WADDELL & REED FUNDS INC, N-30D, 1995-05-26

WADDELL & REED FUNDS INC
N-30D, 1995-05-26

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WADDELL & REED
FUNDS, INC.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Global Income Fund

ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1995
<PAGE>
This report is submitted for the general information of the shareholders of
Waddell & Reed Funds, Inc. It is not authorized for distribution to prospective
investors unless accompanied with or preceded by the Waddell & Reed Funds, Inc.
current prospectus.

<PAGE>
PRESIDENT'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1995

Dear Shareholder:

As President of your Corporation, I would like to take this opportunity to
share my thoughts on a subject that I believe is very important to all of us;
the need for tax incentives that will help Americans take personal
responsibility for their futures.

Voters all across America sent two clear messages in the elections held in
November 1994. They want their taxes reduced and they want their concern for
financial security addressed without adding new bureaucracies or government
programs. One of the methods to do this is to expand the availability of tax
incentives for individuals to invest in Individual Retirement Accounts. This
could be done in several ways such as:

restoring the universal availability of fully tax-deductible Individual
Retirement Accounts,

allowing non-working spouses to make a full contribution of $2,000 to an
Individual Retirement Account instead of only $250 as currently allowed,

eliminating the taxation on the distribution of earnings from Individual
Retirement Accounts.

All of us recognize that future generations will need to supplement social
security benefits by private savings in order to provide an adequate level of
retirement income. Expanding the benefits of IRA's provides tax incentives to
encourage savings which allows all individuals the opportunity to provide
financial security for themselves and their families. Encouraging savings
through tax incentives has additional indirect benefits. Americans' personal
savings rate has fallen from 8% in the 1960's to just 2% of disposable income
today. Expanding the benefits of IRA's will help reverse this trend, will
increase the amount of U.S. capital available for investment and should make the
U.S. less dependent on capital from foreign sources.

Changes to our current IRA laws, such as the ones I mentioned above, are
being discussed in Congress. I urge you to write to your Members of Congress
and to the President to tell them that you support expanded IRA legislation that
provides incentives and opportunities for all Americans to improve their
financial well being.

Finally, I appreciate your continued confidence in our products and
services.

Respectfully,
Keith A. Tucker
President
<PAGE>
TOTAL RETURN FUND
MANAGER'S LETTER
MARCH 31, 1995
- ---------------------------------------------------------------------------

Dear Shareholder:

This report relates to the operation of the Total Return Fund for the
fiscal year ended March 31, 1995. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.

The performance of the equity markets in the United States was
disappointing throughout most of 1994, turning positive during the last portion
of the Fund's fiscal year. Poor performance early in the fiscal year was caused
primarily by the Federal Reserve Bank's policy of raising interest rates. The
purpose of that policy was to slow economic growth, thereby alleviating
inflationary pressures that might accompany a strengthening economy.
Subsequently, the rate of inflation has remained low, the economy is now
expanding moderately and corporate profits are strong. The November 1994
elections and other political developments were also viewed as positive events,
signaling prospects for lower taxes and reductions in the size of government.

In an environment of low inflation and rising interest rates, our strategy
was essentially to maintain the structure of the Fund as existed at the
beginning of the year. We continued to emphasize companies that we perceived as
having the most potential for positive long-term change, primarily corporations
with efficient worldwide distribution systems and domestic companies with
international outlets for their goods and services. We increased our technology
holdings as the year unfolded, reflecting their improved worldwide competitive
position.

The strategies and techniques we applied resulted in the direction of the
Fund's performance remaining fairly consistent with that of the indexes charted
on the following page. Those indexes reflect the performance of securities that
generally represent the stock market (the S&P 500 Index) and the universe of
funds with similar investment objectives (the Lipper Growth & Income Fund
Universe Average). The Fund's performance, like equities in general, was
affected by rising interest rates more than any other factor during the past
fiscal year.

We anticipate that inflation will remain low and that the U.S. economy will
grow at a modest rate. We expect to continue to pursue the same strategies we
have recently employed, which we believe will produce solid returns in the long
term. The search for companies that have excellent prospects for superior
earnings and revenue growth will continue to be our mission.

Thank you very much for your continued support and confidence in our
organization.

Respectfully,
Russell E. Thompson
Manager, Total Return Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TOTAL RETURN FUND,
THE S&P 500 INDEX,
AND THE LIPPER GROWTH & INCOME FUND UNIVERSE AVERAGE

Average Annual Total Return(1)
1 year 2+years
3.17% 9.78%

Lipper
Growth &
Total S&P Income Fund
Return 500 Universe
Fund Index Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 11,147 10,962 11,053
03/31/94 12,073 11,123 11,395
03/31/95 12,818 12,855 12,509

- ---------- Lipper Growth & Income Fund Universe Average -- $12,509
+++++ S&P 500 Index -- $12,855
===== Total Return Fund -- $12,818

Past performance is not predictive of future performance. Indexes are
unmanaged.

(1) Performance data quoted represents past performance. Investment return
and principal value will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred at
the end of each period. The maximum CDSC is 3%, declining to zero at the end
of the third calendar year of investment. The CDSC's applied for the periods
shown are 3% (1 Year) and 1% (2+ Years).

(2) 9/21/92 (the initial public offering date) through 3/31/95.

(3) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the S&P 500 Index
and the Lipper Growth & Income Fund Universe Average (including income) are
not available, the investments in the Fund, Index and Lipper Universe were
effected as of September 30, 1992.

(4) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.

(5) The value of the investment in the Fund would have been $12,708 after the
deduction of the applicable 1% CDSC upon total redemtion at March 31, 1995.

<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
TOTAL RETURN FUND

PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Current income while
securities convertible into seeking capital
common stocks. growth.

Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that have a record
of paying regular dividends on common
stock and also have the potential for
capital appreciation. (May purchase
securities subject to repurchase
agreements. May invest in certain
options, futures and other hedging
techniques.)

The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Total Return Fund
from time to time.

Moving into cash reserve positions at
times thought to be near a major stock
market peak may allow the Fund the
opportunity to capture profits and
attempt to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY,
when deemed appropriate, may be used in
the management of the portfolio.

FOUNDED: 1992

SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)

<PAGE>
PERFORMANCE SUMMARY

PER SHARE DATA
For the fiscal year ended March 31, 1995
- ----------------------------------------
NET ASSET VALUE ON
3/31/95 $12.73
3/31/94 11.99
------
CHANGE PER SHARE $0.74
======

Past performance is not necessarily an indication of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-95 3.17% 6.17%
Period from 9-21-92*
through 3-31-95 9.78% 10.12%

*Initial public offering of the Fund.

**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.

***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.

Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.

<PAGE>
PORTFOLIO HIGHLIGHTS

On March 31, 1995, Total Return Fund had net assets totaling $104,690,735
invested in a diversified portfolio of:

93.88% Common Stocks
6.12% Cash and Cash Equivalents

As a shareholder of Total Return Fund, for every $100 you had invested on March
31, 1995, your Fund owned:

Basic Industries Stocks $39.85
Technological Stocks 27.69
Consumer Stocks 21.47
Cash and Cash Equivalents 6.12
Financial Stocks 4.87

Not all holdings will be represented in the portfolio at all times.

<PAGE>
- ---------------------------------------------------------------------------
These STOCK CATEGORIES are provided as a reference only. Not all categories or
subcategories will be represented in a portfolio at all times. Refer to the
following pages for a more detailed portfolio listing.

BASIC INDUSTRIES
Airlines
Automotive
Building
Chemicals Major
Electrical Equipment
Engineering and Construction
Machinery
Manufacturers
Metals and Mining
Multi-Industry
Paper
Precious Metals
Railroad Equipment
Railroads
Shipping
Steel
Tire and Rubber
Trucking

CONSUMER
Beverages
Consumer Electronics and Appliances
Food and Related
Hospital Management
Household Products
Leisure Time
Packaging and Containers
Publishing and Advertising
Retailing
Services, Consumer and Business
Textiles and Apparel
Tobacco

ENERGY AND ENERGY-RELATED
Canadian Oil
Coal
Domestic Oil
International Oil
Oil Services
Propane

FINANCIAL
Banks and Savings and Loans
Financial
Insurance

PUBLIC UTILITIES
Electric
Gas
Pipelines

TECHNOLOGICAL
Aerospace
Biotechnology and Medical Services
Chemicals Specialty and Miscellaneous Technology
Computers and Office Equipment
Drugs and Hospital Supply
Electronics
Telecommunications

<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995

Shares Value

COMMON STOCKS
Aerospace - 1.39%
Boeing Company (The) ................... 19,000 $ 1,023,625
Sundstrand Corporation ................. 8,600 433,225
Total ................................. 1,456,850

Airlines - 2.01%
AMR Corporation* ....................... 12,000 777,000
Southwest Airlines Co. ................. 74,150 1,325,431
Total ................................. 2,102,431

Automotive - 5.73%
Chrysler Corporation ................... 33,000 1,381,875
Dana Corporation ....................... 23,000 586,500
Eaton Corporation ...................... 15,000 813,750
Ford Motor Company ..................... 55,000 1,485,000
General Motors Corporation ............. 30,000 1,327,500
Magna International Group,
Inc., Class A ......................... 10,500 400,313
Total ................................. 5,994,938

Banks and Savings and Loans - 2.56%
Citicorp ............................... 22,500 956,250
First Bank Systems, Inc. ............... 15,000 605,625
First Interstate Bancorp ............... 9,000 711,000
Midlantic Corporation .................. 12,000 409,500
Total ................................. 2,682,375

Beverages - 1.04%
PepsiCo, Inc. .......................... 28,000 1,092,000

Biotechnology and Medical Services - 1.56%
Centocor, Inc.* ........................ 6,000 94,500
Medtronic, Inc. ........................ 12,000 832,500
Ventritex, Inc.* ....................... 37,000 707,625
Total ................................. 1,634,625

Building - 5.52%
Armstrong World Industries, Inc. ....... 27,000 1,231,875
Centex Corporation ..................... 33,200 800,950
Georgia-Pacific Corporation ............ 12,500 996,875
Louisiana-Pacific Corporation .......... 20,000 552,500
Pulte Corporation ...................... 36,100 848,350
Temple-Inland Inc. ..................... 10,500 471,188
Weyerhaeuser Company ................... 22,500 874,688
Total ................................. 5,776,426

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995

Shares Value

COMMON STOCKS(Continued)
Chemicals Major - 6.60%
Air Products & Chemicals, Inc. ......... 34,500 $ 1,798,313
Albemarle Corporation .................. 30,300 386,325
du Pont (E.I.) de Nemours and Company .. 30,000 1,815,000
PPG Industries, Inc. ................... 37,500 1,415,625
Praxair, Inc. .......................... 30,000 697,500
Union Carbide Corporation .............. 26,000 796,250
Total ................................. 6,909,013

Chemicals Specialty and Miscellaneous Technology - 4.01%
Betz Laboratories, Inc. ................ 15,000 656,250
Geon Company (The) ..................... 40,700 1,139,600
Polaroid Corporation ................... 42,000 1,459,500
Xerox Corporation ...................... 8,000 939,000
Total ................................. 4,194,350

Computers and Office Equipment - 3.86%
Computer Associates International, Inc. . 7,500 445,313
General Motors Corporation, Class E .... 30,000 1,166,250
International Business Machines
Corporation ........................... 15,000 1,228,125
Microsoft Corporation* ................. 9,000 639,558
Oracle Systems Corporation* ............ 18,000 561,366
Total ................................. 4,040,612

Consumer Electronics and Appliances - 1.47%
Harman International Industries,
Incorporated .......................... 7,600 282,150
Whirlpool Corporation .................. 23,000 1,259,250
Total ................................. 1,541,400

Electrical Equipment - 2.57%
Emerson Electric Co. ................... 12,000 798,000
General Electric Company ............... 35,000 1,894,375
Total ................................. 2,692,375

Electronics - 8.71%
AMP Incorporated ....................... 33,000 1,188,000
Analog Devices, Inc.* .................. 60,900 1,552,950
Applied Materials, Inc.* ............... 26,000 1,431,612
cisco Systems, Inc.* ................... 30,000 1,141,860
Intel Corporation ...................... 23,000 1,950,676
LSI Logic Corporation* ................. 27,200 1,428,000
Molex Incorporated, Class A ............ 12,500 425,000
Total ................................. 9,118,098

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995

Shares Value

COMMON STOCKS(Continued)
Engineering and Construction - 0.94%
Fluor Corporation ...................... 12,000 $ 579,000
Foster Wheeler Corporation ............. 12,000 406,500
Total ................................. 985,500

Financial - 2.31%
Federal Home Loan Mortgage Corporation . 15,000 907,500
Federal National Mortgage Association .. 9,000 732,375
Household International, Inc. .......... 18,000 783,000
Total ................................. 2,422,875

Food and Related - 0.78%
CPC International Inc. ................. 15,000 811,875

Hospital Management - 1.79%
Columbia/HCA Healthcare Corporation .... 11,200 481,600
National Medical Enterprises, Inc.* .... 30,000 476,250
United HealthCare Corporation .......... 19,500 911,625
Total ................................. 1,869,475

Household Products - 3.44%
Colgate-Palmolive Company .............. 18,000 1,188,000
Gillette Company (The) ................. 15,000 1,224,375
Procter & Gamble Company (The) ......... 18,000 1,192,500
Total.................................. 3,604,875

Leisure Time - 2.89%
Walt Disney Company (The) .............. 21,000 1,120,875
McDonald's Corporation ................. 42,000 1,433,250
Tele-Communications, Inc., Class A* .... 22,500 471,083
Total ................................. 3,025,208

Machinery - 7.50%
Case Corporation* ...................... 41,500 1,037,500
Caterpillar Inc. ....................... 46,000 2,558,750
Clark Equipment Company* ............... 13,500 1,113,750
Deere & Company ........................ 20,500 1,665,625
Ingersoll-Rand Company ................. 12,000 394,500
Parker Hannifin Corporation ............ 12,000 531,000
Trinova Corporation .................... 18,000 551,250
Total ................................. 7,852,375

Metals and Mining - 0.43%
Phelps Dodge Corporation ............... 8,000 455,000

Multi-Industry - 2.11%
ITT Corporation ........................ 21,500 2,206,438

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995

Shares Value

COMMON STOCKS(Continued)
Paper - 2.04%
International Paper Company ............ 18,000 $ 1,352,250
Union Camp Corporation ................. 15,000 778,125
Total ................................. 2,130,375

Railroads - 3.35%
CSX Corporation ........................ 10,500 826,875
Conrail Inc. ........................... 18,000 1,010,250
Norfolk Southern Corporation ........... 9,000 601,875
Southern Pacific Rail Corporation* ..... 14,000 245,000
Union Pacific Corporation .............. 15,000 825,000
Total ................................. 3,509,000

Retailing - 10.06%
Circuit City Stores, Inc. .............. 48,000 1,266,000
Dayton-Hudson Corporation .............. 14,000 1,001,000
Dillard Department Stores, Inc.,
Class A ............................... 28,500 787,313
Gap, Inc. (The) ........................ 21,000 745,500
Home Depot, Inc. (The) ................. 22,933 1,014,785
Limited, Inc. (The) .................... 22,500 520,313
May Department Stores Company (The) .... 30,000 1,110,000
Nordstrom, Inc. ........................ 11,000 445,500
OfficeMax, Inc.* ....................... 19,500 499,688
Penney (J.C.) Company, Inc. ............ 20,000 897,500
Sears, Roebuck and Co. ................ 6,000 320,250
Tommy Hilfiger Corporation* ............ 42,200 928,400
Toys "R" Us, Inc.* .................... 9,000 230,625
Wal-Mart Stores, Inc. .................. 30,000 765,000
Total ................................. 10,531,874

Telecommunications - 8.16%
AT&T Corporation ....................... 15,000 776,250
BellSouth Corporation .................. 9,000 535,500
General Instrument Corporation* ........ 30,000 1,042,500
MCI Communications Corporation ......... 56,000 1,151,472
MFS Communications Company, Inc. ....... 12,500 439,063
Motorola, Inc. ......................... 49,000 2,676,625
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 15,000 927,180
Vanguard Cellular Systems, Inc.,
Class A* .............................. 44,500 995,688
Total ................................. 8,544,278

Tire and Rubber - 1.05%
Goodyear Tire & Rubber Company (The) ... 30,000 1,102,500

TOTAL COMMON STOCKS - 93.88% $ 98,287,141
(Cost: $88,936,230)

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES
Banks and Savings and Loans - 1.41%
U.S. Bancorp,
Master Note ........................... $1,472 $ 1,472,000

Food and Related - 2.98%
General Mills, Inc.,
Master Note ........................... 1,469 1,469,000
Sara Lee Corporation,
Master Note ........................... 1,656 1,656,000
Total ................................. 3,125,000

Public Utilities - Electric - 1.56%
PS Colorado Credit Corp.,
6.13%, 4-3-95 ......................... 1,635 1,634,443

TOTAL SHORT-TERM SECURITIES - 5.95% $ 6,231,443
(Cost: $6,231,443)

TOTAL INVESTMENT SECURITIES - 99.83% $104,518,584
(Cost: $95,167,673)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.17% 172,151

NET ASSETS - 100.00% $104,690,735

See Notes to Schedules of Investments on page 45.
<PAGE>
WADDELL & REED GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1995
- ---------------------------------------------------------------------------

Dear Shareholder:

This report relates to the operation of the Growth Fund for the fiscal year
ended March 31, 1995. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.

Stock market conditions during the past fiscal year were affected in
general by rising interest rates brought on by the credit tightening actions of
the Federal Reserve Bank. However, despite rising rates, a sharp advance in the
small cap sector of the market occurred beginning in June of 1994. The market
considered Congressional inaction on major health care reform and the November
election of a new party to power in Congress as positive developments. Also,
importantly, earnings for corporate America remained in a strong uptrend. The
primary beneficiaries of these developments were technology and health care
stocks.

The Fund's strategy was to identify well-financed companies experiencing
relatively high rates of growth. The Fund emphasized stocks of companies that
were achieving exceptional earnings, particularly companies in the technology
and health care industries. These companies included several that were making
their initial public offering of stock. The Fund continued to maintain its
holdings in certain companies that had grown larger in size than the typical
small-cap security but which still offered prospects for substantial growth.

The strategies and techniques we applied resulted in better performance by
the Fund than the indexes charted on the following page. Those indexes reflect
the performance of securities that generally represent the small companies
sector of the stock market (the S&P 500 Index) and the universe of funds with
similar investment objectives (the Lipper Growth Fund Universe Average). The
Fund's performance exceeded that of the indexes because we selected stocks in
the industries that produced the better returns during the past fiscal year.

We anticipate that inflation will remain low and that the rate of growth in
the economy will continue to slow. We believe the long-term outlook for small
cap securities is extremely positive, so we expect to continue to pursue the
same strategies we have employed in the recent past in seeking to achieve the
Fund's objectives. As markets contend with current uncertainties in the
economy, short-term performance will depend largely upon the ability to select
those stocks that are most likely to appreciate. Our stock selection will focus
on companies that are likely to do well regardless of the macro-economic
backdrop.

Thank you very much for your continued support and confidence in our
organization.

Respectfully,
Mark G. Seferovich
Manager, Growth Fund

<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GROWTH FUND,
THE S&P 500 INDEX,
AND THE LIPPER GROWTH FUND UNIVERSE AVERAGE

Average Annual Total Return(1)
1 year 2+years
19.61% 25.32%

Lipper
Growth
S&P Fund
Growth 500 Universe
Fund Index Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 11,771 10,962 11,177
03/31/94 14,497 11,123 11,674
03/31/95 17,775 12,855 12,694

- ---------- Lipper Growth Fund Universe Average -- $12,694
+++++ S&P 500 Index -- $12,855
===== Growth Fund -- $17,775

Past performance is not predictive of future performance. Indexes are
unmanaged.

(2) 9/21/92 (the initial public offering date) through 3/31/95.

(3) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the S&P 500 Index
and the Lipper Growth Fund Universe Average (including income) are not
available, the investments in the Fund, Index and Lipper Universe were
effected as of September 30, 1992.

(4) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.

(5) The value of the investment in the Fund would have been $17,675 after the
deduction of the applicable 1% CDSC upon total redemtion at March 31, 1995.

<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------------------
GROWTH FUND

PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Capital appreciation.
securities convertible
into common stocks.

Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that offer above-
average growth potential, including
relatively new or unseasoned companies.
(May purchase securities subject to
repurchase agreements. May invest in
certain options, futures and other
hedging techniques.)

The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Growth Fund from
time to time.

FOUNDED: 1992

SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY

PER SHARE DATA
For the Fiscal Year Ended March 31, 1995
- ----------------------------------------
CAPITAL GAINS
DISTRIBUTION $0.33
=====

NET ASSET VALUE ON
3/31/95 $16.90 adjusted to: $17.23 (A)
3/31/94 14.08
------
CHANGE PER SHARE $ 3.15
======

(A)This number includes the capital gains distribution of $0.33 paid in December
1994 added to the actual net asset value on March 31, 1995.

Past performance is not necessarily an indication of future results.

TOTAL RETURN HISTORY

Average Annual Total Return
----------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-95 19.61% 22.61%
Period from 9-21-92*
through 3-31-95 25.32% 25.60%

*Initial public offering of the Fund.

Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.

<PAGE>
PORTFOLIO HIGHLIGHTS

On March 31, 1995, Growth Fund had net assets totaling $100,682,928 invested in
a diversified portfolio of:

60.78% Common Stocks
39.22% Cash and Cash Equivalents

As a shareholder of Growth Fund, for every $100 you had invested on March 31,
1995, your Fund owned:

$39.22 Cash and Cash Equivalents
37.58 Technological Stocks
18.82 Consumer Stocks
3.64 Basic Industries Stocks
0.74 Financial Stock

<PAGE>
- -----------------------------------------------------------------
These STOCK CATEGORIES are provided as a reference only. Not all categories or
subcategories will be represented in a portfolio at all times. Refer to the
following pages for a more detailed portfolio listing.

ENERGY AND ENERGY-RELATED
Canadian Oil
Coal
Domestic Oil
International Oil
Oil Services
Propane

FINANCIAL
Banks and Savings and Loans
Financial
Insurance

PUBLIC UTILITIES
Electric
Gas
Pipelines

TECHNOLOGICAL
Aerospace
Biotechnology and Medical Services
Chemicals Specialty and Miscellaneous Technology
Computers and Office Equipment
Drugs and Hospital Supply
Electronics
Telecommunications

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995
Shares Value

COMMON STOCKS
Automotive - 2.94%
Automotive Industries Holdings, Inc.* .. 50,000 $ 1,087,500
Gentex Corporation* .................... 40,000 835,000
Superior Industries International, Inc. 40,700 1,037,850
Total ................................. 2,960,350

Biotechnology and Medical Services - 5.52%
EP Technologies, Inc. .................. 100,000 843,700
Pyxis Corporation* .................... 60,000 1,241,220
St. Jude Medical, Inc. ................. 15,000 645,000
STERIS Corporation ..................... 35,000 1,400,000
Tecnol Medical Products, Inc.* ......... 30,600 569,925
Ventritex, Inc.* ....................... 45,000 860,625
Total ................................. 5,560,470

Computers and Office Equipment - 19.59%
America Online, Inc.* .................. 40,000 2,975,000
Broderbund Software, Inc.* ............. 34,100 1,768,938
Cerner Corporation* .................... 22,000 1,056,000
Electronic Arts Inc.* .................. 24,000 541,488
HCIA Inc.* ............................. 10,000 244,370
Health Management Systems, Inc.* ...... 20,000 737,500
Integrated Silicon Systems, Inc.* ..... 15,500 447,563
Learning Company (The)* ................ 37,600 1,128,000
Macromedia, Inc.* ..................... 30,100 1,008,350
MapInfo Corporation* ................... 50,000 1,518,750
Microsoft Corporation* ................. 10,000 710,620
Minnesota Educational Computing
Corporation* .......................... 40,000 900,000
Parametric Technology Corporation* ..... 50,000 1,993,750
Synopsys, Inc.* ........................ 30,000 1,432,500
SystemSoft Corporation* ................ 60,000 525,000
Wall Data Incorporated* ................ 30,000 1,376,250
Wonderware Corporation* ............... 43,000 1,354,500
Total ................................. 19,718,579

Drugs and Hospital Supply - 4.91%
Circa Pharmaceuticals, Inc.* ........... 75,000 1,706,250
Forest Laboratories, Inc. .............. 30,000 1,428,750
OmniCare, Inc. ......................... 34,400 1,806,000
Total ................................. 4,941,000

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995
Shares Value

COMMON STOCKS (Continued)
Electronics - 5.82%
Atmel Corporation* .................... 10,000 $ 386,870
Cascade Communications Corp.* .......... 10,000 692,500
Digital Link Corporation* ............. 41,600 1,274,000
Micron Technology, Inc. ................ 35,000 2,660,000
Silicon Valley Group, Inc.* ............ 30,000 847,500
Total ................................. 5,860,870

Financial - 0.74%
Regional Acceptance Corporation* ....... 50,000 750,000

Hospital Management - 6.26%
Inphynet Medical Management Inc.* ...... 25,000 446,875
MedPartners, Inc.* ..................... 10,000 222,500
National Medical Enterprises, Inc.* .... 60,000 952,500
Quorum Health Group, Inc.* ............. 25,000 517,175
Sierra Health Services, Inc.* ......... 44,000 1,446,500
United HealthCare Corporation .......... 20,000 935,000
Vencor, Incorporated* .................. 50,000 1,781,250
Total ................................. 6,301,800

Retailing - 6.54%
Books-A-Million, Inc.* ................. 50,000 725,000
Hollywood Entertainment Corporation* ... 50,000 1,743,750
Leslie's Poolmart* .................... 25,200 384,300
Movie Gallery, Inc.* ................... 30,000 810,000
Tiffany & Co. .......................... 35,000 1,085,000
Tractor Supply Company* ............... 35,000 730,625
Williams-Sonoma, Inc.* ................ 43,750 1,104,688
Total ................................. 6,583,363

Services, Consumer and Business - 4.04%
Block (H&R), Inc. ...................... 45,000 1,951,875
Fusion Systems Corporation* ............ 30,000 892,500
Stewart Enterprises, Inc., Class A ..... 45,000 1,220,625
Total ................................. 4,065,000

Telecommunications - 1.74%
MFS Communications Company, Inc.* ...... 50,000 1,756,250

Textiles and Apparel - 1.98%
Department 56, Inc. .................... 50,000 1,993,750

Trucking - 0.70%
Heartland Express, Inc.* ............... 25,000 706,250

TOTAL COMMON STOCKS - 60.78% $ 61,197,682
(Cost: $46,003,346)

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES
Banks and Savings and Loans - 4.15%
U.S. Bancorp,
Master Note ........................... $4,175 $ 4,175,000

Financial - 12.53%
Bell Atlantic Financial Services Inc.,
5.98%, 4-18-95 ........................ 2,610 2,602,630
Dana Credit Corp.,
6.15%, 4-21-95 ........................ 3,920 3,906,607
Merrill Lynch & Co. Inc.,
5.98%, 4-3-95 ......................... 3,000 2,999,003
Textron Financial Corp.,
6.15%, 4-18-95 ........................ 3,120 3,110,939
Total ................................. 12,619,179

Food and Related - 10.29%
General Mills, Inc.,
Master Note ........................... 4,306 4,306,000
Heinz (H.J.) Co.,
5.97%, 4-20-95 ........................ 4,000 3,987,397
Sara Lee Corporation,
Master Note ........................... 2,067 2,067,000
Total ................................. 10,360,397

Multi-Industry - 3.72%
ITT Corporation,
6.1%, 4-12-95 ......................... 3,755 3,748,001

Public Utilities - Pipelines - 2.98%
Enron Corp.,
6.15%, 4-10-95 ........................ 3,000 2,995,387

Retailing - 1.81%
K Mart Corporation,
6.15%, 4-11-95 ........................ 1,830 1,826,874

Telecommunications - 3.17%
GTE Florida Inc.,
6.1%, 4-18-95 ......................... 3,200 3,190,782

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995

Value

TOTAL SHORT-TERM SECURITIES - 38.65% $ 38,915,620
(Cost: $38,915,620)

TOTAL INVESTMENT SECURITIES - 99.43% $100,113,302
(Cost: $84,918,966)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.57% 569,626

NET ASSETS - 100.00% $100,682,928

See Notes to Schedules of Investments on page 45.

<PAGE>
WADDELL & REED LIMITED-TERM BOND FUND
MANAGER'S LETTER
MARCH 31, 1995
- ---------------------------------------------------------------------------

Dear Shareholder:

This report relates to the operation of the Limited-Term Bond Fund for the
fiscal year ended March 31, 1995. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.

During the past fiscal year the Federal Reserve Bank raised interest rates
several times as it attempted to preempt perceived inflationary pressures and
achieve a slow, sustainable level of economic growth. The Federal Reserve
Bank's actions caused interest rates on intermediate-maturity instruments to
experience a sharp rise throughout most of 1994, peaking in November. Since
then, however, interest rates have fallen as it appears the Fed-induced rate
increases have achieved their intended effect on the economy. In response to
declining interest rates in the last part of the fiscal year, the market for
fixed income securities, including intermediate-maturity instruments, has staged
a modest rally.

To protect against the erosion in bond principal values caused by rising
interest rates in 1994, we reduced the average maturity of the Fund's bond
holdings to about 2.5 years and increased the level of cash on hand.. This
strategy allowed for some asset value protection while enabling maintenance of a
reasonable level of income.

The strategies and techniques we applied resulted in the direction of the
Fund's performance remaining fairly consistent with that of the indexes charted
on the following page. Those indexes generally represent the short-maturity
sector of the bond market (the Lehman Brothers Mutual Fund Short Investment
Grade Debt Index) and the universe of funds with similar investment objectives
(the Lipper Short Investment Grade Debt Fund Universe Average).

We expect the economy to continue growing slowly, and we believe the
Federal Reserve Bank will not raise interest rates as long as the economy
continues to grow at a slow pace. We believe that bond yields will remain at or
near historically high levels relative to rates of inflation. In view of the
prevailing market conditions, we intend to extend the average maturity of the
Fund's holdings by using our cash reserves to purchase bonds with relatively
longer maturities. When making new purchases, we plan to focus on higher-rated
securities that typically do relatively well in a period of slowing economic
activity.

Thank you very much for your continued support and confidence in our
organization.

Respectfully,
W. Patrick Sterner
Manager, Limited-Term Bond Fund

<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
LIMITED-TERM BOND FUND,
THE LEHMAN BROTHERS MUTUAL FUND SHORT INVESTMENT GRADE DEBT INDEX,
AND THE LIPPER SHORT INVESTMENT GRADE DEBT FUND UNIVERSE AVERAGE

Average Annual Total Return(1)
1 year 2+years
- -.23% 2.22%
Lehman Lipper
BrothersShort Investment
Limited-Mutual Fund Grade Debt
TermShort Investment Fund
Bond Grade Debt Universe
Fund Index Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,206 10,333 10,236
03/31/94 10,350 10,710 10,517
03/31/95 10,632 11,264 10,868

- ---------- Lipper Short Investment Grade Debt Fund Universe Average -- $10,868
+++++ Lehman Brothers Mutual Fund Short Investment Grade Debt Index -- $11,264
===== Limited-Term Bond Fund -- $10,632

Past performance is not predictive of future performance. Indexes are
unmanaged.

(2) 9/21/92 (the initial public offering date) through 3/31/95.

(3) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the Lehman
Brothers Mutual Fund Short Investment Grade Debt Index and the Lipper Short
Investment Grade Fund Universe Average (including income) are not available,
the investments in the Fund, Index and Lipper Universe were effected as of
September 30, 1992.

(4) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.

(5) The value of the investment in the Fund would have been $10,535 after the
deduction of the applicable 1% CDSC upon total redemption at March 31, 1995.

<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
LIMITED-TERM BOND FUND

PORTFOLIO STRATEGY:
OBJECTIVE: High level of current income
Dollar-weighted average consistent with
maturity of portfolio is preservation of capital.
between two and five years.

At least 65% investment-grade
bonds.
STRATEGY: Invests primarily in debt securities of
investment grade, including debt
securities issued or guaranteed by the
U.S. Government or its agencies or
instrumentalities, with the portfolio
having a dollar-weighted average
maturity of not less than two years, but
not more than five years. (May purchase
securities subject to repurchase
agreements. May invest in certain
options, futures and other hedging
techniques.)

FOUNDED: 1992

SCHEDULED DIVIDEND FREQUENCY: MONTHLY

<PAGE>
PER SHARE DATA
For the Fiscal Year Ended March 31, 1995
- ----------------------------------------
DIVIDENDS PAID $0.39
=====

CAPITAL GAINS
DISTRIBUTION $0.01
=====

NET ASSET VALUE ON
3/31/95 $9.70 adjusted to: $9.71(A)
3/31/94 9.84
------
CHANGE PER SHARE ($0.13)
======

(A)This number includes the capital gains distribution of $0.01 paid in December
1994 added to the actual net asset value on March 31, 1995.

Past performance is not necessarily an indication of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-95 -0.23% 2.73%
Period from 9-21-92*
through 3-31-95 2.22% 2.59%

*Initial public offering of the Fund.

Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.

<PAGE>
PORTFOLIO HIGHLIGHTS

On March 31, 1995, Limited-Term Bond Fund had net assets totaling $12,418,766
invested in a diversified portfolio of:

91.91% Bonds
8.09% Cash and Cash Equivalents

As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
March 31, 1995, your Fund owned:

Corporate Bonds $63.09
U.S. Government Securities 28.82
Cash and Cash Equivalents 8.09

Not all holdings will be represented in the portfolio at all times.

<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES
Airlines - 2.67%
Federal Express Corporation,
10.0%, 9-1-98 ......................... $310 $ 331,164

Banks and Savings and Loans - 5.08%
First Chicago Corporation,
9.875%, 7-1-99 ........................ 302 324,291
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 300 306,849
Total ................................. 631,140

Building - 3.22%
Masco Industries, Inc.,
6.25%, 6-15-95 ........................ 400 399,572

Chemicals Specialty and Miscellaneous
Technology - 1.60%
Polaroid Corporation,
7.25%, 1-15-97......................... 200 199,416

Domestic Oil - 3.59%
BP America Inc.,
9.5%, 1-1-98 .......................... 225 236,669
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 208,722
Total ................................. 445,391

Drugs and Hospital Supply - 2.43%
American Home Products Corporation,
7.70%, 2-15-2000 ...................... 300 302,094

Financial - 13.51%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ 300 307,671
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 300 296,031
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 176 171,107
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 48,707
7.75%, 1-15-99 ........................ 300 300,234
Household Finance Corporation,
9.0%, 9-28-2001 ....................... 285 299,059
United States Leasing International, Inc.,
8.75%, 5-1-96 ......................... 250 254,500
Total ................................. 1,677,309

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Food and Related - 1.99%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ $236 $ 247,583

Insurance - 2.84%
CIGNA Corporation,
8.0%, 9-1-96 .......................... 350 353,049

International Oil - 2.96%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 360 368,248

Multi-Industry - 4.05%
ITT Corporation,
8.25%, 8-1-2001 ....................... 500 502,390

Public Utilities - Electric - 0.77%
Connecticut Light & Power Company (The),
6.5%, 1-1-98 .......................... 100 95,863

Public Utilities - Pipelines - 2.55%
Tennessee Gas Pipeline Company,
9.25%, 5-15-96 ........................ 310 316,392

Railroads - 2.45%
CSX Transportation,
8.4%, 8-1-96 .......................... 300 304,356

Retailing - 7.09%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 100 103,610
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 250 265,080
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 511,250
Total ................................. 879,940

Telecommunications - 3.72%
GTE Corporation,
8.85%, 3-1-98 ......................... 350 361,106
Southwestern Bell Telephone Company,
8.3%, 6-1-96 .......................... 100 101,439
Total ................................. 462,545

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Textiles and Apparel - 2.57%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... $318 $ 318,541

TOTAL CORPORATE DEBT SECURITIES - 63.09% $ 7,834,993
(Cost: $7,953,882)

UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 82 81,494
5.5%, 4-15-2013 ....................... 100 95,937
5.5%, 9-15-2013 ....................... 100 97,250
6.4%, 2-15-2018 ....................... 250 233,750
Federal National Mortgage Association:
8.0%, 2-1-2008 ........................ 345 347,606
6.0%, 1-1-2009 ........................ 367 339,785
6.0%, 2-1-2009 ........................ 365 338,543
7.0%, 9-25-2020 ....................... 64 62,319
Government National Mortgage Association,
6.5%, 10-15-2008 ...................... 284 269,037
United States Treasury:
5.625%, 8-31-97 ....................... 400 389,064
5.375%, 5-31-98 ....................... 300 286,500
5.5%, 4-15-2000........................ 300 280,032
6.375%, 8-15-2002 ..................... 400 381,312
6.25%, 2-15-2003 ...................... 400 376,688

TOTAL UNITED STATES GOVERNMENT SECURITIES - 28.82% $ 3,579,317
(Cost: $3,765,839)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.60%
U.S. Bancorp,
Master Note ........................... 447 447,000

Food and Related - 4.75%
General Mills Inc.,
Master Note ........................... 458 458,000
Sara Lee Corporation,
Master Note ........................... 132 132,000
Total ................................. 590,000

TOTAL SHORT-TERM SECURITIES - 8.35% $1,037,000
(Cost: $1,037,000)

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995

Value

TOTAL INVESTMENT SECURITIES - 100.26% $12,451,310
(Cost: $12,756,721)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.26%) (32,544)

NET ASSETS - 100.00% $12,418,766

See Notes to Schedules of Investments on page 45.

<PAGE>
WADDELL & REED MUNICIPAL BOND FUND
MANAGER'S LETTER
MARCH 31, 1995
- ---------------------------------------------------------------------------

Dear Shareholder:

This report relates to the operation of the Municipal Bond Fund for the
fiscal year ended March 31, 1995. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.

During the past fiscal year the Federal Reserve Bank increased interest
rates several times to preempt the inflationary tendencies that might result
from a strengthening economy. These increases in interest rates caused the bond
markets to fall throughout most of 1994. However, the November elections were
viewed very favorably by the financial markets, as prospects for tax cuts and
reductions in government regulation improved. These political developments,
combined with slowing growth in the economy, led to interest rate declines
during the last four months of the fiscal year.

The Fund continued its emphasis on long-term investment-grade municipal
bonds that provided the opportunity to maximize the Fund's yield to its
shareholders. We did not significantly alter the structure of the Fund's
portfolio in reaction to the rises in interest rates that occurred in 1994.
Rather, we maintained a long-range perspective, expecting that eventually
declines in interest rates would again work to the advantage of the Fund and its
shareholders.

The strategies and techniques we applied resulted in the direction of the
Fund's performance remaining fairly consistent with that of the indexes charted
on the following page. Those indexes reflect the performance of securities that
generally represent the municipal bond market (the Lehman Brothers Municipal
Bond Index) and the universe of funds with similar investment objectives (the
Lipper General Municipal Debt Fund Universe Average).

We expect the economy to continue growing at a steady albeit slower rate.
We also believe it is unlikely that the Federal Reserve will increase interest
rates as long as the pace of economic growth remains slow. Our focus will be on
continuing to seek the most attractive municipal bond opportunities available.
We believe that at current levels municipal bond yields are very attractive for
long-term investors.

Thank you for your continued support and confidence in our organization.

Respectfully
John M. Holliday
Manager, Municipal Bond Fund

<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
MUNICIPAL BOND FUND,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX,
AND THE LIPPER GENERAL MUNICIPAL DEBT FUND UNIVERSE AVERAGE

Average Annual Total Return(1)
1 year 2+years
3.37% 5.36%
Lehman Lipper
Brothers General
Municipal Municipal
Municipal Bond Debt Fund
Bond Index Universe
Fund Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,700 10,560 10,576
03/31/94 10,782 10,805 10,759
03/31/95 11,469 11,608 11,432

- ---------- Lipper General Municipal Debt Fund Universe Average -- $11,432
+++++ Lehman Brothers Municipal Bond Index -- $11,608
===== Municipal Bond Fund -- $11,469

Past performance is not predictive of future performance. Indexes are
unmanaged.

(2) 9/21/92 (the initial public offering date) through 3/31/95.

(3) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the Lehman
Brothers Municipal Bond Index and the Lipper General Municipal Debt Fund
Universe Average (including income) are not available, the investments in the
Fund, Index and Lipper Universe were effected as of September 30, 1992.

(4) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.

(5) The value of the investment in the Fund would have been $11,369 after the
deduction of the applicable 1% CDSC upon total redemption at March 31, 1995.

<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
MUNICIPAL BOND FUND

PORTFOLIO STRATEGY:
Minimum 80% OBJECTIVE: Income which is not subject
Municipal Bonds. to Federal income taxation.
(Income may be subject to state
Maximum 5% non-investment and local taxes, and a portion
grade debt securities. may be subject to Federal taxes,
including alternative minimum
Less than 25% of its assets tax.)
in securities of issuers
located in any single state.

STRATEGY: Invests in municipal bonds (debt
securities the interest on which is
generally exempt from Federal income
tax). (May invest in certain options,
futures and other hedging techniques.)

FOUNDED: 1992

SCHEDULED DIVIDEND FREQUENCY: MONTHLY

<PAGE>
PERFORMANCE SUMMARY

PER SHARE DATA
For the Fiscal Year Ended March 31, 1995
- ----------------------------------------

DIVIDENDS PAID $0.44
=====

NET ASSET VALUE ON
3/31/95 $10.30
3/31/94 10.12
------
CHANGE PER SHARE $ 0.18
======

Past performance is not necessarily an indication of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-95 3.37% 6.37%
Period from 9-21-92*
through 3-31-95 5.36% 5.72%

*Initial public offering of the Fund.

Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.

<PAGE>
PORTFOLIO HIGHLIGHTS

On March 31, 1995, Municipal Bond Fund had net assets totaling $27,434,082
invested in a diversified portfolio.

As a shareholder of Municipal Bond Fund, for every $100 you had invested on
March 31, 1995, your Fund owned:

Hospital Revenue Bonds $19.50
Industrial Revenue Bonds 14.17
Other Municipal Bonds 13.31
Public Power Revenue Bonds 9.03
Resource Recovery Revenue Bonds 8.71
Housing Revenue Bonds 6.48
Lease/Certificates of
Participation Bonds 5.73
Water & Sewer Revenue Bonds 5.08
Special Tax Bonds 5.02
Student Loan Bonds 4.67
Airport Revenue Bonds 4.38
Cash and Cash Equivalents 3.92

Not all holdings will be represented in the portfolio at all times.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS
ARIZONA - 0.96%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 263,250

ARKANSAS - 1.35%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 370,500

CALIFORNIA - 7.32%
Sacramento County Sanitation Districts
Financing Authority, 1993 Revenue Bonds,
5.125%, 12-1-2013 ..................... 1,275 1,144,313
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 461,875
Certificates of Participation, City of Upland,
California to San Antonio Community Hospital,
1993 Series,
5.0%, 1-1-2018 ........................ 500 400,625
Total ................................. 2,006,813

COLORADO - 4.01%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1994A,
7.4%, 11-15-2004 ...................... 1,000 1,043,750
Series 1991A,
0.0%, 11-15-2003 ...................... 100 56,125
Total ................................. 1,099,875

FLORIDA - 4.62%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... 965 861,263
Mid-Bay Bridge Authority (Florida),
Revenue Refunding Bonds, Series 1993A,
6.0%, 10-1-2013 ....................... 300 274,500

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
FLORIDA (Continued)
Hillsborough County, Florida, Capital
Improvement Non-Ad Valorem Revenue Bonds
(County Center Project), Second
Series 1992,
6.75%, 7-1-2022 ....................... $ 125 $ 130,625
Total ................................. 1,266,388

GEORGIA - 3.51%
Hospital Authority of Albany-Dougherty
County, Georgia, Revenue Bonds (Phoebe
Putney Memorial Hospital), Series 1993,
5.7%, 9-1-2013 ........................ 1,000 963,750

GUAM - 0.87%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 239,063

ILLINOIS - 5.50%
Illinois Health Facilities Authority,
Revenue Bonds, Series 1993 (OSF
Healthcare System),
5.75%, 11-15-2007 ..................... 700 671,125
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 453,125
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 385,000
Total ................................. 1,509,250

INDIANA - 3.08%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 500 469,375
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 376,500
Total ................................. 845,875

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
IOWA - 1.21%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ $ 340 $ 332,775

KANSAS - 4.88%
City of Lawrence, Kansas:
Hospital Revenue Bonds, Series 1994
(The Lawrence Memorial Hospital),
6.2%, 7-1-2019 ........................ 1,125 1,109,531
Multifamily Housing Development
Revenue Refunding Bonds (Brandon Woods,
Inc. Project), Series 1993,
6.625%, 4-1-2012 ...................... 225 227,813
Total ................................. 1,337,344

LOUISIANA - 2.63%
Parish of St. Charles, State of Louisiana:
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... 200 206,750
Solid Waste Disposal Revenue Bonds
(Louisiana Power & Light Company Project),
Series 1992-A,
7.0%, 12-1-2022 ....................... 200 203,250
Louisiana Public Facilities Authority,
Student Loan Revenue Bonds,
Series 1992A-2,
6.75%, 9-1-2006 ....................... 300 310,125
Total ................................. 720,125

MARYLAND - 9.63%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 880,000
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A,
6.3%, 7-1-2016 ........................ 700 680,750

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
MARYLAND (Continued)
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds (Montgomery
County Resource Recovery Project),
Series 1993A,
6.2%, 7-1-2010 ........................ $ 665 $ 655,856
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... 500 423,750
Total ................................. 2,640,356

MICHIGAN - 3.09%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 847,500

MISSOURI - 5.18%
The Junior College District of Metropolitan
Kansas City, Missouri, Lease Certificates
of Participation (Longview Recreation
Complex Project), Series 1994,
6.125%, 7-1-2014 ...................... 600 591,000
School District of Kansas City, Missouri,
Building Corporation, Insured Leasehold
Revenue Bonds, Series 1993D (The School
District of Kansas City, Missouri,
Elementary School Project),
5.0%, 2-1-2014 ........................ 650 580,125
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 250,000
Total ................................. 1,421,125

MONTANA - 0.36%
Anaconda-Deer Lodge County, Montana,
Solid Waste Facility Revenue Bonds
(ARCO-Anaconda Smelter Site Project),
Series 1992,
6.375%, 10-1-2016 ..................... 100 98,500

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
NEBRASKA - 1.79%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ $ 500 $ 491,875

NEW MEXICO - 5.02%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 1,378,125

NEW YORK - 2.32%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1993,
5.25%, 4-1-2013 ....................... 500 442,500
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 192,750
Total ................................. 635,250

NORTH CAROLINA - 3.86%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds,
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ 1,000 1,060,000

OHIO - 2.86%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 785,625

OKLAHOMA - 2.55%
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 490,625
6.6%, 7-1-2014 ........................ 200 209,250
Total ................................. 699,875

TENNESSEE - 3.82%
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,048,750

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
TEXAS - 6.74%
Port of Corpus Christi, Authority of
Nueces County, Texas, Pollution Control
Revenue Bonds (Hoechst Celanese Corporation
Project), Series 1992,
6.875%, 4-1-2017 ...................... $1,000 $ 1,033,750
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 715,000
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1991 (American Airlines, Inc.
Project),
7.0%, 12-1-2011 ....................... 100 101,000
Total ................................. 1,849,750

VIRGINIA - 3.54%
Virginia Education Loan Authority (A
Political Subdivision of the Commonwealth
of Virginia), Student Loan Program
Revenue Bonds, Series C Bonds,
5.75%, 9-1-2010 ....................... 1,000 971,250

WASHINGTON - 5.38%
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds:
Series 1994B,
7.375%, 7-1-2004 ...................... 500 546,250
Series 1989A,
6.0%, 7-1-2017 ........................ 450 428,063
Housing Authority of the County of King,
Pooled Housing Refunding Revenue Bonds,
Series 1995A,
6.8%, 3-1-2026 ........................ 500 500,625
Total ................................. 1,474,938

TOTAL MUNICIPAL BONDS - 96.08% $26,357,927
(Cost: $26,618,029)

TOTAL SHORT-TERM SECURITIES - 1.93% $ 529,000
(Cost: $529,000)

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995

Value

TOTAL INVESTMENT SECURITIES - 98.01% $26,886,927
(Cost: $27,147,029)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.99% 547,155

NET ASSETS - 100.00% $27,434,082

See Notes to Schedules of Investments on page 45.

<PAGE>
WADDELL & REED GLOBAL INCOME FUND
MANAGER'S LETTER
MARCH 31, 1995
- ---------------------------------------------------------------------------
Dear Shareholder:

This report relates to the operation of the Global Income Fund for the
fiscal year ended March 31, 1995. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.

During the past fiscal year, international currency markets experienced
considerable volatility stemming from significant fiscal problems facing many
foreign governments, as well as from rising interest rates in the United States
and other countries. Over the course of the fiscal year, the U.S. dollar
declined by 17% against the German mark and by 16% against the Japanese yen.
However, the U.S. dollar rose by over 50% relative to the Mexican peso, while
remaining essentially even against the French, British, Swedish and Canadian
currencies.

In view of the turmoil in the international currency markets, the Fund
maintained a balanced global position during the past fiscal year. About half
of the Fund's assets were allocated to short-term U.S. Treasury notes and money
market instruments. The Fund divided the remainder of its holdings between
lower-yielding instruments issued by core European countries, such as Germany,
France and Belgium, and high-yielding instruments issued by countries with
weaker currencies, such as Italy, Denmark and Sweden. During the latter part of
the fiscal year, the Fund increased its holdings in government securities issued
by Canada and Australia because they offered higher real rates of return and
provided strong potential for appreciation.

As charted on the following page, the strategies and techniques we applied
resulted in performance by the Fund this past fiscal year that fell below the
performance of the securities index that generally represents the short-maturity
sector of the international bond market (the Lehman Brothers Mutual Fund Short
World Multi-Market Index). This result was due primarily to the Fund's lack of
exposure to Japanese securities, which enhanced the performance of that index.
However, the Fund's performance exceeded that of the universe of funds with
similar investment objectives (the Lipper Short World Multi-Market Income Fund
Universe Average).

With the approval of the Fund's shareholders, as of April 20, 1995 the name
of the Fund is changed to Waddell & Reed International Growth Fund, and its
investment objective is changed to long-term appreciation, with realization of
income as a secondary goal. The Fund has selected a new portfolio manager, Mark
Yockey, to manage the Fund in accordance with its new objectives. Mr. Yockey
manages other international investment portfolios, including a large
international growth mutual fund. In the immediate future, the Fund will adjust
its holdings in pursuit of growth-oriented investment opportunities around the
world.

Thank you very much for your continued support and confidence in our
organization.

Respectfully,
James C. Cusser and John E. Sundeen, Jr.
Co-Managers, Global Income Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GLOBAL INCOME FUND,
THE LEHMAN BROTHERS MUTUAL FUND SHORT WORLD MULTI-MARKET INDEX,
AND THE LIPPER SHORT WORLD MULTI-MARKET INCOME FUND UNIVERSE AVERAGE

Average Annual Total Return(1)
1 year 2+years
.84% .75%
Lehman Lipper
Brothers Short World
Mutual Fund Multi-Market
GlobalShort World Income Fund
IncomeMulti-Market Universe
Fund Index Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 9,753 9,945 10,100
03/31/94 9,785 10,482 10,257
03/31/95 10,160 11,542 10,011

- ---------- Lipper Short World Multi-Market Income Fund Universe Average --
$10,011
+++++ Lehman Brothers Mutual Fund Short World Multi-Market Index -- $11,542
===== Global Income Fund -- $10,160

Past performance is not predictive of future performance. Indexes are
unmanaged.

(2) 9/21/92 (the initial public offering date) through 3/31/95.

(3) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the Lehman
Brothers Mutual Fund Short World Multi-Market Index and the Lipper Short World
Multi-Market Income Fund Universe Average (including income) are not
available, the investments in the Fund, Index and Lipper Universe were
effected as of September 30, 1992.

(4) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.

(5) The value of the investment in the Fund would have been $10,068 after the
deduction of the applicable 1% CDSC upon total redemption at March 31, 1995.

<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
GLOBAL INCOME FUND

PORTFOLIO STRATEGY:
Maximum 50% securities OBJECTIVE: High level of current
denominated in U.S. dollars. income consistent with
safety of principal.
Maximum 25% securities
issued by any single foreign
government.
STRATEGY: Invests primarily in relatively higher-
rated debt securities that are
denominated in various currencies and
multinational currency units and that
have remaining maturities of not more
than five years, with the average
maturity of the portfolio not to exceed
three years. (May purchase securities
subject to repurchase agreements. May
invest in certain options, futures and
other hedging techniques.)

FOUNDED: 1992

SCHEDULED DIVIDEND FREQUENCY: MONTHLY

<PAGE>
PERFORMANCE SUMMARY

PER SHARE DATA
For the Fiscal Year Ended March 31, 1995
- ----------------------------------------

DIVIDENDS PAID $0.36
=====

NET ASSET VALUE ON
3/31/95 $9.36
3/31/94 9.37
-----
CHANGE PER SHARE ($0.01)
=====

Past performance is not necessarily an indication of future results.

TOTAL RETURN HISTORY

Average Annual Total Return
---------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-95 0.84% 3.84%
Period from 9-21-92*
through 3-31-95 0.75% 1.12%

*Initial public offering of the Fund.

Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.

<PAGE>
PORTFOLIO HIGHLIGHTS

On March 31, 1995, Global Income Fund had net assets totaling $11,188,401
invested in a diversified portfolio of:

69.58% Bonds
30.42% Other, including Cash and Cash Equivalents

As a shareholder of Global Income Fund, for every $100 you had invested on March
31, 1995, your Fund owned:

Other Government Securities $50.94
Other, including Cash and
Cash Equivalents 30.42
U.S. Government Securities 13.28
Corporate Debt Securities 5.36

Not all holdings will be represented in the portfolio at all times.

<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Automotive - 1.99%
Toyota Motor Credit Corporation,
6.743%, 8-5-96 (A) .................... $ 250 $ 222,000

Banks and Savings and Loans - 3.37%
Bayerische Landesbank Girozentrale,
3.855%, 3-28-97 (B) ................... $ 250 232,188
Deutsche Bank Aktiengesellschaft,
12.0%, 10-2-96 (C) .................... L250,000 145,000
Total ................................. 377,188

TOTAL CORPORATE DEBT SECURITIES - 5.36% $ 599,188
(Cost: $668,978)

OTHER GOVERNMENT SECURITIES
Australia - 8.20%
New South Wales Treasury,
8.5%, 3-1-96 (C) ...................... $A500 366,760
Queensland Treasury Corporation:
8.0%, 5-14-97 (C) ..................... $A550 396,149
12.0%, 5-15-97 (C) .................... $A200 154,946
Total ................................. 917,855

Canada - 13.18%
Province of Alberta,
8.625%, 11-27-96 ...................... $200 204,362
Government of Canada:
7.5%, 7-1-97 (C) ...................... $C1,000 706,890
6.25%, 2-1-98 (C) ..................... $C 350 238,795
10.75%, 3-15-98 (C) ................... $C 425 324,156
Total ................................. 1,474,203

Denmark - 2.93%
Kingdom of Denmark,
9.0%, 11-15-98 (C) .................... DKr1,750 328,405

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995

Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES (Continued)
France - 12.54%
Bon Du Tresor:
9.0%, 11-12-95 (C) .................... F1,000 $ 209,980
8.0%, 5-12-98 (C) ..................... F4,500 951,615
Credit Local de France,
4.64%, 2-23-96 (D) .................... $250 241,563
Total ................................. 1,403,158

Germany - 6.32%
Bundesobligation,
6.625%, 1-20-98 (C) ................... DM250 184,760
Bundesschatzanweisungen:
8.75%, 12-20-95 (C) ................... DM250 186,233
7.125%, 11-21-96 (C) .................. DM225 167,641
Kreditanstalt fur Weideraufbau,
10.6%, 5-18-98 (C) .................... L300,000 168,000
Total ................................. 706,634

Supranational - 3.62%
European Investment Bank,
6.75%, 5-14-98 (C) .................... F2,000 404,920

Sweden - 4.15%
Kingdom of Sweden,
10.75%, 1-23-97 (C) ................... SEK3,400 464,032

TOTAL OTHER GOVERNMENT SECURITIES - 50.94% $ 5,699,207
(Cost: $5,598,138)

UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.25%, 8-31-96 ........................ $1,300 1,310,361
6.875%, 4-30-97 ....................... $ 175 175,219

TOTAL UNITED STATES GOVERNMENT SECURITIES - 13.28% $ 1,485,580
(Cost: $1,517,640)

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995

Face
Amount in
Thousands Value
UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS
Danish Krone, 3-25-96 (C) .............. DKr1,700 $ (57,561)
French Franc, 6-6-95 (C) ............... F1,350 (29,410)

TOTAL UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS - (0.78%) $ (86,971)

Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Consumer Electronics and Appliances - 3.83%
TDK (USA) Corp.,
5.99%, 4-17-95 ........................ $430 428,855

Drugs and Hospital Supply - 3.80%
Warner-Lambert Company,
6.0%, 4-4-95 .......................... $425 424,788

Financial - 7.14%
Dana Credit Corp.,
6.15%, 4-21-95 ........................ $400 398,633
USL Capital Corp.,
5.95%, 4-3-95 ......................... $400 399,868
Total ................................. 798,501

Food and Related - 6.91%
General Mills, Inc.,
Master Note............................ $506 506,000
Sara Lee Corporation,
Master Note ........................... $267 267,000
Total ................................. 773,000

Insurance - 4.43%
Aon Corporation,
6.02%, 5-15-95 ........................ $500 496,321

Total Commercial Paper - 26.11% 2,921,465

Time Deposits - 3.00%
Commonwealth Bank of
Australia - Grand Cayman,
7.5%, 4-13-95 (C) ..................... $A458 336,261

TOTAL SHORT-TERM SECURITIES - 29.11% $ 3,257,726
(Cost: $3,276,384)

See Notes to Schedules of Investments on page 45.
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995

Value

TOTAL INVESTMENT SECURITIES - 97.91% $10,954,730
(Cost: $11,061,140)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.09% 233,671

NET ASSETS - 100.00% $11,188,401

See Notes to Schedules of Investments on page 45.

<PAGE>
WADDELL & REED FUNDS, INC.

Notes to Schedules of Investments

* No income dividends were paid during the preceding 12 months.

(A) Coupon resets semiannually based on the arithmetic mean of two-year swap
rates in four nations: Italy, France, Spain and the United Kingdom,
determined by the following formula (minimum coupon of 0%): 19.65% - 2 x
(average two-year swap rate in the aforementioned nations).

(B) Coupon resets semiannually based on 14.13% - 1.5 x (5-year Deutschemark
swap rate). Coupon guaranteed at 3%.

(C) Principal amounts are denominated in the indicated foreign currency where
applicable (L - Italian Lira, $A - Australian Dollar, $C - Canadian Dollar,
DKr - Danish Krone, F - French Franc, DM - German Mark, SEK - Swedish
Krona).

(D) Coupon resets semiannually based on 13.05% - 6-month STIBOR (Stockholm
Interbank Offer Rate).

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
<TABLE>
<CAPTION>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Assets -------------------------------------------------------------------
Investment securities--at
value (Notes 1 and 4) $104,518,584 $100,113,302 $12,451,310 $26,886,927 $10,954,730
Cash ............... 4,922 4,993 4,016 4,738 1,522
Receivables:
Fund shares sold .. 675,192 1,111,199 98,651 117,663 76,624
Dividends and interest 143,796 68,412 212,393 484,187 214,257
Investment securities
sold ............ 123,923 40,975 --- --- ---
Unamortized organization
expenses (Note 2) . 16,296 16,296 16,296 16,296 16,296
Prepaid insurance premium 557 468 234 362 234
-------------------------------------------------------------------
Total assets .... 105,483,270 101,355,645 12,782,900 27,510,173 11,263,663
Liabilities -------------------------------------------------------------------
Payable for investment
securities purchased 451,478 267,615 306,943 --- ---
Payable for Fund shares
redeemed .......... 242,368 309,490 22,962 24,553 27,893
Accrued service fee . 59,664 54,316 6,508 14,682 3,652
Organization expenses
payable ........... 16,296 16,296 16,296 16,296 16,296
Accrued transfer agency
and dividend disbursing 14,609 16,065 2,229 3,107 1,607
Dividends payable .. --- --- 6,703 13,764 3,974
Accrued accounting
services fee ...... 3,333 2,500 833 1,667 833
Other .............. 4,787 6,435 1,660 2,022 21,007
-------------------------------------------------------------------
Total liabilities 792,535 672,717 364,134 76,091 75,262
-------------------------------------------------------------------
Total net assets $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
Net Assets ===================================================================
$0.01 par value capital stock
Capital stock ..... $ 82,257 $ 59,569 $ 12,802 $ 26,639 $ 11,951
Additional paid-in capital 96,142,360 83,616,019 12,785,592 28,320,895 11,541,594
Accumulated undistributed income (loss):
Accumulated undistributed
net investment income --- 6,511 --- --- ---
Accumulated undistributed
net realized gain (loss)
on investments
and foreign currency
transactions ..... (884,793) 1,806,493 (74,217) (653,350) (268,035)
Net unrealized appreciation
(depreciation) of investments
and translation of assets and
liabilities in foreign currencies
at end of period . 9,350,911 15,194,336 (305,411) (260,102) (97,109)
---------------------------------------------------------------------
Net assets applicable to
outstanding units
of capital ..... $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
=====================================================================
Net asset value, redemption
and offering price
per share ........... $12.73 $16.90 $9.70 $10.30 $9.36
====== ====== ===== ===== =====
Capital shares outstanding 8,225,679 5,956,925 1,280,202 2,663,914 1,195,118
Capital shares authorized 500,000,000 500,000,000 500,000,000 500,000,000 500,000,000
See notes to financial statements.
</TABLE>
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1995
<TABLE>
<CAPTION>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Investment Income ------------------------------------------------------------------
Income:
Interest .......... $ 261,257 $1,455,978 $725,279 $1,600,720 $658,657
Dividends ......... 1,450,943 43,022 --- --- ---
-----------------------------------------------------------------
Total income .... 1,712,200 1,499,000 725,279 1,600,720 658,657
Expenses (Notes 2 and 3): -----------------------------------------------------------------
Distribution fees . 638,040 501,677 87,444 189,123 80,153
Investment management fee 599,703 537,667 64,948 140,752 70,373
Service fee ....... 197,508 154,029 24,936 54,969 12,428
Transfer agency and
dividend disbursing 161,715 166,311 28,172 39,703 20,382
Registration fees.. 47,830 42,506 15,751 22,277 15,346
Accounting services fee 30,833 28,333 10,000 12,500 10,000
Custodian fees .... 10,357 9,766 2,872 3,567 8,154
Amortization of organization
expenses ........ 6,518 6,518 6,518 6,518 6,518
Audit fees ........ 9,598 7,834 3,890 4,694 5,131
Legal fees ........ 4,571 4,145 619 1,346 8,006
Other ............. 39,416 33,703 7,353 13,792 8,264
-----------------------------------------------------------------
Total expenses .. 1,746,089 1,492,489 252,503 489,241 244,755
-----------------------------------------------------------------
Net investment income
(loss) ........ (33,889) 6,511 472,776 1,111,479 413,902
-----------------------------------------------------------------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities...... (393,442) 2,636,976 (74,217) (654,808) (243,087)
Realized net gain (loss)
from foreign currency
transactions ...... (5) --- --- --- 37,933
-----------------------------------------------------------------
(393,447) 2,636,976 (74,217) (654,808) (205,154)
-----------------------------------------------------------------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ 6,249,301 13,371,790 (78,479) 1,079,863 283,430
Unrealized depreciation from
translation of assets and
liabilites in foreign
currencies......... --- --- --- --- (79,852)
-----------------------------------------------------------------
6,249,301 13,371,790 (78,479) 1,079,863 203,578
-----------------------------------------------------------------
Net gain (loss) on
investments ..... 5,855,854 16,008,766 (152,696) 425,055 (1,576)
-----------------------------------------------------------------
Net increase in net assets
resulting from
operations ..... $5,821,965 $16,015,27 $320,080 $1,536,534 $412,326
=================================================================
</TABLE>
See notes to financial statements.

<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1995
<TABLE>
<CAPTION>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase in Net Assets -------------------------------------------------------------------
Operations:
Net investment income
(loss) .......... $ (33,889) $ 6,511 $ 472,776 $ 1,111,479 $ 413,902
Realized net gain (loss)
on investments ... (393,447) 2,636,976 (74,217) (654,808) (205,154)
Unrealized appreciation
(depreciation) .. 6,249,301 13,371,790 (78,479) 1,079,863 203,578
--------------------------------------------------------------------
Net increase in net assets
resulting from operations 5,821,965 16,015,277 320,080 1,536,534 412,326
--------------------------------------------------------------------
Dividends to shareholders from:*
Net investment income --- --- (472,776) (1,111,479) (413,902)
Realized net gain from
investment transactions --- (1,599,535) (9,889) --- ---
--------------------------------------------------------------------
--- (1,599,535) (482,665) (1,111,479) (413,902)
-------------------------------------------------------------------
Capital share transactions** 37,133,483 42,742,909 910,216 2,048,542 907,668
--------------------------------------------------------------------
Total increase . 42,955,448 57,158,651 747,631 2,473,597 906,092
Net Assets
Beginning of period 61,735,287 43,524,277 11,671,135 24,960,485 10,282,309
--------------------------------------------------------------------
End of period ...... $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
====================================================================
Undistributed net
investment income $--- $6,511 $--- $--- $---
==== ====== ==== ==== ====
*See "Financial Highlights" on pages 50-54.
**Shares issued from sale
of shares .......... 3,945,209 3,125,059 466,132 603,090 243,352
Shares issued from reinvest-
ment of dividends and/or
capital gains
distributions ...... --- 105,331 47,776 101,809 44,248
Shares redeemed ...... (870,169) (365,439) (420,022) (507,544) (190,297)
--------- --------- ------- ------- -------
Increase in outstanding
capital shares ...... 3,075,040 2,864,951 93,886 197,355 97,303
========= ========= ======= ======= =======
Value issued from sale
of shares .......... $47,666,060 $46,616,473 $4,491,826 $6,050,262 $2,259,874
Value issued from reinvest-
ment of dividends and/or
capital gains
distributions ...... --- 1,597,857 460,066 1,014,595 410,904
Value redeemed ....... (10,532,577) (5,471,421) (4,041,676) (5,016,315) (1,763,110)
-------------------------------------------------------------------
Increase in outstanding
capital ............ $37,133,483 $42,742,909 $ 910,216 $2,048,542 $ 907,668
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1994
<TABLE>
<CAPTION>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase in Net Assets -------------------------------------------------------------------
Operations:
Net investment income
(loss) .......... $ (42,753) $ (226,026) $ 323,105 $ 626,494 $ 335,901
Realized net gain (loss)
on investments ... (472,421) 1,570,093 33,900 163,024 (78,030)
Unrealized appreciation
(depreciation) .. 2,475,374 1,574,011 (311,607) (1,533,977) (247,772)
--------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations. 1,960,200 2,918,078 45,398 (744,459) 10,099
--------------------------------------------------------------------
Dividends to shareholders from:*
Net investment income --- --- (323,105) (626,494) (247,980)
Realized net gain
from investment
transactions ..... --- (656,864) (18,818) (253,457) ---
Tax-basis return of
capital .......... --- --- --- --- (87,921)
--------------------------------------------------------------------
--- (656,864) (341,923) (879,951) (335,901)
--------------------------------------------------------------------
Capital share transactions** 47,315,309 33,287,538 5,708,291 18,028,155 3,427,061
--------------------------------------------------------------------
Total increase . 49,275,509 35,548,752 5,411,766 16,403,745 3,101,259

Net Assets
Beginning of period 12,459,778 7,975,525 6,259,369 8,556,740 7,181,050
--------------------------------------------------------------------
End of period ...... $61,735,287 $43,524,277 $11,671,135 $24,960,485 $10,282,309
====================================================================
Undistributed net
investment income $--- $--- $--- $--- $---
==== ==== ==== ==== ====
*See "Financial Highlights" on pages 50-54.
**Shares issued from sale
of shares .......... 4,355,295 2,456,137 708,062 1,770,824 506,618
Shares issued from reinvest-
ment of dividends and/or
capital gains distributions --- 46,641 32,737 74,079 34,499
Shares redeemed ...... (329,843) (93,395) (176,690) (191,170) (185,224)
--------------------------------------------------------------------
Increase in outstanding
capital shares ...... 4,025,452 2,409,383 564,109 1,653,733 355,893
====================================================================
Value issued from sale
of shares .......... $51,194,063 $33,940,272 $7,164,902 $19,289,336 $4,868,350
Value issued from reinvest-
ment of dividends and/or
capital gains distributions --- 656,245 330,864 805,677 330,513
Value redeemed ....... (3,878,754) (1,308,979) (1,787,475) (2,066,858) (1,771,802)
--------------------------------------------------------------------
Increase in outstanding
capital ............ $47,315,309 $33,287,538 $5,708,291 $18,028,155 $3,427,061
====================================================================
</TABLE>
See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $11.99 $11.07 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income (loss).... 0.00 (0.01) .02
Net realized and
unrealized gain
on investments .. .74 .93 1.07
------ ------ ------
Total from investment
operations ....... .74 .92 1.09
------ ------ ------
Less dividends from net
investment income (0.00) (0.00) (0.02)
------ ------ ------
Net asset value,
end of period .... $12.73 $11.99 $11.07
====== ====== ======
Total return ....... 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $104,691 $61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.05% 2.16% 2.21%
Ratio of net investment
income to average
net assets ....... -0.04% -0.12% 0.32%
Portfolio turnover
rate ............. 16.60% 17.31% 23.97%

*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.

See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $14.08 $11.68 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 3.15 2.75 1.79
------ ------ ------
Total from investment
operations ....... 3.15 2.71 1.77
------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.33) (0.31) (0.08)
------ ------ ------
Total distributions (0.33) (0.31) (0.09)
------ ------ ------
Net asset value,
end of period .... $16.90 $14.08 $11.68
====== ====== ======
Total return ....... 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $100,683 $43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.23% 2.34% 2.50%
Ratio of net investment
income to average
net assets ....... 0.01% -0.97% -0.68%
Portfolio turnover
rate ............. 56.30% 69.12% 124.44%

See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $9.84 $10.06 $10.00
----- ------ ------
Income from investment
operations:
Net investment
income .......... 0.39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... (0.13) (0.20) .06
----- ------ ------
Total from investment
operations ....... .26 .15 .24
----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.01) (0.02) (0.00)
----- ------ ------
Total distributions (0.40) (0.37) (0.18)
----- ------ ------
Net asset value,
end of period .... $9.70 $ 9.84 $10.06
===== ====== ======
Total return ....... 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.17% 2.14% 2.15%
Ratio of net investment
income to average
net assets ....... 4.05% 3.41% 3.48%
Portfolio turnover
rate ............. 29.20% 25.90% 39.64%

See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $10.12 $10.53 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... .44 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... .18 (0.28) .53
------ ------ ------
Total from investment
operations ....... .62 .11 .74
------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.13) (0.00)
------ ------ ------
Total distributions (0.44) (0.52) (0.21)
------ ------ ------
Net asset value,
end of period .... $10.30 $10.12 $10.53
====== ====== ======
Total return ....... 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.94% 1.98% 1.94%
Ratio of net investment
income to average
net assets ....... 4.41% 3.62% 3.99%
Portfolio turnover
rate ............. 56.92% 18.93% 140.02%

See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GLOBAL INCOME FUND
For a Share of Capital Stock Outstanding Throughout Each Period:

For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $9.37 $9.68 $10.00
----- ----- ------
Income from investment
operations:
Net investment
income .......... .36 .34 .20
Net realized and
unrealized loss
on investments .. (0.01) (0.31) (0.32)
----- ----- ------
Total from investment
operations ....... .35 .03 (0.12)
----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.36) (0.26) (0.20)
Tax-basis return of
capital.......... (0.00) (0.08) (0.00)
----- ----- ------
Total distributions. (0.36) (0.34) (0.20)
----- ----- ------
Net asset value,
end of period .... $9.36 $9.37 $ 9.68
===== ===== ======
Total return ....... 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.29% 2.24% 2.06%
Ratio of net investment
income to average
net assets ....... 3.87% 3.56% 3.88%
Portfolio turnover
rate ............. 13.33% 34.90% 8.35%

See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995

NOTE 1 -- Significant Accounting Policies

Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Corporation issues five classes of capital shares; each class represents
ownership of a separate mutual fund. Each Fund except Global Income Fund is a
diversified fund. The assets belonging to each Fund are held separately by the
Custodian. The capital shares of each Fund represent a pro rata beneficial
interest in the principal, net income and realized and unrealized capital gains
or losses of its respective investments and other assets. The following is a
summary of significant accounting policies consistently followed by the
Corporation in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.

A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using
pricing systems provided by a major dealer in bonds or by an information
service. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Stocks which are traded over-the-
counter are priced using NASDAQ (National Association of Securities Dealers
Automated Quotations) which provides information on bid and asked or
closing prices quoted by major dealers in such stocks. Securities for
which quotations are not readily available are valued as determined in good
faith in accordance with procedures established by and under the general
supervision of the Corporation's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market. Short-
term debt securities denominated in foreign currencies are valued at
amortized cost in that currency.

B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
4 -- Investment Securities Transactions.

C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.

D. Federal income taxes -- It is the Corporation's policy to distribute all of
its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue Code.
In addition, the Corporation intends to pay distributions as required to
avoid imposition of excise tax. Accordingly, provision has not been made
for Federal income taxes. See Note 5 -- Federal Income Tax Matters.

E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards. Permanent items identified in the period ended March 31,
1995 have been reclassified to additional paid-in capital as follows:

Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Income Gain Capital
-------------- ------------- ----------
Total Return Fund $33,894 $ --- $(33,894)
Global Income Fund --- 7,406 (7,406)

Net investment income, net realized gains and net assets were not affected
by these changes.

NOTE 2 -- Organization

The Corporation was incorporated in Maryland on January 29, 1992 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and registration of
shares under the Securities Act of 1933) until September 21, 1992 (the date of
the initial public offering).

On April 24, 1992, Waddell & Reed, Inc. ("W&R"), the Corporation's
principal distributor and underwriter, purchased for investment 2,000 shares of
each class of the Corporation at their net asset value of $10.00 per share.

The Corporation's organizational expenses in the amount of $162,960 were
advanced to the Corporation by W&R and are an obligation to be paid by it.
These expenses are being amortized and are payable evenly over 60 months
following the date of the initial public offering.

NOTE 3 -- Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company ("WRIMCO"), a wholly-owned
subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO
provides advice and supervises investments for which services it is paid a fee
computed on each Fund's net assets as of the close of business each day at the
following annual rates: Total Return Fund - 0.71% of net assets, Growth Fund -
0.81% of net assets, Limited-Term Bond Fund - 0.56% of net assets, Municipal
Bond Fund - 0.56% of net assets and Global Income Fund - 0.66% of net assets.
The fee is accrued and paid daily.

The Corporation has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the five Funds pays WARSCO a monthly
fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000

The Corporation also pays WARSCO a per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Corporation also reimburses W&R, WRIMCO, and WARSCO for certain out-
of-pocket costs.

The Corporation has adopted a 12b-1 plan under which W&R, principal
underwriter and sole distributor of the Corporation's shares, is compensated in
an amount calculated and payable daily up to 1% annually of each of the Fund's
average daily net assets. This fee consists of two elements: (i) up to 0.75%
may be paid to the Distributor (W&R) for distribution services and distribution
expenses including commissions paid by the Distributor to its sales
representatives and managers and (ii) up to 0.25% may be paid to reimburse the
Distributor for continuing payments made to the Distributor's representatives
and managers, its administrative costs in overseeing these payments, and the
expenses of WARSCO in providing certain personal services to shareholders.
During the period ended March 31, 1995, the Distributor received $1,940,308 in
12b-1 payments. During this same period W&R paid sales commissions of
$1,941,437.

A contingent deferred sales charge may be assessed against a shareholder's
redemption amount and paid to the Distributor, W&R. The purpose of the deferred
sales charge is to compensate the Distributor for the costs incurred by the
Distributor in connection with the sale of a Fund's shares. The amount of the
deferred sales charge will be the following percent of the total amount invested
during a calendar year to acquire the shares or the value of the shares
redeemed, whichever is less. Redemption at any time during the calendar year of
investment and the first full calendar year after the calendar year of
investment, 3%; the second full calendar year, 2%; the third full calendar year,
1%; and thereafter, 0%. All investments made during a calendar year shall be
deemed as a single investment during the calendar year for purposes of
calculating the deferred sales charge. The deferred sales charge will not be
imposed on shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares purchased
during the deferred sales charge period. During the period ended March 31,
1995, the Distributor received $367,416 in deferred sales charges.

The Corporation paid Directors' fees of $6,394.

W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

NOTE 4 -- Investment Securities Transactions

Investment securities transactions for the period ended March 31, 1995 are
summarized as follows:

Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
-----------------------------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $48,637,946$39,435,413$3,217,795$16,344,101$1,144,934
Purchases of U.S. Government
securities --- --- 573,095 --- ---
Purchases of short-term
securities 57,160,445292,534,0465,621,00013,635,00013,488,914
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 13,265,44922,085,332 1,399,01813,577,128 1,796,925
Proceeds from maturities
and sales of U.S.
Government securities --- --- 1,861,541 --- 639,477
Proceeds from maturities
and sales of short-term
securities 53,979,664270,567,4264,708,21014,553,76911,075,073

For Federal income tax purposes, cost of investments owned at March 31,
1995 and the related unrealized appreciation (depreciation) were as follows:

Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $95,173,097 $11,962,038 $2,616,551 $9,345,487
Growth Fund 84,918,966 16,530,744 1,336,408 15,194,336
Limited-Term Bond Fund12,756,721 29,099 334,510 (305,411)
Municipal Bond Fund 27,147,029 490,876 750,978 (260,102)
Global Income Fund 11,061,140 341,065 360,504 (19,439)

NOTE 5 -- Federal Income Tax Matters

For Federal income tax purposes, Growth Fund realized capital gain net
income of $2,636,976, during the year ended March 31, 1995, of which a portion
was paid to shareholders during the year ended March 31, 1995. Remaining
capital gain net income will be distributed to the Fund's shareholders. For
Federal income tax purposes, Total Return Fund, Limited-Term Bond Fund,
Municipal Bond Fund and Global Income Fund realized net capital losses. A
portion of the net capital loss was deferred to the year ending March 31, 1996
(see discussion below). Capital loss carryovers are available to offset future
realized capital gain net income for Federal income tax purposes. Current year
net capital losses and cumulative capital loss carryovers are summarized below:

Net capital
loss for Deferred Available
the year to year for offset
ended ending through March 31,
March 31, March 31, -----------------
1995 1996 2002 2003
-------- -------- -------- --------
Total Return
Fund $659,519 $156,256 $723,114 $503,263
Limited-Term
Bond Fund 74,217 47,672 26,545 26,545
Municipal Bond
Fund 654,808 321,084 333,723 333,723
Global Income
Fund 287,847 24,934 270,669 262,913

It is the policy of each Fund to comply with excise tax distribution
requirements of the Internal Revenue Code (the "Code") Section 4982, which
requires each Fund to measure and distribute annually, if necessary, ordinary
income for the calendar year and net capital gains realized during the twelve-
month period ended October 31. Code regulations permit a Fund to defer, into
its next fiscal year, net capital losses incurred from November 1 to the end of
its fiscal year ("post-October losses").

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Waddell & Reed Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the five mutual funds
comprising Waddell & Reed Funds, Inc.(the "Corporation"), issuer of the
respective five classes of capital shares (Total Return Fund, Growth Fund,
Limited-Term Bond Fund, Municipal Bond Fund and Global Income Fund) at March 31,
1995, the results of its operations for the year then ended and the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Kansas City, Missouri
May 5, 1995

<PAGE>
INCOME TAX INFORMATION

The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares in Growth Fund owned by you on the record dates, will give
you the total amounts to be reported in your Federal income tax return for the
years in which they were received or reinvested.

PER-SHARE AMOUNTS REPORTABLE AS:
----------------------------------------------------------
For Individuals For Corporations
--------------------------- ------------------------------
Long-Term Non- Long-Term
Record Ordinary Non- Capital Qual- Qual- Non- Capital
Date Total Income Taxable Gain ifying ifying Taxable Gain
- --------------------------------------------------------------------------
Growth Fund
12-17-94$0.326 $0.2836 $0.0000 $0.0424 $0.0000 $0.2836$0.0000 $0.0424
------ ------ ------ ------ ------ ------ ----- ------
$0.326 $0.2836 $0.0000 $0.0424 $0.0000 $0.2836$0.0000 $0.0424
====== ====== ====== ====== ====== ====== ===== ======

Dividends are declared and recorded by each Fund on each day the New York Stock
Exchange is open for business. Dividends are paid monthly on the 27th of the
month or on the preceding business day if the 27th is a weekend or holiday.

Exempt Interest Dividends - The exempt interest portion of dividends paid
represents the distribution of state and municipal bond interest and is exempt
from Federal income taxation.

The table below shows the taxability of dividends and long-term capital gains
paid during the fiscal year ended March 31, 1995:

PER-SHARE AMOUNTS REPORTABLE AS:
---------------------------------------------------------
For Individuals For Corporations
--------------------------- ------------------------------
Long-Term Non- Long-Term
Record Ordinary Non- Capital Qual- Qual- Non- Capital
Date Income Taxable Gain ifying ifying Taxable Gain
- --------------------------------------------------------------------------
Limited-Term Bond Fund
April through
March 1995 100.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00%

Global Income Fund
April through
March 1995 100.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00%
Record Exempt Non- Non- Capital
Date Total Interest Exempt Taxable Gain
- -------- --------- -------- ------- ------- --------
Municipal Bond Fund
April through
December
1994 100.00% 96.4873% 3.5127% 0.0000% 0.0000%
January through
March
1995 100.00% 94.9321% 5.0679% 0.0000% 0.0000%

CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.

The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.

Income from Municipal Bond Fund may be subject to the alternative minimum tax.
Shareholders are advised to consult with their tax advisor concerning the tax
treatment of dividends and distributions from all Funds.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
Leslie S. Wright, Birmingham, Alabama

OFFICERS
Keith A. Tucker, President
James C. Cusser, Vice President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
Mark G. Seferovich, Vice President
W. Patrick Sterner, Vice President
John E. Sundeen, Jr., Vice President
Russell E. Thompson, Vice President

To all IRA Planholders:

As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an IRA unless you make a written election not to
have taxes withheld. The election may be made by submitting forms provided by
Waddell & Reed, Inc. which can be obtained from your Waddell & Reed
representative or by submitting Internal Revenue Service form W-4P. Once made,
an election can be revoked by providing written notice to Waddell & Reed, Inc.
If you elect not to have tax withheld you may be required to make payments of
estimated tax. Penalties may be imposed by the IRS if withholding and estimated
tax payments are not adequate.

<PAGE>
WADDELL & REED FUNDS, INC.

Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Global Income Fund

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

FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(913) 236-1303

WRR3000A(3-95)
printed on recycled paper