DST SYSTEMS INC, DEF 14A, 1998-03-31

DST SYSTEMS INC
DEF 14A, 1998-03-31
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

DST Systems, Inc.
...........................................................................
(Name of Registrant as Specified In Its Charter)

...........................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant}

Payment of Filing Fee (Check the Appropriate Box):

[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:
.................................................................
2) Aggregate number of securities to which transaction applies:
.................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
.................................................................
4) Proposed maximum aggregate value of transaction:
.................................................................
5) Total fee paid:
.................................................................

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
.................................................................
2) Form, Schedule or Registration Statement No.:
.................................................................
3) Filing Party:
.................................................................
4) Date Filed:
.................................................................

<PAGE>
[DST LOGO]
333 West 11th Street
Kansas City, Missouri 64105

DST SYSTEMS, INC.

NOTICE AND PROXY STATEMENT

for

The Annual Meeting of Stockholders

Tuesday, May 12, 1998

YOUR VOTE IS IMPORTANT!

Please mark, date and sign the enclosed Proxy or Instruction Card
and promptly return it in the enclosed envelope.

MAILING OF THIS NOTICE AND PROXY STATEMENT, AND THE ACCOMPANYING PROXY OR
INSTRUCTION CARD AND 1997 ANNUAL REPORT, COMMENCED ON OR ABOUT MARCH 31, 1998.

<PAGE>

DST SYSTEMS, INC.
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105

PROXY STATEMENT
AND
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 12, 1998

You are hereby notified of and cordially invited to attend the Annual
Meeting of Stockholders of DST Systems, Inc., a Delaware corporation ("DST"), to
be held at the Muehlebach Tower, Truman-A Room, Kansas City Marriott Downtown,
200 West 12th Street (12th Street and Wyandotte), Kansas City, Missouri, at
10:30 a.m., Central Time, on Tuesday, May 12, 1998, to consider and vote upon
the following matters:

1. Election of two directors; and

2. Such other matters as may properly be brought before the Annual Meeting or
any adjournment thereof.

The Board of Directors has set the close of business on March 17, 1998
as the record date for determining which stockholders are entitled to notice of
and to vote at this meeting or any adjournment thereof.

It is important that your shares be represented at the meeting. A Proxy
Card is enclosed for those of you who hold shares directly. If you are a
participant in The Employee Stock Ownership Plan and Trust Agreement of DST
Systems, Inc., an Instruction Card is enclosed to permit you to direct the vote
of shares allocated to you under that Plan. Please date the card, sign it and
promptly return it in the enclosed envelope, which requires no postage if mailed
in the United States. Alternatively, you may cast your votes electronically as
described on the enclosed card.

If you own shares registered in the name of a broker, you should
receive a card from that broker permitting you to direct the broker to vote
those shares.

Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to participate in the
Annual Meeting of Stockholders should contact DST's Corporate Secretary at the
above address, (816) 435-4636. To provide DST sufficient time to arrange for
reasonable assistance, please submit all such requests by May 1, 1998.

By Order of the Board of Directors,
/s/ Robert C. Canfield
Robert C. Canfield
Senior Vice President, General Counsel
and Secretary

The date of this Notice is March 31, 1998.

<PAGE>

DST SYSTEMS, INC.
333 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105

PROXY STATEMENT

CONTENTS

Page

Voting 1

Principal Stockholders and
Stockholdings of Management 4

Proposal - Election of Two Directors 7

The Board of Directors 8

Executive Compensation 10

Other Matters 19

<PAGE>

PROXY STATEMENT

This statement is being mailed on or about March 31, 1998, to all
stockholders of record at the close of business on March 17, 1998, the record
date ("Record Date") for the determination of stockholders entitled to vote at
the Annual Meeting of Stockholders of DST Systems, Inc. ("DST") to be held at
10:30 a.m. Central Time, on Tuesday, May 12, 1998, at the Muehlebach Tower,
Truman-A Room, Kansas City Marriott Downtown, 200 West 12th Street (12th Street
and Wyandotte), Kansas City, Missouri ("Annual Meeting"). This statement is
furnished in connection with the solicitation by the Board of Directors of DST
("DST Board") of your proxy or instructions to vote on the proposal to be
considered at the Annual Meeting and is accompanied by both the Annual Report to
stockholders of DST for the year ended December 31, 1997, containing certain
financial information, and by a Proxy Card or an Instruction Card.

VOTING

PROPOSAL. At the Annual Meeting, the DST Board intends to present the
election of two directors to the stockholders for their consideration and vote.
The DST Board knows of no other matters that will be presented or voted on at
the Annual Meeting. Stockholders do not have any dissenters' rights of appraisal
in connection with the election of two directors.

GENERAL VOTING RULES. Only the holders of record of DST's common stock,
par value $0.01 per share (the "DST Common Stock"), at the close of business on
the Record Date are entitled to notice of and to vote at the Annual Meeting. The
DST Common Stock is DST's only class of voting securities outstanding. On the
Record Date, DST had outstanding 48,936,953 shares of DST Common Stock.

The Amended and Restated By-laws of DST (the "By-laws") entitle each
stockholder to cast one vote for each share of DST Common Stock held by such
stockholder on the Record Date on all matters to be voted on at the Annual
Meeting other than the election of directors.

In order for any of the proposals to be approved at the Annual Meeting,
a quorum of DST stockholders must be present at the meeting, either in person or
through a proxy, regardless of whether such stockholders vote their shares. The
holders of a majority of the shares of DST Common Stock outstanding on the
Record Date constitute a quorum. With respect to any proposal other than the
election of directors, the DST stockholders present at the meeting must vote a
majority of their shares for the proposal.

Stockholders may vote cumulatively for directors. In other words, the
By-laws entitle each stockholder to cast a number of votes equal to the number
of shares of DST Common Stock held by such stockholder on the Record Date
multiplied by the number of directors to be elected, and the stockholder may
cast all such votes for a single nominee or distribute them between the nominees
as the stockholder chooses. The directors are elected by a plurality of the
shares voted by the stockholders. The plurality is determined by reference to
the number of votes for each director nominee, and where, as here, there are two
vacancies for director, the two nominees with the highest number of affirmative
votes are elected.

TABULATION OF VOTES. The DST Board has appointed three inspectors to
certify the votes. The percentage of shares that have been affirmatively voted
for a proposal other than the election of directors is determined by dividing
the affirmative votes by the total of the number of shares voted for the
proposal, the number of shares voted against the proposal, and the number of
shares abstained from voting on the proposal. A stockholder may abstain from
voting on any proposal other than the election of directors, and shares for
which the holders abstain from voting are not considered to be votes
affirmatively cast. In other words, abstaining on a proposal will have the
effect of a vote against a proposal. With regard to the election of directors,
votes may be cast in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect.

HOW STOCKHOLDERS VOTE. Stockholders may hold DST Common Stock in their
own names, through allocations to the stockholders' accounts under The Employee
Stock Ownership Plan and Trust Agreement of DST Systems, Inc.
(the "DST ESOP"), or through a broker, and may vote such stock as follows:

DST COMMON STOCK HELD IN STOCKHOLDER'S NAME. Stockholders who hold DST
Common Stock in their own names may only vote their shares of DST Common Stock
if they or their proxies are present at the Annual Meeting. Stockholders may
appoint as their proxy the Proxy Committee, which consists of officers of DST
whose names are listed on the Proxy Card. The Proxy Committee will vote all
shares of DST Common Stock for which it is the proxy as specified by the
stockholders on the Proxy Cards. A stockholder desiring to name as proxy someone
other than the Proxy Committee may do so by crossing out the names of the Proxy
Committee members on the Proxy Card and inserting the full name of such other
person or persons (but no more than two). In that case, the stockholder must
sign the Proxy Card and deliver it to the person named, and the person named
must be present and vote at the Annual Meeting.

If a properly executed and unrevoked Proxy Card solicited hereunder
does not specify how the shares of DST Common Stock represented thereby are to
be voted, the Proxy Committee intends to vote such shares for the election as
directors of the persons nominated by the DST Board ("Board Nominees") and in
accordance with the discretion of the Proxy Committee upon such other matters as
may properly come before the Annual Meeting. This Proxy Statement solicits, and
the Proxy Card grants, discretionary authority to the Proxy Committee to vote
cumulatively for directors by, for instance, casting all its votes for a single
Board Nominee, but the Proxy Committee does not intend to do so unless other
persons are properly nominated and such a vote appears necessary to assure that
a Board Nominee is elected.

A stockholder may revoke a Proxy Card with a later-dated, properly
executed Proxy Card or other writing delivered to the Corporate Secretary of DST
at any time before the Proxy Committee votes at the Annual Meeting. Attendance
at the Annual Meeting will not have the effect of revoking a properly executed
Proxy Card unless the stockholder delivers a written revocation to the Corporate
Secretary before the proxy votes.

DST COMMON STOCK ALLOCATED UNDER THE DST ESOP. Individuals for whom
shares of DST Common Stock are allocated in the DST ESOP may on the Instruction
Card instruct the DST ESOP trustee how to vote their allocated shares. The DST
ESOP trustee must also vote any shares of DST Common Stock not allocated to the
accounts of participants and the shares for which it received no instructions in
the same proportion as those shares for which it received instructions. The DST
ESOP trustee may vote shares allocated to the accounts of the DST ESOP
participants either in person or through a proxy. DST ESOP participants may not
vote the shares allocated to their accounts in person, and they may revoke their
instructions to the DST ESOP trustee only by contacting the trustee prior to the
time the trustee casts the DST ESOP vote, and by complying with the trustee's
procedures for revoking the instructions.

DST COMMON STOCK HELD THROUGH A BROKER. DST Common Stock is listed for
trading on the New York Stock Exchange ("NYSE") and on the Chicago Stock
Exchange ("CHX"). Each stock broker must solicit from its customers holding DST
Common Stock through the broker directions on how to vote the customers' shares,
and the broker must then vote such shares in accordance with such directions. A
broker's customers may revoke such directions by contacting their broker and
following the broker's revocation procedures.

Whether member brokers may vote the shares of their customers when they
have not received directions from their customers depends on the proposal and on
the rules and procedures of the NYSE and the CHX. DST anticipates that member
brokers will be entitled to vote the shares for which they have not received
directions on the election of directors, which is the only proposal described
herein.

When a broker has not received directions from customers on whether to
vote for a proposal, and the broker cannot or does not vote the shares it holds
for such customers, a "broker non-vote" has occurred. (Customer directed
abstentions are directions to the broker and therefore do not cause broker
non-votes.) Broker non-votes generally would not affect the determination of
whether the holders of the majority of shares of outstanding DST Common Stock
are present at the Annual Meeting because typically some of the shares held in
the broker's name have been voted on at least some proposals, and therefore, all
of such shares held in the broker's name are considered present at the Annual
Meeting. A broker non-vote will have the same effect as a vote against any
proposal other than the election of directors, on which it will have no effect.

PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT

The following table sets forth information as of the Record Date
concerning the beneficial ownership of DST Common Stock by: (i) beneficial
owners of more than 5% of the outstanding DST Common Stock which have publicly
filed a report acknowledging such ownership; (ii) the directors and certain
executive officers of DST; and (iii) all of DST's executive officers and
directors as a group. Beneficial ownership generally means either the sole or
shared power to vote or dispose of the shares. Except as otherwise noted, the
holders have sole voting and dispositive power. No officer or director of DST
owns any equity securities of any subsidiary of DST.
<TABLE>
<CAPTION>

Shares of
Common Percent
Name and Address Stock<F1> of Class<F2>

Kansas City Southern Industries, Inc. ("KCSI")<F3> 20,263,426<F4> 41.4%

FMR Corp., Edward C. Johnson III, 4,225,290<F6> 8.6%
Abigail P. Johnson, Fidelity
Management & Research Company ("Fidelity"),
Fidelity Management Trust Company ("Fidelity Trust")<F5>

UMB Financial Corporation ("UMBFC"), 2,988,858<F8> 6.1%
UMB Bank, N.A. ("UMB"), and
the DST ESOP<F7>

Massachusetts Financial 2,492,396<F10> 5.1%
Services Company<F9>

A. Edward Allinson 18,000<F11> (*)
Director

Robert C. Canfield 94,683<F12> (*)
Senior Vice President,
General Counsel and Secretary

Michael G. Fitt 16,000<F11> (*)
Director

James P. Horan 102,877<F13> (*)
Chief Information Officer

Thomas A. McCullough 247,022<F14> (*)
Executive Vice President, Director

Thomas A. McDonnell 508,433<F15> 1.0%
President and Chief
Executive Officer, Director

William C. Nelson 13,100<F11> (*)
Director

Charles W. Schellhorn 164,340<F17> (*)
President, Output Technologies, Inc.<F16>

M. Jeannine Strandjord 14,000<F11> (*)
Director

All Executive Officers and Directors 1,744,100<F18> 3.6%
as a Group (17 Persons)

- --------------------
<FN>
(*)Less than 1% of the outstanding DST Common Stock.
<F1> Under Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), share amounts shown for DST's officers and
directors include shares they may acquire upon the exercise of options
which are exercisable at the Record Date or will become exercisable
within 60 days of such date and shares allocated to the accounts of
such persons under the DST ESOP. The holders may disclaim beneficial
ownership of any such shares which are owned by or with family members,
trusts or other entities.

<F2> The percentage is based on the number of shares outstanding as of the
Record Date.

<F3> The address of KCSI is 114 West 11th Street, Kansas City, Missouri 64105.

<F4> The number of shares is based upon information reported in a Form 4 dated
January 6, 1998.

<F5> The address of FMR Corp., Fidelity and Fidelity Trust is 82 Devonshire
Street, Boston, Massachusetts 02109. Edward C. Johnson III is Chairman
of and Abigail P. Johnson is a director of FMR Corp. Fidelity and
Fidelity Trust are wholly owned subsidiaries of FMR Corp.

<F6> The number of shares is based upon information in Amendment No. 1 to
Schedule 13G dated February 14, 1998 (the "FMR Schedule"). The FMR
Schedule states that Fidelity beneficially owns 3,724,200 shares and
Fidelity Trust beneficially owns 501,090 shares of DST Common Stock.

<F7> The address for UMB, UMBFC, and the DST ESOP is 1010 Grand, Kansas City,
Missouri 64106.

<F8> The number of shares is based on 3,188,858 shares of DST Common Stock
held as of December 31, 1997 reported in Amendment No. 2 to Schedule
13G, dated February 13, 1998 (the "UMB Schedule"), jointly filed by
UMB, UMBFC, and the DST ESOP. Of the 3,188,858 shares of DST Common
Stock beneficially owned by UMB, UMB reported that it holds 3,187,568
shares as trustee of the DST ESOP and 1,290 shares in other capacities.
The number of shares of DST Common Stock shown in the UMB Schedule has
been reduced in the above table by the number of shares of DST Common
Stock the DST ESOP has sold since December 31, 1997. Shares held by UMB
as trustee of the DST ESOP include shares allocated to the accounts of
DST ESOP participants. UMB and the DST ESOP disclaimed in the UMB
Schedule beneficial ownership of the shares allocated to participants'
accounts. Voting and dispositive power over such allocated shares are
vested in the DST ESOP participants, who have the right to direct the
voting of all such allocated shares and the tendering of such shares in
response to offers to purchase. The DST ESOP requires the trustee to
vote any unallocated shares in the same proportion as the allocated
shares. UMBFC reported that it does not own of record any DST Common
Stock, that it participated in the filing of the UMB Schedule solely as
a result of its ownership of 100% of stock of UMB, and that it is
prohibited by law from directing the voting or disposition of the
shares and therefore disclaims beneficial ownership of the shares shown
in the UMB Schedule. The 3,188,858 shares reported in the UMB Schedule
do not include 86,759 shares held by UMB in custody accounts for which
UMB does not have voting or dispositive power.

<F9> The address of Massachusetts Financial Services Company is 500 Boylston
Street, Boston, Massachusetts 02116.

<F10>The number of shares is based upon information in Amendment No. 1 to
Schedule 13G dated February 12, 1998 ("MFS Schedule"). The MFS Schedule
states that the shares are also beneficially owned by certain
non-reporting entities as well as MFS.

<F11>Includes 13,000 shares that may be acquired through option exercises.

<F12>Includes 82,000 shares that may be acquired through option exercises
and 5,934 shares allocated to his account in the DST ESOP.

<F13>Includes 82,000 shares that may be acquired through option exercises
and 13,374 shares allocated to his account in the DST ESOP.

<F14>Includes 1,000 shares held by members of his immediate family, 220,000
shares that may be acquired through option exercises and 18,113 shares
allocated to his account in the DST ESOP.

<F15>Includes 475,000 shares that may be acquired through option exercises
and 18,933 shares allocated to his account in the DST ESOP.

<F16>Output Technologies, Inc. is a wholly owned subsidiary of DST.

<F17>Includes 140,000 shares that may be acquired through option exercises
and 12,530 shares allocated to his account in the DST ESOP.

<F18>Includes 1,506,250 shares that may be acquired through option exercises
by the Executive Officers and Directors and by the spouse of an
Executive Officer and 152,055 shares allocated to the DST ESOP accounts
of Executive Officers and the spouses of two Executive Officers.
</FN>
</TABLE>

PROPOSAL - ELECTION OF TWO DIRECTORS

The By-laws classify the DST Board into three classes and stagger the
terms of each class to expire in different years. The term of office of one
class of directors expires each year in rotation so that at each annual meeting
of stockholders one class is up for election for a full three-year term. The
terms of the Board Nominees are expiring at this Annual Meeting. Directors
elected at the Annual Meeting will hold office for a three-year term expiring in
2001 or until their successors are elected and qualified. DST expects that the
other directors will continue in office for the remainder of their terms.

The Board Nominees are A. Edward Allinson and Michael G. Fitt. They are
currently directors of DST, have indicated that they are willing and able to
continue serving as directors if elected and have consented to being named as
nominees in this Proxy Statement. If any of the Board Nominees should for any
reason become unavailable for election, the Proxy Committee will vote for such
other nominee as may be proposed by the annually appointed Nominating Committee
of the DST Board or, alternatively, the DST Board may reduce the number of
directors to be elected at the meeting.

A. EDWARD ALLINSON, age 63, served as a director of DST from 1977 to
November 1990 and from September 1995 to present. He has been Executive Vice
President of State Street Bank and Trust Company ("State Street Bank") and an
Executive Vice President of State Street Corporation ("State Street"), the
parent company of State Street Bank, since March 1990. He is also a director of
KCSI.

MICHAEL G. FITT, age 66, has served as a director of DST since
September 1995. He was Chairman of Employers Reinsurance Corporation from 1980
through 1992, its President from 1979 through October 1991, its Chief Executive
Officer from 1980 through 1992, and is now retired. He is also a director of NAC
RE Corp. and of KCSI.

THE DST BOARD RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF THE BOARD NOMINEES

THE BOARD OF DIRECTORS

INFORMATION ABOUT PRESENT DIRECTORS. In addition to the Board Nominees,
the following individuals are also on the DST Board, for a term ending on the
date of the annual meeting of stockholders in the year indicated.

DIRECTORS SERVING UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 1999.

THOMAS A. MCDONNELL, age 52, has served as a director of DST since
1971; as Chief Executive Officer of DST since October 1984; and as President of
DST since January 1973 (except for a 30-month period from October 1984 to April
1987). He served as Treasurer of DST from February 1973 to September 1995; and
as Vice Chairman of the Board from June 1984 to September 1995. He served as
Executive Vice President of KCSI from February 1987 until October 1995 and as a
director of KCSI from 1983 until October 1995. He is a director of BHA Group,
Inc., Cerner Corporation, Computer Sciences Corporation, Euronet Services, Inc.,
and Informix Software, Inc.

M. JEANNINE STRANDJORD, age 52, has served as a director of DST since
January 1996. She has served as Senior Vice President and Treasurer for Sprint
Corporation ("Sprint") since January 1990, is responsible for Treasury
Operations for all Sprint subsidiaries and for Sprint's Pension and Savings
Trust Management, and is in charge of Risk Management and Loss Prevention and of
Real Estate and Facilities for Sprint. She also serves on the Finance Committee
for Sprint Spectrum L.P. She joined Sprint in 1985 as Vice President of Finance
and Distribution at AmericSource, Inc., a Sprint subsidiary. She is also a
director of six registered investment companies which are advised by American
Century Investments.

DIRECTORS SERVING UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 2000.

THOMAS A. MCCULLOUGH, age 55, has been a director of DST since 1990. He
has served as Executive Vice President of DST since April 1987. His
responsibilities include full-service mutual fund processing, remote mutual fund
client servicing, information systems, portfolio accounting, securities transfer
and product sales and marketing.

WILLIAM C. NELSON, age 60, has been a director of DST since January
1996. He is the President, Kansas City, of NationsBank, N.A. and Chairman of
NationsBank, N.A. (Mid-West), which was previously Boatmen's First National Bank
of Kansas City ("Boatmen's"). Mr. Nelson had served Boatmen's since February
1990 as Chairman of the Board, since May 1989 as Chief Executive Officer, and
since June 1988 as President.

BOARD OF DIRECTORS' MEETINGS AND STANDING COMMITTEES.

MEETINGS. The DST Board met or took action by unanimous consent ten
times in 1997, and all directors attended all meetings of the DST Board during
1997. The DST Board has established two standing committees: the DST Audit
Committee and the DST Compensation Committee. During 1997, the DST Audit
Committee held two meetings and the DST Compensation Committee held seven
meetings, and all committee members attended all of the meetings of the
committees on which they served.

DST AUDIT COMMITTEE. The DST Audit Committee's primary responsibilities
are to oversee the internal and external audit functions of DST and to meet with
and consider suggestions from members of management and the internal audit
staff, as well as from DST's independent accountants, concerning the financial
operations of DST. The DST Audit Committee also reviews audited financial
statements of DST and considers and recommends the appointment of, and approves
the fee arrangement with, independent accountants for audit functions and for
advisory and other consulting services. Members of the DST Audit Committee are
Ms. Strandjord and Messrs. Fitt and Nelson. The DST Board appoints the members
of the DST Audit Committee to serve staggered three-year terms.

DST COMPENSATION COMMITTEE. The DST Compensation Committee's
responsibilities are to make determinations with respect to salaries and bonuses
of and other compensation arrangements with DST's officers and to administer the
DST Systems, Inc. Officers Incentive Plan (the "Officers Incentive Plan") and
the 1995 DST Systems, Inc. Stock Option and Performance Award Plan (the "Stock
Option Plan"). Members of the DST Compensation Committee are Ms. Strandjord and
Messrs. Fitt and Nelson. The members of the DST Compensation Committee serve
one-year terms. The DST Compensation Committee's report on executive
compensation is set forth herein under "Executive Compensation."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Thomas A.
McCullough, Director and Executive Vice President of DST, serves on the Board of
Directors and as a member of the Executive Committee of the Board of Directors
of Boston Financial Data Services, Inc. ("BFDS"), a joint venture between State
Street and DST. A. Edward Allinson, Chairman of the Board of Directors of BFDS,
serves as a director of DST. Although the BFDS Board of Directors Executive
Committee performs certain functions equivalent to those of a compensation
committee, it does not determine Mr. Allinson's annual salary of $100,000 for
serving as an officer of BFDS. BFDS uses DST's mutual fund system and services
as a remote service client of DST. Certain subsidiaries of DST provide printing,
mailing and other services to BFDS. For 1997, DST and subsidiaries had revenues
of $70,062,670 from BFDS. At December 31, 1997, accounts receivable from BFDS
totaled $6,169,672.

COMPENSATION OF DIRECTORS. Directors who do not receive compensation as
officers or employees of DST or any of its more than 50% owned affiliates (the
"Outside Directors") are each paid a fee of $4,000 for each meeting of the DST
Board that they attend, a fee of $2,000 for each committee meeting that they
attend, and a fee of $500 for any telephonic DST Board or committee meeting in
which they participate, plus reimbursement of reasonable travel expenses.

The Outside Directors may defer their compensation under the Directors'
Deferred Fee Plan, a non-qualified deferred compensation plan adopted September
19, 1995. Under the plan, directors who receive fees from DST may make an annual
election to defer all or a part of any fees earned during the next calendar
year. Each participant's account will be credited with the amount of fees
deferred and adjusted annually by an interest factor equal to a rate of return
selected by the DST Board, or if the participant elects, by a rate of return
earned for the year from a hypothetical investment allocated by the participant
among certain mutual funds. The benefits become distributable after termination
of service as a director or in certain other circumstances as approved by the
DST Compensation Committee. Fees to some directors previously deferred under an
earlier plan, which terminated effective August 31, 1995, continue to be
deferred and earn interest and shall be distributed in accordance with such
earlier plan.

The Outside Directors automatically participate in the Stock Option
Plan. Under the Stock Option Plan, when an Outside Director is first elected or
appointed to the DST Board, the Outside Director receives an option to purchase
8,000 shares of DST Common Stock. On the date of each annual meeting of DST's
stockholders, each Outside Director receives an option to purchase 4,000 shares
of DST Common Stock if such Outside Director will continue to serve in such
capacity immediately following such meeting. Except as otherwise set forth in
the Stock Option Plan, all options granted to an Outside Director to purchase
shares of DST Common Stock have an exercise price equal to the fair market value
of DST Common Stock on the date of the grant and become exercisable as follows:
50% on the day preceding the date of the first annual stockholders' meeting
after the date of grant of the option; an additional 25% on the day preceding
the date of the second annual stockholders' meeting after the date of grant of
the option; and the remaining 25% on the day preceding the third annual
stockholders' meeting after the date of grant of the option. The term of any
options granted to an Outside Director may not extend more than ten years from
the date of grant. All such options shall immediately become exercisable in the
event of a change in control of DST (as defined in the Stock Option Plan)
subject to certain restrictions under federal securities law.

EXECUTIVE COMPENSATION

DST COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.(*)

COMPENSATION PRINCIPLES. The DST Compensation Committee based the 1997
compensation packages for DST executive officers on the principles that the
packages should (a) provide fair, reasonable and competitive base salaries, (b)
provide the opportunity to earn additional compensation if DST stockholders
experience increases in the value of DST Common Stock, and (c) emphasize
long-term stock ownership of DST Common Stock by executive officers.

OVERVIEW OF 1997 COMPENSATION. The compensation of DST executive
officers for 1997 consisted of base salary and of awards issued pursuant to the
Stock Option Plan. The Stock Option Plan allows the granting of stock options
and other forms of incentive compensation to DST officers and was approved by
stockholders in 1996. In 1997, stockholders approved additional types of awards
the DST Compensation Committee could grant under the Stock Option Plan,
including restricted stock. For 1997, the awards granted under the Stock Option
Plan were cash bonuses, restricted stock, and stock options. Because of the last
two types of awards, a substantial amount of the executive officers' 1997
compensation was at-risk and tied to DST's performance, furthering the DST
Compensation Committee's compensation principles. The executive officers also
participated in certain other benefits available generally to DST officers and
employees so that their base compensation packages were competitive with
compensation packages of other companies.

DETERMINATION OF 1997 COMPENSATION. To determine 1997 compensation, the
DST Compensation Committee utilized data from several surveys provided by
independent compensation consultants. The independent consultants provided a
survey of compensation information contained in the proxy statements of fifteen
companies determined for purposes of the survey to be peers of DST. The survey
group included all the companies in the peer group shown in the Stock
Performance Graph contained in this Proxy Statement (with the exception of The
Continuum Company, Inc., which was acquired August 1, 1996 by Computer Sciences
Corporation), and other companies the compensation consultants and the DST
Compensation Committee believed would have needs similar to DST for executive
talent. The independent consultants also provided surveys of the compensation
packages of technology companies, of entities with revenues comparable to DST,
and of entities with revenues comparable to DST subsidiaries.

The DST Compensation Committee analyzed the surveys and considered the
recommendations of the independent compensation consultants to determine target
levels of base salary and of total cash compensation and the types of awards to
grant. The DST Compensation Committee focused on information in the surveys
about officers with positions and responsibilities similar to each DST executive
officer. When information from more than one survey applied to a DST executive
officer, the DST Compensation Committee considered information from multiple
surveys.

The DST Compensation Committee took the following actions with respect
to each component of the compensation packages:

BASE SALARIES. With the advice of independent compensation consultants,
the DST Compensation Committee set the target for each DST executive officer's
base salary to be in the 50th percentile of compensation levels shown in the
applicable survey. The DST Compensation Committee also examined the
responsibilities of individual executive officers in relation to the market and
in relation to each other and made adjustments where appropriate.

CASH BONUSES AND RESTRICTED STOCK. As incentive for DST executive
officers to meet DST's financial goals, the DST Compensation Committee adopted
the Officers Incentive Plan pursuant to the provisions and as an implementation
of the Stock Option Plan. Under the Officers Incentive Plan, the DST
Compensation Committee may award incentive compensation to an executive officer
based on a percentage of the officer's base salary. The percentage of salary
awarded, if any, depends on DST achieving certain annual or cumulative
threshold, target or maximum earnings per share goals ("EPS Goals") established
by the DST Compensation Committee prior to the beginning of the years in which
the goals apply.

For 1997, the DST Compensation Committee established threshold, target
and maximum EPS Goals for DST and determined the percentage of each officer's
salary to be awarded at each level of EPS Goals met by DST. The range of minimum
percentages of base salary which could be awarded to officers other than Mr.
McDonnell for 1997 if EPS goals were met was from 25% to 50% and the range of
maximum percentages was 75% to 150%. In establishing the ranges, the DST
Compensation Committee set the target for each DST executive officer's total
cash compensation to be in the 75th percentile of the applicable survey
information, if DST met certain performance criteria.

Incentive compensation awarded under the Officers Incentive Plan if DST
has met at least its target EPS Goal consists of a combination of cash and
restricted DST Common Stock. If the threshold EPS Goal is met but not exceeded,
all of the incentive bonus is paid only in cash; for that portion of the bonus
attributable to performance above the threshold EPS Goal and up to the target
EPS Goal, 60% of the bonus is cash and 40% restricted stock; and for that
portion of the bonus attributable to performance above the target EPS Goal and
up to the maximum EPS Goal, 50% of the bonus is cash and 50% restricted stock.
The incentive award for 1997 consisted of a combination of cash and restricted
DST Common Stock.

Holders of restricted DST Common Stock have the right to vote such
stock and receive any dividends or other distributions with respect to such
stock. If the participant's employment by DST or its subsidiaries terminates
(other than upon retirement after age 60, disability, death or termination
without cause) prior to the last day of the third calendar year after the plan
year for which the incentive award was granted, the restricted DST Common Stock
is forfeited. The restricted DST Common Stock is not transferable during such
period of restriction except to family members or trusts for family members, and
the stock remains subject to the restrictions after such permitted transfers. In
the event of retirement after age 60, termination because of disability or
without cause, or a change in control, as defined in the Officers Incentive
Plan, the restrictions shall be deemed released.

STOCK OPTIONS. The DST Compensation Committee analyzed the application
of option pricing models and other valuation techniques to stock option data in
the surveys and considered the responsibility level of each officer receiving an
option award, the total number of options granted to each such officer at the
time of the initial public offering of DST Common Stock in 1995 (the "IPO"), and
the fact that, except for new officers, no options were granted in 1996. In
February 1997, DST granted stock options to executive officers which became
exercisable one year from the date of grant.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. DST and Mr. McDonnell are
parties to a three-year employment agreement (the "McDonnell Agreement") which
became effective January 1, 1996 and was approved by the DST Board. Under the
McDonnell Agreement, Mr. McDonnell's annual base salary is $400,000, and he
participates in DST's incentive compensation program for DST executive officers.

The annual base salary set by the McDonnell Agreement is less than Mr.
McDonnell's base salary prior to the IPO and was determined prior to the IPO by
the KCSI Compensation and Organization Committee (the "KCSI Compensation
Committee"). The KCSI Compensation Committee had initially based Mr. McDonnell's
salary on surveys of independent compensation consultants of the compensation
packages of other U.S. based companies comparable in size to DST but then
reduced it to align Mr. McDonnell's compensation with that of other DST
executive officers.

Under the Officers Incentive Plan, Mr. McDonnell's threshold, target
and maximum incentive awards for 1997 were set at 65%, 130% and 195% of his base
salary, respectively, if DST attained its threshold, target or maximum EPS
Goals. The DST Compensation Committee set such levels in recognition of Mr.
McDonnell's responsibilities and to provide incentives tied to DST's financial
performance.

The stock options awarded Mr. McDonnell in 1997 have the same terms as
the options awarded the other executive officers. The DST Compensation Committee
awarded Mr. McDonnell the number of options he received because of his level of
responsibility.

DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal Revenue
Code limits a public company's deduction for federal income tax purposes of
compensation expense in excess of $1 million paid to the executive officers
named in the company's summary compensation table. Performance-based
compensation which meets the requirements of Section 162(m) is excluded from the
compensation subject to the $1 million deduction. The DST Compensation Committee
believes DST has taken the steps required to exclude from calculation of the $1
million compensation expense any performance-based awards granted under the
Stock Option Plan to the named executive officers.

(*)The DST Compensation Committee Report on Executive Compensation and the Stock
Performance Graph included herein shall not be incorporated by reference into
any filings under the Securities Act of 1933 or the Exchange Act, either as
amended, notwithstanding the incorporation by reference of the Proxy Statement
into any such filings.

THE DST COMPENSATION COMMITTEE

Michael G. Fitt
William C. Nelson
M. Jeannine Strandjord

STOCK PERFORMANCE GRAPH.

The following graph shows the changes in value since the IPO of an
assumed investment of $100 in: (i) DST Common Stock; (ii) the stocks that
comprise the S&P 400 MidCap index(1); and (iii) the stocks that comprise a peer
group of companies(2). The table following the graph shows the dollar value of
those investments as of December 31, 1997. The value for the assumed investments
depicted on the graph and in the table has been calculated assuming that cash
dividends, if any, are reinvested at the end of each quarter in which they are
paid.
<TABLE>
<CAPTION>

DST SYSTEMS, INC.
RELATIVE MARKET PERFORMANCE TOTAL RETURN

[Stock Performance Graph would be here.]

- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
November 1, 1995 December 31, 1995 December 31, 1996 December 31, 1997
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>

DST Total
Return $100 $135.71 $149.40 $203.27
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
S&P 400 MidCap
Index Total Return $100 $104.11 $124.10 $164.13
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
Peer Group
Total Return $100 $103.62 $117.74 $132.26
- ------------------------------ ----------------------- ----------------------- ----------------------- ------------------------
</TABLE>

(1) Standard and Poor's Corporation, an independent company, prepares the
S&P 400 MidCap Index.

(2) This index is based upon a group of comparable companies in DST's
industry comprised of: Automatic Data Processing, Inc.; Bisys Group,
Inc.; The Continuum Company, Inc. (through August 1, 1996, the date it
was acquired by Computer Sciences Corporation); First Data Corporation;
Fiserv, Inc.; Policy Management Systems, Inc.; and Sunguard Data
Systems, Inc.

SUMMARY COMPENSATION TABLE.

The following table sets forth for the calendar years indicated the
total compensation paid to or for the account of the Chief Executive Officer of
DST and the four other DST executive officers receiving the highest totals of
salary and bonus in 1997 (collectively, the "Named Officers").
<TABLE>
<CAPTION>

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

Long Term Compensation

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

Annual Compensation Awards

- ------------------------------------------- ------------------------ -----------------------------
- ------------------------------------------- ----------- ------------ -------------- -------------- -----------------------
Number of
Restricted Securities
Salary Bonus Stock Awards Underlying All Other
Name and Principal Position Year ($) ($) ($)<F1> Options/SARs Compensation ($)<F2>
- ------------------------------------------- ----------- ------------ -------------- -------------- -----------------------
- ------------------------------------------- ----------- ------------ -------------- -------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>

Thomas A. McDonnell 1997 400,000 546,000 234,000 75,000 4,746
President and Chief Executive 1996 399,996 480,000 0 0 16,761
Officer 1995 500,004 0 0 400,000 313,274

Thomas A. McCullough 1997 335,000 351,752 150,748 45,000 4,746
Executive Vice President 1996 300,000 300,000 0 0 16,761
1995 288,000 288,000 0 175,000 183,655

James P. Horan 1997 275,000 231,044 98,956 20,000 4,746
Chief Information Officer 1996 253,008 202,400 0 0 16,761
1995 243,000 194,400 0 62,000 128,109

Charles W. Schellhorn 1997 260,000 218,400 93,600 30,000 4,746
President, Output Technologies, Inc.1996 249,996 200,000 0 0 16,761
1995 200,000 160,000 0 110,000 107,488

Robert C. Canfield 1997 252,000 211,712 90,688 20,000 4,746
Senior Vice President, General 1996 241,992 193,600 0 0 16,761
Counsel and Secretary 1995 233,000 186,400 0 62,000 120,381

- ------------------------------------------- ----------- ------------ -------------- -------------- -----------------------
<FN>
<F1> The market price of DST Common Stock on February 26, 1998, the date of
the grant of the restricted stock to each of the Named Officers, was
$52.00 per share; and the number of shares of restricted stock granted
to each Named Officer was determined by dividing the dollar amount in
this column by $52.00. Although the Named Officers did not hold any
restricted stock on December 31, 1997, the market price of DST Common
Stock on that date was $42.69 per share. The DST Compensation Committee
Report on Executive Compensation contained herein describes the
restrictions on the stock.

<F2> All other compensation for each of the Named Officers for 1997 is
comprised of: (i) contributions to his account for 1997 under the DST
ESOP of $1,885; and (ii) contributions to his account for 1997 under
the DST Systems, Inc. Profit Sharing Plan and Trust Agreement of
$2,861.
</FN>
</TABLE>

LONG-TERM INCENTIVES.

The following table sets forth information about the options to acquire
DST Common Stock granted the Named Officers in 1997.
<TABLE>
<CAPTION>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

Name Number of Percent Exercise or Expiration Grant Date
Securities of Total Base Price Date<F1> Present Value<F3>
Underlying Options/SARs ($/Sh)<F1>
Options/SARs Granted to
Granted<F1> Employees in
Fiscal Year<F2>
<S> <C> <C> <C> <C> <C>

Thomas A. McDonnell 75,000 8% $33.06 2/27/2007 $862,500

Thomas A. McCullough 45,000 5% $33.06 2/27/2007 $517,500

Charles W. Schellhorn 30,000 3% $33.06 2/27/2007 $345,000

James P. Horan 20,000 2% $33.06 2/27/2007 $230,000

Robert C. Canfield 20,000 2% $33.06 2/27/2007 $230,000

<FN>
<F1> The options became exercisable one year from the date of grant. All
options have a ten-year term but are subject to earlier termination
upon the occurrence of certain events, including termination of
employment, disability, retirement or death. The exercise price of each
option is equal to the average of the high and low price of DST Common
Stock on the NYSE on the date of the grant. Optionees may satisfy their
tax withholding obligations by authorizing DST to withhold shares of
DST Common Stock which would otherwise have been issuable on exercise
or, subject to certain restrictions, by delivering DST Common Stock to
DST. In the event of a change in control (as defined in the Stock
Option Plan), the options become immediately exercisable and, subject
to certain securities laws restrictions, the optionee may exercise
certain limited rights related to his options.

<F2> Options for a total of 918,500 shares of DST Common Stock were granted to
employees in 1997.

<F3> In accordance with Securities and Exchange Commission ("SEC") rules,
the Black-Scholes option pricing model was chosen to estimate the Grant
Date Present Value of the options set forth in this table. DST's use of
this model should not be construed as an endorsement of its accuracy at
valuing options. All stock option models require a prediction about the
future movement of the stock price. The following assumptions were made
for purposes of calculating Grant Date Present Value: options are
exercised 5 years after the date of grant, volatility of 23.72%
(calculated weekly over the three preceding calendar years), dividend
yield of 0% and risk free rate of return rate of 6.38% (United States
Government Zero Coupon Bond on date of grant with a ten-year maturity).
Given the limited trading history of DST Common Stock, the volatility
factor was determined by using the average of the volatility of the
stock of three of the peer companies constituting the peer group
referenced in the Stock Performance Graph contained herein. No
adjustments were made for non-transferability or risk of forfeiture of
the options. The real value of the options in this table depends upon
the actual performance of DST Common Stock during the applicable period
and upon the date they are exercised.
</FN>
</TABLE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES.

The following table shows that none of the Named Officers exercised
options during 1997 to purchase DST Common Stock and shows the number and value
of their exercisable and unexercisable options at December 31, 1997.
<TABLE>
<CAPTION>

- ---------------------- ---------------- --------------- --------------------------------- -------------------------------------
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options/SARs at In-the-Money Options/SARs
Acquired on Value FY-End (#) at FY-End ($)
Name Exercise (#) Realized ($)(*) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ---------------- --------------- --------------------------------- -------------------------------------
- ---------------------- ---------------- --------------- --------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Thomas A. McDonnell 0 0 280,000 195,000 6,081,600 3,330,900

Thomas A. McCullough 0 0 122,500 97,500 2,660,700 1,575,000

Charles W. Schellhorn 0 0 77,000 63,000 1,672,440 1,006,560

James P. Horan 0 0 43,400 38,600 942,648 597,192

Robert C. Canfield 0 0 43,400 38,600 942,648 597,192

- ---------------------- ---------------- --------------- --------------------------------- -------------------------------------
(*)Although neither Mr. McCullough, Mr. Schellhorn, nor Mr. Canfield realized any
value through the exercise of options to purchase DST Common Stock, each
realized value from the exercise of options to purchase KCSI stock he had been
awarded prior to the IPO by the KCSI Compensation Committee as a result of his
employment as a DST officer. The value realized by Mr. McCullough was $224,063;
the value realized by Mr. Schellhorn was $110,959, and the value realized by Mr.
Canfield was $466,840.
</TABLE>

EMPLOYMENT AGREEMENTS. The McDonnell Agreement provides for Mr.
McDonnell's continued employment as President and Chief Executive Officer of DST
at an initial annual base salary of $400,000. The term of the McDonnell
Agreement is three years commencing January 1, 1996, with automatic renewal at
the end of the term and the right by either party during the renewal period to
terminate upon 30 days' written notice. The McDonnell Agreement provides for
life insurance coverage in the amount of $1,000,000 payable to the beneficiaries
he designates. The McDonnell Agreement provides for early termination, and in
the event DST terminates Mr. McDonnell's employment other than for cause, or
does not renew his employment, the McDonnell Agreement entitles him to severance
pay equal to 24 months' base salary and benefits.

Agreements between DST and Messrs. McCullough, Horan, Schellhorn, and
Canfield, each dated April 1, 1992 and amended October 9, 1995 (the "Executive
Agreements"), provide for the continued employment of each such officer in his
respective executive officer position at his base salary in effect at the date
of execution of his respective agreement subject to adjustment by DST. Each of
the Executive Agreements may be terminated by the officer on at least 30 days'
notice to DST and by DST without notice and with or without cause. If DST
terminates any of the Employment Agreements without cause, the Executive
Agreements entitle the officer to severance pay equal to 12 months' base salary
and 12 months' reimbursement of costs of obtaining comparable life and health
insurance benefits unless another employer provides such benefits.

The McDonnell Agreement and the Executive Agreements (collectively, the
"Employment Agreements") provide that the officers are eligible to participate
in any DST incentive compensation plan and to receive other benefits DST
generally makes available to its executive officers. The Employment Agreements
also govern the officers' employment after a "change in control"(*) of DST. If a
change in control occurs during the term of any of the Employment Agreements,
the officer would be entitled to the following: (a) continuation of the
officer's employment, executive capacity, salary and benefits for a three-year
period at levels in effect on the "control change date"(*); (b) with respect to
unfunded employer obligations under benefit plans, to a discounted cash payment
of amounts to which the officer is entitled; (c) if the officer's employment is
terminated after the control change date other than "for cause"(*), to payment
of his base salary through termination plus a discounted cash severance payment
based on his salary for the remainder of the three-year period and to
continuation of benefits to the end of that period; (d) if the officer resigns
after a change in control upon "good reason"(*) and advance written notice, to
receive the same payments and benefits as if his employment had been terminated
other than for cause; (e) if amounts received on or after the change in control
date involve "Parachute Payments" under Section 4999 of the Internal Revenue
Code, to receive payments necessary to relieve the officer of certain adverse
federal income tax consequences; and (f) the placement in trust of funds to
secure the obligations to pay any legal expense of the officer in connection
with disputes arising with respect to the agreement.

- ------------------
(*)The Employment Agreements define this term.

OTHER COMPENSATION PLANS AND ARRANGEMENTS. The Named Officers
participate in the following compensatory plans and arrangements, which are not
generally available to all DST employees:

THE STOCK OPTION PLAN. Stockholders approved the Stock Option Plan at
the 1996 Annual Meeting of Stockholders and approved amendments to the plan at
the 1997 Annual Meeting of Stockholders. The Stock Option Plan provides for the
automatic, periodic grant of stock options to Outside Directors and gives the
DST Compensation Committee the discretion to award incentives to selected DST
employees in the form of options, reload options, restricted stock, stock
appreciation rights, limited rights, performance shares, performance units
(including performance-based cash awards), dividend equivalents, DST Common
Stock, or any other right, interest or option relating to shares of DST Common
Stock granted pursuant to the Stock Option Plan.

In the event of a change in control of DST (as defined in the Stock
Option Plan), vesting of awards (including options) will be automatically
accelerated and all conditions on awards shall be deemed satisfactorily
completed without any action required by the DST Compensation Committee so that
such award may be exercised or realized in full on or before a date fixed by the
DST Compensation Committee, subject to certain restrictions under the federal
securities laws. The DST Compensation Committee may, in its discretion, include
such further provisions and limitations in any agreement documenting such awards
as it may deem equitable and in the best interests of DST.

THE DST SYSTEMS, INC. EXECUTIVE PLAN. The Executive Plan, a
non-qualified deferred compensation plan, terminated effective December 31,
1995. However, account balances for each participant on such date remain subject
to the terms of the Executive Plan. Officers of DST selected by the KCSI
Compensation Committee prior to the IPO participated in the Executive Plan. Each
of the Named Officers is a participant. DST credited each participant's account
with the value of contributions DST would have made to the various qualified
plans maintained by DST without regard to statutory contribution limits and
eligibility requirements, less the amount actually contributed to such qualified
plans on the participant's behalf. The accounts, which became fully vested upon
termination of the Executive Plan, become distributable after termination of
employment or in certain instances as approved by the DST Compensation
Committee.

THE OFFICERS INCENTIVE PLAN. The Officers Incentive Plan became
effective as of January 1, 1997. Incentive awards issued under the Officers
Incentive Plan are subject to restrictions and limitations imposed under the
terms of the Stock Option Plan. All officers of DST participate in the Officers
Incentive Plan, and officers of more than 50% owned subsidiaries are eligible if
designated by the DST Compensation Committee. If for a given plan year, DST
achieves performance goals by meeting EPS Goals, each participant may receive
an award based on a percentage of his or her annual base salary.

Under the Officers Incentive Plan, the DST Compensation Committee has
established EPS Goals for threshold, target and maximum awards for 1997, 1998
and 1999. For plan years after 1999, the DST Compensation Committee may base
performance criteria on earnings per share in any manner appropriate for
carrying out the intent of the Officers Incentive Plan. For the years 1998 and
1999, the DST Compensation Committee has attributed separate weightings to the
annual EPS Goals and to the cumulative EPS Goals for the plan year, which the
DST Compensation Committee will use to calculate awards due to participants.

The DST Compensation Committee determines for each participant for each
plan year the percentages of his or her base salary which are the participant's
"threshold", "target" and "maximum" incentive award opportunity levels. No
participant will receive an incentive award if the actual DST earnings per share
do not at least meet either the threshold annual EPS Goal or the threshold
cumulative EPS Goal set for that year. The amount of incentive awards will
depend on whether actual earnings per share fall at or above the threshold EPS
Goal, at or above the target EPS Goal, or at or above the maximum EPS Goal. For
instance, if the actual earnings per share fall above the target EPS Goal but
below the maximum EPS Goal, the amount of a particular participant's incentive
award will be increased pro rata above the target opportunity level. DST shall
be deemed to have met the maximum EPS Goal for any year in which a change of
control (as defined in the Officers Incentive Plan) occurs.

The Officers Incentive Plan provides that no participant may receive an
incentive award greater than 250% of such participant's base salary as of the
beginning of the plan year. Additionally, the aggregate value of all incentive
awards for a calendar year may not exceed 10% of DST's pre-tax income for that
year.

OFFICER TRUSTS. DST has established trusts that are intended to secure
the rights of its officers, directors, employees, and former employees under the
employment continuation commitments of certain employment agreements, the
Directors' Deferred Fee Plan, the Officers Incentive Plan, and the Executive
Plan. The function of each trust is to receive contributions by DST and, in the
event of a change in control of DST where DST fails to honor covered obligations
to a beneficiary, the trust shall distribute to the beneficiary amounts
sufficient to discharge DST's obligation to such beneficiary. The trusts require
DST to be solvent as a condition of making distributions. The trusts are
revocable until a change in control of DST (as defined in the trusts) and
terminate automatically if no such change in control occurs prior to December
31, 1998, unless the trusts are extended prior to such date.

DST has established a trust to secure Mr. Horan's rights to deferred
compensation earned from 1989 to 1992. The trust holds the deferred compensation
and the earnings thereon, credited according to a formula in Mr. Horan's
employment agreement. Upon termination of Mr. Horan's employment, the trustee
will pay him the deferred compensation, including earnings, in accordance with
his employment agreement; provided, however, that DST must be solvent as a
condition to the trust making the distribution. To the extent that the trust
assets are not sufficient to pay all amounts due Mr. Horan, DST is liable to pay
any balance due. The trust cannot be revoked without Mr. Horan's consent prior
to the time all payments to him are made.

OTHER MATTERS

GENERAL INFORMATION. Attendance at the Annual Meeting is limited to
stockholders of record on the Record Date or their properly appointed proxies,
beneficial owners of DST Common Stock having evidence of such ownership, and
guests of DST.

DST will bear the cost of the Annual Meeting, including the cost of
mailing the proxy materials. Proxies may also be solicited by telephone,
telegraph or in person by directors, officers and employees not specifically
engaged or compensated for that purpose. DST has retained D.F. King & Co., Inc.
to assist in the solicitation of proxies at a cost not expected to exceed $5,000
plus expenses.

Brokers, dealers, banks, voting trustees, other custodians, and their
nominees, are asked to forward soliciting materials to the beneficial record
owners of shares, and, upon request, will be reimbursed by DST for their
reasonable expenses in completing the mailing of soliciting materials to such
beneficial owners.

DST'S INDEPENDENT ACCOUNTANTS. The Audit Committee recommended, and the
DST Board selected, the firm of Price Waterhouse LLP to serve as independent
accountants to examine the consolidated financial statements of DST for the year
1998. Although the DST Board has selected Price Waterhouse for 1998, the DST
Board nonetheless may, in its discretion, retain another independent accounting
firm at any time during the year if it concludes that such change would be in
the best interest of DST and its stockholders.

Price Waterhouse LLP served as DST's independent accountants for 1997.
As such, Price Waterhouse LLP performed professional services in connection with
the examination of the consolidated financial statements of DST. Such services
included examination of the consolidated financial statements of DST and of the
financial statements of various subsidiaries, review of reports filed with the
SEC, and review of control procedures of the mutual fund processing system of
DST. In addition, Price Waterhouse LLP provided certain other accounting,
auditing and tax services to DST and certain of its subsidiaries during 1997.

Representatives of Price Waterhouse LLP will be present at the Annual
Meeting and will have the opportunity to make a statement if they desire and to
respond to appropriate questions.

STOCKHOLDER PROPOSALS. Stockholders may in the circumstances set forth
below submit proposals for consideration at a stockholders' meeting. A proposal
may either be specified in a notice of the meeting or otherwise properly brought
before the meeting. As of the date of this Proxy Statement, no such notices have
been received.

INCLUSION OF STOCKHOLDER PROPOSALS IN THE 1999 ANNUAL MEETING PROXY
STATEMENT. Applicable laws and rules of the SEC govern the contents and
timeliness of the notice to DST that must occur for inclusion of stockholder
proposals in the proxy statement. If a stockholder desires to have a proposal
included in DST's Proxy Statement for next year's annual meeting of
stockholders, the Corporate Secretary of DST must receive such proposal on or
before December 1, 1998, and the proposal must comply with the applicable SEC
laws and rules. DST may require any proposed nominee or stockholder proposing a
nominee to furnish such other information as DST may reasonably require to
properly complete any proxy or information statement used for the solicitation
of proxies in connection with the meeting at which stockholders are to elect
directors.

NOTICE TO DST OF NOMINATIONS FOR DIRECTOR AND OTHER STOCKHOLDER
PROPOSALS. Otherwise to bring a proposal before an annual meeting, a stockholder
must comply with the provisions in the By-laws for giving notice of the proposal
to DST. For the notice to be timely (other than a proposal requested to be set
forth in the Proxy Statement, as noted above), the Corporate Secretary of DST
must receive it not less than 60 days nor more than 90 days prior to the meeting
at which the stockholders will consider the proposal; provided, however, that in
the event that the DST Board designates the meeting to be held at a date other
than the second Tuesday in May and gives notice of or publicly discloses the
date of the meeting less than 60 days prior to its occurrence, the Corporate
Secretary of DST must receive the notice not later than the close of business on
the 15th day following the date of the notice or public disclosure of the
meeting date, whichever first occurs.

The required contents of the notice depend on whether the proposal
pertains to nominating a director or to other business. A stockholder's notice
pertaining to the nomination of a director shall set forth: (a) as to each
nominee whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of the
nominee, (ii) the principal occupation or employment of the nominee, (iii) the
class and number of shares of capital stock of DST that are beneficially owned
by the nominee, and (iv) any other information concerning the nominee that would
be required, under the rules of the SEC, in a proxy statement soliciting proxies
for the election of such nominee; (b) as to the stockholder giving the notice,
(i) the name and address of the stockholder, and (ii) the class and number of
shares of capital stock of DST that are beneficially owned by the stockholder
and the name and address of record under which such stock is held; and (c) the
signed consent of the nominee to serve as a director if elected.

A stockholder's notice concerning business other than nominating a
director shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address of the stockholder proposing such business, (c) the
class and number of shares of capital stock of DST that are beneficially owned
by the stockholder and the name and address of record under which such stock is
held, and (d) any material interest of the stockholder in such business. The
Chairman of the Annual Meeting has the power to determine whether the proposed
business is an appropriate subject for and was properly brought before the
meeting.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a)
of the Exchange Act requires DST's directors and certain of its officers, and
each person, legal or natural, who owns more than 10% of DST Common Stock (each,
a "Reporting Person"), to file reports of such ownership with the SEC, the NYSE,
the CHX, and DST. Based solely on review of the copies of such reports furnished
to DST, and written representations relative to the filing of certain forms, no
Reporting Person was late in filing such reports for fiscal year 1997 except as
follows: (a) Peter R. O'Connell, Vice President, became an executive officer of
DST in May 1997 but did not file a Form 3 until September 1997; (b) J. Philip
Kirk, Vice President, purchased 5,000 shares of DST Common Stock in April 1997
but did not report the purchase until he filed a Form 5 in March 1998; and (c)
Robert L. Tritt and John W. McBride, each a Group Vice President, did not until
the filing of Form 4's in March 1998 report stock option grants made under the
Stock Option Plan in October 1995 to their spouses, as DST employees, and Mr.
McBride did not until such filing report a February 1997 grant of options to his
spouse.

By Order of the Board of Directors

/s/ Robert C. Canfield

Robert C. Canfield
Senior Vice President, General Counsel
and Secretary

Kansas City, Missouri
March 31, 1998

<PAGE>
APPENDIX A

STOCK PERFORMANCE GRAPH

The proxy statement also includes a stock performance graph, which is
supplemented by a table showing the dollar value of the points on the graph.
The table is set forth in this electronic format document in the section
entitled "STOCK PERFORMANCE GRAPH." Both the graph and the table will be
included in the paper format definitive proxy mailed to DST's Stockholders.
In accordance with a leter to EDGAR filers dated November 16, 1992 from
Mauri L. Osheroff, Associate Director of Regulatory Policy of the Division
of Corporate Finance, no further explanation of the graph is set forth in
this appendix.

<PAGE>
APPENDIX B
PROXY CARD

IF MARKING BOXES,
X FOLLOW THIS EXAMPLE
___ To vote in accordance with the Board of Directors' recommendations
please sign and date below; you need not mark any boxes.

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

DST SYSTEMS, INC.
- ------------------------ Election of Two Directors. With- For All
For hold Except

The DST Systems, Inc. Board of A. Edward Allinson
Directors (the "DST Board") has Michael G. Fitt ___ ___ ___
appointed Messrs. Thomas A. McDonnell,
Robert C. Canfield and Kenneth V.
Hager to act as the Proxy Committee,
each with the power to appoint his
substitute. By signing this card,
you are (1) authorizing such Proxy NOTE: If you mark "Withhold", your votes
Committee to represent and to vote will not be cast for either nominee.
at the Annual Meeting of Stockholders To have your votes cast for only one of
to be held on May 12, 1998, or any the nominees, mark "For All Except" and
adjournment thereof, in the manner strike a line through the name of the
you specify on this card, all the nominee for whom you are not having your
shares of common stock of DST votes cast.
Systems, Inc. you held of record on
March 17, 1998; and (2) acknowledging
that you have read the statements
set forth on the reverse of this
Proxy Card.

RECORD DATE SHARES:

The DST Board recommends that
you have your votes cast FOR the Election
of Two Directors.

Mark box at right if you plan to attend
the Annual Meeting of Stockholders. ___

Mark box at right if an address change
has been noted on the reverse of this ___
card.

Please be sure to sign
exactly as your name Date
appears above and date All joint owners must sign. Officers
this Proxy Card. of corporate stockholders, executors,
administrators, trustees, guardians
Stockholder sign here Co-owner sign here and attorneys-in-fact must indicate
the capacity in which they are
signing.

DETACH CARD DETACH CARD
DST SYSTEMS, INC.
Dear Stockholder:

Important matters set forth in the enclosed proxy materials require your
immediate attention and approval.

DST strongly encourages you to exercise your right to authorize your proxy to
vote your shares. Your proxy counts.

Please sign the Proxy Card, detach it, and promptly return it in the enclosed
postage paid envelope. Alternatively, you may authorize your proxy
electronically at http://eproxy.irin.com/dst. If you choose to do so, you
will need the 21-character identification across the top of the Proxy Card.
It begins with the letters "BFCDSTCM".

Thank you in advance for your prompt attention.

Sincerely,

DST Systems, Inc.

COMMON COMMON

DST SYSTEMS, INC.

Annual Meeting of Stockholders - May 12, 1998
Solicited on Behalf of the DST Board

The DST Board recommends that you have your votes cast FOR the Election of Two
Directors. The Election of Two Directors has been proposed by the DST Board and
that proposal is not related to or conditioned on the approval of any other
proposal which may come before the meeting.

You authorize the Proxy Committee to vote this proxy cumulatively among director
nominees for whom you have authorized the Proxy Committee to vote, which
includes voting for less than all of such nominees if such a vote appears
necessary to elect the maximum number of nominees listed on the reverse.

You authorize the Proxy Committee to vote in its discretion upon such other
business as may properly come before the Annual Meeting. You may revoke this
proxy in the manner described in the Proxy Statement dated March 31, 1998,
receipt of which you hereby acknowledge.

If you do not specify how you authorize the Proxy Committee to vote on the
proposal, you authorize it to vote FOR the nominees named herein.

PLEASE DATE AND SIGN ON THE REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE OR AUTHORIZE YOUR PROXY ELECTRONICALLY.

IF YOUR ADDRESS HAS CHANGED, PLEASE NOTE THE NEW ADDRESS BELOW.

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

ESOP PARTICIPANT INSTRUCTION CARD

IF MARKING BOXES,
X FOLLOW THIS EXAMPLE
___
- -----------------------

DST SYSTEMS, INC.
- ----------------------- Election of Two Directors. With- For All
For hold Except

A. Edward Allinson
Michael G. Fitt ___ ___ ___

NOTE: If you mark "Withhold", your votes will not
be cast for either nominee. To have your votes cast
for only one of the nominees, mark "For All Except"
and strike a line through the name of the nominee
for whom you are not having your votes cast.
RECORD DATE SHARES:
The DST Systems, Inc. Board of Directors
recommends that you have your votes cast FOR
the Election of Two Directors.

Mark box at right if you plan to attend the
Annual Meeting of Stockholders. ___

Mark box at right if an address change has
been noted on the reverse side of this card. ___

Please be sure to sign
exactly as your name Date By signing, you acknowledge that you
appears above and date have read the reverse of this
this Instruction Card. Instruction Card.

Participant sign here

DETACH CARD DETACH CARD
DST SYSTEMS, INC.

Dear ESOP Participant:

Important matters set forth in the enclosed proxy materials require your
immediate attention and approval.

DST strongly encourages you to exercise your right to instruct the Trustee of
The Employee Stock Ownership Plan and Trust Agreement of DST Systems, Inc.
("ESOP") how to vote the shares allocated to your ESOP account. Your
instruction counts.

Please mark the boxes on this Instruction Card to indicate how the Trustee
shall vote your shares. Then sign the Instruction Card, detach it, and
promptly return it. PLEASE USE THE ENCLOSED POSTAGE PAID ENVELOPE AND DO NOT
RETURN THIS CARD TO THE COMPANY AS YOUR VOTE IS CONFIDENTIAL.

Alternatively, you may make your instructions electronically at
http://eproxy.irin.com/dst. If you choose to do so, you will need the
21-character identification across the top of the Instruction Card. It begins
with the letters "BFCDSTEF".

Thank you in advance for your prompt attention.

Sincerely,

DST Systems, Inc.

ESOP ESOP

DST SYSTEMS, INC.
Annual Meeting of Stockholders - May 12, 1998

CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT OF DST SYSTEMS, INC.

The Trustee of The Employee Stock Ownership Plan and Trust Agreement of DST
Systems, Inc. ("ESOP") seeks your instruction on how to vote your shares on the
proposal listed on the reverse side of this Instruction Card. The Election of
Two Directors has been proposed by the DST Systems, Inc. Board of Directors (the
"DST Board"), and that proposal is not related to or conditioned on the approval
of any other proposal which may come before the meeting. The DST Board
recommends that you have your votes cast FOR the Election of Two Directors.

By signing this Instruction Card, you direct that the voting rights pertaining
to shares of common stock of DST Systems, Inc. held by the Trustee and allocated
to your ESOP account shall be exercised as specified herein by you at the Annual
Meeting of Stockholders to be held on May 12, 1998, or any adjournment thereof,
and in the Trustee's discretion on all other matters properly brought before the
Annual Meeting of Stockholders. You may revoke your instruction in the manner
described in the Proxy Statement dated March 31, 1998, receipt of which you
hereby acknowledge.

If you specify no choice or fail to return this Instruction Card, the Trustee
will vote shares allocated to your ESOP account in the same proportion as the
shares held by the ESOP for which the Trustee receives voting instructions.

PLEASE DATE AND SIGN ON THE REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE OR MAKE YOUR INSTRUCTIONS ELECTRONICALLY.

IF YOUR ADDRESS HAS CHANGED, PLEASE NOTE THE NEW ADDRESS BELOW.

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

DST ELECTRONIC PROXY CARD

The following online proxy card allows you to electronically authorize the
voting of your shares. Your vote will not be authorized until you have clicked
the SUBMIT PROXY button. Voting is explained in the DST Systems, Inc. Proxy
Statement dated March 31, 1998, which you received by mail. If you encounter
difficulties in voting electronically, please complete the Proxy Card you
received with the Proxy Statement and mail it in the envelope provided to you.

CONTINUE TO THE PROXY CARD.

DST SYSTEMS, INC.

ANNUAL MEETING OF STOCKHOLDERS - MAY 12, 1998
SOLICITED ON BEHALF OF THE DST SYSTEMS, INC. BOARD OF DIRECTORS

The DST Systems, Inc. Board of Directors (the "DST Board") has appointed Messrs.
Thomas A. McDonnell, Robert C. Canfield and Kenneth V. Hager to act as the Proxy
Committee, each with the power to appoint his substitute. By submitting this
proxy, you are (1) authorizing such Proxy Committee to represent and to vote at
the Annual Meeting of Stockholders to be held on May 12, 1998, or any
adjournment thereof, in the manner you specify, all the shares of common stock
of DST Systems, Inc. you held of record on March 17, 1998; and (2)
acknowledging that you have read the statements set forth below.

The Election of Two Directors has been proposed by the DST Board and that
proposal is not related to or conditioned on the approval of any other proposal
which may come before the meeting.

If you do not specify how you authorize the Proxy Committee to vote on the
proposal, you authorize it to vote FOR the Election of Two Directors.

THE DST BOARD RECOMMENDS THAT YOU HAVE YOUR VOTES CAST FOR THE ELECTION OF TWO
DIRECTORS.

PROPOSAL -- ELECTION OF TWO DIRECTORS

____ FOR A. Edward Allinson and Michael G. Fitt

____ WITHHOLD Votes for A. Edward Allinson and Michael G. Fitt

____ FOR ALL EXCEPT A. Edward Allinson

____ FOR ALL EXCEPT Michael G. Fitt

IF YOU CLICK "WITHHOLD," YOUR VOTES WILL NOT BE CAST FOR EITHER NOMINEE. TO HAVE
ALL YOUR VOTES CAST FOR ONLY ONE OF THE NOMINEES, CLICK "FOR ALL EXCEPT" THE
NOMINEE FOR WHOM YOU ARE NOT VOTING.

IF YOUR ADDRESS HAS CHANGED, PLEASE ENTER THE NEW ADDRESS IN THE FOLLOWING BOX:

If you are a joint owner of the shares being voted, you attest by clicking the
SUBMIT PROXY button that all owners of such shares have consented to the
authorization of this proxy.

If you are holding the shares being voted as an executor, administrator,
trustee, guardian, or attorney-in-fact, or if you are an officer of a corporate
stockholder, you attest by clicking the SUBMIT PROXY button that you have the
authority to authorize this proxy.

To authorize your vote, click the "SUBMIT PROXY" button.

DST ESOP PARTICIPANT ELECTRONIC INSTRUCTION CARD

The following online instruction card allows you to electronically instruct the
trustee of The Employee Stock Ownership Plan and Trust Agreement of DST Systems,
Inc. (the "ESOP") how to vote your shares. Your instruction will not be made
until you have clicked the SUBMIT INSTRUCTION button. Voting is explained in the
DST Systems, Inc. Proxy Statement dated March 31, 1998, which you received by
mail. If you encounter difficulties in voting electronically, please complete
the Instruction Card you received with the Proxy Statement and mail it in the
envelope provided to you.

CONTINUE TO THE INSTRUCTION CARD.

DST SYSTEMS, INC.

ANNUAL MEETING OF STOCKHOLDERS - MAY 12, 1998

CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE
UNDER THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
OF DST SYSTEMS, INC.

The Trustee of The Employee Stock Ownership Plan and Trustee Agreement of DST
Systems, Inc. ("ESOP") seeks your instruction on how to vote your shares on the
proposal described on this Instruction Card. The Election of Two Directors has
been proposed by the DST Systems, Inc. Board of Directors (the "DST Board"), and
that proposal is not related to or conditioned on the approval of any other
proposal which may come before the meeting.

By submitting your instruction, you direct that the voting rights pertaining to
shares of common stock of DST Systems, Inc. held by the Trustee and allocated to
your ESOP account shall be exercised as specified electronically by you at the
Annual Meeting of Stockholders to be held on May 12, 1998, or any adjournment
thereof, and in the Trustee's discretion on all other matters that are properly
brought before the Annual Meeting of Stockholders. You may revoke your
instruction in the manner described in the Proxy Statement dated March 31, 1998,
receipt of which you hereby acknowledge.

IF YOU SPECIFY NO CHOICE OR FAIL TO SUBMIT YOUR INSTRUCTION, THE TRUSTEE WILL
VOTE SHARES ALLOCATED TO YOUR ESOP ACCOUNT IN THE SAME PROPORTION AS THE SHARES
HELD BY THE ESOP FOR WHICH THE TRUSTEE RECEIVES VOTING INSTRUCTIONS.

THE DST BOARD RECOMMENDS THAT YOU HAVE YOUR VOTES CAST FOR THE ELECTION OF TWO
DIRECTORS.

PROPOSAL -- ELECTION OF TWO DIRECTORS

____ FOR A. Edward Allinson and Michael G. Fitt

____ WITHHOLD Votes for A. Edward Allinson and Michael G. Fitt

____ FOR ALL EXCEPT A. Edward Allinson

____ FOR ALL EXCEPT Michael G. Fitt

IF YOU CLICK "WITHHOLD," YOUR VOTES WILL NOT BE CAST FOR EITHER NOMINEE. TO HAVE
ALL YOUR VOTES CAST FOR ONLY ONE OF THE NOMINEES, CLICK "FOR ALL EXCEPT" THE
NOMINEE FOR WHOM YOU ARE NOT VOTING.

IF YOUR ADDRESS HAS CHANGED, PLEASE ENTER THE NEW ADDRESS IN THE FOLLOWING BOX:

To instruct the ESOP trustee how to vote your shares, click the "SUBMIT
INSTRUCTION" button.