECEMBER 31,
                                                                 2000           1999    
                           ASSETS                            -------------  ------------
                                                              (UNAUDITED)               
                                                                                        
Assets:                                                                                 
  Cash and cash equivalents.................................   $ 59,103         60,977  
  Investment securities, available-for-sale.................     71,458         90,245  
  Receivables:                                                                          
    Mutual Funds............................................     12,632          7,597  
    Customers and other.....................................     28,187         19,541  
  Current income taxes......................................      4,717             --  
  Deferred income taxes.....................................         44             37  
  Prepaid expenses and other current assets.................      5,136          7,111  
                                                               --------       --------  
    Total current assets....................................    181,277        185,508  
                                                               --------       --------  
  Property and equipment, net...............................     48,393         27,633  
  Deferred sales commissions, net...........................      9,191          1,851  
  Goodwill (net of accumulated amortization of $30,470 and                              
    $26,493)................................................    168,589        112,994  
  Deferred income taxes.....................................        192          5,665  
  Other assets..............................................      2,724          1,422  
                                                               --------       --------  
    Total assets............................................   $410,366        335,073  
                                                               ========       ========  
            LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Liabilities:                                                                            
    Accounts payable........................................   $ 30,778         34,002  
    Accrued sales force compensation........................     17,231         14,578  
    Short term notes payable................................    200,341        125,307  
    Income taxes payable....................................         --          8,284  
    Other current liabilities...............................     21,668         16,456  
                                                               --------       --------  
    Total current liabilities...............................    270,018        198,627  
                                                               --------       --------  
  Accrued pensions and post-retirement costs................     12,872         10,103  
  Other liabilities.........................................        259             --  
                                                               --------       --------  
    Total liabilities.......................................    283,149        208,730  
                                                               --------       --------  
Stockholders' equity:                                                                   
  Common stock (See table below)............................        997            997  
  Additional paid-in capital................................    252,358        238,434  
  Retained earnings.........................................    179,351         97,129  
  Deferred compensation.....................................    (10,177)       (11,246) 
  Treasury stock (See table below)..........................   (295,126)      (198,360) 
  Accumulated other comprehensive income....................       (186)          (611) 
                                                               --------       --------  
    Total stockholders' equity..............................    127,217        126,343  
                                                               --------       --------  
Total liabilities and stockholders' equity..................   $410,366        335,073  
                                                               ========       ========  

                                                        [Enlarge/Download Table]

                                                     2000                       1999           
COMMON STOCK                               -------------------------  -------------------------
($.01 PAR VALUE)                             CLASS A       CLASS B      CLASS A       CLASS B  
----------------                           -----------   -----------  -----------   -----------
                                                                                               
  Authorized.............................. 225,000,000   150,000,000  225,000,000   150,000,000
  Issued..................................  48,213,261    51,487,500   48,213,261    51,487,500
  Outstanding.............................  43,471,008    40,245,617   44,478,318    41,971,870
  Treasury Stock..........................   4,742,253    11,241,883    3,734,943     9,515,630

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 

UNAUDITED (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                       FOR THE THREE MONTHS    FOR THE NINE MONTHS 
                                                        ENDED SEPTEMBER 30,    ENDED SEPTEMBER 30, 
                                                       ---------------------  ---------------------
                                                         2000        1999       2000        1999   
                                                       ---------   ---------  ---------   ---------
                                                                                                   
Revenue:                                                                                           
  Investment management fees..........................  $64,619     $47,091   $190,725    $124,114 
  Underwriting and distribution fees..................   49,500      30,466    150,872      94,056 
  Shareholder service fees............................   13,938      10,622     38,836      30,716 
  Investment and other revenue........................    1,869       2,090      8,010       7,561 
                                                        -------     -------   --------    -------- 
    Total revenue.....................................  129,926      90,269    388,443     256,447 
                                                        -------     -------   --------    -------- 
Expenses:                                                                                          
  Underwriting and distribution.......................   45,436      30,703    136,746      92,947 
  Compensation and related costs......................   14,126      10,991     42,550      29,734 
  General and administrative..........................    7,118       5,275     21,171      13,820 
  Depreciation........................................      917         551      2,433       1,613 
  Interest expense....................................    4,058       1,904     10,825       3,910 
  Amortization of goodwill............................    1,525         845      3,977       2,297 
                                                        -------     -------   --------    -------- 
    Total expenses....................................   73,180      50,269    217,702     144,321 
                                                        -------     -------   --------    -------- 
Income before provision for income taxes..............   56,746      40,000    170,741     112,126 
Provision for income taxes............................   22,215      15,320     66,374      42,674 
                                                        -------     -------   --------    -------- 
    Net income........................................  $34,531     $24,680   $104,367    $ 69,452 
                                                        =======     =======   ========    ======== 
Net income per share:                                                                              
  -- Basic............................................  $  0.42     $  0.28   $   1.25    $   0.77 
  -- Diluted..........................................  $  0.40     $  0.27   $   1.20    $   0.75 
                                                        =======     =======   ========    ======== 
Weighted average shares outstanding:                                                               
  -- Basic............................................   83,152      87,860     83,339      90,453 
  -- Diluted..........................................   87,179      89,975     86,874      92,679 
                                                        =======     =======   ========    ======== 
Dividends declared per common share...................  $0.0884     $0.0884   $ 0.2652    $ 0.2652 

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2000

UNAUDITED (IN THOUSANDS)

                                                        [Enlarge/Download Table]


                                               COMMON STOCK       ADDITIONAL                                    
                                            -------------------    PAID-IN    RETAINED    DEFERRED     TREASURY 
                                             SHARES     AMOUNT     CAPITAL    EARNINGS  COMPENSATION    STOCK   
                                            --------   --------   ----------  --------  -------------  -------- 
                                                                                                                
Balance at December 31, 1999...............  99,701      $997      238,434     97,129      (11,246)    (198,360)

Net income.................................      --        --           --    104,367           --          --  
Recognition of deferred compensation.......      --        --           --         --        1,069          --  
Dividends paid.............................      --        --           --    (22,145)          --          --  
Exercise of stock options, net.............      --        --      (18,392)        --           --        (589) 
Tax benefit from exercise of options.......      --        --       32,316         --           --          --  
Treasury stock repurchases.................      --        --           --         --           --     (96,177) 
Unrealized loss on investment securities...      --        --           --         --           --          --  
                                             ------      ----      -------    -------      -------     -------- 
Balance at September 30, 2000..............  99,701      $997      252,358    179,351      (10,177)    (295,126)
                                             ======      ====      =======    =======      =======     ======== 


                                             ACCUMULATED                                                        
                                                OTHER            TOTAL                                          
                                            COMPREHENSIVE    STOCKHOLDERS'                                      
                                                INCOME          EQUITY                                          
                                            --------------   -------------                                      
                                                                                                                
Balance at December 31, 1999...............      (611)          126,343                                         
Net income.................................        --           104,367                                         
Recognition of deferred compensation.......        --             1,069                                         
Dividends paid.............................        --           (22,145)                                        
Exercise of stock options, net.............        --           (18,981)                                        
Tax benefit from exercise of options.......        --            32,316                                         
Treasury stock repurchases.................        --           (96,177)                                        
Unrealized loss on investment securities...       425               425                                         
                                                 ----           -------                                         
Balance at September 30, 2000..............      (186)          127,217                                         
                                                 ====           =======                                         

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

UNAUDITED (IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                          FOR THE THREE MONTHS     FOR THE NINE MONTHS  
                                                          ENDED SEPTEMBER 30,      ENDED SEPTEMBER 30,  
                                                        ------------------------  ----------------------
                                                          2000           1999       2000          1999  
                                                        ---------      ---------  --------      --------
                                                                                                        
Net income.............................................  $34,531        24,680    $104,367       69,452 
Other comprehensive income:                                                                             
  Net unrealized appreciation (depreciation) of                                                         
    investments during the period, net of income taxes                                                  
    of $(17), $(301), $1,087 and $(926)................      (30)         (485)      1,745       (1,491)
  Reclassification adjustment for amounts included in                                                   
    net income, net of income taxes of $(4), $72,                                                       
    $(826),                                                                                             
    and $(40)..........................................       (6)          115      (1,320)         (63)
                                                         -------        ------    --------       ------ 
Comprehensive Income...................................  $34,495        24,310    $104,792       67,898 
                                                         =======        ======    ========       ====== 

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

UNAUDITED (IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                FOR THE NINE MONTHS ENDED    
                                                                      SEPTEMBER 30,          
                                                            ---------------------------------
                                                                 2000              1999      
                                                            ---------------   ---------------
                                                                                             
Cash flows from operating activities:                                                        
  Net income..............................................     $104,367          $  69,452   
  Adjustments to reconcile net income to net cash provided                                   
    by operating activities:                                                                 
      Depreciation and amortization.......................        6,460              3,910   
      Recognition of deferred compensation................        1,069              1,030   
      (Gain)/loss on sale of investments..................       (2,096)                52   
      (Gain)/loss on sale and retirement of fixed                                            
        assets............................................           (1)                32   
      Capital gains and dividends reinvested..............         (106)               (94)  
      Deferred income taxes...............................        5,272              2,176   
      Changes in assets and liabilities (net of                                              
        acquisition):                                                                        
          Receivables from funds..........................       (5,035)            (2,378)  
          Other receivables...............................       (1,406)             6,917   
          Other assets....................................       (6,219)            (5,751)  
          Accounts payable................................       (3,260)             4,170   
          Other liabilities...............................       21,802              3,995   
                                                               --------          ---------   
Net cash provided by operating activities.................      120,847             83,511   
                                                               --------          ---------   
Cash flows from investing activities:                                                        
  Additions to investment securities......................      (18,032)            (2,776)  
  Proceeds from sale of investment securities.............       37,773             14,660   
  Proceeds from maturity of investment securities.........        2,299                856   
  Additions to property and equipment.....................      (22,168)            (6,612)  
  Investment in real estate...............................           --                551   
  Acquisition of subsidiaries (net of cash acquired)......      (60,290)           (19,410)  
                                                               --------          ---------   
Net cash used in investing activities.....................      (60,418)           (12,731)  
                                                               --------          ---------   
Cash flows from financing activities:                                                        
  Net borrowings on credit facility.......................       75,000            115,000   
  Cash dividends..........................................      (22,145)           (24,303)  
  Purchase of treasury stock..............................      (96,177)          (125,960)  
  Stock option exercises -- net payments..................      (26,055)            (8,295)  
  Exercise of stock options...............................        7,074                462   
                                                               --------          ---------   
Net cash used in financing activities.....................      (62,303)           (43,096)  
                                                               --------          ---------   
Net increase/(decrease) in cash and cash equivalents......       (1,874)            27,684   
Cash and cash equivalents at beginning of period..........       60,977             30,180   
                                                               --------          ---------   
Cash and cash equivalents at end of period................     $ 59,103             57,864   
                                                               ========          =========   

See accompanying notes to consolidated financial statements.

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WADDELL & REED FINANCIAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES                         

    Waddell & Reed Financial, Inc. and subsidiaries (the "Company") derive their
revenues primarily from investment management, distribution, administration, and
related services provided to the Waddell & Reed Advisors Funds ("Advisors       
Funds"), W&R Funds, W&R Target Funds ("Target Funds") and institutional accounts
in the United States.                                                           

BASIS OF PRESENTATION                                                   

In the opinion of the Company, the accompanying unaudited consolidated  
financial statements contain all adjustments consisting of normal recurring     
adjustments, necessary to present fairly the results of its operations and its  
cash flows for the periods ended September 30, 2000 and 1999 and its financial  
position at September 30, 2000. These financial statements should be read in    
conjunction with the Company's audited consolidated financial statements for the
year ended December 31, 1999, from which the accompanying balance sheet as of   
December 31, 1999 was derived. The operating results and cash flows for the     
periods ended September 30, 2000 are not necessarily indicative of the results  
that will be achieved in future periods.                                        

STOCK SPLIT                                                             

 On February 23, 2000, the Company declared a three-for-two stock split on
the Company's Class A and Class B common stock payable April 7, 2000 to         
stockholders of record as of March 17, 2000 and effected April 10, 2000. All per
share and share outstanding data in the consolidated financial statements and   
related notes have been restated to reflect the stock split for all periods     
presented.                                                                      

ACQUISITION OF SUBSIDIARY                                               

    On March 31, 2000, the Company completed its acquisition of The Legend Group
("Legend"), a privately-held mutual fund distribution and retirement planning   
company based in Palm Beach Gardens, Florida. The acquisition has been accounted
for as a purchase and, accordingly, the results of Legend are included with     
those of the Company commencing on the date of acquisition. The purchase price  
of $61,403,000, including direct costs, has been allocated to the assets        
acquired and liabilities assumed resulting in goodwill of $59,571,000, which is 
being amortized on a straight line basis over 25 years.                         

The purchase agreement provides for additional purchase price payments  
contingent upon the achievement by Legend of specified earnings levels over the 
next three years. These contingent payments could aggregate to as much as $14.0 
million.                                                                        

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WADDELL & REED FINANCIAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of the net assets acquired is as follows (in thousands):      

                                                                [Download Table]
                                                                     
Assets acquired                                                      
  Cash and cash equivalents.................................  $ 1,113
  Accounts receivable.......................................    7,156
  Goodwill..................................................   59,571
  Other assets..............................................    1,949
                                                              -------
  Total.....................................................   69,789
Liabilities assumed.........................................    8,386
                                                              -------
Total purchase price........................................  $61,403
                                                              =======

LIQUIDITY AND CAPITAL                                                   

On July 11, 2000, the Company declared a dividend payable on November 1,
2000 in the amount of $.0884 per share to shareholders of record as of October  
11, 2000. The total dividend paid was $7,401,000.                               

Excluding share repurchases used to satisfy stock option exercises, the 
Company did not repurchase shares of its common stock during the three month    
period ended September 30, 2000. For the nine month period ended September 30,  
2000, the Company repurchased 4,747,292 Class A and Class B common shares at an 
average price of $20.24 per share, on a post-split basis.                       

EARNINGS PER SHARE                                                      

Basic earnings per share for the 2000 and 1999 periods are based on the 
average number of shares outstanding for the periods ended September 30, 2000   
and 1999, respectively. Diluted earnings per share for these periods also       
includes the dilutive impact of stock options.                                  

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P R O S P E C T U S                                                             
$400,000,000.00 
WADDELL & REED FINANCIAL, INC.
SENIOR DEBT SECURITIES
JUNIOR SUBORDINATED DEBT SECURITIES 
WARRANTS AND WARRANT SPREADS
COMMON STOCK
WADDELL & REED CAPITAL TRUST I
TRUST PREFERRED SECURITIES
(FULLY AND UNCONDITIONALLY GUARANTEED ON A SUBORDINATED BASIS, AS DESCRIBED 
HEREIN, BY WADDELL & REED FINANCIAL, INC.)

    This prospectus contains a general description of the securities which
WADDELL & REED FINANCIAL, INC. and/or WADDELL & REED Capital Trust I may offer  
for sale. The specific terms of the securities will be contained in one or more 
supplements to this prospectus. Read the prospectus and any supplement carefully
before you invest.                                                              

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

     Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the   
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.                                                               

      This prospectus may not be used to sell securities unless accompanied by
a prospectus supplement.                                                        

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

The date of this prospectus is January 12, 2001.

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SUMMARY 

    This document is called a prospectus. This summary highlights selected
information from this prospectus and may not contain all of the information that
is important to you. To understand the terms of the securities, you should      
carefully read this prospectus with the attached prospectus supplement. This    
prospectus and the prospectus supplement together give the specific terms of the
securities being offered. You should also read the documents referred to under  
the heading, "Where You Can Find More Information About the Company and         
WADDELL & REED Capital Trust I" for information on WADDELL & REED FINANCIAL,    
INC. and its financial statements. The Company has its principal offices at 6300
Lamar Avenue, Overland Park, Kansas 66202 (telephone: 913-236-2000). Certain    
capitalized terms used in this summary are defined elsewhere in this prospectus.

      WADDELL & REED FINANCIAL, INC., a Delaware corporation (also referred to
as the "Company", "WADDELL & REED", "us" or "we"), and WADDELL & REED Capital   
Trust I, a statutory business trust formed under the laws of the State of       
Delaware (also referred to as "WADDELL & REED Capital Trust I") has filed a     
registration statement with the Securities and Exchange Commission under a      
"shelf" registration procedure. Under this procedure the Company may offer and  
sell from time to time, in one or more series, up to $400,000,000.00, or the    
equivalent in one or more foreign currencies, including composite currencies    
such as the Euro, of any of the following securities:                           

- senior debt securities,                                           

- junior subordinated debt securities,                              

- warrants, including warrant spreads,                              

- common stock,                                                     

- trust preferred securities of WADDELL & REED Capital Trust I, and 

     - guarantees, described below, relating to the trust preferred securities
of WADDELL & REED Capital Trust I.                              

       The securities may be sold for U.S. dollars, foreign-denominated currency
or currency units; amounts payable with respect to any such securities may be   
payable in U.S. dollars or foreign-denominated currency or currency units.      

       This prospectus provides you with a general description of the securities
we may offer. Each time we offer securities, we will provide you with a         
prospectus supplement that will describe the specific amounts, prices and terms 
of the securities being offered. The prospectus supplement may also add, update 
or change information contained in this prospectus.                             

   The prospectus supplement will also contain information about certain
United States federal income tax considerations relating to the securities      
covered by the prospectus supplement.                                           

   The Company and WADDELL & REED Capital Trust I may sell securities to
underwriters who will sell the securities to the public on terms fixed at the   
time of sale. In addition, the securities may be sold by the Company and        
WADDELL & REED Capital Trust I directly or through dealers or agents designated 
from time to time, which agents may be affiliates of the Company and WADDELL &  
REED Capital Trust I. If the Company, directly or through agents, solicits      
offers to purchase the securities, the Company reserves the sole right to accept
and, together with its agents, to reject, in whole or in part, any such offer.  

The prospectus supplement will also contain, with respect to the  
securities being sold, the names of the underwriters, dealers or agents, if any,
together with the terms of offering, the compensation of such underwriters and  
the net proceeds to the Company and WADDELL & REED Capital Trust I.             

      Any underwriters, dealers or agents participating in the offering may be
deemed "underwriters" within the meaning of the Securities Act of 1933.         

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WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY 
AND WADDELL & REED CAPITAL TRUST I

      The Company and WADDELL & REED Capital Trust I have filed a registration
statement with the SEC. This prospectus is part of the registration statement   
but the registration statement also contains additional information and         
exhibits. The Company also files proxy statements, annual, quarterly and special
reports, and other information with the SEC. You may read and copy the          
registration statement and any reports, proxy statements and other information  
at the public reference facilities maintained by the SEC at 450 Fifth Street,   
N.W., Washington, D.C. 20549 and the SEC's Regional Offices in New York, New    
York and Chicago, Illinois.                                                     

     You can call the SEC for further information about its public reference
rooms at 1-800-732-0330. Such material is also available at the SEC's website at
"http://www.sec.gov."                                                           

  You can also inspect reports, proxy statements and other information
about the Company at the offices of the New York Stock Exchange, 20 Broad       
Street, New York, New York.                                                     

      The SEC allows the Company to incorporate documents by reference in this
prospectus. This means that by listing or referring to a document which the     
Company has filed with the SEC in this prospectus, that document is considered  
to be a part of this prospectus and should be read with the same care. When the 
Company updates the information contained in documents which have been          
incorporated by reference, by making future filings with the SEC, the           
information incorporated by reference in this prospectus is considered to be    
automatically updated.                                                          

The documents listed below are incorporated by reference into this
prospectus:                                                                     

                                                                [Download Table]

         COMPANY SEC FILINGS                          PERIOD       
         -------------------                          ------       
                                                                   
Annual Report on Form 10-K...........  Year ended December 31, 1999
Quarterly Reports on Form 10-Q.......  Quarter ended June 30, 2000 
Current Reports on Form 8-K..........  Dated:                      
                                       -  February 28, 2000        
                                       -  March 7, 2000            
                                       -  March 31, 2000           
Current Report on Form 8-K/A.........  Dated March 31, 2000        

     The Company also incorporates by reference additional documents that it
may file with the SEC between the date of this prospectus and the termination of
the offering of the securities. These documents include periodic reports, such  
as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current      
Reports on Form 8-K, as well as proxy statements.                               

   You can obtain any of the documents incorporated by reference in this
document through us, or from the SEC through the SEC's web site at the address  
described above. Documents incorporated by reference are available from us      
without charge, excluding any exhibits to those documents unless the exhibit is 
specifically incorporated by reference as an exhibit in this prospectus. You can
obtain documents incorporated by reference in this prospectus by requesting them
in writing or by telephone from us at the following address and telephone       
number:                                                                         

Investor Relations
WADDELL & REED FINANCIAL, INC.
6300 Lamar Avenue 
Overland Park, Kansas 66202 
(913) 236-2000

     If you request any incorporated documents from us, we will mail them to
you by first class mail, or another equally prompt means, after we receive your 
request.                                                                        

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     YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT OR INCORPORATED BY REFERENCE. THE COMPANY HAS NOT     
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.                    

    No separate financial statements of WADDELL & REED Capital Trust I are
included in this prospectus. The Company and WADDELL & REED Capital Trust I do  
not consider that such financial statements would be material to holders of the 
trust preferred securities because WADDELL & REED Capital Trust I is a newly    
formed special purpose entity, has no operating history or independent          
operations and is not engaged in and does not propose to engage in any activity 
other than holding as trust assets the Corresponding Junior Subordinated Debt   
Securities (as defined below under the heading "WADDELL & REED Capital Trust I")
of the Company and issuing the trust securities.                                

      Furthermore, taken together, the Company's obligations under each series
of Corresponding Junior Subordinated Debt Securities, the Junior Indenture under
which the Corresponding Junior Subordinated Debt Securities will be issued, the 
related Declaration and the related Preferred Securities Guarantee provide, in  
the aggregate, a full, irrevocable and unconditional guarantee of payments of   
distributions and other amounts due on the related preferred securities of      
WADDELL & REED Capital Trust. For a more detailed discussion see "WADDELL & REED
Capital Trust I," "Description of the Trust Preferred Securities," "Description 
of Junior Subordinated Debt Securities," "Description of the Preferred          
Securities Guarantees" and "Effect of Obligations under the Junior Subordinated 
Debt Securities and Preferred Securities Guarantee." In addition, the Company   
does not expect that WADDELL & REED Capital Trust I will be filing reports with 
the SEC under the Securities Exchange Act of 1934.                              

  The Company is not making an offer of its securities in any state or
country where the offer is not permitted. You should not assume that the        
information in this prospectus or any prospectus supplement is accurate as of a 
later date than the date of this prospectus or any prospectus supplement.       

FORWARD-LOOKING STATEMENTS

This prospectus, including information included or incorporated by
reference in this prospectus, contains certain forward-looking statements with  
respect to the financial condition, results of operations, plans, objectives,   
future performance and business of the Company and its predecessors, including  
without limitation, statements preceded by, followed by or that include the     
words "believes," "expects," "anticipates," "estimates," or similar expressions.
These forward-looking statements involve certain risks and uncertainties. Actual
results may differ materially from those contemplated by such forward-looking   
statements due to, among others, the following factors:                         

- changes in the interest rate environment may reduce margins;      

  - general economic or business conditions, either nationally or in the
    states in which the Company is doing business, may be less favorable
  than expected resulting in, among other things, a deterioration in
credit quality or a reduced demand for credit;                  

    - legislative or regulatory changes may adversely affect the business in
which the Company is engaged;                                   

- technological changes may be more difficult or expensive than     
anticipated;                                                    

- changes may occur in the securities and capital markets;          

- the impact of changes in financial services laws and regulations; 

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- unanticipated regulatory or judicial proceedings;                 

- the impact of the Company's completed acquisitions; and           

     - possible adverse effect on the value of our Class A Common Stock due to
       the different voting rights of our Class A Common Stock and our Class B
Common Stock.                                                   

If one or more of these risks or uncertainties occurs or if the   
underlying assumptions prove incorrect, then the Company's actual results,      
performance or achievements in 2000 and beyond could differ materially from     
those expressed in, or implied by, the forward-looking statements.              

     The Registrants caution that the foregoing list of important factors is
not exclusive, and neither such list nor any such forward-looking statement     
takes into account the impact that any future acquisition may have on us and any
such forward-looking statement. The Registrants do not undertake to update any  
forward-looking statement, whether written or oral, that may be made from time  
to time by or on behalf of the Registrants.                                     

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THE COMPANY 

Waddell & Reed Financial, Inc. (the "Company"), a Delaware holding
company founded in 1981, is the parent company of one of the oldest mutual fund 
complexes in the United States, having introduced the United family of funds in 
1940. Through its subsidiaries, the Company sells its investment products       
primarily to middle income Americans through a virtually exclusive sales force. 
As of June 30, 2000, the Company, through its subsidiaries, had $39.8 billion of
assets under management, of which $33.8 billion were mutual fund assets and $6.0
billion were managed institutional and private accounts. The Company, through   
its subsidiaries, has over 633,700 mutual fund customers having an average      
investment of $65,800 and 63,000 variable account customers having an average   
investment of $60,500. The Company, through its subsidiaries, is the exclusive  
underwriter and distributor of 41 mutual fund portfolios, including 19          
comprising the Waddell & Reed Advisors Funds (the "Advisors Funds"), 11         
comprising the W & R Funds (the "W&R Funds"), and 11 comprising the             
Target/United Funds (the "Target/United Funds", and together with the Advisors  
Funds and the W&R Funds, the "Funds"). The Company and its subsidiaries derive  
their revenues primarily from investment management, investment product         
distribution, and shareholder services administration provided to the Funds and 
managed institutional accounts. As part of its financial planning services, the 
Company, through its subsidiaries, also distributes variable annuities and life 
insurance products, underwritten primarily by an unaffiliated third party, to   
its customers.                                                                  

       The Company is a legal entity separate and distinct from its subsidiaries
(collectively, the "affiliates"). Accordingly, the right of the Company, and    
thus the right of the Company's creditors and shareholders, to participate in   
any distribution of the assets or earnings of any affiliate is necessarily      
subject to the prior claims of creditors of the affiliate, except to the extent 
that claims of the Company in its capacity as a creditor may be recognized.     
Accordingly, the Senior Debt Securities and Junior Subordinated Debt Securities 
will be effectively subordinated to all existing and future liabilities of the  
Company's subsidiaries, and holders of Senior Debt Securities and Junior        
Subordinated Debt Securities should look only to the assets of the Company for  
payments on the Senior Debt Securities and Junior Subordinated Debt Securities. 

The Company's executive offices are located at 6300 Lamar Avenue, 
Overland Park, Kansas 66202, and the telephone number is (913) 236-2000.        

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RATIO OF EARNINGS TO FIXED CHARGES

The ratios of earnings to fixed charges for the Company, which are
computed on the basis of the total enterprise (as defined by the SEC) by        
dividing earnings before fixed charges and income taxes by fixed charges, are   
set forth below for the periods indicated. Fixed charges consist principally of 
interest expense on all long- and short-term borrowings.                        

                                                        [Enlarge/Download Table]

                                           SIX MONTHS                                                           
                                         ENDED JUNE 30,                   YEAR ENDED DECEMBER 31,               
                                       -------------------  ----------------------------------------------------
                                         2000       1999      1999       1998       1997       1996       1995  
                                       --------   --------  --------   --------   --------   --------   --------
                                                                                                                
Earnings to Fixed Charges.............  17.8x      37.0x     21.2x      202.9x     N/A (1)    N/A (1)    N/A (1)

       The schedule above excludes the impact of interest relating to notes with
Torchmark Corporation existing prior to the initial public offering in the first
quarter of 1998. Concurrent with the offering, all notes were prepaid.          

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

(1) During these periods, the Company had no long- or short-term    
borrowings outstanding.                                     

USE OF PROCEEDS 

The Company intends to use the net proceeds from the sale of the  
securities described in a prospectus supplement, for general corporate purposes.
These corporate purposes may include the funding of investments in, or          
extensions of credit to, the Company's subsidiaries. Except as described in the 
applicable prospectus supplement, specific allocations of the proceeds to such  
purposes have not been made. Pending the uses described above, the Company may  
temporarily invest the net proceeds in various short-term securities or apply   
the net proceeds to reduce short-term indebtedness. Based upon the historic and 
anticipated future growth of the Company and the financial needs of its         
subsidiaries, the Company anticipates that it will, on an ongoing basis, engage 
in additional financings in character and amount to be determined.              

WADDELL & REED CAPITAL TRUST I

  WADDELL & REED Capital Trust I is a statutory business trust created
under Delaware law pursuant to:                                                 

- a declaration of trust executed by the Company, as sponsor (the   
"Sponsor") of WADDELL & REED Capital Trust I, and               

- a certificate of trust filed with the Delaware Secretary of State.

       The declaration of trust will be amended and restated in its entirety (as
so amended and restated, the "Declaration") substantially in the form filed as  
an exhibit to the registration statement of which this prospectus forms a part. 

The Declaration will be qualified as an indenture under the Trust 
Indenture Act of 1939, as amended (the "Trust Indenture Act").                  

  WADDELL & REED Capital Trust I may offer to the public, from time to
time, trust preferred securities (the "Trust Preferred Securities") representing
preferred beneficial interests in WADDELL & REED Capital Trust I.               

  WADDELL & REED Capital Trust I exists for the exclusive purposes of:

- issuing and selling its Trust Securities (as defined below),      

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    - using the proceeds from the sale of such Trust Securities to acquire a
       series of Corresponding Junior Subordinated Debt Securities (as defined
below) issued by the Company, and                               

    - engaging in only those other activities necessary or incidental to the
above activities (such as registering the transfer of the Trust 
Securities).                                                    

     WADDELL & REED Capital Trust I will sell common securities representing
undivided beneficial ownership interests in WADDELL & REED Capital Trust I to   
the Company (the "Common Securities") and Trust Preferred Securities            
representing undivided beneficial ownership interests in such trust to the      
public. The Common Securities and the Trust Preferred Securities together are   
also referred to as the "Trust Securities."                                     

      When WADDELL & REED Capital Trust I sells its Trust Preferred Securities
to the public it will use the money it receives together with the money it      
receives from the sale of its Common Securities to buy a series of the Company's
Junior Subordinated Debt Securities (the "Corresponding Junior Subordinated Debt
Securities"). The payment terms of the Corresponding Junior Subordinated Debt   
Securities will be virtually the same as the terms of the WADDELL & REED Capital
Trust I's Trust Preferred Securities (the "Related Trust Preferred Securities").

   WADDELL & REED Capital Trust I will own only the applicable series of
Corresponding Junior Subordinated Debt Securities. The only source of funds for 
WADDELL & REED Capital Trust I will be the payments it receives from the Company
on the Corresponding Junior Subordinated Debt Securities. WADDELL & REED Capital
Trust I will use such funds to make cash payments to holders of the Trust       
Preferred Securities.                                                           

      WADDELL & REED Capital Trust I will also have the right to be reimbursed
by the Company for certain expenses.                                            

    All of the Common Securities of WADDELL & REED Capital Trust I will be
owned by the Company. The Common Securities of WADDELL & REED Capital Trust will
rank equally, and payments will be made on such securities PRO RATA, with the   
Trust Preferred Securities of WADDELL & REED Capital Trust I, except that upon  
the occurrence and continuance of an event of default under a Declaration       
resulting from an event of default under the Junior Indenture, the rights of the
Company, as holder of the Common Securities, to payment in respect of           
distributions and payments upon liquidation or redemption will be subordinated  
to the rights of the holders of the Trust Preferred Securities of WADDELL & REED
Capital Trust I. See "Description of the Trust Preferred Securities." The       
Company will acquire Common Securities in an aggregate liquidation amount equal 
to not less than 3% of the total capital of WADDELL & REED Capital Trust I.     

       The prospectus supplement relating to any Trust Preferred Securities will
contain the details of the cash distributions to be made periodically to the    
holders of the Trust Preferred Securities.                                      

   Under certain circumstances, the Company may redeem the Corresponding
Junior Subordinated Debt Securities which it sold to WADDELL & REED Capital     
Trust I. If it does this, WADDELL & REED Capital Trust I will redeem a like     
amount of the Trust Preferred Securities which it sold to the public and the    
Common Securities which it sold to the Company.                                 

  Under certain circumstances the Company may terminate WADDELL & REED
Capital Trust I and cause the Corresponding Junior Subordinated Debt Securities 
to be distributed to the holders of the Related Trust Preferred Securities. If  
this happens, owners of the Related Trust Preferred Securities will no longer   
have any interest in such WADDELL & REED Capital Trust I and will only own the  
Corresponding Junior Subordinated Debt Securities.                              

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 Unless otherwise specified in the applicable prospectus supplement:

 - WADDELL & REED Capital Trust I will have a term of approximately 55
     years from the date it issues its Trust Securities, but may terminate
earlier as provided in the Declaration.                         

     - WADDELL & REED Capital Trust I's business and affairs will be conducted
  by its trustees (collectively, the "WADDELL & REED Capital Trust I
Trustees").                                                     

- The trustees will be appointed by the Company as holder of the    
WADDELL & REED Capital Trust I's Common Securities.             

- The duties and obligations of the trustees are governed by the    
Declaration for WADDELL & REED Capital Trust I.                 

      - The trustees will be Chase Manhattan Trust Company National Association,
     as the institutional Trustee (the "Institutional Trustee"), The Chase
   Manhattan Bank U.S.A., N.A., as the Delaware Trustee (the "Delaware
       Trustee"), and one or more individual trustees (the "Regular Trustees")
      who are employees or officers of or affiliated with the Company. Chase
       Manhattan Trust Company National Association, as Institutional Trustee,
        will act as sole indenture trustee under the Declaration for purposes of
      compliance with the Trust Indenture Act. Chase Manhattan Trust Company
      National Association will also act as trustee under the Guarantees and
  the Junior Indenture. See "Description of the Preferred Securities
        Guarantees", "Description of Senior Debt Securities" and "Description of
Junior Subordinated Debt Securities."                           

  - The Company will pay all fees and expenses related to each WADDELL &
       REED Capital Trust I and the offering of the Trust Preferred Securities
     and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of each WADDELL & REED Capital Trust I.             

     - No amendment or modification may be made to the Declaration which would
  adversely affect the rights or preferences of the Trust Securities
       without the approval of the majority in liquidation amount of the Trust
      Securities (which may be only the Trust Preferred Securities or Common
Securities of such trust if only that class is affected).       

      The principal executive office of WADDELL & REED Capital Trust I is 6300
Lamar Avenue, Overland Park, Kansas 66202, and its telephone number is (913)    
236-2000.                                                                       

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DESCRIPTION OF SENIOR DEBT SECURITIES 

GENERAL                                                                         

     The following description applies to the senior debt securities offered
by this prospectus (the "Senior Debt Securities"). The Senior Debt Securities   
will be direct, unsecured obligations of the Company and will rank on a parity  
with all outstanding unsecured senior indebtedness of the Company. The Senior   
Debt Securities may be issued in one or more series. The Senior Debt Securities 
will be issued under a Senior Indenture (the "Senior Indenture") by and between 
the Company and the trustee specified in the applicable prospectus supplement   
(the "Trustee").                                                                

The statements under this caption are brief summaries of certain  
provisions contained in the Senior Indenture, do not claim to be complete and   
are qualified in their entirety by reference to the Senior Indenture, a copy of 
which is exhibit to, or incorporated by reference in, the registration statement
of which this prospectus forms a part. Whenever defined terms are used but not  
defined in this prospectus, those terms have the meanings given to them in the  
Senior Indenture.                                                               

      The following material describes certain general terms and provisions of
the Senior Debt Securities to which any prospectus supplement may relate. The   
particular terms of any Senior Security and the extent, if any, to which these  
general provisions may apply to such Senior Debt Securities will be described in
the prospectus supplement relating to the Senior Debt Securities.               

   The Senior Indenture does not limit the aggregate principal amount of
Senior Debt Securities which may be issued under it. Rather, the Senior         
Indenture provides that Senior Debt Securities of any series may be issued under
it up to the aggregate principal amount which may be authorized from time to    
time by the Company. Senior Debt Securities may be denominated in any currency  
or currency unit designated by the Company. Neither the Senior Indenture nor the
Senior Debt Securities will limit or otherwise restrict the amount of other debt
which may be incurred or the other securities which may be issued by the Company
or any of its subsidiaries.                                                     

   Senior Debt Securities of a series may be issuable in registered form
without coupons ("Registered Securities"), in bearer form with or without       
coupons attached ("Bearer Securities") or in the form of one or more global     
securities in registered or bearer form (each a "Global Security"). Bearer      
Securities, if any, will be offered only to non-United States persons and to    
offices located outside the United States of certain United States financial    
institutions.                                                                   

You must review the prospectus supplement for a description of the
following terms, where applicable, of each series of Senior Debt Securities for 
which this prospectus is being delivered:                                       

- the title of the Senior Debt Securities;                          

- the limit, if any, on the aggregate principal amount or aggregate 
initial public offering price of the Senior Debt Securities;    

- the priority of payment of the Senior Debt Securities;            

- the price or prices, which may be expressed as a percentage of the
       aggregate principal amount, at which the Senior Debt Securities will be
issued;                                                         

    - the date or dates on which the principal of the Senior Debt Securities
will be payable;                                                

 - the interest rate or rates, which may be fixed or variable, for the
      Senior Debt Securities, if any, or the method of determining the same;

- the date or dates from which interest, if any, on the Senior Debt 
    Securities will accrue, the date or dates on which interest, if any,
        will be payable, the date or dates on which payment of interest, if any,
   will commence and the regular record dates for the interest payment
dates;                                                          

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    - the extent to which any of the Senior Debt Securities will be issuable
 in temporary or permanent global form, or the manner in which any
        interest payable on a temporary or permanent global Senior Security will
be paid;                                                        

     - each office or agency where the Senior Debt Securities may be presented
for registration of transfer or exchange;                       

- the place or places where the principal of, premium, if any, and  
interest, if any, on the Senior Debt Securities will be payable;

      - the date or dates, if any, after which the Senior Debt Securities may be
   redeemed or purchased in whole or in part, (i) at the option of the
        Company or (ii) mandatorily pursuant to any sinking, purchase or similar
fund or (iii) at the option of the holder, and the redemption or
repayment price or prices;                                      

- the terms, if any, upon which the Senior Debt Securities may be   
        convertible into or exchanged for securities or indebtedness of any kind
  of the Company or of any other issuer or obligor and the terms and
conditions upon which the conversion or exchange would be made, 
including the initial conversion or exchange price or rate, the 
conversion period and any other additional provisions;          

- the authorized denomination or denominations for the Senior Debt  
Securities;                                                     

     - the currency, currencies or units based on or related to currencies for
   which the Senior Debt Securities may be purchased and the currency,
        currencies or currency units in which the principal of, premium, if any,
       and any interest, if any, on the Senior Debt Securities may be payable;

 - any index used to determine the amount of payments of principal of,
     premium, if any, and interest, if any, on the Senior Debt Securities;

    - whether any of the Senior Debt Securities are to be issuable as Bearer
  Securities and/or Registered Securities, and if issuable as Bearer
        Securities, any limitations on issuance of the Bearer Securities and any
       provisions regarding the transfer or exchange of the Bearer Securities,
    including exchange for registered Senior Debt Securities of the same
series;                                                         

   - the payment of any additional amounts with respect to the Senior Debt
Securities;                                                     

  - whether any of the Senior Debt Securities will be issued as Original
Issue Discount Securities (as defined below);                   

- information with respect to book-entry procedures, if any;        

     - any additional covenants or Events of Default not currently included in
the Senior Indenture; and                                       

     - any other terms of the Senior Debt Securities not inconsistent with the
provisions of the Senior Indenture.                             

   If any of the Senior Debt Securities are sold for one or more foreign
currencies or foreign currency units or if the principal of, premium, if any, or
interest, if any, on any series of Senior Debt Securities is payable in one or  
more foreign currencies or foreign currency units, the restrictions, elections, 
tax consequences, specific terms and other information with respect to that     
issue of Senior Debt Securities and those currencies or currency units will be  
described in the applicable prospectus supplement.                              

      A judgment for money damages by courts in the United States, including a
money judgment based on an obligation expressed in a foreign currency, will     
ordinarily be rendered only in U.S. dollars.                                    

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New York statutory law provides that a court shall render a judgment or decree  
in the foreign currency of the underlying obligation and that the judgment or   
decree shall be converted into U.S. dollars at the exchange rate prevailing on  
the date of entry of the judgment or decree.                                    

    Senior Debt Securities may be issued as original issue discount Senior
Debt Securities which bear no interest or interest at a rate which at the time  
of issuance is below market rates ("Original Issue Discount Securities"), to be 
sold at a substantial discount below the stated principal amount thereof due at 
the stated maturity of such Senior Debt Securities. There may be no periodic    
payments of interest on Original Issue Discount Securities. In the event of an  
acceleration of the maturity of any Original Issue Discount Security, the amount
payable to the holder of the Original Issue Discount Security upon acceleration 
will be determined in accordance with the prospectus supplement, the terms of   
the security and the Senior Indenture, but will be an amount less than the      
amount payable at the maturity of the principal of the Original Issue Discount  
Security. Federal income tax considerations with respect to Original Issue      
Discount Securities will be described in the applicable prospectus supplement.  

REGISTRATION AND TRANSFER                                                       

 Unless otherwise indicated in the applicable prospectus supplement,
Senior Debt Securities will be issued only as Registered Securities. If Bearer  
Securities are issued, the United States federal income tax consequences and    
other special considerations, procedures and limitations relating to the Bearer 
Securities will be described in the applicable prospectus supplement.           

  Senior Debt Securities issued as Registered Securities will not have
interest coupons. Senior Debt Securities issued as Bearer Securities will have  
interest coupons attached, unless issued as zero coupon securities.             

       Registered Securities (other than a Global Security) may be presented for
transfer, with the form of transfer endorsed thereon duly executed, or exchanged
for other Senior Debt Securities of the same series at the office of the        
security registrar specified in the Senior Indenture. The Company has agreed in 
the Senior Indenture that, with respect to Registered Securities having The City
of New York as a place of payment, the Company will appoint a security registrar
or co-security registrar located in The City of New York for such transfer or   
exchange. Transfer or exchange will be made without service charge, but the     
Company may require payment of any taxes or other governmental charges.         
Provisions relating to the exchange of Bearer Securities for other Senior Debt  
Securities of the same series, including, if applicable, Registered Securities, 
will be described in the applicable prospectus supplement. In no event, however,
will Registered Securities be exchangeable for Bearer Securities.               

BOOK-ENTRY SENIOR DEBT SECURITIES                                               

     Senior Debt Securities of a series may be issued in whole or in part in
the form of one or more Global Securities. Each Global Security will be         
deposited with, or on behalf of, a depositary (the "Depositary") identified in  
the applicable prospectus supplement. Global Securities may be issued in either 
registered or bearer form and in either temporary or permanent form. Until      
exchanged in whole or in part for the individual securities which it represents,
a Global Security may not be transferred except as a whole by the Depositary for
the Global Security to a nominee of the Depositary or by a nominee of the       
Depositary to the Depositary or another nominee of the Depositary or by the     
Depositary or any nominee to a successor Depositary or any nominee of the       
successor.                                                                      

     The specific terms of the depositary arrangement for a series of Senior
Debt Securities and certain limitations and restrictions relating to a series of
Bearer Securities in the form of one or more Global Securities will be described
in the applicable prospectus supplement.                                        

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PAYMENT AND PAYING AGENTS                                                       

Unless otherwise indicated in an applicable prospectus supplement,
payment of principal of, premium, if any, and any interest on Registered        
Securities will be made at the office of such paying agent or paying agents as  
the Company may designate from time to time. In addition, at the option of the  
Company, payment of any interest may be made (i) by check mailed to the address 
of the person entitled to the payment at the address in the applicable security 
register or (ii) by wire transfer to an account maintained by the person        
entitled to the payment as specified in the applicable security register. Unless
otherwise indicated in an applicable prospectus supplement, payment of any      
installment of interest on Registered Securities will be made to the person in  
whose name such Senior Security is registered at the close of business on the   
regular record date for such payment.                                           

Unless otherwise indicated in an applicable prospectus supplement,
payment of principal of, premium, if any, and any interest on Bearer Securities 
will be payable, subject to any applicable laws and regulations, at the offices 
of such paying agents outside the United States as the Company may designate    
from time to time, at the option of the holder, by check or by transfer to an   
account maintained by the holder with a bank located outside the United States. 
Unless otherwise indicated in an applicable prospectus supplement, payment of   
interest on Bearer Securities will be made only against surrender of the coupon 
for such interest payment date. Payment on any Bearer Security will not be made 
at any office or agency of the Company in the United States or by check mailed  
to any address in the United States or by transfer to an account maintained with
a bank located in the United States.                                            

CONSOLIDATION, MERGER OR SALE OF ASSETS                                         

     The Senior Indenture provides that the Company may, without the consent
of the holders of any of the Senior Debt Securities outstanding under the Senior
Indenture, consolidate with, merge into or transfer its assets substantially as 
an entirety to any person, provided that:                                       

- any successor assumes the Company's obligations on the Senior Debt
Securities and under the Senior Indenture, and                  

    - after giving effect to the consolidation, merger or transfer, no Event
      of Default (as defined in the Senior Indenture) will have happened and
be continuing.                                                  

Any consolidation, merger or transfer of assets substantially as an entirety,   
which meets the conditions described above, would not create any Event of       
Default which would entitle holders of the Senior Debt Securities, or the       
Trustee acting on their behalf, to take any of the actions described below under
"Description of Senior Debt Securities--Events of Default, Waivers, Etc."       

LEVERAGED AND OTHER TRANSACTIONS                                                

The Senior Indenture and the Senior Debt Securities do not contain
provisions which would protect holders of the Senior Debt Securities in the     
event of a highly leveraged or other transaction involving the Company which    
could adversely affect the holders of Senior Debt Securities.                   

MODIFICATION OF THE SENIOR INDENTURE; WAIVER OF COVENANTS                       

    The Senior Indenture provides that, with the consent of the holders of
not less than a majority in aggregate principal amount of the outstanding Senior
Debt Securities of each affected series, modifications and alterations of the   
Senior Indenture may be made which affect the rights of the holders of the      
Senior Debt Securities. However, no such modification or alteration may be made 
without the consent of the holder of each Senior Security affected which would, 
among other things,                                                             

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    - modify the terms of payment of principal, premium, if any, or interest
on the Senior Debt Securities; or                               

  - reduce the percentage in principal amount of outstanding Senior Debt
Securities required to modify or alter the Senior Indenture.    

EVENTS OF DEFAULT, WAIVERS, ETC.                                                

      An Event of Default with respect to Senior Debt Securities of any series
is defined in the Senior Indenture as                                           

      - default in the payment of principal of or premium, if any, on any of the
outstanding Senior Debt Securities of that series when due;     

      - default in the payment of interest on any of the outstanding Senior Debt
      Securities of that series when due and continuance of such default for
30 days;                                                        

    - default in the performance of any other covenant of the Company in the
      Senior Indenture with respect to Senior Debt Securities of such series
 and continuance of such default for 90 days after written notice;

- certain events of bankruptcy, insolvency or reorganization of the 
Company; and                                                    

   - any other event that may be specified in a prospectus supplement with
respect to any series of Senior Debt Securities.                

     If an Event of Default with respect to any series of outstanding Senior
Debt Securities occurs and is continuing, either the Trustee or the holders of  
not less than 25% in aggregate principal amount of the outstanding Senior Debt  
Securities of such series may declare the principal amount (or if such Senior   
Debt Securities are Original Issue Discount Securities, the portion of the      
principal amount as may be specified in the terms of that series) of all Senior 
Debt Securities of that series to be immediately due and payable. The holders of
a majority in aggregate principal amount of the outstanding Senior Debt         
Securities of any series may waive an Event of Default resulting in acceleration
of such Senior Debt Securities, but only if all Events of Default with respect  
to Senior Debt Securities of such series have been remedied and all payments    
due, other than those due as a result of acceleration, have been made.          

      If an Event of Default occurs and is continuing, the Trustee may, in its
discretion, and at the written request of holders of not less than a majority in
aggregate principal amount of the outstanding Senior Debt Securities of any     
series and upon reasonable indemnity against the costs, expenses and liabilities
to be incurred in compliance with such request and subject to certain other     
conditions set forth in the Senior Indenture will, proceed to protect the rights
of the holders of all the Senior Debt Securities of such series. Prior to       
acceleration of maturity of the outstanding Senior Debt Securities of any       
series, the holders of a majority in aggregate principal amount of the Senior   
Debt Securities may waive any past default under the Senior Indenture except a  
default in the payment of principal of, premium, if any, or interest on the     
Senior Debt Securities of that series.                                          

   The Senior Indenture provides that upon the occurrence of an Event of
Default specified in clauses (1) or (2) of the first paragraph in this          
subsection, the Company will, upon demand of the Trustee, pay to it, for the    
benefit of the holder of any such Senior Security, the whole amount then due and
payable on the affected Senior Debt Securities for principal, premium, if any,  
and interest. The Senior Indenture further provides that if the Company fails to
pay such amount upon such demand, the Trustee may, among other things, institute
a judicial proceeding for the collection of such amounts.                       

      The Senior Indenture also provides that notwithstanding any of its other
provisions, the holder of any Senior Security of any series will have the right 
to institute suit for the enforcement of any                                    

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payment of principal of, premium, if any, and interest on the Senior Debt       
Securities when due and that such right will not be impaired without the consent
of such holder.                                                                 

 The Company is required to file annually with the Trustee a written
statement of officers as to the existence or non-existence of defaults under the
Senior Indenture or the Senior Debt Securities.                                 

GOVERNING LAW                                                                   

      The Senior Indenture and the Senior Debt Securities will be governed by,
and construed in accordance with, the laws of the State of New York.            

REGARDING THE TRUSTEE                                                           

       Information concerning the Trustee for a series of Senior Debt Securities
will be set forth in the prospectus supplement relating to such series of Senior
Debt Securities.                                                                

       The Company and its affiliates have normal banking relationships with the
Trustee in the ordinary course of business.                                     

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DESCRIPTION OF JUNIOR SUBORDINATED DEBT SECURITIES

Junior subordinated debt securities (the "Junior Subordinated Debt
Securities") may be issued from time to time in one or more series under an     
Indenture (the "Junior Indenture"), between the Company and the trustee         
specified in the applicable prospectus supplement (the "Trustee"). The terms of 
the Junior Subordinated Debt Securities will include those stated in the Junior 
Indenture and those made part of the Junior Indenture by reference to the Trust 
Indenture Act. The following summary of certain provisions contained in the     
Junior Indenture is not complete and is subject to the provisions of, and is    
qualified in its entirety by, the Junior Indenture, which is filed or           
incorporated by reference as an exhibit to the registration statement of which  
this prospectus forms a part, and the Trust Indenture Act. Whenever particular  
provisions or defined terms in the Junior Indenture are referred to herein, such
provisions or defined terms are incorporated by reference herein.               

GENERAL                                                                         

     The Junior Subordinated Debt Securities will be unsecured, subordinated
obligations of the Company. The Junior Indenture does not limit the aggregate   
principal amount of Junior Subordinated Debt Securities which may be issued     
under it. The Junior Subordinated Debt Securities are issuable in one or more   
series pursuant to an indenture supplemental to the Junior Indenture or a       
resolution of the Company's Board of Directors or a committee appointed by the  
Board.                                                                          

      In the event Junior Subordinated Debt Securities are issued to WADDELL &
REED Capital Trust I or a trustee of such trust in connection with the issuance 
of Trust Securities by WADDELL & REED Capital Trust I, such Corresponding Junior
Subordinated Debt Securities subsequently may be distributed PRO RATA to the    
holders of the Trust Securities in connection with the dissolution of WADDELL & 
REED Capital Trust I, as described in the prospectus supplement relating to the 
Trust Securities. Only one series of Corresponding Junior Subordinated Debt     
Securities will be issued to WADDELL & REED Capital Trust I or a trustee of such
trust in connection with the issuance of Trust Securities by WADDELL & REED     
Capital Trust I.                                                                

  You must review the prospectus supplement relating to the particular
Junior Subordinated Debt Securities for the following terms:                    

  - the specific designation of the Junior Subordinated Debt Securities;

- the aggregate principal amount of the Junior Subordinated Debt    
Securities;                                                     

- the percentage of their principal amount at which the Junior      
Subordinated Debt Securities will be issued;                    

     - the date or dates on which the principal of and premium, if any, on the
     Junior Subordinated Debt Securities will be payable and the right, if
any, to extend such date or dates;                              

    - the interest rate or rates, which may be fixed or variable, if any, of
       the Junior Subordinated Debt Securities, or the method of determination
of such rate or rates;                                          

  - the date or dates from which such interest will accrue, the interest
     payment dates on which such interest will be payable or the manner of
     determination of such interest payment dates and the record dates for
the determination of holders to whom interest is payable on such
interest payment dates;                                         

- the right, if any, to extend the interest payment periods and the 
duration of an extension;                                       

 - the period or periods, if any, within which, the price or prices of
      which, and the terms and conditions upon which the Junior Subordinated
Debt Securities may be redeemed, in whole or in part;           

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- the right and/or obligation, if any, of the Company to redeem or  
        purchase the Junior Subordinated Debt Securities pursuant to any sinking
fund or similar provisions or at the option of the holder of the
    security and the period or periods for which, the price or prices at
       which, and the terms and conditions upon which, the Junior Subordinated
     Debt Securities will be redeemed or repurchased, in whole or in part,
pursuant to such right and/or obligation;                       

  - the terms and conditions, if any, upon which the Junior Subordinated
       Debt Securities may be converted into shares of the common stock of the
      Company, including the conversion price and the circumstances, if any,
under which such conversion right will expire;                  

- the terms of subordination;                                       

- the form of the Junior Subordinated Debt Securities; and          

  - any other specific terms of the Junior Subordinated Debt Securities.

       If a prospectus supplement specifies that a series of Junior Subordinated
Debt Securities is denominated in a currency or currency unit other than United 
States dollars, the prospectus supplement will also specify the denomination in 
which the Junior Subordinated Debt Securities will be issued and the coin or    
currency in which the principal, premium, if any, and interest, if any, on the  
Junior Subordinated Debt Securities will be payable.                            

      The Junior Indenture does not contain provisions that protect holders of
the Junior Subordinated Debt Securities in the event of a highly leveraged      
transaction or other similar transaction involving the Company that may         
adversely affect such holders.                                                  

FORM, EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT                              

     Unless otherwise specified in the applicable prospectus supplement, the
Junior Subordinated Debt Securities will be issued in fully registered form     
without coupons and in denominations of $1,000 and multiples of $1,000. No      
service charge will be made for any transfer or exchange of the Junior          
Subordinated Debt Securities, but the Company or the Trustee may require payment
of a sum sufficient to cover any tax or other government charge payable in      
connection with such transfer or exchange.                                      

Unless otherwise provided in the applicable prospectus supplement,
principal and premium, if any, or interest, if any, will be payable and the     
Junior Subordinated Debt Securities may be surrendered for payment or           
transferred at the offices of the Trustee as paying and authenticating agent,   
provided that payment of interest, if any, may be made at the option of the     
Company (i) by check mailed to the address of the person entitled to such       
payment as it appears in the security register or (ii) by wire transfer to an   
account maintained by the person entitled to such payment as specified in the   
applicable security register.                                                   

BOOK-ENTRY JUNIOR SUBORDINATED DEBT SECURITIES                                  

  The Junior Subordinated Debt Securities of a series may be issued in
whole or in part in the form of one or more Global Securities that will be      
deposited with, or on behalf of, a Depositary, or its nominee, which will be    
identified in the prospectus supplement relating to such series. In such a case,
one or more Global Securities will be issued in a denomination or aggregate     
denomination equal to the portion of the aggregate principal amount of          
outstanding Junior Subordinated Debt Securities of the series to be represented 
by such Global Security or Securities. Until it is exchanged in whole or in part
for Junior Subordinated Debt Securities in definitive registered form, a Global 
Security may not be registered for transfer or exchange except as a whole by the
Depositary for the Global Security to a nominee for the Depositary and except in
the circumstances described in the applicable prospectus supplement.            

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   The specific terms of the depositary arrangement for any portion of a
series of Junior Subordinated Debt Securities to be represented by a Global     
Security and a description of the Depositary will be provided in the applicable 
prospectus supplement.                                                          

SUBORDINATION                                                                   

     The Junior Subordinated Debt Securities will be subordinated and junior
in right of payment to certain other indebtedness of the Company (which may     
include senior indebtedness for money borrowed) to the extent described in the  
applicable prospectus supplement.                                               

CERTAIN COVENANTS OF THE COMPANY                                                

       In the event Corresponding Junior Subordinated Debt Securities are issued
to WADDELL & REED Capital Trust I or its trustee in connection with the issuance
of Trust Securities of WADDELL & REED Capital Trust I, for so long as the Trust 
Securities remain outstanding, the Company will covenant:                       

- to maintain directly or indirectly 100% ownership of the Common   
   Securities of WADDELL & REED Capital Trust I, provided that certain
        successors which are permitted under the Junior Indenture may succeed to
the Company's ownership of the Common Securities;               

- as holder of the Common Securities, not to voluntarily terminate, 
  wind-up or liquidate WADDELL & REED Capital Trust I, except (a) in
        connection with a distribution of Corresponding Junior Subordinated Debt
   Securities to the holders of the Trust Securities in liquidation of
WADDELL & REED Capital Trust I or (b) in connection with certain
        mergers, consolidations or amalgamations permitted by the Declaration of
WADDELL & REED Capital Trust I; and                             

     - to use its reasonable efforts, consistent with the terms and provisions
of the Declaration of WADDELL & REED Capital Trust I, to cause  
      WADDELL & REED Capital Trust I to remain classified as a grantor trust
    and not as an association taxable as a corporation for United States
federal income tax purposes.                                    

LIMITATION ON MERGERS AND SALES OF ASSETS                                       

      The Company will not consolidate with, or merge into, any corporation or
convey or transfer its properties and assets substantially as an entirety to any
person unless:                                                                  

   - the successor entity expressly assumes the obligations of the Company
under the Junior Indenture, and                                 

   - after giving effect thereto, no Event of Default, and no event which,
after notice or lapse of time, or both, would become an Event of
Default, will have occurred and be continuing under the Junior  
Indenture.                                                      

EVENTS OF DEFAULT, WAIVER AND NOTICE                                            

 The Junior Indenture provides that any one or more of the following
events which has occurred and is continuing constitutes an "Event of Default"   
with respect to each series of Junior Subordinated Debt Securities:             

- default for 30 days in payment of any interest on the Junior      
Subordinated Debt Securities of that series, when due; provided,
     however, that a valid extension of the interest payment period by the
    Company will not constitute a default in the payment of interest for
this purpose; or                                                

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- default in payment of principal and premium, if any, on the Junior
        Subordinated Debt Securities of that series when due either at maturity,
       upon redemption, by declaration or otherwise; provided, however, that a
valid extension of the maturity of such Junior Subordinated Debt
Securities will not constitute a default for this purpose; or   

   - default by the Company in the performance, or breach, in any material
 respect of any other of the covenants or agreements in the Junior
   Indenture which will not have been remedied for a period of 90 days
after notice; or                                                

- certain events of bankruptcy, insolvency or reorganization of the 
Company; or                                                     

     - any other Event of Default provided with respect to a particular series
  of Junior Subordinated Debt Securities as described in the related
prospectus supplement.                                          

       The Junior Indenture provides that the Trustee may withhold notice to the
holders of a series of Junior Subordinated Debt Securities, except in payment of
principal or of interest or premium on the Junior Subordinated Debt Securities, 
if the Trustee considers it in the interest of such holders to do so.           

       The Junior Indenture provides that if an Event of Default with respect to
any series of Junior Subordinated Debt Securities has occurred and is           
continuing, either the Trustee or the holders of 25 percent in principal amount 
of the outstanding Junior Subordinated Debt Securities of such affected series  
may declare the principal of all Junior Subordinated Debt Securities of the     
series to be due and payable immediately, but upon certain conditions such      
declaration may be annulled and past defaults may be waived, except defaults in 
payment of principal of or interest or premium, if any, on the Junior           
Subordinated Debt Securities, by the holders of a majority in principal amount  
of the outstanding Junior Subordinated Debt Securities of the series.           

     The holders of a majority in principal amount of the outstanding Junior
Subordinated Debt Securities of any affected series will have the right to      
direct the time, method and place of conducting any proceeding for any remedy   
available to the Trustee under the Junior Indenture with respect to the series, 
provided that the holders of the Junior Subordinated Debt Securities will have  
offered to the Trustee reasonable indemnity against expenses and liabilities.   

      The Junior Indenture also provides that notwithstanding any of its other
provisions, the holder of any Junior Subordinated Debt Security of any series,  
will have the right to institute suit for the enforcement of any payment of     
principal of, premium, if any, and interest on the Junior Subordinated Debt     
Security on the stated maturity or upon repayment or redemption of such Junior  
Subordinated Debt Security and that this right will not be impaired without the 
consent of such holder.                                                         

     The Junior Indenture requires the annual filing by the Company with the
Trustee of a certificate as to the absence of certain defaults under the Junior 
Indenture.                                                                      

MODIFICATION OF THE JUNIOR INDENTURE                                            

     The Junior Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in         
principal amount of the Junior Subordinated Debt Securities of all series       
affected by the modification at the time outstanding, to modify the Junior      
Indenture or the rights of the holders of the Junior Subordinated Debt          
Securities. However, no such modification will:                                 

    - modify the terms of payment of principal, premium, if any, or interest
      on any Junior Subordinated Senior Debt Securities, or impair or affect
 the right of any holder of Junior Subordinated Debt Securities to
institute suit for the payment of the security or the right of  
       prepayment, if any, at the option of the holder, without the consent of
    the holder of each Junior Subordinated Debt Security so affected, or

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     - reduce the percentage of holders of Junior Subordinated Debt Securities
       whose consent is required for any such modification, unless the consent
    of the holders of each Junior Subordinated Debt Security affected is
obtained.                                                       

      If Junior Subordinated Debt Securities of a series are held by WADDELL &
REED Capital Trust I or a trustee of such trust, a supplemental indenture       
requiring such consent will not be effective until the holders of a majority in 
liquidation amount of the Trust Securities of WADDELL & REED Capital Trust I    
consent to such supplemental indenture. If the consent of the holders of each   
outstanding Junior Subordinated Debt Security of a series is required, such     
supplemental indenture will not be effective until each holder of the Trust     
Securities of WADDELL & REED Capital Trust I consents to such supplemental      
indenture.                                                                      

As a result of these pass through voting rights with respect to   
modifications to the Junior Indenture, no modification to such indenture will be
effective until the holders of a majority in liquidation amount of the Trust    
Securities consent to such modification and no modification described in clauses
(1) and (2) above will be effective without the consent of each holder of Trust 
Preferred Securities and each holder of Common Securities of WADDELL & REED     
Capital Trust I.                                                                

SATISFACTION AND DISCHARGE                                                      

     The Junior Indenture provides, among other things, that when all Junior
Subordinated Debt Securities not previously delivered to the Trustee for        
cancellation (i) have become due and payable or (ii) will become due and payable
at their stated maturity within one year, the Company may deposit or cause to be
deposited with the Trustee funds, in trust, for the purpose and in an amount    
sufficient to pay and discharge the entire indebtedness on the Junior           
Subordinated Debt Securities not previously delivered to the Trustee for        
cancellation, for the principal, premium, if any, and interest to the date of   
the deposit or to the stated maturity, as the case may be. Upon such deposit,   
the Junior Indenture will cease to be of further effect except as to the        
Company's obligations to pay all other sums due pursuant to the Junior Indenture
and to provide the officers' certificates and opinions of counsel required under
the Junior Indenture, and the Company will be deemed to have satisfied and      
discharged the Junior Indenture.                                                

GOVERNING LAW                                                                   

      The Junior Indenture and the Junior Subordinated Debt Securities will be
governed by, and construed in accordance with, the laws of the State of New     
York.                                                                           

REGARDING THE TRUSTEE                                                           

    Information concerning the Trustee for a series of Junior Subordinated
Debt Securities will be set forth in the prospectus supplement relating to such 
series of Junior Subordinated Debt Securities.                                  

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DESCRIPTION OF WARRANTS 

OFFERED WARRANTS                                                                

     We may issue warrants that are debt warrants or equity warrants. We may
offer warrants separately or together with one or more additional warrants or   
debt securities or any combination of those securities in the form of units, as 
described in the applicable prospectus supplement. If we issue warrants as part 
of a unit, the accompanying prospectus supplement will specify whether those    
warrants may be separated from the other securities in the unit prior to the    
warrants' expiration date.                                                      

DEBT WARRANTS                                                                   

     We may issue, together with debt securities or separately, warrants for
the purchase of debt securities on terms to be determined at the time of sale.  
We refer to this type of warrant as a "Debt Warrant."                           

EQUITY WARRANTS                                                                 

   We may also issue warrants to purchase, including warrant spreads, on
terms to be determined at the time of sale, shares of our Class A Common Stock. 

GENERAL TERMS OF WARRANTS                                                       

      The applicable prospectus supplement will contain, where applicable, the
following terms of and other information relating to the warrants and warrant   
spreads:                                                                        

      - the specific designation and aggregate number of, and the price at which
we will issue, the warrants;                                    

- the currency with which the warrants may be purchased;            

     - the date on which the right to exercise the warrants will begin and the
    date on which that right will expire or, if you may not continuously
        exercise the warrants throughout that period, the specific date or dates
on which you may exercise the warrants;                         

    - whether the warrants will be issued in fully registered form or bearer
        form, in definitive or global form or in any combination of these forms,
    although, in any case, the form of a warrant included in a unit will
       correspond to the form of the unit and of any debt security included in
that unit;                                                      

    - any applicable material United States federal income tax consequences;

 - the identity of the warrant agent for the warrants and of any other
      depositaries, execution or paying agents, transfer agents, registrars,
determination, or other agents;                                 

- the proposed listing, if any, of the warrants or any securities   
     purchasable upon exercise of the warrants on any securities exchange;

      - if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;                                      

- information with respect to book-entry procedures, if any;        

 - the terms of the securities issuable upon exercise of the warrants;

- the antidilution provisions of the warrants, if any;              

- any redemption or call provisions;                                

- the exercise price and procedures for exercise of the warrants;   

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   - the terms of any warrant spread and the market price of the Company's
        common stock which will trigger the Company's obligation to issue shares
of its common stock in settlement of a warrant spread;          

     - whether the warrants are to be sold separately or with other securities
as part of units; and                                           

- any other terms of the warrants.                                  

SIGNIFICANT PROVISIONS OF THE WARRANT AGREEMENTS                                

   We will issue the warrants under one or more warrant agreements to be
entered into between us and a bank or trust company, as warrant agent, in one or
more series, which will be described in the prospectus supplement for the       
warrants. The forms of warrant agreements are filed as exhibits to the          
registration statement. The following summaries of significant provisions of the
warrant agreements and the warrants are not intended to be comprehensive and    
holders of warrants should review the detailed provisions of the relevant       
warrant agreement for a full description and for other information regarding the
warrants.                                                                       

MODIFICATIONS WITHOUT CONSENT OF WARRANTHOLDERS                                 

  We and the warrant agent may amend the terms of the warrants and the
warrant certificates without the consent of the holders to:                     

- cure any ambiguity;                                               

     - cure, correct or supplement any defective or inconsistent provision; or

- amend the terms in any other manner which we may deem necessary or
  desirable and which will not adversely affect the interests of the
affected holders in any material respect.                       

ENFORCEABILITY OF RIGHTS OF WARRANTHOLDERS                                      

     The warrant agents will act solely as our agents in connection with the
warrant certificates and will not assume any obligation or relationship of      
agency or trust for or with any holders of warrant certificates or beneficial   
owners of warrants. Any holder of warrant certificates and any beneficial owner 
of warrants may, without the consent of any other person, enforce by appropriate
legal action, on its own behalf, its right to exercise the warrants evidenced by
the warrant certificates in the manner provided for in that series of warrants  
or pursuant to the applicable warrant agreement. No holder of any warrant       
certificate or beneficial owner of any warrants will be entitled to any of the  
rights of a holder of the debt securities or any other warrant property, if any,
purchasable upon exercise of the warrants, including, without limitation, the   
right to receive the payments on those debt securities or other warrant property
or to enforce any of the covenants or rights in the relevant indenture or any   
other similar agreement.                                                        

REGISTRATION AND TRANSFER OF WARRANTS                                           

   Subject to the terms of the applicable warrant agreement, warrants in
registered, definitive form may be presented for exchange and for registration  
of transfer at the corporate trust office of the warrant agent for that series  
of warrants, or at any other office indicated in the prospectus supplement      
relating to that series of warrants, without service charge. However, the holder
will be required to pay any taxes and other governmental charges as described in
the warrant agreement. The transfer or exchange will be effected only if the    
warrant agent for the series of warrants is satisfied with the documents of     
title and identity of the person making the request.                            

NEW YORK LAW TO GOVERN                                                          

The warrants and each warrant agreement will be governed by, and  
construed in accordance with, the laws of the State of New York.                

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DESCRIPTION OF CAPITAL STOCK

 The authorized capital stock of the Company consists of 150,000,000
shares of Class A Common Stock, 100,000,000 shares of Class B Common Stock, and 
5,000,000 shares of Preferred Stock. No Preferred Stock is outstanding as of the
date of this Prospectus. The following summary description of the capital stock 
of the Company is qualified by reference to the Certificate of Incorporation and
Bylaws of the Company, copies of which are filed as exhibits to the Registration
Statement.                                                                      

COMMON STOCK                                                                    

VOTING RIGHTS                                                                   

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, and                 

- holders of Class A Common Stock are not eligible to vote on any   
     alteration or change in the powers, preferences, or special rights of
the Class B Common Stock or vice versa.                         

    Holders of shares of Class A Common Stock and Class B Common Stock are
not entitled to cumulate their votes in the election of directors. Generally,   
all matters to be voted on by stockholders must be approved by a majority (or,  
in the case of election of directors, by a plurality) of the votes entitled to  
be cast by all shares of Class A Common Stock and Class B Common Stock present  
in person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. Except as otherwise
provided by law, and subject to any voting rights granted to holders of any     
outstanding Preferred Stock, amendments to the Company's Certificate of         
Incorporation generally must be approved by a majority of the combined voting   
power of all Class A Common Stock and Class B Common Stock voting together as a 
single class. Amendments to the Company's Certificate of Incorporation that     
would alter or change the powers, preferences, or special rights of the Class A 
Common Stock or the Class B Common Stock so as to affect them adversely also    
must be approved by a majority of the votes entitled to be cast by the holders  
of the shares affected by the amendment, voting as a separate class.            
Notwithstanding the foregoing, any amendment to the Company's Certificate of    
Incorporation to increase the authorized shares of any class or classes of stock
will be deemed not to affect adversely the powers, preferences, or special      
rights of the Class A Common Stock or Class B Common Stock.                     

DIVIDENDS                                                                       

      Holders of Class A Common Stock and Class B Common Stock will receive an
equal amount per share in any dividend declared by the Board of Directors,      
subject to any preferential rights of any outstanding Preferred Stock. Dividends
consisting of shares of Class A Common Stock and Class B Common Stock may be    
paid only as follows:                                                           

   - shares of Class A Common Stock may be paid only to holders of Class A
   Common Stock and shares of Class B Common Stock may be paid only to
holders of Class B Common Stock, and                            

 - shares will be paid proportionally with respect to each outstanding
share of Class A Common Stock and Class B Common Stock.         

OTHER RIGHTS                                                                    

      On liquidation, dissolution, or winding up of the Company, after payment
in full of the amounts required to be paid to holders of Preferred Stock, if    
any, all holders of Common Stock,                                               

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regardless of class, are entitled to share ratably in any assets available for  
distribution to holders of shares of Common Stock. No shares of Common Stock are
subject to redemption or have preemptive rights to purchase additional shares of
Common Stock. Upon consummation of the Offering, all the outstanding shares of  
Class A Common Stock and Class B Common Stock will be validly issued, fully     
paid, and nonassessable.                                                        

PREFERRED STOCK                                                                 

 As of the date of this Prospectus, no shares of Preferred Stock are
outstanding. The Board of Directors may authorize the issuance of Preferred     
Stock in one or more series and may determine, with respect to any such series, 
the designations, powers, preferences, and rights of such series, and its       
qualifications, limitations, and restrictions, including, without limitation,   

- the designation of the series;                                    

     - the number of shares of the series, which number the Board of Directors
       may thereafter (except where otherwise provided in the designations for
        such series) increase or decrease (but not below the number of shares of
such series then outstanding);                                  

    - whether dividends, if any, will be cumulative or noncumulative and the
dividend rate of the series;                                    

      - the conditions upon which and the dates at which dividends, if any, will
      be payable, and the relation that such dividends, if any, will bear to
the dividends payable on any other class or classes of stock;   

  - the redemption rights and price or prices, if any, for shares of the
series;                                                         

    - the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series;                             

  - the amounts payable on and the preferences, if any, of shares of the
 series, in the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Company;       

     - whether the shares of the series will be convertible into shares of any
   other class or series, or any other security, of the Company or any
       other corporation, and, if so, the specification of such other class or
        series or such other security, the conversion price or prices or rate or
  rates, any adjustments thereof, the date or dates as of which such
        shares will be convertible and all other terms and conditions upon which
such conversion may be made; and                                

 - the voting rights, if any, of the holders of shares of such series.

      The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility 
in structuring possible future financings and acquisitions and in meeting other 
corporate needs that might arise. The authorized shares of Preferred Stock will 
be available for issuance without further action by the Company's stockholders, 
unless such action is required by applicable law or the rules of any stock      
exchange or automated quotation system on which the Company's securities may be 
listed or traded. The New York Stock Exchange, Inc. (the "NYSE") currently      
requires stockholder approval as a prerequisite to listing shares in several    
instances, including where the present or potential issuance of shares could    
result in an increase in the number of shares of common stock outstanding, or in
the amount of voting securities outstanding, of at least 20%.                   

      Although the Board of Directors has no current intention of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of   
such series, impede the completion of a merger, tender offer, or other takeover 
attempt. The Board of Directors will make any determination to issue such shares
based on its judgment as to the best interests of the Company and its           
stockholders. The Board of Directors, in so acting, could issue Preferred Stock 
having terms that could discourage a                                            

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potential acquirer from making, without first negotiating with the Board of     
Directors, an acquisition attempt through which such acquirer may be able to    
change the composition of the Board of Directors, including a tender offer or   
other transaction that some, or a majority, of the Company's stockholders might 
believe to be in their best interests or in which stockholders might receive a  
premium for their stock over the then current market price of such stock.       

RIGHTS PLAN                                                                     

 On April 28, 1999, the Board of Directors of the Company declared a
dividend distribution of one Right for each outstanding share of Class A Common 
Stock, $.01 par value, and Class B Common Stock, $.01 par value, of the Company 
(collectively, the "Common Stock"). The distribution was payable to the         
stockholders of record at the close of business on May 12, 1999. Each Right     
entitles the registered holder to purchase from the Company one one-hundredth of
a share of a series of the Company's preferred stock designated as Series A     
Junior Participating Preferred Stock ("Preferred Stock") at a price of $85.00   
per one one-hundredth of a share (the "Purchase Price"), subject to adjustment. 
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and First Chicago Trust Company of New  
York, as Rights Agent (the "Rights Agent").                                     

  Initially, the Rights were attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates were  
distributed. Subject to certain exceptions specified in the Rights Agreement,   
the Rights will separate from the Common Stock and a Distribution Date will     
occur upon the earlier of (i) 10 business days following a public announcement  
that a person or group of affiliated or associated persons (an "Acquiring       
Person") has acquired beneficial ownership of 15% or more of the Voting Power as
represented by the outstanding shares of Common Stock (the "Stock Acquisition   
Date"), other than as a result of repurchases of stock by the Company or certain
inadvertent actions by institutional or certain other stockholders, or (ii) 10  
business days (or such later date as the Board shall determine prior to any     
person becoming an Acquiring Person) following the commencement of a tender     
offer or exchange offer that would result in a person or group becoming an      
Acquiring Person. Voting Power is defined as the total number of votes entitled 
to be cast in the general election of the directors of the Company. Until the   
Distribution Date, (i) the Rights will be evidenced by the Common Stock         
certificates and will be transferred with and only with such Common Stock       
certificates, (ii) new Common Stock certificates issued after the Record Date   
will contain a notation incorporating the Rights Agreement by reference and     
(iii) the surrender for transfer of any certificates for Common Stock           
outstanding will also constitute the transfer of the Rights associated with the 
Common Stock represented by such certificate. Pursuant to the Rights Agreement, 
the Company reserves the right to require prior to the occurrence of a          
Triggering Event (as defined below) that, upon any exercise of Rights, a number 
of Rights be exercised so that only whole shares of Preferred Stock will be     
issued.                                                                         

 The Rights are not exercisable until the Distribution Date and will
expire at 5:00 P.M. (New York City time) on April 28, 2009 (the "Expiration     
Date"), unless such date is extended or the Rights are earlier redeemed or      
exchanged by the Company as described below.                                    

     As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of      
business on the Distribution Date and, thereafter, the separate Rights          
Certificates alone will represent the Rights. Except as otherwise determined by 
the Board of Directors, only shares of Common Stock issued prior to the         
Distribution Date will be issued with Rights.                                   

     In the event that a Person becomes an Acquiring Person, except pursuant
to an offer for all outstanding shares of Common Stock which the independent    
directors determine to be fair and not inadequate and to otherwise be in the    
best interests of the Company and its stockholders, after receiving advice from 
one or more investment banking firms (a "Qualified Offer"), each holder of a    

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Right will thereafter have the right to receive, upon exercise, Class A Common  
Stock (or, in certain circumstances, cash, property or other securities of the  
Company) having a value equal to two times the exercise price of the Right.     
Notwithstanding any of the foregoing, following the occurrence of the event set 
forth in this paragraph, all Rights that are, or (under certain circumstances   
specified in the Rights Agreement) were, beneficially owned by any Acquiring    
Person will be null and void. However, Rights are not exercisable following the 
occurrence of the event set forth above until such time as the Rights are no    
longer redeemable by the Company as set forth below.                            

   For example, at an exercise price of $85.00 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event 
set forth in the preceding paragraph would entitle its holder to purchase       
$170.00 worth of Class A Common Stock (or other consideration, as noted above)  
for $85.00. Assuming that the Class A Common Stock had a per share value of     
$17.00 at such time, the holder of each valid Right would be entitled to        
purchase 10 shares of Class A Common Stock for $85.00.                          

      In the event that, on or at any time after a Stock Acquisition Date, the
Company (i) engages in a merger or other business combination transaction in    
which the Company is not the surviving corporation (other than with an entity   
which acquired the shares pursuant to a Qualified Offer), (ii) the Company      
engages in a merger or other business combination transaction in which the      
Company is the surviving corporation and any shares of the Company's Common     
Stock are changed into or exchanged for other securities or assets or (iii) 50% 
or more of the assets, cash flow or earning power of the Company and its        
subsidiaries (taken as a whole) are sold or transferred so that each holder of a
Right (except as noted below) shall thereafter have the right to receive, upon  
the exercise thereof at the then current exercise price of the Right, that      
number of shares of common stock of the acquiring Company which at the time of  
such transaction would have a market value (determined as provided in the Rights
Agreement) of two times the exercise price of the Right. The events set forth in
this paragraph and in the second preceding paragraph are referred to as the     
"Triggering Events."                                                            

      At any time until the tenth business day after a Stock Acquisition Date,
the Company may redeem the Rights in whole, but not in part, at a price of $.01 
per Right, (payable in cash, Class A Common Stock or other consideration deemed 
appropriate by the Board of Directors). Immediately upon the action of the Board
of Directors of the Company electing to redeem the Rights, the Rights will      
terminate and the only right of the holders of Rights will be to receive the    
$.01 redemption price.                                                          

     At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of fifty percent (50%) or more of the Voting
Power as represented by the outstanding Common Stock, the Board may exchange the
Rights (other than Rights owned by such person or group which have become void),
in whole or in part, for Class A Common Stock at an exchange ratio of one share 
of Class A Common Stock, or one one-hundredth of a share of Preferred Stock (or 
of a share of a class or series of the Company's preferred stock having         
equivalent rights, preferences and privileges), per Right (subject to           
adjustment).                                                                    

   Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not  
be taxable to stockholders or to the Company, stockholders may, depending upon  
the circumstances, recognize taxable income in the event that the Rights become 
exercisable for Class A Common Stock (or other consideration) of the Company or 
for common stock of the acquiring company or in the event of the redemption of  
the Rights as set forth above.                                                  

       Any of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the           
Distribution Date, the provisions of the Rights Agreement may be amended by the 
Board in order to cure any ambiguity, to make changes which do not adversely    
affect the interests of holders of Rights, or to shorten or lengthen any time   
period under the Rights Agreement. The foregoing notwithstanding, no amendment  
may be made at such time as the Rights are not redeemable.                      

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BUSINESS COMBINATION STATUTE                                                    

     As a corporation organized under the laws of the State of Delaware, the
Company will be subject to Section203 of the Delaware General Corporation Law ( 
the "DGCL"), which restricts certain business combinations between the Company  
and an "interested stockholder" (in general, a stockholder owning 15% or more of
the Company's outstanding voting stock) or its affiliates or associates for a   
period of three years following the time that the stockholder becomes an        
"interested stockholder." The restrictions do not apply if                      

      - prior to an interested stockholder becoming such, the Board of Directors
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; 

- upon consummation of the transaction that resulted in any person  
       becoming an interested stockholder, such interested stockholder owns at
        least 85% of the voting stock of the Company outstanding at the time the
       transaction commenced (excluding shares owned by certain employee stock
      ownership plans and persons who are both directors and officers of the
Company); or                                                    

      - at or subsequent to the time an interested stockholder becomes such, the
   business combination is both approved by the Board of Directors and
authorized at an annual or special meeting of the Company's     
   stockholders, not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock not owned by the  
interested stockholder.                                         

Under certain circumstances, Section203 of the DGCL makes it more 
difficult for a person who would be an "interested stockholder" to effect       
various business combinations with a corporation for a three-year period,       
although the stockholders may elect to exclude a corporation from the           
restrictions imposed under Section203. The Certificate of Incorporation of the  
Company does not exclude the Company from the restrictions imposed under        
Section203 of the DGCL. It is anticipated that the provisions of Section203 of  
the DGCL may encourage companies interested in acquiring the Company to         
negotiate in advance with the Board of Directors, since the stockholder approval
requirement would be avoided if a majority of the directors then in office      
approves, prior to the date on which a stockholder becomes an interested        
stockholder, either the business combination or the transaction that results in 
the stockholder becoming an interested stockholder.                             

CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS                               

      Certain of the provisions of the Certificate of Incorporation and Bylaws
discussed below may have the effect, either alone or in combination with the    
provisions of Section203 discussed above, of making more difficult or           
discouraging a tender offer, proxy contest, or other takeover attempt that is   
opposed by the Board of Directors but that a stockholder might consider to be in
such stockholder's best interest. Those provisions include                      

- the classification of the Company's Board of Directors;           

      - restrictions on the rights of stockholders to remove or elect directors;
and                                                             

- prohibitions against stockholders calling a special meeting of    
stockholders or acting by unanimous written consent in lieu of a
meeting.                                                        

CLASSIFIED BOARD; NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES               

     The Certificate of Incorporation and Bylaws of the Company provide that
the Board of Directors--except for directors who may be elected by the holders  
of Preferred Stock--will be divided into three classes of directors, initially  
with four directors in two of the classes and two directors in the third class. 
One class is to be originally elected for a term expiring at the annual meeting 
of                                                                              

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stockholders to be held in 1999, another class is to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 2000, and     
another class is to be originally elected for a term expiring at the annual     
meeting of stockholders to be held in 2001. Each director is to hold office     
until his or her successor is duly elected and qualified. Commencing with the   
1999 annual meeting of stockholders, directors elected to succeed directors     
whose terms then expire will be elected for a term of office to expire at the   
third succeeding annual meeting of stockholders after their election, with each 
director to hold office until such person's successor is duly elected and       
qualified.                                                                      

      The Certificate of Incorporation provides that, subject to any rights of
holders of Preferred Stock to elect directors under specified circumstances, the
number of directors will be fixed from time to time exclusively pursuant to a   
resolution adopted by directors constituting a majority of the total number of  
directors that the Company would have if there were no vacancies on the Board of
Directors (the "Whole Board"), with the Whole Board consisting of not more than 
15 nor less than seven directors. The Certificate of Incorporation also provides
that, subject to any rights of holders of Preferred Stock or any other series or
class of stock, and unless the Board of Directors otherwise determines, any     
vacancies will be filled only by the affirmative vote of a majority of the      
remaining directors, even if less than a quorum. Accordingly, absent an         
amendment to the Certificate of Incorporation, the Board of Directors could     
prevent any stockholder from enlarging the Board of Directors and filling the   
new directorships with such stockholder's own nominees.                         

      The Certificate of Incorporation and Bylaws of the Company provide that,
subject to the rights of holders of Preferred Stock to elect directors under    
specified circumstances, directors may be removed only for cause and only upon  
the affirmative vote of holders of at least 80% of the voting power of all the  
then outstanding shares of stock entitled to vote generally in the election of  
directors ("Voting Stock"), voting together as a single class.                  

    The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board of Directors. 
At least two annual meetings of stockholders, instead of one, will generally be 
required to effect a change in a majority of the Board of Directors. Such a     
delay may help ensure that the Company's directors, if confronted by a holder   
attempting to force a proxy contest, a tender or exchange offer, or an          
extraordinary corporate transaction, would have sufficient time to review the   
proposal as well as any available alternatives to the proposal and to act in    
what they believe to be the best interest of the stockholders. The              
classification provisions will apply to every election of directors, however,   
regardless of whether a change in the composition of the Board of Directors     
would be beneficial to the Company and its stockholders and whether or not a    
majority of the Company's stockholders believe that such a change would be      
desirable. The classification provisions could also have the effect of          
discouraging a third party from initiating a proxy contest, making a tender     
offer or otherwise attempting to obtain control of the Company, even though such
an attempt might be beneficial to the Company and its stockholders. The         
classification of the Board of Directors could thus increase the likelihood that
incumbent directors will retain their positions. In addition, because the       
classification provisions may discourage accumulations of large blocks of the   
Company's stock by purchasers whose objective is to take control of the Company 
and remove a majority of the Board of Directors, the classification of the Board
of Directors could tend to reduce the likelihood of fluctuations in the market  
price of the common stock that might result from accumulations of large blocks. 
Accordingly, stockholders could be deprived of certain opportunities to sell    
their shares of common stock at a higher market price than might otherwise be   
the case.                                                                       

NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS                      

      The Certificate of Incorporation and Bylaws provide that, and subject to
the rights of any holders of Preferred Stock to elect additional directors under
specified circumstances, stockholder action can be taken only at an annual or   
special meeting of stockholders and stockholder action may not be taken by      
written consent in lieu of a meeting. The Bylaws provide that, subject to the   
rights of holders of any series of Preferred Stock to elect additional directors
under specified circumstances,                                                  

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special meetings of stockholders can be called only by the Board of Directors   
pursuant to a resolution adopted by a majority of the Whole Board or the        
Chairman of the Board. Moreover, the business permitted to be conducted at any  
special meeting of stockholders is limited to the business brought before the   
meeting pursuant to the notice of meeting given by the Company.                 

  The provisions of the Certificate of Incorporation and Bylaws of the
Company prohibiting stockholder action by written consent and permitting special
meetings to be called only by the Chairman or at the request of a majority of   
the Whole Board may have the effect of delaying consideration of a stockholder  
proposal until the next annual meeting. The provisions would also prevent the   
holders of a majority of the voting power of the Voting Stock from unilaterally 
using the written consent procedure to take stockholder action. Moreover, a     
stockholder could not force stockholder consideration of a proposal over the    
opposition of the Chairman or a majority of the Whole Board by calling a special
meeting of stockholders prior to the time such parties believe such             
consideration to be appropriate.                                                

LIABILITY OF DIRECTORS; INDEMNIFICATION                                         

   The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for   
breach of fiduciary duty as a director, except for liability                    

    - for any breach of the director's duty of loyalty to the Company or its
stockholders;                                                   

 - for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;                       

   - for paying a dividend or approving a stock repurchase in violation of
Section174 of the DGCL; or                                      

      - for any transaction from which the director derived an improper personal
     benefit. Any amendment or repeal of such provision will not adversely
affect any right or protection of a director existing under such
      provision for any act or omission occurring prior to such amendment or
repeal.                                                         

       The Certificate of Incorporation provides that the Company will indemnify
any person who was or is a party to any threatened, pending, or completed       
action, suit, or proceeding because he or she is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, or other enterprise. The           
Certificate of Incorporation provides that this indemnification will be from and
against expenses, judgments, fines, and amounts paid in settlement by the       
indemnitee. However, this indemnification will only be provided if the          
indemnitee acted in good faith and in a manner he or she reasonably believed to 
be in, or not opposed to, the best interests of the Company.                    

LISTING                                                                         

     The Class A Common Stock is listed on the NYSE under the trading symbol
"WDR." The Class B Common Stock is listed on the NYSE under the trading symbol  
"WDR.B."                                                                        

TRANSFER AGENT AND REGISTRAR                                                    

 The transfer agent and registrar for the common stock is EquiServe.

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DESCRIPTION OF THE TRUST PREFERRED SECURITIES 

WADDELL & REED Capital Trust I may issue only one series of Trust 
Preferred Securities and such series will have the terms described in the       
applicable prospectus supplement. The Declaration of WADDELL & REED Capital     
Trust I authorizes the Regular Trustees of WADDELL & REED Capital Trust I to    
issue on behalf of WADDELL & REED Capital Trust I one series of Trust Preferred 
Securities. The Declaration will be qualified as an indenture under the Trust   
Indenture Act. The Trust Preferred Securities will have terms, including with   
respect to distributions, redemption, voting, liquidation rights and such other 
preferred, deferred or other special rights or such restrictions as described in
the Declaration or made part of the Declaration by the Trust Indenture Act and  
which will mirror the terms of the Corresponding Junior Subordinated Debt       
Securities held by WADDELL & REED Capital Trust I and described in the          
applicable prospectus supplement.                                               

       You must review the prospectus supplement relating to the Trust Preferred
Securities of WADDELL & REED Capital Trust I for specific terms, including:     

- the distinctive designation of the Trust Preferred Securities;    

 - the number and the initial public offering price of Trust Preferred
Securities issued by WADDELL & REED Capital Trust I;            

   - the annual distribution rate (or method of determining such rate) for
the Trust Preferred Securities, the date or dates upon which the
distributions will be payable and the date or dates from which  
distributions will accrue;                                      

- whether distributions on the Trust Preferred Securities will be   
 cumulative, and, in the case of Trust Preferred Securities having
cumulative distribution rights, the date or dates or method of  
       determining the date or dates from which the distributions on the Trust
Preferred Securities will be cumulative;                        

     - the amount or amounts which will be paid out of the assets of WADDELL &
    REED Capital Trust I to the holders of Trust Preferred Securities of
WADDELL & REED Capital Trust I upon voluntary or involuntary    
      dissolution, winding-up or termination of WADDELL & REED Capital Trust
I;                                                              

      - the obligation, if any, of WADDELL & REED Capital Trust I to purchase or
        redeem Trust Preferred Securities issued by WADDELL & REED Capital Trust
       I and the price or prices at which, the period or periods within which,
       and the terms and conditions upon which, the Trust Preferred Securities
    will be purchased or redeemed, in whole or in part, pursuant to such
obligation;                                                     

      - the voting rights, if any, of the Trust Preferred Securities in addition
 to those required by law, including the number of votes per Trust
      Preferred Security and any requirement for the approval by the holders
    of Trust Preferred Securities, as a condition to specified action or
amendments to the Declaration of WADDELL & REED Capital Trust I;

   - the terms and conditions, if any, upon which the Corresponding Junior
   Subordinated Debt Securities may be distributed to holders of Trust
Preferred Securities;                                           

- the right and/or obligation, if any, of the Company to redeem or  
       purchase the Trust Preferred Securities pursuant to any sinking fund or
        similar provisions or at the option of the holder of the Trust Preferred
      Securities and the period or periods for which, the price or prices at
   which, and the terms and conditions upon which, the Trust Preferred
Securities will be redeemed or repurchased, in whole or in part,
pursuant to such right and/or obligation;                       

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- the terms and conditions, if any, upon which the Trust Preferred  
  Securities may be converted into shares of the common stock of the
      Company, including the conversion price and the circumstances, if any,
under which the conversion right will expire;                   

   - if applicable, any securities exchange upon which the Trust Preferred
Securities will be listed; and                                  

- any other relevant rights, preferences, privileges, limitations or
   restrictions of Trust Preferred Securities issued by WADDELL & REED
       Capital Trust I not inconsistent with the Declaration of WADDELL & REED
Capital Trust I or with applicable law.                         

     All Trust Preferred Securities will be guaranteed by the Company to the
extent described below under "Description of the Preferred Securities           
Guarantees."                                                                    

       Certain United States federal income tax considerations applicable to any
offering of Trust Preferred Securities will be described in the applicable      
prospectus supplement.                                                          

      In connection with the issuance of Trust Preferred Securities, WADDELL &
REED Capital Trust I will issue one series of Common Securities. The Declaration
of WADDELL & REED Capital Trust I authorizes the Regular Trustees of the trust  
to issue on behalf of WADDELL & REED Capital Trust I one series of Common       
Securities. The Common Securities will have the terms relating to distributions,
redemption, voting, liquidation rights or such restrictions as are described in 
the Declaration. Except for voting rights, the terms of the Common Securities   
issued by WADDELL & REED Capital Trust I will be substantially identical to the 
terms of the Trust Preferred Securities issued by the trust. The Common         
Securities will rank on a parity, and payments will be made on the Common       
Securities PRO RATA, with the Trust Preferred Securities except that, upon an   
Event of Default under the Declaration, the rights of the holders of the Common 
Securities to payment for distributions and payments upon liquidation,          
redemption and otherwise will be subordinated to the rights of the holders of   
the Trust Preferred Securities. Except in certain limited circumstances, the    
Common Securities will also carry the right to vote to appoint, remove or       
replace any of the WADDELL & REED Capital Trustees of WADDELL & REED Capital    
Trust I. All of the Common Securities of WADDELL & REED Capital Trust I will be 
directly or indirectly owned by the Company.                                    

ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES          

    If an Event of Default under the Declaration of WADDELL & REED Capital
Trust I occurs and is continuing, then the holders of Trust Preferred Securities
of WADDELL & REED Capital Trust I will rely on the enforcement by the           
Institutional Trustee of its rights as a holder of the applicable series of     
Junior Subordinated Debt Securities against the Company. In addition, the       
holders of a majority in liquidation amount of the Trust Preferred Securities of
WADDELL & REED Capital Trust I will have the right to direct the time, method   
and place of conducting any proceeding for any remedy available to the          
Institutional Trustee or to direct the exercise of any trust or power conferred 
upon the Institutional Trustee under the applicable Declaration, including the  
right to direct the Institutional Trustee to exercise the remedies available to 
it as a holder of the Junior Subordinated Debt Securities.                      

If the Institutional Trustee fails to enforce its rights under the
applicable series of Junior Subordinated Debt Securities, a holder of Trust     
Preferred Securities of WADDELL & REED Capital Trust I may institute a legal    
proceeding directly against the Company to enforce the Institutional Trustee's  
rights without first instituting any legal proceeding against the Institutional 
Trustee or any other person or entity. However, if an Event of Default under the
applicable Declaration has occurred and is continuing and such event is         
attributable to the failure of the Company to pay interest or principal on the  
applicable series of Junior Subordinated Debt Securities on the date such       
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of Trust Preferred Securities of WADDELL & REED 
Capital Trust I may directly institute a proceeding                             

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for enforcement of payment to the holder of the principal of or interest on the 
applicable series of Junior Subordinated Debt Securities having a principal     
amount equal to the aggregate liquidation amount of the Trust Preferred         
Securities of such holder (a "Direct Action") on or after the respective due    
date. In connection with a Direct Action, the Company will be subrogated to the 
rights of such holder of Trust Preferred Securities under the applicable        
Declaration to the extent of any payment made by the Company to a holder of     
Trust Preferred Securities in a Direct Action. This means that the Company will 
be entitled to payment of amounts that a holder of Trust Preferred Securities   
receives in respect of an unpaid distribution that resulted in the bringing of  
the Direct Action to the extent that such holder receives or has already        
received full payment relating to such unpaid distribution from WADDELL & REED  
Capital Trust I.                                                                

INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE                                

   For information concerning the relationship between the Institutional
Trustee and the Company, see "Description of Junior Subordinated Debt           
Securities--Regarding the Trustee" and "Description of Senior Debt              
Securities--Regarding the Trustee" in this prospectus.                          

INFORMATION CONCERNING THE DELAWARE TRUSTEE                                     

       For information concerning the relationship between the Delaware Trustee,
and the Company, see "Description of Senior Debt Securities--Regarding the      
Trustee" in this prospectus.                                                    

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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES

The guarantees with respect to the Trust Preferred Securities (the
"Preferred Securities Guarantees") will be executed and delivered by the Company
for the benefit of the holders from time to time of Trust Preferred Securities. 
Each Preferred Securities Guarantee will be qualified as an indenture under the 
Trust Indenture Act. An institutional trustee will act as indenture trustee     
under each Preferred Securities Guarantee for purposes of the Trust Indenture   
Act (the "Preferred Guarantee Trustee"). The terms of each Preferred Securities 
Guarantee will be those in such Preferred Securities Guarantee and those made   
part of such Preferred Securities Guarantee by the Trust Indenture Act. The     
summary of the terms and provisions of the Preferred Securities Guarantees in   
this section does not claim to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the form of    
Preferred Securities Guarantee, which is filed as an exhibit to the registration
statement of which this prospectus forms a part, and the Trust Indenture Act.   
Each Preferred Securities Guarantee will be held by the Preferred Guarantee     
Trustee for the benefit of the holders of the Trust Preferred Securities of     
WADDELL & REED Capital Trust I.                                                 

GENERAL                                                                         

     Under each Preferred Securities Guarantee, the Company will irrevocably
and unconditionally agree, to the extent set forth in the guarantee, to pay in  
full, to the holders of the Trust Preferred Securities issued by WADDELL & REED 
Capital Trust I, the Guarantee Payments (as defined below), except to the extent
paid by WADDELL & REED Capital Trust I, as and when due, regardless of any      
defense, right of set-off or counterclaim which WADDELL & REED Capital Trust I  
may have or claim to have.                                                      

      The following payments with respect to Trust Preferred Securities issued
by WADDELL & REED Capital Trust I, to the extent not paid by WADDELL & REED     
Capital Trust I (the "Guarantee Payments"), will be subject to the applicable   
Preferred Securities Guarantee (without duplication):                           

   - any accrued and unpaid distributions which are required to be paid on
    the Trust Preferred Securities, to the extent WADDELL & REED Capital
Trust I has funds available for such payments;                  

     - the redemption price, including all accrued and unpaid distributions to
     the date of payment (the "Redemption Price"), to the extent WADDELL &
       REED Capital Trust I has funds available for such payments with respect
    to any Trust Preferred Securities called for redemption by WADDELL &
REED Capital Trust I; and                                       

    - upon a voluntary or involuntary dissolution, winding-up or termination
    of WADDELL & REED Capital Trust I, other than in connection with the
        distribution of Corresponding Junior Subordinated Debt Securities to the
     holders of Trust Preferred Securities or the redemption of all of the
  Trust Preferred Securities, the lesser of (a) the aggregate of the
        liquidation amount and all accrued and unpaid distributions on the Trust
        Preferred Securities to the date of payment to the extent WADDELL & REED
      Capital Trust I has funds available for the payment and (b) the amount
   of assets of WADDELL & REED Capital Trust I remaining available for
        distribution to holders of the Trust Preferred Securities in liquidation
of WADDELL & REED Capital Trust I.                              

       The redemption price and liquidation amount will be fixed at the time the
Trust Preferred Securities are issued.                                          

      The Company's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of Trust   
Preferred Securities or by causing WADDELL & REED Capital Trust I to pay such   
amounts to the holders.                                                         

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  Each Preferred Securities Guarantee will not apply to any payment of
distributions except to the extent WADDELL & REED Capital Trust I has funds     
available for the payments. If the Company does not make interest payments on   
the Junior Subordinated Debt Securities purchased by WADDELL & REED Capital     
Trust I, WADDELL & REED Capital Trust I will not pay distributions on the Trust 
Preferred Securities issued by WADDELL & REED Capital Trust I and will not have 
funds available for such a payment. See "Description of Junior Subordinated Debt
Securities--Certain Covenants of the Company." The Preferred Securities         
Guarantee, when taken together with the Company's obligations under the Junior  
Subordinated Debt Securities, the Junior Indenture and the Declaration,         
including its obligations to pay costs, expenses, debts and liabilities of      
WADDELL & REED Capital Trust I, other than with respect to the Trust Securities,
will provide a full and unconditional guarantee on a subordinated basis by the  
Company of payments due on the Trust Preferred Securities.                      

       The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of WADDELL & REED Capital Trust I with respect to the 
Common Securities (the "Common Securities Guarantees") to the same extent as the
Preferred Securities Guarantees, except that upon an Event of Default under the 
Junior Indenture, holders of Trust Preferred Securities will have priority over 
holders of Common Securities with respect to distributions and payments on      
liquidation, redemption or otherwise.                                           

MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT                 

  Except with respect to any changes which do not adversely affect the
rights of holders of Trust Preferred Securities (in which case no vote will be  
required), each Preferred Securities Guarantee may be amended only with the     
prior approval of the holders of not less than a majority in liquidation amount 
of the outstanding Trust Preferred Securities issued by WADDELL & REED Capital  
Trust I. The manner of obtaining the approval of holders of the Trust Preferred 
Securities will be described in the applicable prospectus supplement. All       
guarantees and agreements contained in a Preferred Securities Guarantee will    
bind the successors, assigns, receivers, trustees and representatives of the    
Company and will benefit the holders of the outstanding Trust Preferred         
Securities of WADDELL & REED Capital Trust I.                                   

TERMINATION                                                                     

Each Preferred Securities Guarantee will terminate as to the Trust
Preferred Securities issued by WADDELL & REED Capital Trust I:                  

- upon full payment of the Redemption Price of all Trust Preferred  
Securities of WADDELL & REED Capital Trust I;                   

- upon distribution of the Corresponding Junior Subordinated Debt   
       Securities held by WADDELL & REED Capital Trust I to the holders of the
     Trust Preferred Securities of that WADDELL & REED Capital Trust I; or

- upon full payment of the amounts payable under the Declaration of 
 WADDELL & REED Capital Trust I upon liquidation of WADDELL & REED
Capital Trust I.                                                

       Each Preferred Securities Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any holder of Trust Preferred 
Securities issued by WADDELL & REED Capital Trust I must restore payment of any 
sums paid under the Trust Preferred Securities or the Preferred Securities      
Guarantee.                                                                      

EVENTS OF DEFAULT                                                               

   An event of default under a Preferred Securities Guarantee will occur
upon the failure of the Company to perform any of its payment or other          
obligations under the guarantee.                                                

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    The holders of a majority in liquidation amount of the Trust Preferred
Securities relating to a Preferred Securities Guarantee have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Preferred Guarantee Trustee in respect of the Preferred Securities       
Guarantee or to direct the exercise of any trust or power conferred upon the    
Preferred Guarantee Trustee under such Trust Preferred Securities. If the       
Preferred Guarantee Trustee fails to enforce the Preferred Securities Guarantee,
any holder of Trust Preferred Securities relating to the Preferred Securities   
Guarantee may institute a legal proceeding directly against the Company to      
enforce the Preferred Guarantee Trustee's rights under the Preferred Securities 
Guarantee, without first instituting a legal proceeding against WADDELL & REED  
Capital Trust I, the Preferred Guarantee Trustee or any other person or entity. 
However, if the Company has failed to make a Guarantee Payment, a holder of     
Trust Preferred Securities may directly institute a proceeding against the      
Company for enforcement of the Preferred Securities Guarantee for the payment.  
The Company waives any right or remedy to require that any action be brought    
first against WADDELL & REED Capital Trust I or any other person or entity      
before proceeding directly against the Company.                                 

STATUS OF THE PREFERRED SECURITIES GUARANTEES                                   

    Unless otherwise provided in the applicable prospectus supplement, the
Preferred Securities Guarantees with respect to the Trust Preferred Securities  
of WADDELL & REED Capital Trust I will constitute unsecured obligations of the  
Company and will rank (i) subordinate and junior in right of payment to certain 
other liabilities of the Company, as described in the prospectus supplement and 
(ii) on a parity with any guarantee now or hereafter entered into by the Company
in respect of WADDELL & REED Capital Trust I or any other similar financing     
vehicle sponsored by the Company.                                               

     The terms of the Trust Preferred Securities provide that each holder of
Trust Preferred Securities issued by WADDELL & REED Capital Trust I by          
acceptance of the Trust Preferred Securities agrees to the subordination        
provisions and other terms of the Preferred Securities Guarantee as described in
the applicable prospectus supplement.                                           

The Preferred Securities Guarantees will constitute a guarantee of
payment and not of collection, meaning that the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its rights under the 
Preferred Securities Guarantee without instituting a legal proceeding against   
any other person or entity.                                                     

INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE                          

Prior to the occurrence of a default with respect to a Preferred  
Securities Guarantee, the Preferred Guarantee Trustee will undertake to perform 
only the duties that are specifically described in the Preferred Securities     
Guarantee and, after default, will exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to  
such provisions, the Preferred Guarantee Trustee will be under no obligation to 
exercise any of the powers given it by a Preferred Securities Guarantee at the  
request of any holder of Trust Preferred Securities, unless the Preferred       
Guarantee Trustee is offered reasonable indemnity against the costs, expenses   
and liabilities which it might incur in exercising the powers.                  

For information concerning the relationship between the Preferred 
Guarantee Trustee and the Company, see "Description of Junior Subordinated Debt 
Securities--Regarding Trustee" and "Description of Senior Debt                  
Securities--Regarding the Trustee" in this prospectus.                          

GOVERNING LAW                                                                   

      The Preferred Securities Guarantees will be governed by and construed in
accordance with the laws of the State of New York.                              

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EFFECT OF OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBT SECURITIES 
AND THE PREFERRED SECURITIES GUARANTEE

      The sole purpose of WADDELL & REED Capital Trust I is to issue the Trust
Securities evidencing undivided beneficial ownership interests in the assets of 
WADDELL & REED Capital Trust I, and to invest the proceeds from the issuance and
sale in the Corresponding Junior Subordinated Debt Securities.                  

     As long as payments of interest and other payments are made when due on
the Junior Subordinated Debt Securities, the payments will be sufficient to     
cover distributions and payments due on the Trust Securities because of the     
following factors:                                                              

   - the aggregate principal amount of Junior Subordinated Debt Securities
      will be equal to the sum of the aggregate stated liquidation amount of
the Trust Securities;                                           

      - the interest rate and the interest and other payment dates on the Junior
 Subordinated Debt Securities will match the distribution rate and
        distribution and other payment dates for the Trust Preferred Securities;

  - the Company will pay, and WADDELL & REED Capital Trust I will not be
        obligated to pay, directly or indirectly, all costs, expenses, debt, and
      obligations of WADDELL & REED Capital Trust I, other than with respect
to the Trust Securities; and                                    

   - the Declaration provides that WADDELL & REED Capital Trust I Trustees
   will not take or cause or permit WADDELL & REED Capital Trust I to,
      among other things, engage in any activity that is not consistent with
the purposes of WADDELL & REED Capital Trust I.                 

     Payments of distributions, to the extent funds are available, and other
payments due on the Trust Preferred Securities, to the extent funds are         
available, are guaranteed by the Company as and to the extent described under   
"Description of the Preferred Securities Guarantees". If the Company does not   
make interest payments on the Corresponding Junior Subordinated Debt Securities 
purchased by WADDELL & REED Capital Trust I, it is expected that WADDELL & REED 
Capital Trust I will not have sufficient funds to pay distributions on the Trust
Preferred Securities. The Preferred Securities Guarantee does not apply to any  
payment of distributions unless and until WADDELL & REED Capital Trust I has    
sufficient funds for the payment of such distributions.                         

    The Preferred Securities Guarantee covers the payment of distributions
and other payments on the Trust Preferred Securities only if and to the extent  
that the Company has made a payment of interest or principal on the Junior      
Subordinated Debt Securities held by WADDELL & REED Capital Trust I as its sole 
asset. The Preferred Securities Guarantee, when taken together with the         
Company's obligations under the Junior Subordinated Debt Securities and the     
Junior Indenture and its obligations under the Declaration, including its       
obligations to pay costs, expenses, debts and liabilities of WADDELL & REED     
Capital Trust I (other than with respect to the Trust Securities), provide a    
full and unconditional guarantee on a subordinated basis of amounts due on the  
Trust Preferred Securities.                                                     

   If the Company fails to make interest or other payments on the Junior
Subordinated Debt Securities when due, taking account of any extension period,  
the Declaration provides a mechanism whereby the holders of the Trust Preferred 
Securities may direct the Institutional Trustee to enforce its rights under the 
Junior Subordinated Debt Securities. If the Institutional Trustee fails to      
enforce its rights under the Junior Subordinated Debt Securities, a holder of   
Trust Preferred Securities may institute a legal proceeding against the Company 
to enforce the Institutional Trustee's rights under the Junior Subordinated Debt
Securities without first instituting any legal proceeding against the           
Institutional Trustee or any other person or entity. However, if an Event of    
Default under the Declaration has occurred and is continuing and such event is  
due to the failure of the Company to pay interest or principal on the Junior    
Subordinated Debt Securities on the date such interest or principal is otherwise
payable (or in the case of redemption on the redemption date), then a holder of 
Trust Preferred Securities may institute a Direct Action for payment on or after
the respective due date.                                                        

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       In connection with a Direct Action, the Company will be subrogated to the
rights of such holder of Trust Preferred Securities under the Declaration to the
extent of any payment made by the Company to such holder of Trust Preferred     
Securities in a Direct Action. The Company, under the Preferred Securities      
Guarantee, acknowledges that the Guarantee Trustee will enforce the Preferred   
Securities Guarantee on behalf of the holders of the Trust Preferred Securities.
If the Company fails to make payments under the Preferred Securities Guarantee, 
the Preferred Securities Guarantee provides a mechanism whereby the holders of  
the Trust Preferred Securities may direct the Guarantee Trustee to enforce its  
rights under the guarantee. Any holder of Trust Preferred Securities may        
institute a legal proceeding directly against the Company to enforce the        
Preferred Guarantee Trustee's rights under the Preferred Securities Guarantee   
without first instituting a legal proceeding against WADDELL & REED Capital     
Trust I, the Guarantee Trustee, or any other person or entity.                  

The Company and WADDELL & REED Capital Trust I believe that the   
mechanisms and obligations described above, taken together, provide a full and  
unconditional guarantee by the Company on a subordinated basis of payments due  
on the Trust Preferred Securities. See "Description of the Preferred Securities 
Guarantees--General."                                                           

PLAN OF DISTRIBUTION

  The securities offered under this prospectus may be sold in a public
offering to or through agents, underwriters or dealers designated from time to  
time or directly to purchasers. The Company and WADDELL & REED Capital Trust I  
may sell their securities as soon as practicable after effectiveness of the     
registration statement of which this prospectus forms a part. The names of any  
underwriters or dealers involved in the sale of the securities in respect of    
which this prospectus is delivered, the amount or number of securities to be    
purchased by any such underwriters and any applicable commissions or discounts  
will be described in the applicable prospectus supplement.                      

    Underwriters may offer and sell securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the   
time of sale, at prices related to such prevailing market prices or at          
negotiated prices. In connection with the sale of the securities, underwriters  
may be deemed to have received compensation from the Company and/or WADDELL &   
REED Capital Trust I in the form of underwriting discounts or commissions and   
may also receive commissions. Underwriters may sell securities to or through    
dealers, and such dealers may receive compensation in the form of discounts,    
concessions or commissions from the underwriters.                               

   Any underwriters may engage in stabilizing transactions and syndicate
covering transactions in accordance with Rule 104 under the Exchange Act.       
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering   
transactions involve purchases of the securities in the open market after the   
distribution has been completed in order to cover syndicate short positions.    
Such stabilizing transactions and syndicate covering transactions may cause the 
price of the securities to be higher than it would otherwise be in the absence  
of such transactions.                                                           

     Any underwriting compensation paid by the Company and/or WADDELL & REED
Capital Trust I to underwriters in connection with the offering of securities,  
and any discounts, concessions or commissions allowed by such underwriters to   
participating dealers, will be described in an accompanying prospectus          
supplement. Any such compensation will not exceed 8%. Underwriters and dealers  
participating in the distribution of securities may be deemed to be             
underwriters, and any discounts and commissions received by them and any profit 
realized by them on resale of such securities may be deemed to be underwriting  
discounts and commissions, under the Securities Act. Underwriters and dealers   
may be entitled under agreements with the Company and WADDELL & REED Capital    
Trust I, to indemnification against and contribution toward certain civil       
liabilities, including liabilities under the Securities Act, and to             
reimbursement by the Company for certain expenses.                              

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 In connection with the offering of the securities of the Company or
WADDELL & REED Capital Trust I, the Company or WADDELL & REED Capital Trust I   
may grant to the underwriters an option to purchase additional securities to    
cover over-allotments, if any, at the initial public offering price (with an    
additional underwriting commission), as may be described in the accompanying    
prospectus supplement. If the Company or WADDELL & REED Capital Trust I grants  
any over-allotment option, the terms of such over-allotment option will be      
described in the prospectus supplement for such securities.                     

  Underwriters and dealers may engage in transactions with, or perform
services for, the Company and/or WADDELL & REED Capital Trust I and/or any of   
their affiliates in the ordinary course of business. Certain of the underwriters
and their associates may be customers of, including borrowers from, engage in   
transactions with, and perform services for, the Company, the Banks and other   
subsidiaries of the Company in the ordinary course of business.                 

      Securities will be new issues of securities and will have no established
trading market. Any underwriters to whom such securities are sold for public    
offering and sale may make a market in such securities, but such underwriters   
will not be obligated to do so and may discontinue any market making at any time
without notice. Such securities may or may not be listed on a national          
securities exchange or the Nasdaq National Market. No assurance can be given as 
to the liquidity of or the existence of trading markets for any securities.     

      One or more direct or indirect subsidiaries of the Company may from time
to time act as an agent or underwriter in connection with the sale of the       
securities to the extent permitted by law. The participation of any such        
subsidiary will comply with Rule 2720 of the Conduct Rules of the National      
Association of Securities Dealers, Inc. (the "NASD"). The offer and sale of the 
securities will comply with Rule 2810 of the Rules of Conduct of the NASD. In   
addition, no NASD member participating in offers and sales of securities will   
execute a transaction in the securities in a discretionary account without the  
prior specific written approval of the member's customer.                       

  This prospectus and the related prospectus supplement may be used by
direct or indirect subsidiaries of the Company in connection with offers and    
sales related to secondary market transactions. Such subsidiaries may act as    
principal or agent in such transactions. Such sales may be made at prices       
related to prevailing market prices at the time of sale.                        

LEGAL MATTERS 

 Unless otherwise indicated in the applicable prospectus supplement,
certain matters of Delaware law relating to the validity of the Trust Preferred 
Securities will be passed upon on behalf of WADDELL & REED Capital Trust I by   
Skadden, Arps, Slate, Meagher & Flom LLP, special Delaware counsel to the       
Company and WADDELL & REED Capital Trust I. Unless otherwise indicated in the   
applicable prospectus supplement, the validity of the Senior Debt Securities,   
the Junior Subordinated Debt Securities and the Preferred Securities Guarantee  
and certain matters relating thereto will be passed upon for the Company by     
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company. Unless
otherwise indicated in the applicable prospectus supplement, certain United     
States federal income taxation matters will be passed upon for the Company and  
WADDELL & REED Capital Trust I by Skadden, Arps, Slate, Meagher & Flom LLP,     
special tax counsel to the Company and WADDELL & REED Capital Trust I.          

EXPERTS 

  The consolidated financial statements of the Company included in the
Annual Report on Form 10-K for the year ended December 31, 1999, incorporated   
herein by reference have been audited by KPMG LLP, independent public           
accountants, as indicated in their report with respect thereto, and are         
incorporated herein by reference in reliance upon the authority of said firm as 
experts in accounting and auditing in giving said report.                       

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

$200,000,000

WADDELL & REED FINANCIAL, INC.

7 1/2% NOTES DUE JANUARY 18, 2006 

--------------------------- 
P R O S P E C T U S  S U P P L E M E N T
----------------------------------- 

MERRILL LYNCH & CO. 
JP MORGAN 
MORGAN STANLEY DEAN WITTER
STEPHENS INC. 

JANUARY 12, 2001

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

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B2’ Filing		Date		First		Last			Other Filings
		4/28/09		85					10-Q,  8-K
		1/18/06		1		99			3
		7/18/01		1		28			S-8 POS
		1/18/01		1		28
Filed on:		1/16/01
		1/12/01		1		99
		12/15/00		23
		11/1/00		60
		10/23/00		10		25
		10/11/00		60
		9/30/00		5		60			10-Q,  13F-HR
		9/18/00		23
		7/11/00		60
		7/1/00		20
		6/30/00		23		66			10-Q,  13F-HR
		6/26/00		23
		4/10/00		59
		4/7/00		10		59			SC 13G,  SC 13G/A
		4/3/00		23
		3/31/00		10		63			10-Q,  13F-HR,  13F-HR/A,  8-K,  8-K/A
		3/17/00		10		59
		3/7/00		63					8-K
		2/28/00		63					8-K
		2/23/00		10		59
		2/11/00		34					SC 13G/A
		1/1/00		19
		12/31/99		18		98			10-K,  11-K,  13F-HR
		12/28/99		16		45
		10/4/99		9
		10/2/99		23
		9/30/99		11		60			10-Q,  13F-HR
		8/9/99		9		43
		7/1/99		12
		5/12/99		85
		4/28/99		85					8-K,  DEF 14A
		1/1/99		50
		12/31/98		33		53			10-K,  11-K
		11/6/98		40		52
		7/1/98		14
		3/4/98		40		52			S-1/A
		1/1/98		44
		12/31/97		33		53
		7/1/97		45
		1/1/97		44
		12/31/96		37
		1/1/96		50
		12/31/93		22
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