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Executives

Hank Herrmann - CEO

Tom Butch - Chief Marketing Officer

Mike Strohm - COO

Dan Connealy - CFO

Mike Avery - Chief Investment Officer

Nicole McIntosh - Director of IR

Analysts

William Katz - Buckingham Research Group

Bob Glasspiegel - Langen McAlenney

Craig Siegenthaler - Credit Suisse

Marc Irizarry - Goldman Sachs

Cynthia Mayer - Merrill Lynch

Robert Lee - KBW

Waddell & Reed Financial Inc (WDR) Q3 2007 Earnings Call October 23, 2007 10:00 AM ET

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Waddell & Reed Third Quarter Earnings Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Tuesday, October 23, 2007.

Now at this time I would like to turn the presentation over to the Chief Executive Officer of Waddell & Reed, Hank Herrmann. Please go ahead, sir.

Hank Herrmann

Thank you, Andrew. Good morning. With me today are Tom Butch, our Chief Marketing Officer, Mike Strohm, Chief Operations Officer; Dan Connealy, Chief Financial Officer; Mike Avery, Chief Investment Officer; and Nicole McIntosh, Director of Investor Relations. Nicole, would you please read the forward-looking statement.

Nicole McIntosh

During this call, some of our responses and commentaries will include forward-looking statements, which are subject to risks and uncertainty. While we believe these statements to be reasonable, based on information that is currently available to us, actual results and outcomes could materially differ from those expressed or implied.

We refer you to our filings with the SEC for information regarding these risks and uncertainties. We assume no duty to update any forward-looking statements. We have posted schedules on our website at www.waddell.com in the corporate section under the caption "Data Tables".

Hank Herrmann

Thank you, Nicole. Good morning again everyone. Thank you for calling in. The results, we announced this morning underscore another quarter of strong performances across the board. Solid and consistent investment performance is crucial. When I spoke to investors at an industry conference earlier this fall, I highlighted the strength of our investment management performance, and tt is worth noting again.

Year-to-date, 60% of our equity funds and 80% of our equity assets ranked in Lipper’s top quartile, while 78% of our equity funds and 90% of our equity assets ranked in the top half. Our long-term record is also impressive. In the three-year period ending September this year, 56% of our equity funds and 62% of our equity assets ranked in Lipper’s top quartile, while 76% of our equity funds and 89% of our equity assets ranked in the top half.

Strong performance is the foundation for sales, and our progress is well supported by the excellent results of our investment management team. Speaking of sales, we have experienced an exceptional quarter, as sales volume established yet another quarterly high.

Gross sales of $3.7 billion increased 36% compared to the second quarter, and 68% compared to last year’s third quarter. Net sales of $1.5 billion were double of those of the second quarter and more than three times higher than those of last year’s comparable period.

Sales continued to experience a mix shift between Waddell & Reed managed and sub-advised funds. As for the percentage of total sales, about 80% are being invested in Waddell & Reed managed products, compared to 63% at this time last year. Outstanding sales results were heavily influenced by our wholesale distribution efforts.

Gross sales in this channel reached $2.5 billion, up from $1.7 billion in the previous quarter, and $1.1 billion in last year's third quarter. Net sales of $1.8 billion in the quarter compared to $1.1 billion in the second quarter and $575 million in last year's third quarter.

Sales performance remains robust. The Asset Strategy Fund continues to be a leader in sales volume, while sales of our Global Natural Resources Fund remains significant. A number of other funds are seeing meaningful traction. These include capital appreciation, large-Cap growth, and science and technology. Further, some of our international funds are showing some early traction as well.

Never in our company's history have we been able to gather such a large volume of assets at such a rapid pace. Since launching our effort to expand the retail distribution through the wholesale sales, efforts that were initiated in the Summer of '03, asset has grown to $17.4 billion, representing a compound annual growth rate in excess of 40% and maybe that’s not bad [last year] Google or Apple.

The accomplishments of our advisors is also impressive. Gross sales of $900 million in the advisors' channel set another quarterly high accepting the unusual variable annuity exchange volume experienced in 2001. Net flows improved greatly, nearly reaching break-even levels, although we had small outflows in the quarter.

We continued to believe the advisors' channel can achieve and maintain modest inflows, while providing significant profitability. With advisors' channel sales and productivity going in the right direction, we continue to focus our attention on strengthening and recruiting. Adding nearly a 100 to our financial advisors headcount, this turned net positive for the year at September 30th.

Since some of our new recruits have little industry experience, it will take a while for them to season, and as a result we saw a slight sequential deterioration in advisors' productivity. It is important to note that our tenured advisors, those with two or more years of experience, continue to see steady gradual improvement and productivity.

Early in the fourth quarter sales trend show no signs of weakening. In fact, month-to-date sales in our advisors' channel are tracking ahead of the same period in ‘06, and flows are in a slight net positive position. Sales in our Wholesale channel continue to accelerate.

Finally, I would like to expand on our operating margin. Those who track this number closely will notice a small sequential decline. This decline is almost entirely due to increased sales volume in our wholesale channel. All manufacturers incur costs to sell our products to third party distribution, and we are no different.

These costs include dealer compensation, wholesale commission, support, and marketing costs. These costs are offset by management fees earned on assets collected in previous periods. In periods where our sales volume exceeds the growth in management fee revenue, we will see some short-term margin pressure.

It is extremely important to remember that these sales add to assets under management, and ultimately to the bottom line. To be clear, our wholesale channel is profitable and profitability will continue to expand as we gain greater scale.

Operator, at this time, I would like to open the call up to questions.

Question-and-Answer session

Operator

Thank you, sir. (Operator Instructions). Our first question will come from line of William Katz with Buckingham Research Group. Please go ahead.

William Katz - Buckingham Research Group

Hey, thank you. I just want to go back to the discussion on margin for second and just trying to understand the dynamic in that you mentioned that the sales until Waddell, Park has gone up dramatically versus the comparable period. Yeah, when I look at two key metrics, one being the revenue yield and the second one being the margin they sort of worked the other way. At what point could you start to see ticking in those ratios?

Hank Herrmann

Well, that we might just have back and see how the sales came in the quarter to illustrate the margin pressure. We had July sales in the Wholesale channel $615 million, August $759 million and September $1.25 billion. So you will see it was backend loaded quarter much like the whole industry. So we paid for gathering all of those assets in this quarter and didn’t have there for even in the whole quarter there gone are the management fees.

So that is the pressure that we are having. We are seeing traction as we calculate and you can do too with your calculator. The negative margin on that distribution is less negative than it was the year ago. So we are gaining some traction and we expect to see margin expansion in future.

William Katz - Buckingham Research Group

Okay. Just on that I’m absolutely curious, if you look at your direct expenses relative to sales that number does continue to drive down pretty sharply thinking it down about almost 39 basis points from last year or so. Would you expect that trend to continue or at some point the things start to stabilizes, is there a natural leverage gain here?

Dan Connealy

Well, the direct expenses, I wouldn’t say, they might decline slightly. But I think that, where we have more variability is in the indirect expenses, which as we add wholesalers that adds indirect expenses and then as they are successful then you have the direct expense of the commissioned. So, this year, we’ve not added many wholesalers during this year. So, our indirect expenses kept in checked pretty well.

William Katz - Buckingham Research Group

As you and more focus on the ratio between direct versus the sales, is there, would you expect to see more leverage in that part of the margin type ratio?

Hank Herrmann

In the Wholesale channel, I don’t know that, we’re expecting a whole lot of change because the cost of operating in that channel is going to remain the same. And, we are very successful on the warehouse platforms. And so, we would expect that to continue.

William Katz - Buckingham Research Group

A bigger picture question [inaudible] so why don’t you give us a little bit of an update on the pipeline and maybe how the relationship with [inaudible] is developing?

Dan Connealy

The pipeline is better, as you know, that’s a comment, but it’s getting better. Relationship with [pick tier] is accelerating. I’m not sure what the numbers of the top line that is in excess of $500 million and we’re seeing pretty steady flows on a daily basis now. And that basically reflects the improvement in excitement about large cap growth products broadly speaking.

And the reason, I said the institutional business pipeline is improving a little bit as the same thing and there is more interest in large cap growth. But it’s still partly robust. There is most of the activity continues to be a defined benefit business allocations out of those areas toward alternatives.

Hank Herrmann

Whether that answered your question?

William Katz - Buckingham Research Group

Yes. Thank you very much.

Operator

Thank you. We’ll move to the next question from Bob Glasspiegel with Langen McAlenney. Please go ahead.

Bob Glasspiegel - Langen McAlenney

Good morning. Actually last I look you are up more percentage wise than Google, but still trailing Apple. So.

Hank Herrmann

Well, thank you. I feel good about that Bob.

Bob Glasspiegel - Langen McAlenney

Even the, I want to go through your market action contributors [your words] which look like it was up 7% beginning assets in the quarter much more than a market. Hank before you had said earlier in the year that you were over weighted energy with early, I assume that might have been part of what contributed to the strong market performance in the other sectors that should we’ve been able to analyze across the firm that we are?

Hank Herrmann

In the third quarter?

Bob Glasspiegel - Langen McAlenney

In the third quarter.

Hank Herrmann

Performance in most of the equity funds were just outstanding. And there are different reasons some because of the energy exposure; some because of incredibly good stock selection; and some of our growth products. Some because we’ve been pretty quick on our fee particularly the Asset Strategy Fund and moving around in a volatile quarter, and then the continuation of the performance of the things that China buys be that metals, be that industrial, be that energy and so forth.

So it’s kind of little bit depends on which fund you are talking about it’s not that one particular emphasis resulted in it was just little bit of perfect storm for us in terms of all things finding on Arizona.

Bob Glasspiegel - Langen McAlenney

The numbers were still outstanding and I just want to know whether there was any sort of sectors that affect your, particularly leverage at this point.

Dan Connealy

No, I think is the answer.

Bob Glasspiegel - Langen McAlenney

Okay.

Dan Connealy

We had outstanding performance in large cap growth and none of that or very little of that was about energy.

Bob Glasspiegel - Langen McAlenney

Okay.

Dan Connealy

It was a lot of it had to do with really good stock selection. Asset Strategy Fund there was a lot of energy in there, but I don’t think that was dominant thing. I think metals, materials being quick on the feet was important. Our large cap core product also had an outstanding quarter. You are talking about a lot of assets when you’re talking about those areas, different reason.

Bob Glasspiegel - Langen McAlenney

In the other line, you mentioned two items that helped the gain on sale and the counting in the higher earnings and trading it sounds like the second piece might be more recurring than the first but can you quantify those?

Dan Connealy

Yes, this is Dan Connealy. The gain on sale of the mutual funds was about a $1.8 and the rest of that gain over second quarter was higher earnings on the invested balances. We’ve investments in our fund and also the portfolio managers have investments in the funds that are in our trading portfolio.

Bob Glasspiegel - Langen McAlenney

But the second piece should be relatively recurring right, I mean?

Dan Connealy

We’d hope so.

Bob Glasspiegel - Langen McAlenney

Okay. And if the sales stay strong, the margins not go up, I mean, are we swimming upstream or there is a cross over point, where the sales expense sort of levels off or even with sales going up.

Bob Glasspiegel - Langen McAlenney

I guess the question, can margins expand in the rising sales environment and at what point does that happen?

Dan Connealy

Yeah. I think margins can expand. We have done some projections. But the rate of growth that we’re seeing this year just doesn’t allow that to happen. It would probably be not realistic to think the current year rate of growth is going to continue.

Hank Herrmann

And Bob, Hank. There are two parts in that question and its appropriate question I’ve heard number of times and I struggled because I know that it would be helpful if I give précising answer. But I just can’t get there from here because I need to understand the rate gain in sales and I also need to understand market actions to figure out whether or not our operating margins will do what.

It is fair to say that underwriting distribution margin, which is portion of the total will be under pressure as sales accelerate in Wholesale channel. But market action can more than offset that and that of course is the point why we’ve made the strategic decision few years back to get the Wholesale channel.

At some point you’re going to get an enough assets in place. So that market action is going to overwhelm the sale effort. And we are making progress still at the tipping point, the word I think we use, but exactly where it is I love to be able to tell you specific answer just can’t.

Bob Glasspiegel - Langen McAlenney

Okay. Thank you very much.

Operator

Thank you. And our next question comes from the line of Craig Siegenthaler with Credit Suisse. Please go ahead.

Hank Herrmann

Good morning, Craig.

Craig Siegenthaler - Credit Suisse

Good morning. Just, I’ve two on the expense side. First do you expect the operating margin to continue decline in the fourth quarter due to salary and third-party sales trends or other expense offsides like G&A reduction. It looks like there could have been some onetime or is there due to unusually highly legal expenses.

Dan Connealy

Well, there were some higher legal expenses and fund related costs that just come up now and again. So, I would expect our margin to decline in the fourth quarter.

Craig Siegenthaler - Credit Suisse

Okay. And then second question, it looks like direct expenses as the percentage of sales actually declined by about 20 basis points in the third quarter or from the second quarter and the third-party channel. Could you talk about what maybe causes this?

Hank Herrmann

I think that in the Wholesale channel, the strong sales would not have led to a reduction.

Craig Siegenthaler - Credit Suisse

Well, as the margin. So, as the percentage of sales?

Hank Herrmann

That is respective to the fact that sales grew so rapidly way above, what we had internally budgeted, while, we are able to keep our direct expenses in line with budgets.

Dan Connealy

Yeah. And as I said, we didn’t add significantly to the wholesalers in their last, well last three or quarters of the year.

Craig Siegenthaler - Credit Suisse

Got it. Thanks.

Operator

Thank you. Our next question will come from the line of Marc Irizarry with Goldman Sachs. Please go ahead.

Marc Irizarry - Goldman Sachs

Great. Thanks. Hank, I guess, this is a bit of a philosophical question for you. But the wholesale business at $17 billion is sort of I guess in the early stages of a dramatic wrap up here. But how big, do you think that business ought to be relative to the size of the advisor business.

And then maybe, can you talk about the mix of channels within wholesale in terms of profitability, and is there anyway to see any sort of shift in terms of your Wholesale channel mix within wholesale, be it warehouses et cetera that could maybe help influence the margin positively? Thanks.

Hank Herrmann

I’ll let Tom handle the second part of your question. The first part of your question is, I don’t have a target in terms of the Advisors channel, I said relative to Wholesale channel. I’ve said all along that if we do what we think we can do it won't be very long before assets in Wholesale channel exceed assets in the Advisors channel.

The Advisors channel growth rate is problematic, it’s an assumption of headcount growth and productivity, and you just can't grow the headcount by rapidly. On the other hand, if you are effective than Wholesale channel you can dramatically impact the number of people, who were representing the products to the consumer.

And we are in the early stages of that in my opinion $17 billion in assets, but lots of opportunity and some very, very big pockets like the large cap growth, where we at this point are still a very small player with a very good product, and we’ll just have to see how that goes.

Well I’m optimistic about we maintaining high success rate and high sales growth rate in Wholesale channel mostly on the strength of the couple of things, one how good the performance has been, and the fact that we had an opportunity that demonstrate that in the Wholesale channel and two, a very good infrastructure of the wholesalers et cetera that I think, they are having a big impact out there, and the real world. I’ll let Dan go on with the.

Dan Connealy

Moving into the mix of business in the channel, as he suggested Mike Avery, a very warehouse focus that present with our top four firms being warehouses and our penetration at independent firms being considerably less, and the next leg of our growth in the wholesale business and our investment in the wholesale business would be to face up against the opportunity.

On the independent side, it's probably a little bit of a longer build. And so it’s the first part of your question was did that changed the profitably mix by distributor. I wouldn’t stated that something that is eminent.

Marc Irizarry - Goldman Sachs

Hey, great thanks.

Operator

Thank you. And our question will come from line of Cynthia Mayer with Merrill Lynch. Please go ahead.

Cynthia Mayer - Merrill Lynch

Hi, good morning.

Hank Herrmann

Good morning.

Cynthia Mayer - Merrill Lynch

Just a follow on that last question, I wondering if you could characterize the increase in sales a little bit, is it being driven by new platforms or is it just greater sales on existing platforms.

Dan Connealy

It’s a little bit of both, I would say its really a function of having windup from one product to two products to multiple products it was suggested in Hank’s opening remarks, more rotation, more time on the ground, more familiarity with the span of products that we offer. We have had some lumps in a couple of discretionary programs, but those by no means have driven the fundamental activity.

So I think it’s just, the fundamentals of good execution back pipe, terrific performance. To put some dimension on that, I said useful, the asset strategy fund was by far the largest seller in the quarter. And one of the things that happen is to create the step between the second and third quarters is, that the fund performed extremely well and attracted additional assets during the period of market disruption.

And that's the way the product has been sold and it validated that investment premise and so the flows to that grew substantially in the quarter and have grown substantially sense. The resources fund was actually half a little bit sequentially, but still contributing substantially in on a pure percentage basis. The best growth that we saw was in our two large cap products are capital appreciation and large cap growth funds respectively.

And those together grew quite well and we are very optimistic for prior comments that with asset class coming back as it has and expected to continue that we will continue to grow there. And the platform goes well beyond there. So again its greater exposure in terms of the number of times people have seen as great work at the home offices and ongoing acceptance of a broader span of what we do.

Cynthia Mayer - Merrill Lynch

Are you trying to add the wholesalers or reduce are you sufficiently staffing ever?

Mike Strohm

We are going to be adding to wholesalers. We, as I indicated previously have done well in the wirehouse channel and we have done that to a certain extent to the exception of being able to fully attack other of the distribution opportunities on the wholesale side.

So over the next 14 months, we would anticipate hiring 10 new people and they will face us clearly against be independent. And the people who we have on the ground now, some of them will work with multiple channels, but the majority of them will spend most of their time and continuing to grow the wirehouse side.

Cynthia Mayer - Merrill Lynch

And how many you have now?

Mike Strohm

Well, we have 25 in the broker dealer channel. We have another six, who work in the registered investment advisor and retirement channel for a total of 31. So we do expect to be in the low 40s at the end of next year.

Cynthia Mayer - Merrill Lynch

Okay. Alright just a couple of more questions the, you mentioned Dan, that the there were some extra legal expenses in G&A. And I wasn’t totally clear on whether those are going to continue into the fourth quarter legal and fund expenses?

Dan Connealy

Well, we don’t foresee elevated legal cost in the fourth quarter. Sometimes we always have little cases that [perculate] long and the settlements probably just hit in the third quarter will higher than it had been running. And we had some fund related expenses of the same nature.

Cynthia Mayer - Merrill Lynch

So you don’t think those will recur in the fourth quarter.

Dan Connealy

We don’t foresee at this time.

Cynthia Mayer - Merrill Lynch

Okay.

Dan Connealy

Not said something is going to come up.

Cynthia Mayer - Merrill Lynch

Okay. And on comp given the performance is so strong Hank, is that high enough or do you expect some what you are truing up?

Hank Herrmann

There is going to be some truing up based on what’s based on going on right now in terms of the performance, and with the volatility, I hope, it continues, we expected it will, but you never know. I would say, they will be truing up that has to recur between now and when we pay bonuses, which is at the end of March. So, I would suspect there will be some higher costs associated with comps in both the fourth quarter and the first quarter.

Cynthia Mayer - Merrill Lynch

Okay. And also, last year, you had higher than usual gains in the fourth quarter, I guess from mutual fund distribution. So, should we expect that as well?

Dan Connealy

There is a lot of dividends paid in December last year.

Cynthia Mayer - Merrill Lynch

Yeah.

Dan Connealy

And I don’t know that we’ve taken a look at that yet. But there probably be some high dividend this year as well.

Cynthia Mayer - Merrill Lynch

Okay. And last question, the institutional redemptions, I think, you mentioned like $130 million of them were from that one client that you mentioned last earnings call. How would you characterize the others, does that again just the shift or alternatives?

Hank Herrmann

Yeah. We had two fairly significant clients in our small cap. And in both cases, it wasn’t performance related. It was a rebalancing of their portfolios toward more of the alternative strategies.

Cynthia Mayer - Merrill Lynch

Okay, great. Thanks a lot.

Operator

Thank you. (Operator Instructions) Our next question is coming from the line of Robert Lee with KBW. Please go ahead.

Robert Lee - KBW

Thanks. Good morning everyone.

Hank Herrmann

Hi Rob.

Robert Lee - KBW

Most of my questions were asked that is curious. It’s been a while since the company changes its distribution, it’s [against] alternative dividend. Is there any thought of revisiting that given earnings both of them were pretty good and you are sort of below the kind of the payout ratio, I think you have generally targeted?

Dan Connealy

Well, certainly we will discuss that I guess with the next board meeting. And I don’t want to signal any decision on their part. But it will be part of the agenda.

Robert Lee - KBW

Okay. And maybe talk a little bit about the fixed income side of the business. I mean clearly predominately in equity shop, well Hank, in think in the past you’ve sort of suggested there may be given a small size of your fixed income business, it’s sort of under scaled, and that maybe somewhere down of what you think about whether it was change in fees structures or taking some action there to make some of the products more competitive. Is there any update on that or is that’s what you are thinking?

Hank Herrmann

Well, I think the products have gotten more competitive on the basis of improved hell lot of performance that’s the sure. It’s really hard as soon as, I was no longer CIO, the performance started to get better, so I have to credit Avery for that. And clearly, it was nice improvement.

The other thing I would say is that we didn’t have any CDOs, COOs are all that other stuff in any of our portfolios, which are asset-backed commercial paper, and again I would credit the fixed income department and Mr. Avery. I would just say that fixed income department is very important to us. And I think, the events over the last few months explained in more than any other way, I could explain, why I think that’s true.

If you don’t understand what's going on in the fixed income you can’t understand what's going on in equities and vice versa, I think. But here lightly, it’s been very important to understand the fixed income markets, and our people have done a very good job of keeping the prices to fallback. At the moment to be specific, I am not anticipating any changes in fees to stimulate sales. I just can’t think in the retail channels for straight plain in all the products that we offer there is a lot of demand in the Wholesale channel.

In our Advisors channel there is demand, but what they really want is just straight plain to know, no surprises. It just a preference for equities over fixed income at the present time has been in placed for 15 or so years, given aging demographics we’ve got one-to-one of these states that’s going to change. At exactly what I don’t know, but we want to be there with products when the time comes.

Robert Lee - KBW

And then one last question on the Advisors channel that it looks like a bad half of the new sales were actually into your money funds, which is someone out of the ordinary if you guys. Is that so we think that mainly money that was sort of brought in and parked and is going to be reallocated to equity and fixed income?

Tom Butch

Yes, Rob this is Tom. Particularly given the fact that our MAP and MAP Plus program, which we are introduced earlier this year and our sort of turn key asset allocation programs that becomes the holding tank for those until those money are invested and that's what you’ve seen [the price can be up].

Hank Herrmann

We just haven’t tracked that probably as precisely as we might have liked. I think good almost half of the money market flows are ending in those products.

Robert Lee - KBW

Right, great. Thank you very much guys.

Hank Herrmann

That was one question that was answered earlier about the ratio of direct in the Wholesale channel and the UND, the direct revenues, the direct expenses and why that might be changing. A bit part of both the expense and the revenue is to be all one piece until we collect those and growing revenue and we paid them all out to the advisors.

So though as our assets growing in that channel. That action drives that margin towards zero because you have 25 basis points in revenue and 25 basis points in expenses. And we are gaining assets as they attract us.

Operator

Thank you. Our next question is a follow-up question from William Katz with Buckingham Research Group. Please go ahead.

William Katz - Buckingham Research Group

Hi, thank you.

Dan Connealy

That’s 125,000 shares what else. Hi, Bill.

William Katz - Buckingham Research Group

I promise I was going to ask the capital management. Hey my 500,000 share forecast so I think I got that one nailed. We will come back to sales for a moment in the advisor side seeing a significant shift toward the [NAP] other type of asset allocation products. Just I’m curious how we should think about that on a go forward basis. Is that trend going to persist?

Dan Connealy

I’d think it would.

William Katz - Buckingham Research Group

And then if you with sort of pro forma for the strong backend is waiting of the sales in the Advisors channel. Where you would put the equity yield and then your overall revenue yield for that channel?

Dan Connealy

I think we’ve said strong backend loaded for the Wholesale channel. You’re asking the Advisors channel?

William Katz - Buckingham Research Group

I’m sorry I misspoke, in the Wholesale channel. For the equity yield and in the overall revenue yield?

Dan Connealy

Well, as far as the revenue yield we didn’t have a lot of those assets for very many days. So we didn’t cut the management fees on it. Then we had the entire cost to gardening those assets in the quarter or in the month. I don’t know we calculated what you are asking precisely.

William Katz - Buckingham Research Group

I ask you in a different way. If you look back to the second quarter and I think your second quarter sales were pretty strong relative to the first quarter. Your revenue yield both equities and the overall yield for that channel, the Wholesale channel declined sequentially. I’m so curious, are we sort of facing that same [panjandrum] that as this business builds the revenue yields will continue to erode or it's just a timing issue?

Dan Connealy

Well, the fee rate did come down slightly probably because of the mix and slightly because of great points probably more than mix than anything else. And that’s probably because that the, while that the strong performance is still in Asset Strategy and Global Natural Resource, we’ve seen a widening out than some of those other funds have a little lower management fee.

William Katz - Buckingham Research Group

And then how much of the sequential change in G&A is onetime, I’m still not quite clear based on your comments.

Hank Herrmann

Well, I don’t know that we’ve said how exactly, how much. But a good share of the increase has to do with those two items. You always have some fund related expense items that come in and one of them that we are dealing with is the higher statement costs that we shoulder and the funds company don’t to the extent some part of it’s recurring.

But I would say $0.5. It would be considered recurring. Now we see what non-recurring things will add next quarter. But

Dan Connealy

It sort of answered your question.

William Katz - Buckingham Research Group

Yes. Thank you.

Hank Herrmann

Thank you.

Operator

Management, at this time, there are no additional questions in the queue. And I would now like to turn the conference back to you for any closing remarks.

Hank Herrmann

Well, again, I appreciate everybody listening in. And we look forward to having visit with you again at the end of the fourth quarter. Thanks very much.

Operator

Thank you, management. Ladies and gentlemen, at this time, we will conclude today’s teleconference. We do thank you for your anticipation on the program. If you'd like to listen to a replay of today's conference call, please dial 1-800-405-2236 or 303-590-3000 with the access code of 11097017 followed by the # sign.

Once again, if you'd like to listen to a replay of today's program, please dial 1-800-405-2236 or 303-590-3000 with the access code of 11097017 followed by the # sign. At this time, we will conclude today's conference. You may now disconnect. And please have a pleasant day.

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Source: Waddell & Reed Financial Q3 2007 Earnings Call Transcript
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