WADDELL & REED FUNDS INC, N-30D, 1995-11-28

WADDELL & REED FUNDS INC
N-30D, 1995-11-28

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<PAGE>

WADDELL & REED
FUNDS, INC.
Total Return Fund
Growth Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
Municipal Bond Fund

SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 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
- -----------------------------------------------------------------
SEPTEMBER 30, 1995

Dear Shareholder:

As President of your Fund, I would like to thank you for your continued
confidence in our products and services. We strive to provide the best service
possible to our shareholders: from the Fund's manager, to Waddell & Reed's
customer service representatives, to your personal account representative and
the Waddell & Reed office nearest you.

While personalized service has become increasingly rare in the investment
industry, we remain committed to locally based account representatives who
provide the personal service you need. They are ready to assist you through
regular reviews of your financial plan and to answer any financial questions you
may have. Your account representative is anxious to help you plan for your
retirement, fund a child's education or make plans for other long-term financial
goals.

We want to help you open the door to a better financial future. We will
continue to help you meet your specific financial needs through quality
investment products and personalized service that makes the investment process
more convenient and accessible for you.

Should you have any questions about your account or other financial issues,
contact your personal account representative or your local Waddell & Reed
office. They're ready to help you make the most of your financial future.

Respectfully,
Keith A. Tucker
President

<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 Six Months ended September 30, 1995
- -------------------------------------------
NET ASSET VALUE ON
9/30/95 $15.22
3/31/95 12.73
------
CHANGE PER SHARE $ 2.49
======

Past performance is not necessarily indicative of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-95 22.58% 25.58%
Period from 9-21-92*
through 9-30-95 14.72% 14.97%

*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 September 30, 1995, Total Return Fund had net assets totaling $145,765,923
invested in a diversified portfolio of:

93.54% Common Stocks
6.46% Cash and Cash Equivalents

As a shareholder of Total Return Fund, for every $100 you had invested on
September 30, 1995, your Fund owned:

Basic Industries Stocks $38.06
Technological Stocks 32.34
Consumer Stocks 19.19
Cash and Cash Equivalents 6.46
Financial Stocks 3.95

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
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS
Aerospace - 1.37%
Boeing Company (The) ................... 21,200 $ 1,446,900
Sundstrand Corporation ................. 8,600 556,850
Total ................................. 2,003,750

Airlines - 2.86%
AMR Corporation* ....................... 13,400 966,475
Southwest Airlines Co. ................. 82,650 2,086,913
USAir Group, Inc.* ..................... 97,200 1,117,800
Total ................................. 4,171,188

Automotive - 5.24%
Chrysler Corporation ................... 36,800 1,950,400
Dana Corporation ....................... 25,400 733,425
Eaton Corporation ...................... 16,700 885,100
Ford Motor Company ..................... 63,500 1,976,437
General Motors Corporation ............. 33,400 1,565,625
Magna International Group,
Inc., Class A ......................... 11,700 527,963
Total ................................. 7,638,950

Banks and Savings and Loans - 2.46%
Citicorp ............................... 25,100 1,775,825
First Bank Systems, Inc. ............... 16,700 803,687
First Interstate Bancorp ............... 10,000 1,007,500
Total ................................. 3,587,012

Beverages - 1.60%
Pepsi-Cola Puerto Rico Bottling Co.,
Class B* .............................. 48,500 630,500
PepsiCo, Inc. .......................... 33,400 1,703,400
Total ................................. 2,333,900

Biotechnology and Medical Services - 1.54%
Medtronic, Inc. ........................ 26,800 1,440,500
Ventritex, Inc.* ....................... 37,000 800,125
Total ................................. 2,240,625

Building - 5.52%
Armstrong World Industries, Inc. ....... 30,100 1,670,550
Centex Corporation ..................... 55,800 1,618,200
Georgia-Pacific Corporation ............ 14,200 1,242,500
Pulte Corporation ...................... 61,800 1,753,575
Temple-Inland Inc. ..................... 11,700 623,025
Weyerhaeuser Company ................... 25,100 1,145,188
Total ................................. 8,053,038

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS(Continued)
Chemicals Major - 6.51%
Air Products & Chemicals, Inc. ......... 38,400 $ 2,001,600
Albemarle Corporation .................. 30,300 568,125
Dow Chemical Company (The) ............. 8,400 625,800
du Pont (E.I.) de Nemours and Company .. 33,400 2,296,250
PPG Industries, Inc. ................... 41,800 1,943,700
Praxair, Inc. .......................... 33,400 893,450
Union Carbide Corporation .............. 29,200 1,160,700
Total ................................. 9,489,625

Chemicals Specialty and Miscellaneous Technology - 3.86%
Crompton & Knowles Corporation ......... 43,500 647,063
Geon Company (The) ..................... 40,700 1,037,850
IMC Global, Inc. ....................... 12,800 811,200
Polaroid Corporation ................... 32,500 1,291,875
WMX Technologies, Inc. ................. 20,000 570,000
Xerox Corporation ...................... 9,400 1,263,125
Total ................................. 5,621,113

Computers and Office Equipment - 4.05%
Computer Associates International, Inc. 2,500 528,125
Discreet Logic Inc.* ................... 5,000 273,750
General Motors Corporation, Class E .... 36,100 1,642,550
International Business Machines
Corporation ........................... 12,000 1,132,500
Microsoft Corporation* ................. 10,000 905,620
Oracle Systems Corporation* ............ 37,000 1,417,544
Total ................................. 5,900,089

Consumer Electronics and Appliances - 1.28%
Harman International Industries,
Incorporated .......................... 7,980 391,020
Whirlpool Corporation .................. 25,600 1,478,400
Total ................................. 1,869,420

Drugs and Hospital Supply - 1.02%
Baxter International Inc. .............. 17,900 736,137
Merck & Co., Inc. ...................... 13,400 750,400
Total ................................. 1,486,537

Electrical Equipment - 2.41%
Emerson Electric Co. ................... 13,400 958,100
General Electric Company ............... 40,100 2,556,375
Total ................................. 3,514,475

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS(Continued)
Electronics - 12.02%
AMP Incorporated ....................... 36,800 $ 1,416,800
Analog Devices, Inc.* .................. 78,900 2,731,912
Applied Materials, Inc.* ............... 28,900 2,962,250
cisco Systems, Inc.* ................... 33,400 2,306,671
Intel Corporation ...................... 51,100 3,075,556
LSI Logic Corporation* ................. 54,400 3,141,600
Linear Technology Corporation .......... 18,400 764,741
Molex Incorporated, Class A ............ 33,750 1,126,406
Total ................................. 17,525,936

Engineering and Construction - 0.84%
Fluor Corporation ...................... 13,400 750,400
Foster Wheeler Corporation ............. 13,400 474,025
Total ................................. 1,224,425

Financial - 1.49%
Federal Home Loan Mortgage Corporation . 16,700 1,154,387
Federal National Mortgage Association .. 9,900 1,024,650
Total ................................. 2,179,037

Food and Related - 0.76%
CPC International Inc. ................. 16,700 1,102,200

Hospital Management - 1.54%
Columbia/HCA Healthcare Corporation .... 12,500 607,812
Tenet Healthcare Corporation* ........... 33,400 580,325
United HealthCare Corporation .......... 21,700 1,060,588
Total ................................. 2,248,725

Household Products - 3.07%
Colgate-Palmolive Company .............. 20,000 1,332,500
Gillette Company (The) ................. 33,400 1,590,675
Procter & Gamble Company (The) ......... 20,100 1,547,700
Total ................................. 4,470,875

Leisure Time - 2.15%
Walt Disney Company (The) .............. 23,400 1,342,575
McDonald's Corporation ................. 46,800 1,790,100
Total ................................. 3,132,675

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS(Continued)
Machinery - 6.13%
Case Corporation ....................... 41,500 $ 1,525,125
Caterpillar Inc. ....................... 53,500 3,042,813
Cooper Industries, Inc. ................ 16,200 571,050
Deere & Company ........................ 22,900 1,863,487
Ingersoll-Rand Company ................. 13,400 502,500
Parker Hannifin Corporation ............ 20,000 760,000
TRINOVA Corporation .................... 20,000 675,000
Total ................................. 8,939,975

Multi-Industry - 2.14%
ITT Corporation ........................ 25,100 3,112,400

Paper - 2.31%
Bowater Incorporated ................... 15,400 718,025
International Paper Company ............ 40,100 1,684,200
Union Camp Corporation ................. 16,700 962,338
Total ................................. 3,364,563

Railroads - 2.89%
CSX Corporation ........................ 11,700 984,262
Conrail Inc. ........................... 20,000 1,375,000
Norfolk Southern Corporation ........... 10,000 747,500
Union Pacific Corporation .............. 16,700 1,106,375
Total ................................. 4,213,137

Retailing - 8.33%
Circuit City Stores, Inc. .............. 53,500 1,691,938
Dayton-Hudson Corporation .............. 15,500 1,176,062
Gap, Inc. (The) ........................ 23,400 842,400
General Nutrition, Incorporated* ....... 15,000 678,750
Home Depot, Inc. (The) ................. 25,533 1,018,128
Limited, Inc. (The) .................... 25,100 476,900
May Department Stores Company (The) .... 33,400 1,461,250
Nordstrom, Inc. ........................ 12,500 522,650
OfficeMax, Inc.* ....................... 29,250 709,313
Penney (J.C.) Company, Inc. ............ 22,600 1,121,525
Tommy Hilfiger Corporation* ............ 49,400 1,605,500
Wal-Mart Stores, Inc. .................. 33,400 830,825
Total ................................. 12,135,241

Services, Consumer and Business - 0.46%
Block (H & R), Inc. .................... 17,500 665,000

Steel - 0.31%
Nucor Corporation ...................... 10,000 447,500

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS(Continued)
Telecommunications - 8.48%
ADC Telecommunications, Inc.* .......... 4,000 $ 182,500
AT&T Corporation ....................... 16,700 1,098,025
BellSouth Corporation .................. 10,500 767,812
General Instrument Corporation* ........ 26,200 786,000
General Motors Corporation, Class H .... 5,900 241,900
MCI Communications Corporation ......... 62,700 1,634,087
MFS Communications Company, Inc.* ...... 12,500 548,438
Motorola, Inc. ......................... 56,800 4,338,100
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 66,800 1,632,392
Vanguard Cellular Systems, Inc.,
Class A* .............................. 44,500 1,134,750
Total ................................. 12,364,004

Tire and Rubber - 0.90%
Goodyear Tire & Rubber Company (The) ... 33,400 1,315,125

TOTAL COMMON STOCKS - 93.54% $136,350,540
(Cost: $105,949,292)

TOTAL SHORT-TERM SECURITIES - 9.44% $ 13,752,853
(Cost: $13,752,853)

TOTAL INVESTMENT SECURITIES - 102.98% $150,103,393
(Cost: $119,702,145)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.98%) (4,337,470)

NET ASSETS - 100.00% $145,765,923

See Notes to Schedules of Investments on page 45.

<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 Six Months Ended September 30, 1995
- ----------------------------------------
NET ASSET VALUE ON
9/30/95 $20.19
3/31/95 16.90
------
CHANGE PER SHARE $ 3.29
======

Past performance is not necessarily indicative of future results.

TOTAL RETURN HISTORY

Average Annual Total Return
----------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-95 34.77% 37.77%
Period from 9-21-92*
through 9-30-95 28.07% 28.27%

*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 September 30, 1995, Growth Fund had net assets totaling $146,236,105 invested
in a diversified portfolio of:

72.98% Common Stocks
27.02% Cash and Cash Equivalents

As a shareholder of Growth Fund, for every $100 you had invested on September
30, 1995, your Fund owned:

$50.71 Technological Stocks
27.02 Cash and Cash Equivalents
19.58 Consumer Stocks
2.08 Basic Industries Stocks
0.61 Financial Stock

- -----------------------------------------------------------------
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
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS
Automotive - 1.57%
Gentex Corporation* .................... 50,000 $ 1,200,000
Superior Industries International, Inc. 40,700 1,093,812
Total ................................. 2,293,812

Biotechnology and Medical Services - 9.84%
Daig Corporation* ...................... 20,000 477,500
EP Technologies, Inc.* ................. 100,000 1,431,200
OmniCare, Inc. ......................... 68,800 2,683,200
Owen Healthcare, Inc.* ................. 50,000 815,600
Pyxis Corporation* .................... 60,000 1,158,720
St. Jude Medical, Inc.* ................ 20,000 1,266,240
STERIS Corporation* .................... 70,000 2,948,750
Tecnol Medical Products, Inc.* ......... 80,600 1,531,400
Ventritex, Inc.* ....................... 60,000 1,297,500
VidaMed, Inc.* ......................... 100,000 775,000
Total ................................. 14,385,110

Chemicals Specialty and Miscellaneous
Technology - 0.40%
Oakley, Inc.* .......................... 19,600 580,650

Computers and Office Equipment - 24.45%
Adobe Systems Incorporated ............. 60,000 3,116,220
America Online, Inc.* .................. 80,000 5,514,960
Broderbund Software, Inc.* ............. 34,100 2,597,977
Cerner Corporation* .................... 60,000 2,040,000
Electronic Arts Inc.* .................. 24,000 880,488
HCIA Inc.* ............................. 70,000 1,750,000
Health Management Systems, Inc.* ...... 30,000 832,500
Learning Company (The)* ................ 37,600 2,270,100
Macromedia, Inc.* ..................... 30,100 1,719,463
MapInfo Corporation* ................... 50,000 1,031,250
Medic Computer Systems, Inc.* .......... 25,000 1,290,625
Microsoft Corporation* ................. 10,000 905,620
MicroTouch Systems, Inc.* .............. 65,000 1,080,625
Minnesota Educational Computing
Corporation* .......................... 60,000 1,605,000
Parametric Technology Corporation* ..... 60,000 3,705,000
PHAMIS, Inc.* .......................... 45,000 1,223,415
Summit Medical Systems, Inc.* .......... 45,000 663,750
Synopsys, Inc.* ........................ 60,000 1,860,000
Wonderware Corporation* ............... 43,000 1,677,000
Total ................................. 35,763,993

Drugs and Hospital Supply - 3.33%
Forest Laboratories, Inc.* ............. 50,000 2,225,000
Watson Pharmaceuticals Inc.* ........... 64,500 2,652,562
Total ................................. 4,877,562

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS (Continued)
Electronics - 7.76%
Atmel Corporation* .................... 20,000 $ 676,240
Cascade Communications Corp.* .......... 40,000 1,960,000
Digital Link Corporation* ............. 41,600 1,081,600
LSI Logic Corporation* ................. 40,000 2,310,000
Micron Technology, Inc. ................ 50,000 3,975,000
Silicon Valley Group, Inc.* ............ 35,000 1,349,670
Total ................................. 11,352,510

Financial - 0.61%
Regional Acceptance Corporation* ....... 75,000 890,625

Hospital Management - 7.39%
CRA Managed Care, Inc.* ................ 20,000 432,500
Inphynet Medical Management Inc.* ...... 25,000 475,000
PacifiCare Health Systems, Inc.* ....... 26,000 1,764,750
Quorum Health Group, Inc.* ............. 50,000 1,125,000
Sierra Health Services, Inc.* ......... 64,000 1,600,000
Tenet Healthcare Corporation* .......... 60,000 1,042,500
United HealthCare Corporation .......... 50,000 2,443,750
Vencor, Incorporated* .................. 60,000 1,920,000
Total ................................. 10,803,500

Retailing - 6.33%
Books-A-Million, Inc.* ................. 50,000 890,600
Hollywood Entertainment Corporation* ... 100,000 2,143,700
Movie Gallery, Inc.* ................... 45,000 1,923,750
Tiffany & Co. .......................... 55,000 2,303,125
Tractor Supply Company* ............... 50,000 975,000
Williams-Sonoma, Inc.* ................ 48,750 1,023,750
Total ................................. 9,259,925

Services, Consumer and Business - 4.10%
Block (H & R), Inc. .................... 50,000 1,900,000
Fusion Systems Corporation* ............ 45,000 1,305,000
Stewart Enterprises, Inc., Class A ..... 77,400 2,786,400
Total ................................. 5,991,400

Telecommunications - 4.93%
ADC Telecommunications, Inc.* .......... 40,000 1,825,000
Ascend Communications, Inc.* ........... 40,000 3,197,480
MFS Communications Company, Inc.* ...... 50,000 2,193,750
Total ................................. 7,216,230

Textiles and Apparel - 1.76%
Department 56, Inc.* ................... 55,000 2,571,250

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS (Continued)
Trucking - 0.51%
Heartland Express, Inc.* ............... 25,000 $ 740,625

TOTAL COMMON STOCKS - 72.98% $106,727,192
(Cost: $71,633,436)

Principal
Amount in
Thousands

SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.79%
U.S. Bancorp,
Master Note ........................... $1,164 1,164,000

Financial - 14.16%
B.A.T. Capital Corp.,
5.75%, 10-27-95 ....................... 2,845 2,833,185
BHP Finance (U.S.A.) Inc.:
5.75%, 10-4-95 ........................ 3,480 3,478,332
5.75%, 10-13-95 ....................... 3,000 2,994,250
Bell Atlantic Financial Services Inc.,
5.73%, 10-6-95 ........................ 2,085 2,083,341
PHH Corp.,
5.72%, 10-5-95 ........................ 2,340 2,338,513
Safeco Credit Company, Inc.,
5.74%, 10-13-95 ....................... 2,000 1,996,173
Textron Financial Corp.,
5.87%, 10-27-95 ....................... 5,000 4,978,803
Total ................................. 20,702,597

Food and Related - 4.67%
ConAgra, Inc.,
5.82%, 10-13-95 ....................... 2,970 2,964,238
General Mills, Inc.,
Master Note ........................... 1,180 1,180,000
Sara Lee Corporation,
Master Note ........................... 2,684 2,684,000
Total ................................. 6,828,238

Retailing - 3.41%
K Mart Corporation,
5.9%, 10-24-95 ........................ 5,000 4,981,153

Telecommunications - 4.23%
GTE Corporation,
5.84%, 10-31-95 ....................... 1,330 1,323,528
NYNEX Corporation,
5.81%, 10-23-95 ....................... 4,875 4,857,691
Total ................................. 6,181,219

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1995

Value

TOTAL SHORT-TERM SECURITIES - 27.26% $ 39,857,207
(Cost: $39,857,207)

TOTAL INVESTMENT SECURITIES - 100.24% $146,584,399
(Cost: $111,490,643)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.24%) (348,294)

NET ASSETS - 100.00% $146,236,105

See Notes to Schedules of Investments on page 45.

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

PORTFOLIO STRATEGY:
Normally at least 80% in OBJECTIVE: Long-term appreciation
foreign securities. Not of capital with current
more than 75% in securities income as a secondary
in any one country. consideration.

Maximum of 15% in currency STRATEGY: Invests in securities
exchange contracts (common or preferred stocks
and/or debt securities) issued
Cash Reserves by companies or governments of any
nation, including the United States.
Securities are selected for their
potential to provide long-term growth.
The Fund provides an opportunity to
invest in foreign companies in many
different industries. (May purchase
securities subject to repurchase
agreements. May invest in certain
options, futures and other hedging
techniques.) International Growth Fund
(formerly Global Income Fund) changed
its name and investment objective
effective April 20, 1995.

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

FOUNDED: 1992

SCHEDULED DIVIDEND FREQUENCY: ANNUALLY

<PAGE>
PERFORMANCE SUMMARY

PER SHARE DATA
For the Six Months Ended September 30, 1995
- ----------------------------------------

DIVIDEND PAID $0.02
=====

NET ASSET VALUE ON
9/30/95 $10.33
3/31/95 9.36
------
CHANGE PER SHARE $ 0.97
======

Past performance is not necessarily indicative of future results.

TOTAL RETURN HISTORY

Average Annual Total Return
---------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-95 10.14% 13.14%
Period from 9-21-92*
through 9-30-95 4.06% 4.36%

*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 September 30, 1995, international growth Fund had net assets totaling
$16,485,264 invested in a diversified portfolio of:

Basic Techno-
IndustriesConsumer logicalFinancial Total
Germany $11.31 $1.31 $12.62
Sweden 3.35 3.26 3.93 10.54
Finland 5.80 2.00 7.80
United Kingdom1.56 2.55 2.54 6.65
Hong Kong 3.70 2.11 5.81
Mexico 3.45 1.93 5.38
Netherlands 4.16 4.16
Norway 3.85 3.85
France 2.35 1.24 3.59
Japan 1.99 1.53 3.52
Spain 2.75 2.75
Korea 2.61 2.61
Australia 1.97 1.97
Indonesia 1.83 1.83
Philippines 1.75 1.75
Denmark 1.37 1.37
Malaysia 0.65 0.65
Total $39.84 $13.75 $14.01 $9.25 $76.85

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

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
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS
Australia - 1.97%
Westpac Banking Corp. .................. 80,000 $ 324,087

Denmark - 1.37%
Copenhagen Airports A/S ................ 3,000 225,940

Finland - 7.80%
Enso-Gutzeit Oy ........................ 20,000 169,293
Kymmene Oy ............................. 6,700 206,800
Metsa-Serla Oy, Series B ............... 4,500 178,881
Nokia Corporation, Series K ............ 4,700 329,701
Tampella OY* ........................... 125,000 400,435
Total ................................. 1,285,110

France - 3.59%
Lapeyre S.A. ........................... 2,800 147,309
Pechiney International ................. 10,000 239,285
UNION DES ASSURANCES FEDERALES ........ 2,000 205,159
Total ................................. 591,753

Germany - 11.31%
GILDEMEISTER Aktiengesellschaft* ....... 4,000 466,093
Herlitz International Trading AG ....... 1,500 578,417
Mannesman AG ........................... 2,500 820,561
Total ................................. 1,865,071

Hong Kong - 5.81%
First Pacific Company Limited .......... 300,000 320,111
Guangdong Corporation Limited .......... 484,000 289,522
HSBC Holdings Plc ....................... 25,000 347,595
Total ................................. 957,228

Indonesia - 1.83%
Pt United Tractors -F .................. 150,000 301,258

Japan - 3.52%
Aloka Co. Ltd. ......................... 7,000 88,335
Hitachi ................................ 30,000 327,091
Kyocera Corporation .................... 2,000 164,353
Total ................................. 579,779

Korea - 2.61%
Samsung Electronics Co., Ltd., GDR (A)* 6,000 430,500

Malaysia - 0.65%
Asiatic Development Berhad ............. 100,000 107,882

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS (Continued)
Mexico - 5.38%
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B* ................ 75,000 282,132
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS ..................... 25,000 $ 287,500
Telefonos de Mexico, S.A. de C.V.,
ADR ................................... 10,000 317,500
Total ................................. 887,132

Netherlands - 4.16%
Philips Electronics N.V., NY Shares .... 8,000 390,000
Vendex International N.V., BDR ......... 10,000 296,158
Total ................................. 686,158

Norway - 3.85%
Kvaerner a.s., Series A ................ 15,000 635,401

Philippines - 1.75%
Universal Robina Corporation ........... 600,000 287,853

Spain - 2.75%
Telefonica de Espana, S.A. ............. 33,000 453,737

Sweden - 10.54%
ASTRA AB, Class A ...................... 15,000 538,026
Kinnevik AB, Series B .................. 6,000 183,167
Skandia Enskilda Banken, Class A ....... 100,000 648,085
AB Volvo .............................. 15,000 368,066
Total ................................. 1,737,344

United Kingdom - 6.65%
BTR PLC ................................ 50,000 257,853
Next plc ............................... 38,500 246,770
United Biscuits (Holdings) Public
Limited Co. ........................... 40,000 173,745
Vodafone Group Plc ..................... 100,000 418,567
Total ................................. 1,096,935

TOTAL COMMON STOCKS - 75.54% $12,453,168
(Cost: $11,444,221)

PREFERRED STOCK - 1.31%
Germany
Hornbach-Baumarkt AG ................... 200 $ 215,550
(Cost: $258,741)

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

OTHER GOVERNMENT SECURITIES
Australia - 0.98%
Queensland Treasury Corporation,
12.0%, 5-15-97 (B) .................... $A200 $ 161,442

Sweden - 3.03%
Kingdom of Sweden,
10.75%, 1-23-97 (B) ................... SEK3,400 498,460

TOTAL OTHER GOVERNMENT SECURITIES - 4.01% $ 659,902
(Cost: $615,881)

UNITED STATES GOVERNMENT SECURITIES - 6.14%
United States Treasury,
7.25%, 8-31-96 ........................ $1,000 $ 1,012,660
(Cost: $1,019,632)

Face
Amount in
Thousands

UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS - (0.37%)
Danish Krone, 3-25-96 (B) .............. DKr1,700 $ (60,315)

Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.81%
U.S. Bancorp,
Master Note ........................... $ 629 629,000

Food and Related - 5.63%
General Mills, Inc.,
Master Note............................ 530 530,000
Sara Lee Corporation,
Master Note ........................... 398 398,000
Total ................................. 928,000

Retailing - 1.87%
Rite Aid Corp.,
5.86%, 11-15-95 ....................... 310 307,729

TOTAL SHORT-TERM SECURITIES - 11.31% $ 1,864,729
(Cost: $1,864,729)

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1995

Value

TOTAL INVESTMENT SECURITIES - 97.94% $16,145,694
(Cost: $15,203,204)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.06% 339,570

NET ASSETS - 100.00% $16,485,264

See Notes to Schedules of Investments on page 45.

<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
ASSET STRATEGY FUND

Stocks 40% OBJECTIVE: To seek high total return with
(can range from 10-60%) reduced risk over the
long-term.
Bonds 40%
(can range from 20-60%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 20% instruments, both in the
(can range from 0-70%) United States and abroad, which are
allocated in a mix that varies based on
the current outlook for the different
markets. (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 Asset Strategy
Fund from time to time.

FOUNDED: 1995

SCHEDULED DIVIDEND FREQUENCY: QUARTERLY(March, June, September, and
December)

<PAGE>
PERFORMANCE SUMMARY

PER SHARE DATA
For the Six Months ended September 30, 1995
- -------------------------------------------

DIVIDEND PAID $0.05
=====

NET ASSET VALUE ON
9/30/95 $10.40
4/20/95 10.00
------
CHANGE PER SHARE $ 0.40
======

Past performance is not necessarily indicative of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
Period from 4-20-95*
through 9-30-95 1.51% 4.51%

*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 September 30, 1995, Asset Strategy Fund had net assets totaling $6,792,081
invested in a diversified portfolio of:

41.94% Cash and Cash Equivalents
25.96% Common Stocks
24.09% United States Government Securities
8.01% Corporate Debt Securities

As a shareholder of Asset Strategy Fund, for every $100 you had invested on
September 30, 1995, your Fund owned:

Cash and Cash Equivalents $41.94
United States Government Securities 24.09
Consumer Stocks 9.98
Corporate Debt Securities 8.01
Technological Stocks 7.02
Basic Industries Stocks 5.90
Financial Stocks 2.20
Energy and Energy-Related Stocks 0.86

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

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
ASSET STRATEGY FUND
SEPTEMBER 30, 1995

Shares Value

COMMON STOCKS
Automotive - 0.92%
Ford Motor Company ..................... 2,000 $ 62,250

Banks and Savings and Loans - 2.20%
Compass Bancshares, Inc. ............... 2,700 83,700
CoreStates Financial Corp. ............. 1,800 65,925
Total.................................. 149,625

Beverages - 0.62%
Buenos Aires Embotelladora S.A., ADR ... 1,800 41,850

Biotechnology and Medical Services - 0.71%
Genentech, Inc.* ........................ 1,000 48,625

Chemicals Specialty and Miscellaneous Technology - 1.89%
Crompton & Knowles Corporation ......... 3,300 49,088
Geon Company (The) ...................... 3,100 79,050
Total.................................. 128,138

Consumer Electronics and Appliances - 2.12%
Samsung Electronics Co., Ltd., GDR (A)* . 2,000 143,500
Samsung Electronics Co., Ltd.,
GDR, New (A)*.......................... 6 418
Total.................................. 143,918

Domestic Oil - 0.86%
Enron Oil & Gas Company ................ 2,700 58,725

Electronics - 4.42%
Burr-Brown Corporation* ................ 8,000 300,000

Engineering and Construction - 1.47%
Empresas ICA Sociedad Controladora, S.A.
de C.V., ADS .......................... 8,700 100,050

Hospital Management - 3.83%
LTC Properties, Inc. ................... 6,300 91,350
PacifiCare Health Systems, Inc.* ........ 1,700 115,388
United HealthCare Corporation .......... 1,100 53,762
Total.................................. 260,500

Machinery - 0.70%
Keystone International, Inc. ........... 2,200 47,300

Paper - 0.80%
James River Corporation of Virginia .... 1,700 54,400

Railroads - 2.01%
Kansas City Southern Industries, Inc. .. 3,000 136,500

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1995

Shares Value
COMMON STOCKS (Continued)
Retailing - 2.39%
Melville Corporation ................... 4,700 $ 162,150

Services, Consumer and Business - 1.02%
Dun & Bradstreet Corporation (The) ...... 1,200 69,450

TOTAL COMMON STOCKS - 25.96% $1,763,481
(Cost: $1,661,837)

Principal
Amount in
Thousands

CORPORATE DEBT SECURITIES
Electronics - 3.00%
VLSI Technology, Inc.,
8.25%, 10-1-2005 ...................... $200 204,000

Leisure Time - 5.01%
Time Warner Inc.,
8.75%, 1-10-2015 ...................... 100 104,500
Viacom International, Inc.,
9.125%, 8-15-99 ....................... 225 235,688
Total ................................. 340,188

TOTAL CORPORATE DEBT SECURITIES - 8.01% $ 544,188
(Cost: $540,158)

UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.125%, 5-31-97 ....................... 400 401,564
5.875%, 6-30-2000 ..................... 400 397,812
9.125%, 5-15-2018 ..................... 650 836,465

TOTAL UNITED STATES GOVERNMENT
SECURITIES - 24.09% $1,635,841
(Cost: $1,596,956)

SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.22%
U.S. Bancorp,
Master Note ........................... 15 15,000

Consumer Electronics and Appliances - 2.93%
Whirlpool Corporation,
5.75%, 10-27-95 ....................... 200 199,169

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

SHORT-TERM SECURITIES (Continued)
Financial - 10.27%
B.A.T. Capital Corp.,
5.75%, 10-27-95 ....................... $200 $ 199,169
Dana Credit Corp.,
5.87%, 10-23-95 ....................... 200 199,283
GTE Finance Corporation,
5.83%, 10-23-95 ....................... 200 199,287
Merrill Lynch & Co., Inc.,
5.75%, 10-19-95 ....................... 100 99,713
Total ................................. 697,452

Food and Related - 6.92%
General Mills, Inc.,
Master Note ........................... 232 232,000
Sara Lee Corporation,
Master Note ........................... 238 238,000
Total ................................. 470,000

Public Utilities - Electric - 2.93%
Dominion Resources, Inc.,
5.83%, 10-31-95 ....................... 200 199,028

Railroad - 3.67%
Burlington Northern Railroad Co.,
5.88%, 10-18-95 ....................... 250 249,306

Retailing - 5.28%
K Mart Corporation,
5.9%, 10-16-95 ........................ 200 199,508
Rite Aid Corp.,
5.86%, 11-15-95 ....................... 160 158,828
Total ................................. 358,336

Telecommunications - 2.94%
BellSouth Telecommunications Inc.,
5.71%, 10-11-95 ....................... 200 199,683

Tobacco - 3.52%
Philip Morris Capital Corp.,
5.72%, 10-20-95 ....................... 240 239,276

TOTAL SHORT-TERM SECURITIES - 38.68% $2,627,250
(Cost: $2,627,250)

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1995

Value

TOTAL INVESTMENT SECURITIES - 96.74% $6,570,760
(Cost: $6,426,201)

CASH AND OTHER ASSETS, NET OF
LIABILITIES - 3.26% 221,321

NET ASSETS - 100.00% $6,792,081

See Notes to Schedules of Investments on page 45.

<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>
PERFORMANCE SUMMARY

PER SHARE DATA
For the Six Months Ended September 30, 1995
- -------------------------------------------

DIVIDENDS PAID $ 0.21
======

NET ASSET VALUE ON
9/30/95 $10.03
3/31/95 9.70
------
CHANGE PER SHARE $ 0.33
======

Past performance is not necessarily indicative of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-95 5.93% 8.93%
Period from 9-21-92*
through 9-30-95 3.70% 4.00%

*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 September 30, 1995, Limited-Term Bond Fund had net assets totaling
$12,864,532 invested in a diversified portfolio of:

94.98% Bonds
5.02% Cash and Cash Equivalents

As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
September 30, 1995, your Fund owned:

Corporate Bonds $63.11
U.S. Government Securities 31.87
Cash and Cash Equivalents 5.02

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

<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES
Airlines - 3.39%
Federal Express Corporation,
10.0%, 9-1-98 ......................... $400 $ 436,384

Banks and Savings and Loans - 5.12%
First Chicago Corporation,
9.875%, 7-1-99 ........................ 302 333,384
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 300 324,690
Total ................................. 658,074

Chemicals Specialty and Miscellaneous
Technology - 2.83%
Polaroid Corporation,
8.0%, 3-15-99 ......................... 350 363,608

Domestic Oil - 3.51%
BP America Inc.,
9.5%, 1-1-98 .......................... 225 240,318
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 211,300
Total ................................. 451,618

Drugs and Hospital Supply - 2.44%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 300 313,545

Financial - 18.88%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ 300 318,960
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 300 311,220
Chrysler Financial Corporation,
8.125%, 12-15-96 ...................... 535 544,518
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 123 121,683
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 50,037
7.75%, 1-15-99 ........................ 500 515,555
Household Finance Corporation,
9.0%, 9-28-2001 ....................... 285 313,318
United States Leasing International, Inc.,
8.75%, 5-1-96 ......................... 250 254,005
Total ................................. 2,429,296

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

CORPORATE DEBT SECURITIES (Continued)
Food and Related - 1.95%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ $236 $ 250,361

Insurance - 2.76%
CIGNA Corporation,
8.0%, 9-1-96 .......................... 350 354,823

International Oil - 3.01%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 360 387,677

Public Utilities - Electric - 0.77%
Connecticut Light & Power Company (The),
6.5%, 1-1-98 .......................... 100 99,727

Public Utilities - Pipelines - 2.45%
Tennessee Gas Pipeline Company,
9.25%, 5-15-96 ........................ 310 315,261

Railroads - 2.37%
CSX Transportation,
8.4%, 8-1-96 .......................... 300 305,187

Retailing - 7.40%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 100 105,878
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 300 321,366
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 525,205
Total ................................. 952,449

Telecommunications - 3.66%
GTE Corporation,
8.85%, 3-1-98 ......................... 350 368,844
Southwestern Bell Telephone Company,
8.3%, 6-1-96 .......................... 100 101,388
Total ................................. 470,232

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 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 $ 330,125

TOTAL CORPORATE DEBT SECURITIES - 63.11% $ 8,118,367
(Cost: $8,010,822)

UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 59 59,131
5.5%, 4-15-2013 ....................... 100 98,781
5.5%, 9-15-2013 ....................... 100 99,093
6.4%, 2-15-2018 ....................... 250 243,905
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 420 411,816
8.0%, 2-1-2008 ........................ 296 303,919
6.0%, 1-1-2009 ........................ 349 338,488
6.0%, 2-1-2009 ........................ 352 341,004
7.0%, 9-25-2020 ....................... 56 56,611
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 269 266,316
7.0%, 7-15-2010 ....................... 487 490,249
United States Treasury:
5.625%, 8-31-97 ....................... 400 398,376
5.375%, 5-31-98 ....................... 300 296,061
5.5%, 4-15-2000........................ 300 294,141
6.25%, 2-15-2003 ...................... 400 402,248

TOTAL UNITED STATES GOVERNMENT SECURITIES - 31.87% $ 4,100,139
(Cost: $4,151,873)

TOTAL SHORT-TERM SECURITIES - 3.75 $ 483,000
(Cost: $483,000)

TOTAL INVESTMENT SECURITIES - 98.73% $12,701,506
(Cost: $12,645,695)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.27% 163,026

NET ASSETS - 100.00% $12,864,532

See Notes to Schedules of Investments on page 45.

<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 Six Months Ended September 30, 1995
- ----------------------------------------

DIVIDENDS PAID $0.22
=====

NET ASSET VALUE ON
9/30/95 $10.48
3/31/95 10.30
------
CHANGE PER SHARE $ 0.18
======

Past performance is not necessarily indicative of future results.

TOTAL RETURN HISTORY

Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-95 6.63% 9.63%
Period from 9-21-92*
through 9-30-95 5.79% 6.09%

*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 September 30, 1995, Municipal Bond Fund had net assets totaling $29,460,442
invested in a diversified portfolio.

As a shareholder of Municipal Bond Fund, for every $100 you had invested on
September 30, 1995, your Fund owned:

Other Municipal Bonds $16.22
Hospital Revenue Bonds 14.88
Industrial Revenue Bonds 13.28
Transportation Revenue Bonds 11.27
Resource Recovery Revenue Bonds 8.43
Public Power Revenue Bonds 6.65
Housing Revenue Bonds 6.04
Cash and Cash Equivalents 5.64
Special Tax Bonds 5.10
Water & Sewer Revenue Bonds 4.82
Airport Revenue Bonds 4.32
Student Loan Bonds 3.35

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

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS
ARIZONA - 0.91%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 268,987

ARKANSAS - 1.30%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 384,000

CALIFORNIA - 10.60%
Sacramento County Sanitation Districts
Financing Authority, 1993 Revenue Bonds,
5.125%, 12-1-2013 ..................... 1,275 1,166,625
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (C) .................... 2,000 1,077,500
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 470,000
Certificates of Participation, City of Upland,
California to San Antonio Community Hospital,
1993 Series,
5.0%, 1-1-2018 ........................ 500 407,500
Total ................................. 3,121,625

COLORADO - 3.96%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1994A,
7.4%, 11-15-2004 ...................... 1,000 1,102,500
Series 1991A,
0.0%, 11-15-2003 ...................... 100 63,125
Total ................................. 1,165,625

FLORIDA - 4.52%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... 965 908,306
Mid-Bay Bridge Authority (Florida),
Revenue Refunding Bonds, Series 1993A,
6.0%, 10-1-2013 ....................... 300 288,375

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 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 $ 134,375
Total ................................. 1,331,056

GEORGIA - 3.36%
Hospital Authority of Albany-Dougherty
County, Georgia, Revenue Bonds (Phoebe
Putney Memorial Hospital), Series 1993,
5.7%, 9-1-2013 ........................ 1,000 991,250

GUAM - 0.84%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 248,125

ILLINOIS - 5.27%
Illinois Health Facilities Authority,
Revenue Bonds, Series 1993 (OSF
Healthcare System),
5.75%, 11-15-2007 ..................... 700 695,625
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 468,750
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 388,500
Total ................................. 1,552,875

INDIANA - 2.98%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 500 487,500
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 391,500
Total ................................. 879,000

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
IOWA - 1.16%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ $ 340 $ 342,125

KANSAS - 0.78%
City of Lawrence, Kansas,
Multifamily Housing Development
Revenue Refunding Bonds (Brandon Woods,
Inc. Project), Series 1993,
6.625%, 4-1-2012 ...................... 225 228,938

LOUISIANA - 1.43%
Parish of St. Charles, State of Louisiana:
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... 200 211,750
Solid Waste Disposal Revenue Bonds
(Louisiana Power & Light Company Project),
Series 1992-A,
7.0%, 12-1-2022 ....................... 200 208,250
Total ................................. 420,000

MARYLAND - 9.21%
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A:
6.3%, 7-1-2016 ........................ 700 700,000
6.2%, 7-1-2010 ........................ 665 673,312
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 892,500

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
MARYLAND (Continued)
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... $ 500 $ 446,250
Total ................................. 2,712,062

MICHIGAN - 3.02%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 890,000

MISSOURI - 0.86%
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 254,063

NEBRASKA - 1.70%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ 500 500,000

NEW MEXICO - 5.10%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 1,501,875

NEW YORK - 6.99%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1995,
6.25%, 4-1-2014 ....................... 1,400 1,405,250
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1993,
5.25%, 4-1-2013 ....................... 500 451,875
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 203,000
Total ................................. 2,060,125

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
NORTH CAROLINA - 3.63%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds,
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ $1,000 $ 1,070,000

OHIO - 2.78%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 820,312

OKLAHOMA - 2.46%
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 506,250
6.6%, 7-1-2014 ........................ 200 217,250
Total ................................. 723,500

PUERTO RICO - 4.97%
Puerto Rico Highway and Transportation
Authority, Highway Revenue Bonds
(Series W),
5.5%, 7-1-2008 ........................ 1,500 1,464,375

TENNESSEE - 3.55%
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,046,250

TEXAS - 6.45%
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 1,058,750
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 733,000
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1991 (American Airlines, Inc.
Project),
7.0%, 12-1-2011 ....................... 100 107,125
Total ................................. 1,898,875

See Notes to Schedules of Investments on page 45.

<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1995

Principal
Amount in
Thousands Value

MUNICIPAL BONDS (Continued)
VIRGINIA - 3.35%
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 $ 986,250

WASHINGTON - 3.18%
Housing Authority of the County of King,
Pooled Housing Refunding Revenue Bonds,
Series 1995A,
6.8%, 3-1-2026 ........................ 500 504,375
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds,
Series 1989A,
6.0%, 7-1-2017 ........................ 450 431,438
Total ................................. 935,813

TOTAL MUNICIPAL BONDS - 94.36% $27,797,106
(Cost: $27,360,900)

TOTAL SHORT-TERM SECURITIES - 3.95% $ 1,164,000
(Cost: $1,164,000)

TOTAL INVESTMENT SECURITIES - 98.31% $28,961,106
(Cost: $28,524,900)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.69% 499,336

NET ASSETS - 100.00% $29,460,442

See Notes to Schedules of Investments on page 45.

<PAGE>
WADDELL & REED FUNDS, INC.
SEPTEMBER 30, 1995

Notes to Schedules of Investments

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

(A) As of September 30, 1995, the following restricted security was owned by
the International Growth Fund:

Acquisition Market
Security Date Shares Cost Value
-------- ----------- ------ ------ -------
Samsung Electronics Co.,
Ltd., GDR 4/24/95 4,000 $184,400 $287,000
5/17/95 500 25,925 35,875
7/26/95 1,500 92,063 107,625
-------- --------
$302,388 $430,500
-------- --------

The total market value of restricted securities represents approximately
2.61% of the total net assets at September 30, 1995.

As of September 30, 1995, the following restricted securities were owned by
the Asset Strategy Fund:
Acquisition Market
Security Date Shares Cost Value
-------- ----------- ------ ------ -------
Samsung Electronics Co.,
Ltd., GDR 7/06/95 500 $ 27,375 $ 35,875
8/21/95 1,500 87,750 107,625
Samsung Electronics Co.,
Ltd., GDR, New 8/17/95 6 351 419
-------- --------
$115,476 $143,919
======== ========

The total market value of restricted securities represents approximately
2.12% of the total net assets at September 30, 1995.

(B) Principal amounts are denominated in the indicated foreign currency where
applicable ($A - Australian Dollar, SEK - Swedish Krona, DKr - Danish
Krone).

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
SEPTEMBER 30, 1995 Total International
Return Growth Growth
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $150,103,393$146,584,399 $16,145,694
Cash .............. 7,633 6,079 4,741
Receivables:
Fund shares sold .. 585,782 626,978 94,525
Dividends and interest 186,909 45,145 79,633
Investment securities
sold ............ --- --- 334,500
Unamortized organization
expenses (Note 2) . 13,037 13,037 13,037
Prepaid registration fees
(Note 2) --- --- ---
Prepaid insurance premium 2,712 2,712 720
Other assets --- --- ---
------------------------ -----------
Total assets 150,899,466 147,278,350 16,672,850
Liabilities ------------ ----------- -----------
Payable for investment
securities purchased 4,655,328 414,575 102,735
Payable for Fund shares
redeemed .......... 328,444 475,110 52,136
Accrued service fee . 81,233 78,675 5,535
Organization expenses
payable ........... 13,037 13,037 13,037
Accrued transfer agency
and dividend disbursing 20,110 23,314 2,654
Accrued distribution
fee .............. 5,981 5,998 675
Prepaid registration
expenses payable .. --- --- ---
Dividends payable .. --- --- ---
Accrued accounting
services fee ...... 3,333 3,333 833
Other .............. 26,077 28,203 9,981
------------------------ -----------
Total liabilities 5,133,543 1,042,245 187,586
------------------------ -----------
Total net assets $145,765,923$146,236,105 $16,485,264
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 95,777$ 72,424 $ 15,954
Additional paid-in
capital ......... 115,628,848 107,169,582 15,548,383
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income
(loss) .......... (73,308) (140,763) 170,268
Accumulated undistributed
net realized gain (loss)
on investments .. (286,642) 4,041,106 (192,945)
Net unrealized appreciation
of investments at end
of period ....... 30,401,248 35,093,756 943,604
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $145,765,923$146,236,105 $16,485,264
======================== ===========
Net asset value, redemption
and offering price
per share ........... $15.22 $20.19 $10.33
====== ====== =====
Capital shares outstanding 9,577,682 7,242,377 1,595,380
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.

<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995 Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $6,570,760 $12,701,506 $28,961,106
Cash .............. 3,324 4,349 4,029
Receivables:
Fund shares sold .. 189,628 18,356 219,747
Dividends and interest 49,038 219,215 469,290
Investment securities
sold ............ --- --- ---
Unamortized organization
expenses (Note 2) . 696 13,037 13,037
Prepaid registration fees 13,801 --- ---
Prepaid insurance premium 128 720 1,168
Other assets --- --- 487
------------------------ -----------
Total assets 6,827,375 12,957,183 29,668,864
Liabilities ------------ ----------- -----------
Payable for investment
securities purchased --- --- ---
Payable for Fund shares
redeemed .......... 10,295 61,234 157,966
Accrued service fee . 2,663 7,127 16,342
Organization expenses
payable ........... 696 13,037 13,037
Accrued transfer agency
and dividend disbursing 994 2,547 3,680
Accrued distribution
fee .............. 277 529 1,205
Prepaid registration
expenses payable .. 13,801 --- ---
Dividends payable .. --- 4,114 9,318
Accrued accounting
services fee ...... --- 833 1,667
Other .............. 6,568 3,230 5,207
------------------------ -----------
Total liabilities 35,294 92,651 208,422
------------------------ -----------
Total net assets $6,792,081 $12,864,532 $29,460,442
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 6,528 $ 12,830 $ 28,124
Additional paid-in
capital ......... 6,631,159 12,813,202 29,874,418
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income
(loss) .......... 8,602 --- ---
Accumulated undistributed
net realized gain (loss)
on investments .. 1,233 (17,311) (878,306)
Net unrealized appreciation
of investments at end
of period ...... 144,559 55,811 436,206
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $6,792,081 $12,864,532 $29,460,442
======================== ===========
Net asset value, redemption
and offering price
per share ........... $10.40 $10.03 $10.48
====== ====== =====
Capital shares outstanding 652,849 1,283,048 2,812,428
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.

<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended SEPTEMBER 30, 1995
Total International
Return Growth Growth
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income:
Interest .......... $ 253,734 $ 1,105,878 $ 166,551
Dividends ......... 941,899 52,832 90,851
----------- ----------- ----------
Total income .... 1,195,633 1,158,710 257,402
----------- ----------- ----------
Expenses (Notes 2 and 3):
Distribution fees . 474,605 457,879 50,987
Investment management fee 445,481 489,734 53,630
Service fee ....... 154,756 147,797 10,087
Transfer agency and
dividend disbursing 102,987 118,454 12,424
Registration fees.. 18,179 19,488 11,420
Accounting services fee 20,000 20,000 5,000
Custodian fees .... 6,066 5,161 16,513
Audit fees ........ 7,712 6,389 5,233
Amortization of organization
expenses ........ 3,259 3,259 3,259
Amortization of prepaid
registration fees --- --- ---
Legal fees ........ 3,230 3,041 1,641
Other ............. 32,666 34,782 6,354
------------------------ -----------
Total expenses .. 1,268,941 1,305,984 176,548
------------------------ -----------
Net investment income
(loss) ........ (73,308) (147,274) 80,854
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain
on securities...... 598,151 2,234,613 126,697
Realized net gain
from foreign currency
transactions ...... --- --- 112,447
Realized net loss on
forward currency and
futures contracts
closed ............ --- --- (51,607)
------------------------ -----------
Realized net gain
(loss) on investments 598,151 2,234,613 187,537
------------------------ -----------
Unrealized appreciation
in value of securities
during the period . 21,050,337 19,899,420 1,022,244
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- (8,187)
Unrealized appreciation on
forward currency
contracts during the
period ............ --- --- 26,656
------------------------ -----------
Unrealized appreciation 21,050,337 19,899,420 1,040,713
------------------------ -----------
Net gain on
investments .... 21,648,488 22,134,033 1,228,250
------------------------ -----------
Net increase in net assets
resulting from
operations ..... $21,575,180 $21,986,759 $1,309,104
======================== ===========

See notes to financial statements.

<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended SEPTEMBER 30, 1995
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income:
Interest .......... $ 59,802 $413,764 $ 873,380
Dividends ......... 6,360 --- ---
------------------------ -----------
Total income .... 66,162 413,764 873,380
------------------------ -----------
Expenses (Notes 2 and 3):
Distribution fees . 9,413 48,609 107,841
Investment management fee 9,766 35,989 79,887
Service fee ....... 3,422 14,512 32,886
Transfer agency and
dividend disbursing 2,363 14,634 20,808
Registration fees.. 411 10,524 11,661
Accounting services fee --- 5,000 10,000
Custodian fees .... 1,390 1,284 2,771
Audit fees ........ 300 5,234 5,275
Amortization of organization
expenses ........ 63 3,259 3,259
Amortization of prepaid
registration fees 9,858 --- ---
Legal fees ........ 59 359 839
Other ............. 2 3,162 5,063
------------------------ -----------
Total expenses .. 37,047 142,566 280,290
------------------------ -----------
Net investment income
(loss) ........ 29,115 271,198 593,090
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain
on securities...... 1,233 56,906 95,669
Realized net gain
from foreign currency
transactions ...... --- --- ---
Realized net loss on
forward currency and
futures contracts
closed ............ --- --- (320,625)
------------------------ -----------
Realized net gain
(loss) on investments 1,233 56,906 (224,956)
------------------------ -----------
Unrealized appreciation
in value of securities
during the period . 144,559 361,222 696,308
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- ---
Unrealized appreciation on
forward currency
contracts during the
period ............ --- --- ---
------------------------ -----------
Unrealized appreciation 144,559 361,222 696,308
------------------------ -----------
Net gain on
investments .... 145,792 418,128 471,352
------------------------ -----------
Net increase in net assets
resulting from
operations ..... $174,907 $689,326 $1,064,442
======================== ===========

See notes to financial statements.

<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended SEPTEMBER 30, 1995
Total International
Return Growth Growth
Fund Fund Fund
Increase in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ (73,308)$ (147,274)$ 80,854
Realized net gain (loss)
on investments ... 598,151 2,234,613 187,537
Unrealized
appreciation .... 21,050,337 19,899,420 1,040,713
------------------------ -----------
Net increase in net assets
resulting from
operations...... 21,575,180 21,986,759 1,309,104
------------------------ -----------
Dividends to shareholders from
net investment income* --- --- (23,033)
------------------------ -----------
Capital share
transactions** .... 19,500,008 23,566,418 4,010,792
------------------------ -----------
Total increase . 41,075,188 45,553,177 5,296,863

Net Assets
Beginning of period 104,690,735 100,682,928 11,188,401
------------------------ -----------
End of period ...... $145,765,923$146,236,105 $16,485,264
======================== ===========
Undistributed net
investment income $(73,308) $(140,763) $170,268
======== ====== =====
*See "Financial Highlights" on pages 53-58.
**Shares issued from sale
of shares .......... 1,882,072 1,701,935 507,258
Shares issued from reinvest-
ment of dividends .. --- --- 2,800
Shares redeemed ...... (530,069) (416,483) (109,796)
------------------------ -----------
Increase in outstanding
capital shares ...... 1,352,003 1,285,452 400,262
======================== ===========
Value issued from sale
of shares .......... $27,057,875 $31,279,566 $5,064,231
Value issued from reinvest-
ment of dividends .. --- --- 26,516
Value redeemed ....... (7,557,867) (7,713,148) (1,079,955)
------------------------ -----------
Increase in outstanding
capital ............ $19,500,008 $23,566,418 $4,010,792
======================== ===========
See notes to financial statements.

<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended SEPTEMBER 30, 1995
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Increase in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ 29,115 $ 271,198 $ 593,090
Realized net gain (loss)
on investments ... 1,233 56,906 (224,956)
Unrealized
appreciation .... 144,559 361,222 696,308
------------------------ -----------
Net increase in net assets
resulting from operations174,907 689,326 1,064,442
------------------------ -----------
Dividends to shareholders from
net investment income* (20,513) (271,198) (593,090)
------------------------ -----------
Capital share
transactions**..... 6,637,687 27,638 1,555,008
------------------------ -----------
Total increase . 6,792,081 445,766 2,026,360

Net Assets
Beginning of period --- 12,418,766 27,434,082
------------------------ -----------
End of period ...... $6,792,081 $12,864,532 $29,460,442
======================== ===========
Undistributed net
investment income $8,602 $ --- $ ---
====== ====== ======
*See "Financial Highlights" on pages 53-58.
**Shares issued from sale
of shares .......... 676,866 251,528 387,588
Shares issued from reinvest-
ment of dividends .. 1,974 26,249 52,082
Shares redeemed ...... (25,991) (274,931) (291,156)
------------------------ -----------
Increase in outstanding
capital shares ...... 652,849 2,846 148,514
======================== ===========
Value issued from sale
of shares .......... $6,881,251 $2,501,408 $4,033,444
Value issued from reinvest-
ment of dividends ... 20,522 261,300 540,851
Value redeemed ....... (264,086) (2,735,070) (3,019,287)
------------------------ -----------
Increase in outstanding
capital ............ $6,637,687 $ 27,638 $1,555,008
======================== ===========
See notes to financial statements.

<PAGE>
<TABLE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1995
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 53-58.
**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>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
For a Share of Capital Stock Outstanding Throughout Each Period:

For the For the
six months For the fiscal period
ended year ended March 31, ended
September 30,---------------------- March 31,
1995 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $12.73 $11.99 $11.07 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment loss (0.01) 0.00 (0.01) .02
Net realized and
unrealized gain
on investments .. 2.50 .74 .93 1.07
------ ------ ------ ------
Total from investment
operations ....... 2.49 .74 .92 1.09
------ ------ ------ ------
Less dividends from net
investment income 0.00 (0.00) (0.00) (0.02)
------ ------ ------ ------
Net asset value,
end of period .... $15.22 $12.73 $11.99 $11.07
====== ====== ====== ======
Total return ....... 19.56% 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) ..........$145,766 $104,691$61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.01%** 2.05% 2.16% 2.21%
Ratio of net investment
income to average
net assets ....... -0.12%** -0.04% -0.12% 0.32%
Portfolio turnover
rate ............. 15.05%** 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.
**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
six months For the fiscal period
ended year ended March 31, ended
September 30,---------------------- March 31,
1995 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $16.90 $14.08 $11.68 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.01) 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 3.30 3.15 2.75 1.79
------ ------ ------ ------
Total from investment
operations ....... 3.29 3.15 2.71 1.77
------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.00) (0.33) (0.31) (0.08)
------ ------ ------ ------
Total distributions (0.00) (0.33) (0.31) (0.09)
------ ------ ------ ------
Net asset value,
end of period .... $20.19 $16.90 $14.08 $11.68
====== ====== ====== ======
Total return ....... 19.47% 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) .........$146,236 $100,683$43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.15%** 2.23% 2.34% 2.50%
Ratio of net investment
income to average
net assets ....... -0.24%** 0.01% -0.97% -0.68%
Portfolio turnover
rate .............. 26.99%** 56.30% 69.12% 124.44%

<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
six months For the fiscal period
ended year ended March 31, ended
September 30,---------------------- March 31,
1995 1995 1994 1993**
------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.36 $9.37 $9.68 $10.00
------ ----- ----- ------
Income from investment
operations:
Net investment
income .......... 0.06 .36 .34 .20
Net realized and
unrealized gain (loss)
on investments .. 0.93 (0.01) (0.31) (0.32)
------ ----- ----- ------
Total from investment
operations ....... 0.99 .35 .03 (0.12)
------ ----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.02) (0.36) (0.26) (0.20)
Tax-basis return of
capital.......... (0.00) (0.00) (0.08) (0.00)
------ ----- ----- ------
Total distributions. (0.02) (0.36) (0.34) (0.20)
------ ----- ----- ------
Net asset value,
end of period .... $10.33 $9.36 $9.37 $ 9.68
====== ===== ===== ======
Total return ....... 10.63% 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) .........$16,485 $11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.61%*** 2.29% 2.24% 2.06%
Ratio of net investment
income to average
net assets ....... 1.19%*** 3.87% 3.56% 3.88%
Portfolio turnover
rate ............. 144.11%*** 13.33% 34.90% 8.35%
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**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.
***Annualized.
See notes to financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
period
from
April 20,
1995
through
September
30, 1995*
---------
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment
income .......... 0.06
Net realized and
unrealized gain
on investments... 0.39
------
Total from investment
operations ........ 0.45
Less dividends from
net investment
income........... (0.05)
------
Net asset value,
end of period ..... $10.40
======
Total return ....... 4.51%
Net assets, end of
period (000
omitted) ......... $6,792
Ratio of expenses
to average net
assets ............ 2.95%
Ratio of net investment
income to average net
assets ............ 2.32%
Portfolio
turnover rate ..... 0.54%

*The Fund's inception date is January 31, 1995; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per-share data and ratios are for a capital share
outstanding for the period from April 20, 1995 (initial public offering)
through September 30, 1995. Ratios and the portfolio turnover rate have
been annualized.

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
six months For the fiscal period
ended year ended March 31, ended
September 30,---------------------- March 31,
1995 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $ 9.70 $9.84 $10.06 $10.00
------ ----- ------ ------
Income from investment
operations:
Net investment
income .......... 0.21 0.39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... 0.33 (0.13) (0.20) .06
------ ----- ------ ------
Total from investment
operations ....... 0.54 .26 .15 .24
------ ----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.21) (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.00) (0.01) (0.02) (0.00)
------ ----- ------ ------
Total distributions (0.21) (0.40) (0.37) (0.18)
------ ----- ------ ------
Net asset value,
end of period .... $10.03 $9.70 $ 9.84 $10.06
====== ===== ====== ======
Total return ....... 5.57% 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) .........$12,865 $12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.21%** 2.17% 2.14% 2.15%
Ratio of net investment
income to average
net assets ........ 4.21%** 4.05% 3.41% 3.48%
Portfolio turnover
rate ............. 28.82%** 29.20% 25.90% 39.64%

<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
six months For the fiscal period
ended year ended March 31, ended
September 30,---------------------- March 31,
1995 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.30 $10.12 $10.53 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.22 .44 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... 0.18 .18 (0.28) .53
------ ------ ------ ------
Total from investment
operations ....... 0.40 .62 .11 .74
------ ------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.22) (0.44) (0.39) (0.21)
Distribution from
capital gains ... 0.00 (0.00) (0.13) (0.00)
------ ------ ------ ------
Total distributions (0.22) (0.44) (0.52) (0.21)
------ ------ ------ ------
Net asset value,
end of period .... $10.48 $10.30 $10.12 $10.53
====== ====== ====== ======
Total return ....... 3.90% 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) .........$29,460 $27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.96%** 1.94% 1.98% 1.94%
Ratio of net investment
income to average
net assets ....... 4.15%** 4.41% 3.62% 3.99%
Portfolio turnover
rate ............. 24.56%** 56.92% 18.93% 140.02%

<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995

Note 1 - Significant Accounting Policies

Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Corporation issues six classes of capital shares; each class
represents ownership of a separate mutual 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.

F. Futures -- See Note 6 -- Futures.

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). The original Corporation consisted of five mutual
funds - Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund (formerly known as Global Income Fund.)

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 original 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 the
original mutual funds. These expenses are being amortized and are payable
evenly over 60 months following the date of the initial public offering.

Asset Strategy Fund was incorporated in Maryland on January 31, 1995 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 April 20, 1995
(the date of the initial public offering).

Asset Strategy Fund had prepaid registration fees in the amount of $23,659
which 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 12
months.

Asset Strategy Fund's organizational expenses in the amount of $759 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, International Growth Fund - 0.81% of net assets, Asset
Strategy Fund - 0.81% of net assets, Limited-Term Bond Fund - 0.56% of net
assets, and Municipal Bond Fund - 0.56% 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 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 September 30, 1995, the Distributor received $1,512,774
in 12b-1 payments. During this same period W&R paid sales commissions of
$1,421,157.

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 September 30,
1995, the Distributor received $269,296 in deferred sales charges.

The Corporation paid Directors' fees of $5,139.

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 September 30, 1995
are summarized as follows:

Total Internationl
Return Growth Growth
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $25,283,451$ 34,825,505$13,437,158
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 37,284,590189,888,47113,909,035
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 8,868,54011,430,027 7,809,647
Proceeds from maturities
and sales of U.S.
Government securities --- --- 481,973
Proceeds from maturities
and sales of short-term
securities 29,798,000189,878,00015,335,138

Asset Limited- Municipal
Strategy Term Bond
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $2,205,050$1,260,528$3,859,685
Purchases of U.S. Government
securities 1,597,406 916,830 ---
Purchases of short-term
securities 8,971,001 3,256,000 6,204,029
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 4,073 1,196,345 3,270,591
Proceeds from maturities
and sales of U.S.
Government securities --- 538,738 ---
Proceeds from maturities
and sales of short-term
securities 6,375,135 3,810,000 5,571,383

For Federal income tax purposes, cost of investments owned at September 30,
1995 and the related unrealized appreciation (depreciation) were as follows:

Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $119,707,568 $31,026,300 $630,475 $30,395,825
Growth Fund 111,490,643 37,310,068 2,216,312 35,093,756
International Growth
Fund 15,203,204 1,411,880 409,075 1,002,805
Asset Strategy Fund 6,426,201 156,119 11,560 144,559
Limited-Term Bond Fund12,645,695 136,909 81,098 55,811
Municipal Bond Fund 28,524,900 891,044 454,838 436,206

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 International Growth 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. Fiscal year
1995 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
International Growth
Fund 287,847 24,934 270,669 262,913

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"). Post-October losses incurred were as follows: Total Return
Fund -- $156,256; Limited-Term Bond Fund -- $47,672; Municipal Bond Fund --
$321,084; and International Growth Fund -- $24,934.

NOTE 6 -- Futures

Upon entering into a futures contract, the Fund is required to deposit, in
a segregated account, an amount of cash or U.S. Treasury Bills equal to a
varying specified percentage of the contract amount. This amount is known as
the initial margin. Subsequent payments ("variation margins") are made or
received by the Fund each day, dependent on the daily fluctuations in the value
of the underlying debt security or index. These changes in the variation
margins are recorded by the Fund as unrealized gains or losses. Upon the
closing of the contracts, the cumulative net change in the variation margin is
recorded as realized gain or loss.

<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 six mutual funds
comprising Waddell & Reed Funds, Inc. (the "Corporation"), issuer of the
respective six classes of capital shares (Total Return Fund, Growth Fund,
International Growth Fund, Asset Strategy Fund, Limited-Term Bond Fund and
Municipal Bond Fund) at September 30, 1995, the results of its operations for
the six months then ended for the Total Return Fund, Growth Fund, International
Growth Fund, Limited-Term Bond Fund and Municipal Bond Fund and for the period
from April 20, 1995 to September 30, 1995 for the Asset Strategy Fund 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
September 30, 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
November 3, 1995

<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
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
James B. Judd, Kansas City, Missouri
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Eleanor B. Schwartz, 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
James D. Wineland, Vice President
Mark L. Yockey, 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.

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WADDELL & REED FUNDS, INC.

Total Return Fund
Growth Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
Municipal Bond Fund

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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

Our INTERNET address is:
http://www.waddell.com

WRR3000SA(9-95)
printed on recycled paper