Information about the Roth Conversion Law Changes for 2010

1. Name: John Smith, Financial Advisor Waddell & Reed, Inc. 09/2009

2. Important Disclosures This information is for educational purposes only, and is not intended as investment or tax advice. Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus containing this and other information for the mutual funds offered by Waddell & Reed, call your financial advisor or visit us online at www.waddell.com. Please read the prospectus carefully before investing.

3. Roth IRA

4. Why Should You Consider Converting to a Roth IRA Now? New tax laws in 2010 make everyone with an IRA eligible Taxable IRA balances may be currently reduced Currently historically low income tax rates Roth IRAs allow for tax-free withdrawals during retirement

5. How Can a Roth IRA Help? Protection against potential future tax rate changes Tax diversification Withdrawal flexibility – No Required Minimum Distributions Legacy planning – potentially pass tax-free to beneficiary(ies)

6. Key Features of a Roth IRA * Certain exceptions apply to the age 59 ½ early withdrawal penalty. ** If you convert after the age of 59 ½, the converted amount is available tax-free regardless of the holding period.

7. Conversion Conversation

8. Conversion Rules Prior to 2010 Must have a modified adjusted gross income (MAGI) of less than $100,000 Must file as Single, Head or Household, or Married Filing Jointly Persons who file as Married Filing Separately cannot convert Note: Converted amounts are not included in your MAGI when determining eligibility

9. Conversion Rules 2010 and Forward Everyone is eligible to convert, regardless of income or filing status If conversion occurs in 2010- may choose to report taxable income: Half in 2011 and half in 2012 OR All in 2010 If conversion occurs 2011 and forward- must report the taxable income in the year of the conversion Note: Income limits remain for regular Roth IRA contributions

10. Are You a Conversion Candidate? Younger Professional (age 22-45) Pre-Retiree & Young Retiree (age 46-70) Have 5 years or more before you will need to start drawing regular income from your retirement account(s) Believe that personal tax rates will be equivalent or higher during retirement years Desire to reduce or eliminate future Required Minimum Distributions Want to pass assets tax-free to beneficiaries

11. Important Factors For You to Consider Current and future income tax rates All retirement accounts and income sources (pre-tax and after-tax) Current age and life expectancy Anticipated spending needs during retirement Ability to pay the taxes due on a conversion from a source other than your IRA Age, life expectancy, and possible tax rates of your beneficiary(ies)

12. Roth Distribution Rules Are not includible in gross income. Is one made after the satisfaction of a five-year holding period and upon the attainment of age 59½, death, disability or for a qualified first-time homebuyer ¹. The five-year holding period for converted amounts begins with the first day of the first year for which the Roth IRA holder completes the conversion. Each conversion has its own five-year holding period. Do not factor into IRS calculation to determine if all or a portion of your Social Security benefits are taxable 1 Qualified first-time homebuyer distributions are limited to a lifetime maximum of $10,000. Qualified Distributions

13. Rules for Your Beneficiary The beginning of the five-year period is not re-determined when the Roth IRA holder dies. The five-year period for a beneficiary of a Roth IRA is determined by the date of the original Roth IRA holder's five-year period. A spouse beneficiary who transfers the decedent's Roth IRA into his or her own Roth IRA determines the five-year period based upon the first date of contribution (or conversion if processed first) to all Roth IRAs in his or her own name. Qualified Distributions

14. Are you a possible candidate?

15. Example: John Has $60,000 IRA Rollover to convert to Roth IRA in 2010 28% Tax bracket currently, expects tax bracket to rise in the future Has cash reserves to pay tax bill in 2010 or opt to split taxes between 2011 and 2010 Illustration assumes a return of 8% on his investments Illustration assumes tax rate will remain at 28%

16. Example: John

18. You are currently retired and drawing a significant income stream from your IRA accounts

19. You believe your tax bracket is likely to drop during your retirement years

20. The conversion will push you into a higher tax bracket than you would want

22. Strategies to Consider Convert early in the year Allows for a longer period of tax-free growth Extended “do-over” period; you generally have until 10/15 of the following year to recharacterize to a traditional IRA Make partial conversions over a number of years to spread tax hit Convert old qualified plan money from a previous employer’s retirement plan to a Roth Perhaps fund your IRA for 2009 as a non deductible contribution

23. Action Items Gather account statements from all of your retirement accounts Review your IRS Tax Filing Forms- specifically Form 8606 for non deductible IRA contribution amounts Meet with your financial advisor to help you determine if this is a good strategy for you Meet with your tax professional to get a better estimate of your tax liability Consider how and when you will pay any taxes on the conversion

24. Waddell & Reed Financial Products and Services

25. Waddell & Reed Financial Products and Services Investment solutions designed to meet your objectives Personal financial advisor to educate you regarding investment choices Personalized comprehensive financial planning Insurance coverage to protect you and your family

26. Life Cycle Stages

27. Accumulation

28. Distribution

29. Preservation

30. Transfer

31. Why Should You Consider A Financial Plan Make informed decisions Be flexible in your investment choices Coordinate your Financial Planning Team Avoid potential future traps Have enhanced family communications Measure your progress Work toward your life goals

32. Types of Investments Money Market and Fixed Income Funds Domestic and International Equity Funds Growth and Income funds Asset Allocation Funds An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Generally, as interest rates rise, bond prices fall. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets.

33. Thank You