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

 

FORM 11-K

Annual Report pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006

Commission file number 001-13913

WADDELL & REED FINANCIAL, INC.
401(K) AND THRIFT PLAN
(Full title of the Plan)

 

WADDELL & REED FINANCIAL, INC.
6300 Lamar Avenue
Overland Park, Kansas  66202
913-236-2000
(Name of issuer of securities held pursuant to the Plan)

 

 

WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN

Financial Statements and Schedule

December 31, 2006 and 2005

(With Report of Independent Registered Public Accounting Firm Thereon)

 

Report of Independent Registered Public Accounting Firm

The Plan Administrators
Waddell & Reed Financial, Inc.
    401(k) and Thrift Plan:

We have audited the accompanying statements of net assets available for benefits of the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan (the Plan) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan as of December 31, 2006 and 2005, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in Schedule 1 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplementary schedule is the responsibility of the Plan’s management. The supplementary schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

/s/ KPMG LLP

Kansas City, Missouri
June 26, 2007

 

 

WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN

 

Statements of Net Assets Available for Benefits

 

December 31, 2006 and 2005

 

		2006			2005
Investments (note 3)		$	103,868,769		88,802,790
Contributions receivable from participants		178,414			183,961
Contributions receivable from participating employers		276,072			242,009
Net assets available for benefits		$	104,323,255		89,228,760

 

 

See accompanying notes to financial statements.

 

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WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN

 

Statements of Changes in Net Assets Available for Benefits

 

Years ended December 31, 2006 and 2005

 

		2006			2005
Investment income:
Dividends — stock		$	203,473		215,527
Dividends — mutual funds		5,868,578			2,719,350
Net appreciation of investments (note 3)		6,214,376			5,169,305
Investment income		12,286,427			8,104,182
Contributions (note 4):
Participants		6,962,918			6,286,310
Employers		3,166,141			2,879,179
Participant rollovers		453,606			209,762
Total contributions		10,582,665			9,375,251
Benefits paid to participants		(7,774,597		)	(12,930,561	)
Net increase		15,094,495			4,548,872
Net assets available for benefits:
Beginning of year		89,228,760			84,679,888
End of year		$	104,323,255		89,228,760

 

 

See accompanying notes to financial statements.

 

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WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN

Notes to Financial Statements

December 31, 2006 and 2005

(1)                     Description of Plan

The following brief description of the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan agreement for more complete information.

(a)                      General

The Plan is a defined contribution plan covering substantially all employees of Waddell & Reed Financial, Inc. and subsidiaries who have 12 months of consecutive service and no less than 1,000 hours of service for Waddell & Reed Financial, Inc. or a subsidiary. The Plan complies with the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Plan administration is accomplished through a committee of three persons who have authority to arbitrate disputes and settle claims arising under the Plan.

(b)                      Contributions

Participants are allowed to make yearly pre-tax and after-tax contributions not to exceed a maximum of 92% of eligible earnings to the Plan. Each eligible participant is allowed to make “matched contributions” ranging from 1% to 5% of eligible earnings to the 401(k) and Roth 401(k) components of the Plan. The Plan also provides for a matching employer contribution of 100% of the first 3% of the participant’s contribution and a 50% match of the next 2% of the participant’s contributions. Participants can make “unmatched contributions” to the 401(k) and Roth 401(k) components of the Plan not to exceed eligible earnings less required social security tax withholdings. Each eligible participant can make “unmatched contributions” ranging from 1% to 6% of eligible earnings to the thrift component (after-tax) of the Plan.

Participants direct the investment of participant and employer matching contributions among investment options available under the Plan.

(c)                       Participant Accounts

Each participant’s account is credited with their contribution, the employer’s matching contribution, and Plan earnings on their participant and employer account balances. The benefit to which a participant is entitled is the benefit that can be provided from their vested account.

(d)                      Vesting

Participants vest immediately in their contributions, employer matching contributions and actual earnings thereon.

(e)                       Participant Loans

Participant loans are not permitted.

(f)                         Payment of Benefits

On termination of service due to death, disability or retirement, a participant is paid in a joint and 50% survivor annuity, unless the participant chooses a lump-sum distribution. For termination of

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service for any other reason, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution.

(2)                     Summary of Significant Accounting Policies

(a)                      Basis of Presentation

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and present the net assets available for benefits and changes in those net assets of the Plan.

The Plan allows contributions to be invested in Waddell & Reed Financial, Inc. Class A common stock and certain mutual fund shares of (i) the Waddell & Reed Advisors Group of Mutual Funds and (ii) Ivy Funds, Inc. and the Ivy Funds trust (collectively, the “Ivy Funds”). Waddell and Reed Investment Management Company, a participating employer in the Plan, and Ivy Investment Management Company (formerly Waddell & Reed Ivy Investment Company) manage the Waddell & Reed Advisors Group of Mutual Funds and the Ivy Funds, respectively. Fiduciary Trust Company of New Hampshire serves as the trustee for the Plan.

The Plan had 1,442 and 1,444 participants at December 31, 2006 and 2005, respectively. At December 31, 2006, 263 of the 1,442 participants in the Plan are former employees who have elected not to withdraw from the Plan. At December 31, 2005, 251 of the 1,444 participants in the Plan are former employees who have elected not to withdraw from the Plan.

(b)                      Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Plan administrator to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

(c)                       Investment Valuation and Income Recognition

The Plan’s investments in Torchmark Corporation common stock and Waddell & Reed Financial, Inc. Class A common stock are stated at fair value. The Plan’s investments in mutual fund shares are stated at net asset value. Quoted market prices are used to determine the fair value of investments as of December 31, 2006 and 2005.

Purchases and sales of securities are recorded on a trade-date basis (the date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date.

(d)                      Payment of Benefits

Benefits are recorded when paid. Administrative expenses are paid by the participating employers listed in note 4.

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(3)                     Plan Investments

The following presents the number of shares and fair value of Torchmark Corporation common stock, Waddell & Reed Financial, Inc. Class A common stock, and mutual fund investments as of December 31, 2006 and 2005. Investments that represent 5% or more of the Plan’s net assets are separately identified.

		Number
December 31, 2006		of shares		Fair value
Torchmark Corporation common stock		30,735		$	1,959,663
Waddell & Reed Financial, Inc. Class A common stock		274,054		7,498,117
Cash		—		233,901
Waddell & Reed Advisors Group of Mutual Funds shares:
Waddell & Reed Advisors Asset Strategy		728,691		6,864,271
Waddell & Reed Advisors Cash Management		6,667,536		6,667,536
Waddell & Reed Advisors Core Investment		1,423,110		8,752,127
Waddell & Reed Advisors New Concepts		635,433		7,288,414
Waddell & Reed Advisors Science and Technology		648,056		7,510,974
Other Waddell & Reed Advisors Funds		4,176,458		32,768,141
Total Waddell & Reed Advisors Group of Mutual Funds shares				69,851,463
Ivy Funds shares (various funds)		1,225,425		24,325,625
Total investments				$	103,868,769

 

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			Number
December 31, 2005			of shares		Fair value
Torchmark Corporation common stock			33,790		$	1,878,724
Waddell & Reed Financial, Inc. Class A common stock			306,754		6,432,631
Cash			—		230,190
Waddell & Reed Advisors Group of Mutual Funds shares:
Waddell & Reed Advisors Cash Management			5,135,000		5,135,000
Waddell & Reed Advisors Core Investment			1,480,307		9,103,891
Waddell & Reed Advisors New Concepts			734,616		7,706,120
Waddell & Reed Advisors Science and Technology			681,408		7,863,451
Waddell & Reed Advisors Small Cap			298,854		4,587,411
Waddell & Reed Advisors Vanguard			592,814		5,708,795
Other Waddell & Reed Advisors Funds			3,390,105		22,861,512
Total Waddell & Reed Advisors Group of Mutual Funds shares					62,966,180
Ivy Funds shares (various funds)			1,001,183		17,295,065
Total investments					$	88,802,790

 

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During 2006 and 2005, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated by $6,214,376 and $5,169,305, respectively, as follows:

 

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(4)                     Contributions by Participants and Participating Employers

The contributions of participants and each participating employer for the years ended December 31 are as follows:

 

(5)                     Related Party Transactions

Plan investments include shares of mutual funds managed by Waddell & Reed Investment Management Company and Ivy Investment Management Company, as well as shares of Waddell & Reed Financial, Inc. Class A common stock. Waddell & Reed Financial, Inc. and its affiliates are the sponsors, as defined by the Plan, and therefore, these transactions qualify as party-in-interest.

(6)                     Plan Termination

Although it has not expressed any intent to do so, Waddell & Reed Financial, Inc. has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, all participants would immediately become fully vested in their employer contributions and Plan assets would be distributed.

(7)                     Tax Status

The Internal Revenue Service has determined and informed Waddell & Reed Financial, Inc. by a letter dated April 24, 2001, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code of 1986, as amended. Although the Plan has been amended since receiving the determination letter, the Plan administrator and the Plan’s tax counsel are not aware of any activity or transactions that would adversely affect the qualified status of the Plan.

(8)                     Risks and Uncertainties

The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.

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(9)                     Reconciliation of Financial Statements to Form 5500

At December 31, 2006 and 2005, certain participants whose account balances totaled $1,816 and $0, respectively, notified the Plan Administrator that they had elected to withdraw from the Plan.  However, the plan distribution was not made until the following plan year. These amounts are presented herein as a component of net assets in the accompanying financial statements, but are presented as liabilities of the Plan on Form 5500.

The following is a reconciliation of net assets available for Plan benefits from the financial statements to the Form 5500 at December 31, 2006 and 2005:

 

The following is a reconciliation of distributions to participants per the financial statements to the Form 5500 for the years ended December 31, 2006 and 2005:

 

 

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Schedule 1

WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN

Schedule of Assets Held for Investment Purposes
December 31, 2006

 

	Identity of issuer, borrower,
	lessor, or similar party				Description of investment		Current value
	Cash		—		—		$       233,901
	Torchmark Corporation		30,735		shares of common stock		1,959,663
*	Waddell & Reed Financial, Inc.		274,054		shares of Class A common stock		7,498,117
							9,691,681
*	Waddell & Reed Advisors Group of Mutual Funds		583,791		shares of Accumulative		4,454,327
*	Waddell & Reed Advisors Group of Mutual Funds		728,691		shares of Asset Strategy		6,864,271
*	Waddell & Reed Advisors Group of Mutual Funds		163,782		shares of Bond		1,000,709
*	Waddell & Reed Advisors Group of Mutual Funds		6,667,536		shares of Cash Management		6,667,536
*	Waddell & Reed Advisors Group of Mutual Funds		74,261		shares of Continental Income		590,377
*	Waddell & Reed Advisors Group of Mutual Funds		1,423,110		shares of Core Investment		8,752,127
*	Waddell & Reed Advisors Group of Mutual Funds		61,323		shares of Dividend Income		944,371
*	Waddell & Reed Advisors Group of Mutual Funds		95,734		shares of Energy		970,741
*	Waddell & Reed Advisors Group of Mutual Funds		1,004,921		shares of Global Bond		3,688,060
*	Waddell & Reed Advisors Group of Mutual Funds		295,388		shares of Government Securities		1,601,003
*	Waddell & Reed Advisors Group of Mutual Funds		182,427		shares of High Income		1,346,308
*	Waddell & Reed Advisors Group of Mutual Funds		524,841		shares of International Growth		4,912,508
*	Waddell & Reed Advisors Group of Mutual Funds		62,576		shares of Limited-Term Bond		623,260
*	Waddell & Reed Advisors Group of Mutual Funds		635,433		shares of New Concepts		7,288,414
*	Waddell & Reed Advisors Group of Mutual Funds		66,189		shares of Retirement Shares		553,344
*	Waddell & Reed Advisors Group of Mutual Funds		648,056		shares of Science and Technology		7,510,974
*	Waddell & Reed Advisors Group of Mutual Funds		316,947		shares of Small Cap		4,497,475
*	Waddell & Reed Advisors Group of Mutual Funds		181,779		shares of Value		2,461,289
*	Waddell & Reed Advisors Group of Mutual Funds		562,499		shares of Vanguard		5,124,369
	Total Waddell & Reed Advisors
	Group of Mutual Funds						69,851,463
*	Ivy Funds		81,806		shares of Asset Strategy		1,634,486
*	Ivy Funds		3,541		shares of Bond		36,899
*	Ivy Funds		18,622		shares of Capital Appreciation		183,240
*	Ivy Funds		16,373		shares of Core Equity		171,430
*	Ivy Funds		136,998		shares of Cundill Global Value		2,137,169
*	Ivy Funds		55,644		shares of European Opportunities		2,156,756
*	Ivy Funds		159,561		shares of Global Natural Resources		4,783,652
*	Ivy Funds		26,240		shares of High Income		230,389
*	Ivy Funds		34,265		shares of International Balance		570,165
*	Ivy Funds		37,676		shares of International Core Equity		643,121
*	Ivy Funds		32,113		shares of International Growth		1,071,294
*	Ivy Funds		85,676		shares of Large Cap Growth		1,004,978
*	Ivy Funds		11,727		shares of Limited-Term Bond		118,556
*	Ivy Funds		39,048		shares of Mid Cap Growth		500,593
*	Ivy Funds		19,073		shares of Mortgage Securities		201,599
*	Ivy Funds		154,041		shares of Pacific Opportunities		2,597,124
*	Ivy Funds		58,107		shares of Real Estate Securities		1,480,568
*	Ivy Funds		82,087		shares of Science and Technology		2,326,334
*	Ivy Funds		137,009		shares of Small Cap Growth		1,901,684
*	Ivy Funds		35,818		shares of Small Cap Value		575,588
	Total Ivy Funds						24,325,625
	Total investments						$103,868,769

 

* Indicates party-in interest investment.

See accompanying report of independent registered public accounting firm.

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SIGNATURES

The Plan.  Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Administrative Committee of the Plan has duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Overland Park, State of Kansas, on June 28, 2007.

	WADDELL & REED FINANCIAL, INC.
	401(K) AND THRIFT PLAN
	By:	/s/ Daniel P. Connealy
		Daniel P. Connealy, Member
		Administrative Committee
	By:	/s/ Michael D. Strohm
		Michael D. Strohm, Member
		Administrative Committee
	By:	/s/ William D. Howey, Jr.
		William D. Howey, Jr., Member
		Administrative Committee