DST SYSTEMS INC, 10-K, 2000-03-15

DST SYSTEMS INC
10-K, 2000-03-15
COMPUTER PROCESSING & DATA PREPARATION

Previous: MB SOFTWARE CORP, 8-K/A, 2000-03-15

Next: PEOPLES HOLDING CO, DEF 14A, 2000-03-15

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 1-14036
------------------------

DST SYSTEMS, INC.
(Exact name of Company as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 43-1581814
(State or other jurisdiction (I.R.S. Employer identification no.)
of incorporation or organization)
333 WEST 11TH STREET, KANSAS CITY, MISSOURI 64105
(Address of principal executive offices) (Zip code)
</TABLE>

Company's telephone number, including area code (816) 435-1000

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<S> <C>
Title of each class Name of exchange on which registered
- ----------------------------------------------- -----------------------------------------------
COMMON STOCK, $0.01 PER SHARE PAR VALUE NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
</TABLE>

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

Aggregate market value of the voting and non-voting stock held by non-affiliates
of the Company as of
February 29, 2000:
Common Stock, $.01 par value--$3,529,205,273

Number of shares outstanding of the Company's common stock as of February 29,
2000:
Common Stock, $.01 par value--62,881,163

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the following documents are incorporated herein by reference into
Part of the Form 10-K as indicated:

<TABLE>
<CAPTION>
PART OF FORM 10-K INTO WHICH
DOCUMENT INCORPORATED
- -------- --------------------------------
<S> <C>
Company's Definitive Proxy Statement for the 2000 Annual Part III
Meeting of Stockholders, which will be filed no later than
120 days after December 31, 1999
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DST SYSTEMS, INC.
1999 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
Cautionary Statement With Respect To Forward-Looking
Comments.................................................... 2

PART I

Item 1. Business.................................................... 2
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
Executive Officers and Significant Employees of the
Company..................................................... 22

PART II

Item 5. Market for the Company's Common Stock and Related
Stockholder Matters......................................... 23
Item 6. Selected Consolidated Financial Data........................ 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 39
Item 8. Financial Statements and Supplementary Data................. 40
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 70

PART III

Item 10. Directors and Executive Officers of the Company............. 70
Item 11. Executive Compensation...................................... 70
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 70
Item 13. Certain Relationships and Related Transactions.............. 70

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 71
Signatures.................................................. 78
</TABLE>

AUTOMATED WORK DISTRIBUTOR-REGISTERED TRADEMARK-, AWD-REGISTERED TRADEMARK-,
AWD/NETSERVER-TM-, AWD/RIP-REGISTERED TRADEMARK-, AWD/ST-TM-,
AWD/VOICE-REGISTERED TRADEMARK-, CLASSROM-REGISTERED TRADEMARK-, CREATIVE DESIGN
SERVICES-TM-, CUSTIMA-TM-, CYBERCSR-REGISTERED TRADEMARK-, DDP/SQL-TM-, DIRECT
ACCESS-TM-, DST-REGISTERED TRADEMARK-, E.BILL.ANYWHERE-SM-, ELECTRONIC
FULFILLMENT-TM-, ELLITE-TM-, ENCORR-REGISTERED TRADEMARK-, EXACT VIEW-SM-,
FAIRWAY-TM-, FAN-REGISTERED TRADEMARK-, FAN MAIL-REGISTERED TRADEMARK-, FAN
INVESTMENT TRACKING-TM-, FAN WEB-TM-, FAN WEB DIRECT-TM-, FAST-TM-, FINANCIAL
ACCESS NETWORK-REGISTERED TRADEMARK-, GLOBAL PORTFOLIO SYSTEM-REGISTERED
TRADEMARK-, GPS-REGISTERED TRADEMARK-, HIPORTFOLIO/2-TM-, IMPART/UPTIX-TM-,
INFO(.)DISC-TM-, INFORMA-TM-, INTEGRATED PHARMACY NETWORK SYSTEM-TM-,
INTELECABLE-REGISTERED TRADEMARK-, IPNS-REGISTERED TRADEMARK-, MARKET
ADVISOR-TM-, MAILNET-TM-, OPENDATAWAREHOUSE-TM-, OPENFRONTOFFICE-TM-,
OPENMARKETDATAFEEDS-TM-, OPENMESSENGER-TM-, OPENORDERS-TM-,
OPENPERFORMANCE-REGISTERED TRADEMARK-, OPENPRODUCTS-TM-, OPENREPORTING-TM-,
PALADIGN-TM-, PAS-TM-, PICK AND PACK SERVICES-TM-, PORTFOLIO ACCOUNTING
SYSTEM-TM-, POWERSTORE-REGISTERED TRADEMARK-, RAPIDCONFIRM-REGISTERED
TRADEMARK-, RAPID ENROLLER-TM-, RAPID NETSALE-TM-, REPLENISHMENT PRINT
SERVICES-TM-, SECURITIES TRANSFER SYSTEM-TM-, STMS-TM-, STS-TM-, SUBSCRIBER
TRANSACTION MANAGEMENT SYSTEM-TM-, TA2000-REGISTERED TRADEMARK-,
TECHCONNECT-TM-, TRAC-2000-REGISTERED TRADEMARK-, VISION-REGISTERED TRADEMARK-,
YOURACCOUNTS.COM-SM-, referred to in this Report are included among the
Company's trademarks and service marks. AS/400-REGISTERED TRADEMARK-,
DIRECTV-TM-, FUND/SERV-TM-, NETWORKING-TM-, ORACLE, OS/2-REGISTERED TRADEMARK-,
QUICKEN, SYBASE, UNIX-REGISTERED TRADEMARK-, WINDOWS-REGISTERED TRADEMARK-,
WINDOWS NT-REGISTERED TRADEMARK- and any other brand, service or product names
or marks referred to in this Report are trademarks or services marks, registered
or otherwise, of their respective holders.

1
<PAGE>
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING COMMENTS

The discussions set forth in this Annual Report on Form 10-K contain statements
concerning potential future events. Such forward-looking statements are based
upon assumptions by the Company's management, as of the date of this Annual
Report, including assumptions about risks and uncertainties faced by the
Company. Readers can identify these forward-looking statements by their use of
such verbs as expects, anticipates, believes or similar verbs or conjugations of
such verbs. If any of management's assumptions prove incorrect or should
unanticipated circumstances arise, the Company's actual results could materially
differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's amended
Current Report on Form 8-K/A dated March 25, 1999, which is hereby incorporated
by reference. This report has been filed with the United States Securities and
Exchange Commission ("SEC") in Washington, D.C. and can be obtained by
contacting the SEC's Public Reference Branch. Readers are strongly encouraged to
obtain and consider the factors listed in the March 25, 1999 Current Report and
any amendments or modifications thereof when evaluating any forward-looking
statements concerning the Company. The Company will not update any
forward-looking statements in this Annual Report to reflect future events or
developments.

PART I

ITEM 1. BUSINESS

This discussion of the business of DST Systems, Inc. ("DST" or the "Company")
should be read in conjunction with, and is qualified by reference to,
Management's Discussion and Analysis of the Company's Financial Condition and
Results of Operations ("MD&A") under Item 7 herein. In addition, pursuant to
rule 12b-23 under the Securities Exchange Act of 1934, as amended, the
information set forth under the headings "Introduction" and "Seasonality" in the
MD&A and the segment and geographic information included in Item 8, Note 13 are
incorporated herein by reference in partial response to this Item 1.

The Company was originally established in 1969. Through a reorganization in
August 1995, the Company is now a corporation organized in the State of
Delaware.

RECENT DEVELOPMENTS IN THE COMPANY'S BUSINESS

The recent business developments of the Company and the Company's subsidiaries
follow.

USCS MERGER

On December 21, 1998, the Company and USCS International, Inc. ("USCS")
completed their merger ("USCS Merger") through the issuance of .62 shares of DST
common stock for each outstanding share of USCS common stock. DST in 1998 issued
approximately 13.8 million shares of common stock in the transaction. The USCS
Merger was accounted for under the pooling of interests accounting method.
Accordingly, DST's financial results for all periods prior to the USCS Merger
were restated in 1998 to combine the historical results of operations of DST and
USCS.

The USCS Merger positions DST as a market leader in three segments. The three
segments are mutual fund and investment recordkeeping and accounting;
presentation of bills and statements for the Company's shareowner and subscriber
customer base as well as industries such as telecommunications, rapid delivery,
insurance and brokerage; and customer management solutions for the
video/broadband/ satellite television, telecommunications and utilities
industries. Since the USCS Merger, the Company has focused on combining the
knowledge and expertise of both DST and USCS with the objective of increasing
service capabilities and product offerings, expanding into new markets, and
achieving meaningful synergies and cost savings.

2
<PAGE>
EQUISERVE

In December 1998, Boston EquiServe LP ("Boston EquiServe") and First Chicago
Trust Company of New York completed a transaction creating EquiServe LP
("EquiServe"), the largest securities transfer agent in the U.S. Prior to the
transaction, Boston EquiServe was a limited partnership 50% owned by Boston
Financial Data Services, Inc. (a 50% owned joint venture of DST and State Street
Corporation) and 50% owned by BankBoston Corporation.

DST is currently developing Fairway, a new securities transfer system to be used
exclusively by EquiServe to process all of its accounts. DST has also agreed
with EquiServe to provide data processing services for EquiServe to use Fairway.
Upon acceptance of defined components of Fairway, DST will, subject to approval
of the Office of the Comptroller of the Currency ("OCC"), contribute Fairway and
its non-EquiServe securities transfer processing business (approximately 2
million accounts) to EquiServe for a 20% direct ownership interest in EquiServe
(the "EquiServe Contribution"). DST will also have a 10% indirect ownership
interest in EquiServe through BFDS after the EquiServe Contribution. DST
believes that an ownership in EquiServe provides the most effective
participation in the opportunities presented by the consolidation of the
securities transfer industry.

Acceptance of the initial defined components of Fairway is expected to occur in
the first part of 2000 and will result in DST receiving its initial equity
participation in EquiServe, subject to OCC approval. Acceptance of the remaining
defined components of Fairway and the transfer of DST's non-EquiServe stock
transfer business to EquiServe is expected to occur in stages through 2001.

NARRATIVE DESCRIPTION OF BUSINESS

FINANCIAL SERVICES

The Financial Services Segment provides sophisticated information processing and
computer software services and products primarily to mutual funds, investment
managers, insurance companies, banks, brokers and financial planners. The
Company's proprietary software systems include mutual fund shareowner and unit
trust accounting and recordkeeping systems offered in the U.S. and selected
international markets; a defined-contribution participant recordkeeping system
for the U.S. market; a variety of portfolio accounting and investment management
systems offered to U.S. and international fund accountants and investment
managers; a workflow management system offered primarily to mutual funds,
insurance companies, brokerage firms and banks; and a securities transfer system
offered to corporate trustees and transfer agents and, through affiliated
companies, to corporate clients.

The Financial Services Segment distributes its services and products on a direct
basis and through subsidiaries and joint venture affiliates in the U.S., United
Kingdom, Canada, Europe, Australia, South Africa and Asia-Pacific, and to a
lesser degree distributes such services and products through various strategic
alliances.

OUTPUT SOLUTIONS

3
<PAGE>
Company's Financial Services and Customer Management business segments, and to
telecommunications, utilities and other high volume industries which require
high quality, accurate and timely statement processing.

CUSTOMER MANAGEMENT

The Customer Management Segment provides sophisticated customer management and
open billing solutions to the video/broadband, direct broadcast satellite
("DBS"), wireless, wire-line and Internet-protocol telephony, Internet and
utility markets worldwide. The Company's software systems enable its clients to
manage their operations across all aspects of their business including order
processing, customer support, financial reporting, decision support, marketing,
field services and collections.

The Customer Management Segment distributes its services and products on a
direct basis and through subsidiaries in North America, the United Kingdom and
parts of Europe and with international alliance partners in other regions of the
world.

INVESTMENTS AND OTHER

The Investments and Other Segment holds investments in equity securities,
certain financial interests, the Company's real estate subsidiaries and the
Company's computer hardware leasing subsidiary. The Company holds investments in
equity securities with a market value of approximately $1.3 billion at
December 31, 1999, including approximately 8.6 million shares of Computer
Sciences Corporation ("CSC") with a market value of $817 million and 6.0 million
shares of State Street Corporation ("State Street") with a market value of $438
million. Additionally, the Company owns and operates real estate mostly in the
U.S. which is held primarily for lease to the Company's other business segments.

INDUSTRY REVENUE

The Company's sources of revenue by major industries served are presented below.
The industries listed may be served by more than one of the Company's business
segments.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U. S. REVENUES
Mutual fund / investment
management......................... $ 491.6 40.9% $ 429.1 39.1% $374.0 39.4%
Other financial services............. 123.0 10.2% 111.6 10.2% 99.1 10.4%
Video/broadband/satellite TV......... 190.9 15.9% 214.8 19.6% 199.4 21.0%
Telecommunications and utilities..... 149.3 12.4% 127.8 11.7% 104.5 11.0%
Other................................ 82.1 6.8% 62.1 5.7% 57.2 6.0%
-------- ----- -------- ----- ------ -----
Total U.S. revenues.............. 1,036.9 86.2% 945.4 86.3% 834.2 87.8%
-------- ----- -------- ----- ------ -----
INTERNATIONAL REVENUES
Mutual fund / investment
management......................... 109.2 9.1% 98.7 9.0% 67.4 7.1%
Other financial services............. 25.0 2.0% 23.6 2.1% 24.2 2.5%
Video/broadband/satellite TV......... 19.6 1.6% 18.3 1.7% 14.9 1.6%
Telecommunications and utilities..... 5.7 0.5% 3.1 0.3% 1.7 0.2%
Other................................ 6.9 0.6% 7.0 0.6% 7.6 0.8%
-------- ----- -------- ----- ------ -----
Total international revenues..... 166.4 13.8% 150.7 13.7% 115.8 12.2%
-------- ----- -------- ----- ------ -----
TOTAL REVENUES....................... $1,203.3 100.0% $1,096.1 100.0% $950.0 100.0%
======== ===== ======== ===== ====== =====
</TABLE>

4
<PAGE>
FINANCIAL SERVICES SEGMENT

The Financial Services Segment attributes its growth to the expansion of the
mutual fund industry and to the Segment's business strategy. The primary
components of the Segment's ongoing business strategy are: (i) enhancement of
its technology base and development of new services and products to strengthen
its position as the leading provider of information processing services to the
U.S. mutual fund market; (ii) expansion into markets where it can provide
similar information processing and computer software services and products; and
(iii) formation of strategic alliances and joint ventures with or acquisitions
of established companies operating in target markets, both in the U.S. and
internationally.

The growing volume and complexity of transactions in the financial services and
other markets have resulted in increasing demand for more sophisticated systems
to timely and accurately process information. Computer technology has provided
an effective means of addressing this demand, but requires significant capital
investment and expertise. As a result, many financial service organizations have
relied on outside providers, such as the Company. The Company expects the
information processing needs of these organizations to grow in volume and
complexity presenting the Financial Services Segment with significant
opportunities to sell its services and products.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
FINANCIAL SERVICES OPERATING DATA
Revenues (in millions)
U.S....................................................... $ 427.0 $ 390.1 $ 338.0
International............................................. 127.9 117.5 87.0
------- ------- -------
$ 554.9 $ 507.6 $ 425.0
======= ======= =======
Mutual fund shareowner accounts processed (millions)
U.S....................................................... 56.4 49.8 45.0
Canada.................................................... 2.4 1.6 0.9
United Kingdom (1)........................................ 2.0 1.4 1.0
TRAC-2000 mutual fund accounts (millions) (2)............... 3.4 2.5 1.9
TRAC-2000 participants (thousands).......................... 1,254 905 696
IRA mutual fund accounts (millions) (2)..................... 14.0 12.0 9.6
Portfolio Accounting System portfolios...................... 1,988 1,962 1,925
Automated Work Distributor workstations..................... 57,700 45,300 35,100
</TABLE>

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

(1) Processed by European Financial Data Services Limited, an unconsolidated
affiliate of the Company.

(2) Included in U.S. mutual fund shareowner accounts processed.

U.S. MUTUAL FUND SHAREOWNER PROCESSING

Most of the Financial Services Segment's mutual fund clients are "open-end"
mutual fund companies, which obtain funds for investment by making a continuous
offering of their shares. Purchases and sales (referred to as "redemptions") of
open-end mutual fund shares are typically effected between shareowners and the
fund, rather than between shareowners. These transactions are based on the net
asset value of the mutual funds on the date of purchase or redemption, which
requires that the assets of the fund and the interests of its shareowners be
valued daily. Accordingly, timely and accurate accounting and recordkeeping of
shareowner and fund investment activity is critical.

Investor attraction to a wide array of mutual fund investment products with
increasingly specialized features has significantly increased the number of
mutual fund shareowner accounts, the volume of

5
<PAGE>
transactions and the complexity of recordkeeping. In addition, new technologies
have changed the service requirements and distribution channels of the mutual
fund market. The Company has made significant investments in computer capacities
and systems to handle the increasing volume and complexity of transactions and
distribution channels, maintain its leadership position and to improve quality
and productivity.

The Company typically enters into multi-year written agreements with its
clients. Most of the shareowner accounts serviced by the Company are at mutual
fund organizations that have been clients of the Company for more than five
years.

SHAREOWNER ACCOUNTING AND RECORDKEEPING

The proprietary applications system for U.S. mutual fund recordkeeping and
accounting is TA2000, which performs shareowner related functions for mutual
funds, including processing purchases, redemptions, exchanges and transfers of
shares; maintaining shareowner identification and share ownership records;
reconciling cash and share activity; calculating and disbursing commissions to
brokers and other distributors; processing dividends; creating and tabulating
proxies; reporting sales; and providing information for printing of shareowner
transaction and statement data and year-end tax statements. The system processes
load, no-load, multi-class and money funds. TA2000 also performs many
specialized tasks, such as asset allocation and wrap fee calculations. At
December 31, 1999, the Company provided shareowner accounting processing
services for approximately 56.4 million U.S. mutual fund shareowner accounts.

Mutual fund shareowner services are offered on a wide range of levels. "Full"
service processing includes all necessary administrative and clerical support to
process and maintain shareowner records, answer telephone inquiries from
shareowners, brokers and others, and handle the TA2000 functions described
above. "Remote" service processing is designed to allow clients to have their
own administrative and clerical staff access TA2000 at the Winchester Data
Center using the Company's telecommunications network.

Selection by a client of the level of service is influenced by a number of
factors, including cost and level of desired control over interaction with fund
shareowners or distributors. To address clients' desires to control such
interaction, the Company structured its services to allow the clients' personnel
to handle telephone inquiries while the Company's or an affiliate's personnel
retain transaction processing functions. This service was facilitated by the
implementation of Automated Work Distributor ("AWD"), which creates electronic
images of transactions and enables such images, together with the status of the
related transactions, available to the personnel handling the telephone calls.

The Company derives revenues from its mutual fund shareowner accounting services
through fees charged for use of the Company's proprietary software systems,
clerical processing services and other related products. These fees are
generally charged on a per account and number of funds basis for system
processing services and on a per account, number of fund and transaction basis
for clerical services. The Company's policy is not to license TA2000.

RETIREMENT PLAN ACCOUNTING AND RECORDKEEPING

Mutual funds are popular investment vehicles for individual and corporate
retirement plans. TA2000 supports Individual Retirement Accounts (IRAs)
including Roth and Educational IRAs.

The Company's TRAC-2000 system provides recordkeeping and administration for
defined contribution plans, including 401(k), 403(b), money purchase and profit
sharing plans that invest in mutual funds, company stock, guaranteed investment
contracts and other investment products. TRAC-2000 is integrated with TA2000,
eliminating reconciliation problems that occur when different systems are used
for participant recordkeeping and mutual fund shareowner accounting. TRAC-2000
is offered on a full-

6
<PAGE>
service basis through BFDS and on a remote basis by the Company. The Company
regards the retirement plan market as a significant growth opportunity for its
services and products because (i) that market is relatively new and experiencing
significant expansion as more employers shift away from defined benefit
programs; (ii) mutual funds, because of their features, are increasingly popular
selections for investment by such plans; and (iii) each retirement plan
participant normally elects to use multiple mutual fund investment accounts.
Revenues from these services are based generally on the number of participants
in the defined contribution plans, as well as per account fees for related
mutual fund accounts processed on TA2000.

At December 31, 1999, TA2000 services 14.0 million IRA accounts invested in
mutual funds, including 2.7 million Roth IRA and Educational IRA accounts. In
addition, TRAC-2000 provides recordkeeping for 1.3 million retirement plan
participants with 3.4 million related TA2000 mutual fund accounts.

PRODUCTS SUPPORTING MUTUAL FUND DISTRIBUTION AND MARKETING

The Company has developed products to meet the changing service requirements,
distribution channels and increasing regulatory requirements affecting the
mutual fund market.

The Company processes over 50% of the mutual fund industry's volume on Fund/Serv
and Networking, two systems developed by the Depositary Trust and Clearing
Corporation for broker distributed mutual funds. The Company has also developed
Financial Access Network ("FAN"), the technological infrastructure that
facilitates emerging channels of mutual fund sales and distribution via the
Internet. Products and services utilizing FAN include (i) FAN Web, which allows
clients to offer their investors direct inquiry to account information,
financial transaction execution and literature fulfillment through a set of
customized Internet templates that link the client's website to FAN, (ii) FAN
Web Direct, which offers clients a secure, seamless and efficient processing
capability for electronic transactions from a client's own web application
directly into FAN, (iii) FAN Investment Tracking, which enables shareholders to
download their mutual fund transaction data through Quicken for Windows Online
Investment Center, (iv) FAN Mail, which provides financial advisors and brokers
with trade confirmations, account positions and other data via public network
access, and (v) Vision, which enables brokers and financial advisors to view
fund, account and dealer information, process transactions, and establish new
accounts.

Revenues from these new services and products are based generally on the number
of transactions processed.

BOSTON FINANCIAL DATA SERVICES, INC. ("BFDS")

BFDS, a 50% owned joint venture with State Street, is an important distribution
channel for the Company's services and products. BFDS combines use of the
Company's proprietary applications and output solutions capabilities with the
marketing capabilities and custodial services of State Street to provide
full-service shareowner accounting and recordkeeping services to over 142 U.S.
mutual fund companies. BFDS also offers remittance and proxy processing, class
action administration services, teleservicing and full-service support for
defined contribution plans using the Company's TRAC-2000 system. BFDS is the
Financial Services Segment's largest customer, accounting for approximately
14.0% of the Segment's revenues in 1999.

INTERNATIONAL MUTUAL FUND / UNIT TRUST SHAREOWNER PROCESSING

DST provides international shareowner processing through DST Canada, a wholly
owned subsidiary, and European Financial Data Services, Limited ("EFDS"), a 50%
owned United Kingdom joint venture of DST and State Street Corporation.

7
<PAGE>
DST CANADA, INC. ("DST CANADA")

DST Canada provides remote mutual fund shareowner processing in Canada and
licenses its mutual fund shareowner system to mutual fund companies in related
markets outside Canada. Revenues are derived from providing remote mutual fund
shareowner processing services and time and material fees for client-specific
enhancements and support to the remote processing system, and to a lesser degree
from licensing its mutual fund shareowner system to mutual fund companies. DST
Canada also has installed its mutual fund system in Germany, Switzerland and
Saudi Arabia. Enhancements are being made to the system for operation in Japan
beginning in 2000. DST Canada processes 2.4 million mutual fund accounts,
including those of its largest client, CFDS Limited ("CFDS"). A Canadian
subsidiary of BFDS, CFDS provides full-service processing to the Canadian mutual
fund industry using DST Canada's mutual fund system and full-service processing
for U.S. off-shore mutual funds using TA2000. In addition, DST Canada's mutual
fund system processes approximately 5.8 million accounts under license
arrangements.

EUROPEAN FINANCIAL DATA SERVICES LIMITED ("EFDS")

EFDS offers full and remote service processing for unit trusts and related
products serving 2.0 million unitholder accounts at December 31, 1999, making it
the largest third party provider of such services in the U.K. EFDS has developed
FAST, a new unit trust accounting system, and has converted a significant number
of its client base to the new system as of December 31, 1999 with the remaining
clients scheduled to convert in 2000. DST believes that the successful
conversion of clients onto the new system should allow EFDS to pursue new
clients in the United Kingdom market.

PORTFOLIO ACCOUNTING AND INVESTMENT MANAGEMENT PRODUCTS

The Company offers products that support the portfolio accounting and investment
management functions of the financial services industry. DST's Portfolio
Accounting System (PAS) is offered primarily to the U.S. mutual fund industry on
a remote processing basis. HiPortfolio/2, OpenProducts and Global Portfolio
System ("GPS") are offered as licensed products both in the U.S. and
internationally. DST offers a complete solution to firms managing mutual funds,
institutional advisory accounts, or both.

PAS is an integrated multi-currency system that maintains fund accounting
records for mutual funds and unit investment trusts with U.S. and international
assets, computes daily income and expense for each portfolio and calculates the
fund's daily net asset value ("NAV"). The Company derives revenues generally
based on the number of mutual fund portfolios processed by PAS. Two new
components of PAS are Infoquest for Internet access and straight-through
processing supported by AWD. As of December 31, 1999, the 1,988 portfolios on
PAS had an aggregate market value of $1.4 trillion.

HiPortfolio/2 is also designed for medium and large investment management firms
that are seeking a turnkey system for investment accounting that can meet their
local and international requirements with minimum customization. HiPortfolio/2
is a scalable, comprehensive front, middle and back office solution.

The range of OpenProducts include OpenFrontOffice (a front office decision
support system with a graphical user interface (GUI)), OpenPerformance (a
performance measurement and attribution system), OpenDataWarehouse, OpenOrders
(automated order management), OpenReporting (high quality desktop publishing and
client reporting), OpenMessenger (straight through processing),
OpenMarketDataFeeds (management of external market data) and a number of others
under development.

GPS is designed for medium and large investment management companies that
require a customized solution. The system is a rules-based, multi-currency
transaction processing and portfolio accounting

8
<PAGE>
system with a GUI and a variety of reporting alternatives. With its client
server, relational database architecture (Sybase or Oracle), GPS can seamlessly
integrate with the Company's range of OpenProducts or can interface with a wide
range of third-party systems.

The Company derives revenues from HiPortfolio/2, OpenProducts and GPS, from
license fees, fees for customized installation and programming services and
annual maintenance fees.

DST INTERNATIONAL LIMITED ("DST INTERNATIONAL")

DST International, a United Kingdom company, provides investment management and
portfolio accounting software (on a license basis) and services to over 500
installations in 40 countries worldwide, serviced by offices in the United
Kingdom, U.S., Australia, New Zealand, Hong Kong, Singapore, Thailand, Japan and
South Africa. In addition to the above licensed products, DST International's
other products are Impart/Uptix and Paladign. DST International also distributes
and supports AWD outside North America.

AUTOMATED WORKFLOW MANAGEMENT

Automated Work Distributor ("AWD") is designed to help companies improve
operating efficiency and customer satisfaction. The AWD system captures all
customer contacts (such as Internet, email, phone calls, faxes and mail),
prioritizes and assigns the work to the appropriate resource, and tracks the
contact through to completion. By coordinating all channels of customer
communication, AWD allows for seamless delivery of service, improving customer
satisfaction. The AWD product suite includes tools for character recognition,
digitized voice and process automation to automate manual processes.

Initially introduced to enhance the Company's mutual fund shareowner
recordkeeping system, AWD was designed to interface with a wide range of high
volume application processing systems. AWD utilizes a client server architecture
that enables it to operate on AS/400, Windows NT or UNIX servers utilizing
Windows, OS/2 and thin client desktops. AWD interfaces with existing mainframe
or other server lines of business applications. AWD is primarily installed in
mutual fund and other investment management firms, insurance companies,
brokerage firms and banks located in the U.S., Canada, United Kingdom, Europe,
Australia, South Africa and Asia-Pacific. In addition, Computer Sciences
Corporation Financial Services Group ("CSC-FSG") distributes the Company's AWD
product to life and property and casualty insurance companies worldwide.

The Company has developed modular components enabling AWD to support various
means of customer interaction. These products include EnCorr, which automates
the creation and printing of correspondence; PowerStore, which enables optical
media access for AWD users; AWD/RIP, which imports work into AWD from other
computer systems and external networks; AWD/ST which fully automates transaction
processing; and AWD/NetServer to extend AWD functionality to intranet and
Internet environments. AWD/Voice was developed to support the infrastructure
requirements of mid-to-high volume call centers. AWD/Voice integrates call
record/playback technology and computer-telephony integration technology into
the AWD system. AWD/Voice supports various call center desktop applications and
has been implemented in insurance and mutual funds environments.

AWD can be installed at the customer's site or the customer can access AWD at
the AWD Data Center using the Company's telecommunications network.

The Company derives AWD revenues from multi-year bundled service and usage
agreements based on the number of workstations accessing the software and fixed
fee perpetual license agreements that may include provisions for additional
license payments in the event the number of users increases. The Company also
derives AWD revenues from fees for customized installation and programming
services and annual maintenance fees.

9
<PAGE>
SECURITIES TRANSFER PROCESSING

The Company's existing system to support the securities transfer market, the
Securities Transfer System ("STS"), provides a wide array of corporate stock and
bond security holder recordkeeping services, including maintaining ownership
records, recording ownership changes, issuing certificates, issuing and
tabulating proxies, calculating and disbursing dividends and interest,
processing dividend reinvestments, tax reporting and responding to shareowner
inquiries through on-line data access. STS also maintains shareowner activity
for closed-end mutual funds and unit investment trusts. EquiServe currently uses
STS to process approximately 5.7 million accounts.

EQUISERVE

EquiServe is the largest U.S. securities transfer agent serving over 1,400
companies with 25 million shareowner accounts. EquiServe provides dividend
disbursement and reinvestment; direct stock and employee stock purchase plans
services; proxy mailing and tabulation; annual and interim report distribution;
merger and acquisition services; and stock option services. EquiServe also
offers Internet access to its clients' shareowners for inquiry and transaction
processing, Internet proxy voting and Internet access to annual reports through
Corporate Document Systems, a 50% owned affiliate of DST. See "Recent
Developments" above for further discussion of EquiServe.

WINCHESTER INFORMATION PROCESSING SERVICES

Winchester Information Processing Services primarily supports the computing
needs of the Company's Financial Services Segment with two data centers in
Kansas City, Missouri.

The Winchester Data Center ("Winchester") is the Company's primary central
computer operations and data processing facility. Winchester has a total of
163,000 square feet, of which 76,000 square feet is raised floor computer room
space. Winchester has mainframe computers with a combined processing capacity of
over 5.7 billion instructions per second and direct access storage devices with
an aggregate storage capacity that exceeds 26 trillion bytes. Winchester also
contains over 150 servers supporting NT, UNIX, and AS/400 small and midrange
computing environments. These servers are used to support DST's products and
processing for certain of the Company's affiliates. The physical facility is
designed to withstand natural disasters including tornado-force winds.

The AWD Data Center supports the Company's AWD Image processing services. The
facility has a total of 11,500 square feet, of which 8,500 are currently used
for the computer room. The computer room houses IBM AS/400 computers and optical
storage systems, which support over 5,500 AWD Image users. AWD users include
DST's Full-Service area as well as several of the Company's remote AWD customers
and other financial services companies. The AWD Data Center also houses over 250
servers supporting various Company products and Winchester's remote tape storage
using IBM's automated tape libraries.

Both data centers are staffed 24-hours-a-day, seven-days-a-week and have
self-contained power plants with mechanical and electrical systems designed to
operate virtually without interruption in the event of commercial power loss.
The data centers utilize fully redundant telecommunications networks serving the
Company's clients. The network, which serves more than 96,000 computer users,
has redundant pathing and software which provide for automatic rerouting of data
transmission in the event of carrier circuit failure.

10
<PAGE>
The Company has an agreement with a commercial disaster recovery provider for
computer processing in the event of a computer failure at Winchester. The
Company's data communications network is linked to the disaster recovery
provider's facility and network to enable client access to the disaster recovery
facility. The AS/400 processors at the AWD Data Center and the AS/400 processors
at Winchester provide contingency plan capabilities for each other's processing
needs. The Company regularly tests the disaster recovery processes for both data
centers.

ARGUS HEALTH SYSTEMS, INC. ("ARGUS")

Argus is a 50% owned joint venture of the Company and a privately held life
insurance holding company. Argus provides managed care pharmaceutical claim
processing services using its proprietary computer processing system, Integrated
Pharmacy Network System ("IPNS"). IPNS is an interactive, database managed
processing system for administration of prescription drug claims, pharmacy and
member reimbursement and drug utilization review. IPNS, which provides
substantial flexibility to accommodate varying provider requirements, allows
point-of-sale monitoring and control of pharmacy plan benefits with on-line
benefit authorization and alerts dispensing pharmacists to potential medication
problems arising from such factors as duplicate prescriptions, incorrect dosage
and drug interactions.

The Company provides data processing, telecommunications and output solutions
services to Argus, and Argus operates IPNS at Winchester and the AWD Data
Center. Its primary clients are providers of pharmacy benefit plans including
insurance companies, health maintenance organizations, preferred provider
organizations and other pharmacy benefit managers.

CUSTOMER CONCENTRATION

The Financial Services Segment's five largest customers accounted for 32.8% of
segment revenues in 1999, including 14.0% from its largest customer.

MARKETING / DISTRIBUTION

In the U.S., Canada, and select international markets, the Financial Services
Segment identifies potential users of its products and services and tailors its
marketing programs to focus on their needs. The Segment's marketing efforts also
include cross-selling the Company's wide range of services and products to its
existing clients. The Segment's sales efforts are closely coordinated with its
joint venture and strategic alliance partners.

Sources of new business for the Segment include (i) existing clients,
particularly with respect to complementary and new services and products;
(ii) companies relying on their own in-house capabilities and not using outside
vendors; (iii) companies using competitors' systems; and (iv) new entrants into
the markets served by the Company. The Company considers its existing client
base to be one of its best sources of new business.

The Company's mutual fund systems and related services and products are marketed
to mutual fund management firms and to distributors of mutual fund shares, such
as banks, insurance companies, brokerage firms and third party administration
firms. Increasingly, such firms manage multiple mutual fund products to address
different investment objectives. Generally, mutual fund products are promoted
and distributed in fund groups which provide investors with a variety of mutual
fund investments and the ability to exchange investments from one fund to
another within the group. This often means that a single service agent, such as
the Company, is used for all funds in the group.

DST International markets its investment management and portfolio accounting
software and services directly to medium and large investment management firms.
Generally, DST International's customers are seeking a turnkey system for
investment accounting that can meet their requirements with a

11
<PAGE>
minimum amount of customization. Each of DST International's offices has a
dedicated sales force and a team of consultants that can sell, install and
implement these products.

COMPETITION

The Company believes that competition in the markets in which the Financial
Services Segment operates is based largely on quality of service, features
offered including the ability to handle rapidly changing transaction volumes,
commitment to processing capacity and software development, and price. The
Company believes there is significant existing competition in its markets. The
Company's ability to compete effectively is dependent on the availability of
capital. Some of the Company's competitors have greater resources and greater
access to capital than the Company and its affiliates.

The Company's shareowner accounting systems compete not only with third-party
providers but also with in-house systems and brokerage firms that perform
sub-accounting services for the brokerage firms' customers that purchase or sell
shares of mutual funds of the Company's clients. Financial institutions
competing with the Company may have an advantage because they can take into
consideration the value of their clients' funds on deposit in pricing their
services. The Company believes its most significant competitors for third party
shareowner accounting systems are PFPC, Inc. and SunGard Data Systems, Inc.

The Company has significant competition with its portfolio accounting and
investment management systems. Principal competitors are third-party software
service providers and those companies that license their products. The key
competitive factors in the investment management systems are the accuracy and
timeliness of processed information provided to customers, features and
adaptability of the software, level and quality of customer support, level of
software development expertise and price. The Company believes that it competes
effectively in the market by its ongoing investment in its products and the
development of new products to meet the needs of the portfolio accountants and
investment managers. The Company believes its most significant competitors for
portfolio accounting and investment management systems are SunGard Data
Systems, Inc., State Street Corporation (including Princeton Financial
Systems, Inc.), Misys plc, SS&C Technologies, Inc., Advent Software, Inc. and
Datastream Systems, Inc.

The Company's automated workflow system competes with other data processing and
financial software vendors. Competitive factors include features and
adaptability of the software, level and quality of customer support, level of
software development expertise and price. The Company believes that it can
compete effectively in those markets the Company chooses to pursue. The Company
believes its most significant competitors for automated workflow systems are
Filenet Corporation, Pegasystems Inc., and Staffware plc.

OUTPUT SOLUTIONS SEGMENT

The Output Solutions Segment provides bill and statement processing services and
solutions, including electronic presentment, to customers of the Financial
Services and Customer Management Segments and other industries which value
customer communications and require high quality, accurate and timely statement
processing. The Company also offers a variety of complementary professional
services, including consulting, application development, fulfillment and client
training, as well as statement design and formatting services that allow clients
to use the statements as a communication and marketing tool.

12
<PAGE>
The Company is among the largest first class mailers in the U.S., mailing over
1.6 billion items in 1999. The sources of revenue by major industry served are
listed below.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OUTPUT SOLUTIONS OPERATING DATA
Revenues (in millions)
U.S. revenues
Mutual fund/investment management......................... $117.2 $ 94.8 $ 84.5
Other financial services.................................. 81.3 63.5 57.3
Video/broadband/satellite TV.............................. 60.1 64.7 62.2
Telecommunications and utilities.......................... 147.1 126.0 104.5
Other..................................................... 67.7 50.2 44.0
------ ------ ------
473.4 399.2 352.5
------ ------ ------
International revenues
Mutual fund/investment management......................... 1.2 1.6 0.3
Other financial services.................................. 5.5 3.2 4.4
Telecommunications and utilities.......................... 1.4 1.4 1.7
Other..................................................... 6.5 7.0 7.5
------ ------ ------
14.6 13.2 13.9
------ ------ ------
$488.0 $412.4 $366.4
====== ====== ======

Images produced (millions)
U.S....................................................... 6,251 5,017 4,171
International............................................. 68 70 50
Items mailed (millions)
U.S....................................................... 1,665 1,466 1,311
International............................................. 18 24 20
</TABLE>

OUTPUT SOLUTIONS SERVICES

Statement processing services and solutions are provided in fully integrated and
automated production environments that rapidly and cost-effectively transform
electronic data received from our clients into informative, accurate and
customized statements. The Company's highly automated production environment
allows our clients to maximize postal savings while minimizing delivery time.

For the financial services industry, the Company performs electronic printing,
variable and selective insertion, presorted mailing and distribution of custom
designed shareowner and other account based communications, including
transaction confirmations, dividend checks, account statements and year-end tax
reports.

The Company provides bill and statement processing services and solutions to the
video/broadband/ satellite TV, telecommunications, utilities, transportation,
rapid delivery and other service industries. The Company cost-effectively
transforms electronic data received from the client into informative, accurate
and customized billing statements.

To address the needs of multi-service providers, the Company also offers
consolidated statements, which combine data from multiple services and funds
into a single integrated statement. Consolidated statements can offer clients
significant savings both in paper and mailing costs. Consolidated statements can
also be a powerful marketing tool for companies seeking to establish brand name
recognition and sell combined services.

13
<PAGE>
The Company derives revenues from its bill and statement processing services
based generally on the number of images processed.

Direct Access, the Company's proprietary web-based program, enables the
Company's billing customers to have near real-time monitoring and reporting
functions. Using standard Internet browsers and entry through secured access to
the Company's extranet, customers can monitor their data from the time of
completed transmission to the moment it leaves the Company's facilities, thus
providing the power to view every step of the process remotely. The Company
intends to extend this capability to its broader customer base.

The Company offers a full range of technical support for its clients. Customized
programming tools have been developed that allow electronic information streams
from a variety of client systems to be received without the need to make changes
to the customer's software. These tools enable rapid and smooth transitions when
clients outsource their statement processing and electronic functions.

ELECTRONIC DELIVERY ALTERNATIVES (YOURACCOUNTS.COM)

The Company's automated information and technology infrastructure, which
electronically prepares and monitors the statement until final printing,
provides the basis for our electronic statement presentment and payment
offerings. The YourAccounts.Com division was formed in 1999 to meet client
requirements for recurring Internet-enabled customer communication by addressing
the complexity of the Internet, providing reliability in handling large-scale
billing and statement processes, and using bills and statements as the basis for
personalized communications that improve customer relationships.

The Company believes that as electronic statements and payment solutions become
more accepted, communications service providers, utilities, financial services
and other companies will require electronic statement and bill presentment
capabilities. To fulfill this requirement, the Company introduced two product
lines: E.BILL.ANYWHERE for electronic bill presentment and payment, and INFORMA
for electronic presentment of mutual fund and brokerage statements,
confirmations, and tax documents.

The Company has also announced marketing alliances with several companies
including CheckFree, Convergys, Cybercash, Intuit, Bank of America, NetGravity
and NewRiver Investor Communications, Inc. to extend the reach and value of its
electronic solutions. Because of its existing volumes, state-of-the-art
processing systems, and client relationships, the Company believes it is in a
unique position to become a one-stop, full-service supplier of either
paper-based or electronically delivered statements.

Revenues from electronic statement and payment solutions are based generally on
the number of statements viewed or transactions processed.

ADDITIONAL PRODUCTS AND SERVICES

RAPID CONFIRM

For the brokerage industry, the Company offers Rapid Confirm, one of the fastest
ways to deliver trade confirmations. Utilizing MailNet, the largest domestic
distributive print network, Rapid Confirm provides speed of delivery through the
United States Postal Service. With distributive print-mail sites strategically
located throughout the U.S., 90% of our mail is delivered in two days or less at
discounted presort rates. Confirmations may be consolidated, householded, and
may be printed with dynamic highlight color for greater visual impact.

RAPID ENROLLER

The Company's Rapid Enroller allows defined contribution plan providers to offer
fast, fully personalized documentation to plan participants. Utilizing
state-of-the-art print-on-demand technology, Rapid Enroller enables customized
packaging based on client and recipient information.

14
<PAGE>
RAPID NETSALE

Designed for the rapidly growing on-line brokerage market, the Company's Rapid
NetSale "captures" a potential customer's information and triggers the mailing
of a personalized lead or welcome kit. With Rapid NetSale, online brokers are
able to immediately re-engage prospective customers that abandon their online
session and quickly respond to new prospects with customized marketing
collateral, increasing online brokers' new account acquisition rates.

ELLITE

For mutual funds and brokerage firms, the Company offers eLLite, enabling fast
access to current fund information. With electronic technology and secured
Internet access, customers can locate and download information from hundreds of
reports in just a few key strokes.

CREATIVE DESIGN SERVICES

The Company offers statement-based marketing and creative design services that
allow our clients to transform customer statements into communication tools. The
statement is often the only form of regular communication between a service
provider and its customers. Many clients have the opportunity, through
statement-based marketing and creative design services, to use the paper or
electronic statement to reinforce a corporate image, advertise special offers
and features, deliver customer-specific messages and otherwise market their
services to their customers.

ARCHIVAL AND RETRIEVAL SOLUTIONS

The combined need for archival and customer service retrieval of statements are
addressed by our Info-Disc and Exact View storage solutions which provide
customer service representatives with a statement image enabling faster customer
service calls and improving first-call resolution rates. The Company also offer
sophisticated computer output microfilm (COM) capabilities for long-term
archival.

FULFILLMENT

The Company offers a variety of fulfillment services to support the literature
distribution needs of our clients; including i) Pick & Pack Services offering
dynamic package configuration and inventory management; ii) Replenishment Print
Services offering print-on-demand technology; and iii) Electronic Fulfillment.

PRODUCTION FACILITIES

The Company's primary production facilities are in Sacramento, Kansas City,
Hartford, Boston, Denver, St. Louis, New York, and Toronto. These facilities use
roll form and sheet fed production processes and can perform variable and
selective insertion and pre-sorted mailing.

The Company has patented processes and technologies, that provide a fully
integrated, computerized and automated production environment. The production
system (i) processes, logs, verifies and authenticates customer data,
(ii) creates automated production controls for a statement, including form bar
codes, weight and thickness parameters, unique statement tracking numbers, "due
out" dates, address correction, carrier route/delivery point bar codes and
postal processing parameters, (iii) models production runs on-line before
printing or electronic transmission, and (iv) enables postal processing, sorting
and discounting to be performed on-line.

Full real-time automation enables the Company to monitor quality, control
remakes, predict and schedule production loading, verify customer data, forecast
production volumes and maintain production system history on-line. The system is
controlled by an on-line production control system that

15
<PAGE>
is based on advanced client/server architecture and has high-speed data
transmission capabilities. A local area network links the production equipment
to the production control system.

CUSTOMER CONCENTRATION

The Output Solutions Segment's five largest customers accounted for 25.8% of
segment revenues in 1999, including 8.2% from its largest customer.

MARKETING / DISTRIBUTION

The Company believes that sales of separate statement processing services to
defined vertical markets including, mutual fund, banking, brokerage, insurance,
healthcare, telecommunications, transportation, video/broadband/satellite
television, utilities and other service industries offers both increased revenue
opportunities as well as increased visibility for the Company. The Company
maintains a field operations sales staff, including client services and
technical support teams and significant design resources, to target these market
segments. The Company has begun an international statement processing marketing
effort. The Company has entered into alliances with partners such as Xerox,
Mellon Bank, Intuit, CheckFree, Bank of America and CyberCash to jointly market
its statement processing and electronic presentment capabilities.

COMPETITION

The key competitive factors in the Output Solutions Segment are quality of
services, quality of customer support, ability to handle large volumes and speed
of production. The most significant competitors for statement/output solutions
services are in-house service providers, local companies in the cities where the
Company's printing operations are located and other national competitors such as
Moore Corporation Ltd., Bowne and Co. Inc., Vestcom International, Inc.,
Automatic Data Processing Inc. and CSG Systems International, Inc. The most
significant competitors for electronic presentment of bills and statements
include billserv.com Inc., Bowne and Co. Inc., Derivion, Electronic Data
Systems, Inc., International Business Machines Corporation, Moore Corporation
Ltd. and Tumbleweed Communications Corp. The Company believes that it competes
effectively in these markets.

INTELLECTUAL PROPERTY

The Company holds 26 U.S. patents covering various aspects of its statement
processing services. The Company has no foreign patents. The Company believes
that although the patents it holds are valuable, they are not critical to the
Company's success, which depends principally upon its product quality, marketing
and service skills. However, despite patent protection, the Company may be
vulnerable to competitors who attempt to imitate the Company's systems or
processes and manufacturing techniques and processes. In addition, other
companies and inventors may receive patents that contain claims applicable to
the Company's system and processes.

CUSTOMER MANAGEMENT SEGMENT

DST's Customer Management Segment provides sophisticated customer management and
open billing solutions to the video/broadband, direct broadcast satellite
("DBS"), wireless, wire-line and Internet-protocol telephony, Internet and
utility markets serving more than 45 million end-users worldwide. The Company's
proprietary software systems enable our clients to manage their operations
across all aspects of their business including order processing, customer
support, financial reporting, decision support, marketing, field services and
collections. The Company's software solutions are currently used by the largest
DBS provider in the U.S. as well as six of the top seven U.S. video/broadband
multiple service providers.

16
<PAGE>
The Segment primarily derives its revenues for customer management processing
and computer software services and products based on the number of end-users of
the services offered by its clients, the number of bills mailed and/or the
number of images produced under multi-year bundled service and usage agreements.
These agreements are typically subject to periodic renewals and inflation-based
fee adjustments. Certain of the Company's customers license the customer
management software under term license agreements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CUSTOMER MANAGEMENT OPERATING DATA
Revenues (in millions)
U.S....................................................... $179.1 $200.1 $186.7
International............................................. 23.9 20.0 14.9
------ ------ ------
$203.0 $220.1 $201.6
====== ====== ======
Video/broadband/satellite TV subscribers processed
(millions)
Total before discontinued customer........................ 39.0 35.6 30.8
Discontinued customer (1)................................. 0.1 2.4 10.9
------ ------ ------
Total subscribers processed................................. 39.1 38.0 41.7
====== ====== ======
</TABLE>

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

(1) See discussion in Customer Management Segment--Customer Concentration

The Company's flexible, scalable and open architecture uses the latest
technologies to offer a variety of customer management services and products
that allow its customers to effectively manage their growing customer base. The
Company's products are available on a stand-alone or service bureau environment.
Stand-alone systems currently support approximately 85% of the subscriber base
and 15% are supported on a service bureau basis.

SYSTEMS AND SERVICES

INTELECABLE

This convergent billing solution is designed to support single and multi-service
providers in an array of communications markets including video/broadband,
Internet, global telecommunications (both business and residential) and DBS.
Intelecable offers an integrated rating engine that rates a variety of usage-
based services, including usage-based services on the Internet. Based on an open
architecture and a range of application program interfaces, Intelecable
streamlines integration with other information systems. With more than 115
installations, Intelecable is in use in more than 30 countries and can operate
in a variety of languages including Japanese and Chinese.

DDP/SQL

The DDP/SQL system supports the North American video/broadband market and is
used by six of the top seven U.S. video/broadband multiple service providers. As
a relational database, the DDP/SQL system serves the video/broadband market by
supporting digital services, high-speed data, electronic services, Web over TV,
and traditional cable television. DDP/SQL runs on parallel processing hardware
manufactured by Tandem. The Company is a value-added reseller of Tandem
equipment. The Company also sells to its clients peripheral hardware made by
manufacturers other than Tandem, and generally enters into hardware maintenance
agreements with its clients. The Company's Investments and Other Segment also
provides lease financing and maintenance services primarily for companies
operating systems on a stand-alone basis.

17
<PAGE>
SUBSCRIBER TRANSACTION MANAGEMENT SYSTEM ("STMS")

The Subscriber Transaction Management System was developed to manage the
customer management and output solutions related activities for DirecTV, Inc.,
the largest DBS provider in the U.S. The Company is expanding the scope of STMS
to address the needs of other direct broadcast satellite operators that provide
non-television and interactive services and to international providers.

CUSTIMA

The CUSTIMA software system supports the customer management activities of
water, electric, gas, and municipal utility providers on four continents to bill
nearly seven million domestic, commercial and industrial customers. CUSTIMA
includes usage-based billing, real-time pricing, Internet integration,
scalability, and allows for platform independence.

AWD

The Company has integrated its AWD product with its customer management systems
to expand the support of customer relationship management to the
video/broadband/satellite television, telecommunications and utility industries.

ANCILLARY PRODUCTS

Ancillary products are available on all systems. These ancillary solutions
include CyberCSR, which provides cable management services directly to the home
subscriber via the Internet; TechConnect, which increases the productivity of
installers and field technicians by providing access to job and customer
information via the Internet; and Electronic Billing. Leveraging Web-based
applications across multiple functions, including enhanced online services,
customer self-care and electronic commerce, these products elevate operating
efficiency and enhance customer satisfaction, giving customers the choice of
using solutions in a home, an office or a retail environment.

PROFESSIONAL SERVICES, TRAINING AND SUPPORT

The Company maintains various professional services groups to provide global
consulting services to its software customers, including assistance with
database definition and initialization, system operations, network
consolidation, and performance and decision support services. These groups also
provide clients with assistance in developing custom-tailored applications and
interfaces that operate with the Company's customer management software to
enhance client operations. The Company provides complete product documentation
and training services to users of its software products, including CD-ROM-based
product documentation and training. The Company's ClassROM software provides
interactive instruction and product training on CD-ROM. The Company maintains
training facilities in California.

CLIENT SUPPORT AND CARE

The Company provides worldwide training and support to its clients including
broad-based, 24-hour, 7-day support and technical assistance. Internationally,
Intelecable is supported by teams located in the U.S., U.K., South America and
Australia as well as by alliance partners.

CUSTOMER CONCENTRATION

The Customer Management Segment's five largest customers accounted for 54.2% of
segment revenues in 1999, including 18.0% from its largest client.

18
<PAGE>
MARKETING / DISTRIBUTION

Software and services are sold primarily to video/broadband/satellite
television, DBS, utility and multiple service providers through direct sales
channels and in conjunction with international alliance partners. In North
America, the Company operates a software and services sales and marketing team,
including account management, product management and technical support teams.

The Segment's international sales staff is coordinated by geographic area,
including dedicated account and technical support personnel located in the U.S.,
U.K., Brazil, Australia and Hong Kong. In addition to direct sales, the Company
has contracted with alliance partners throughout the world who are responsible
for sales, marketing, support and local customization.

COMPETITION

The market for the Company's products and services in the Customer Management
Segment is highly competitive, and competition is increasing as additional
market opportunities arise. The Company competes with both independent providers
and developers of in-house systems. The Company believes its most significant
competitors for customer management software systems are Convergys, Inc., CSG
Systems International, Inc. and Kenan Systems Corporation.

The Company believes that to remain competitive it will require significant
financial resources in order to market its existing products and services, to
maintain customer service and support and to invest in research and development.
Many of the Company's existing and potential competitors may have greater
resources than the Company. The Company expects its competitors to continue to
improve the design and performance of their current systems and processes and to
introduce new systems and processes with improved price/performance
characteristics.

INVESTMENTS AND OTHER SEGMENT

The Company's Investments and Other Segment is comprised of certain investments
in equity securities, financial interests and the Company's real estate and
hardware leasing subsidiaries and affiliates.

INVESTMENTS

The Company holds certain investments in equity securities with a market value
of approximately $1.3 billion at December 31, 1999, including approximately 8.6
million shares of Computer Sciences Corporation with a market value of $817
million and 6.0 million shares of State Street Corporation with a market value
of $438 million.

REAL ESTATE

The Company's real estate subsidiaries own approximately 274,000 square feet of
office space and 831,000 square feet of production facilities which are held
primarily for lease to the Company's other business segments. The real estate
subsidiaries also hold master leases in certain properties which are leased to
the Company's operating segments.

19
<PAGE>
HARDWARE LEASING

The Company provides computer hardware leasing services to selected customer
management software clients that purchase stand-alone systems primarily in the
U.S.

SOFTWARE DEVELOPMENT AND MAINTENANCE

The Company's research and development efforts are focused on introducing new
products and services as well as ongoing enhancement of its existing products
and services. The Company expended $172.4 million, $165.5 million and $135.6
million in 1999, 1998 and 1997, respectively, for software development and
maintenance and enhancements to the Company's proprietary systems and software
products of which $26.6 million, $2.5 million and $3.1 million was capitalized
in 1999, 1998 and 1997, respectively.

EMPLOYEES

As of December 31, 1999, the Company and its majority owned subsidiaries
employed approximately 9,700 employees, including approximately 4,700 in the
Financial Services Segment, 4,100 in the Output Solutions Segment and 900 in the
Customer Management Segment. In addition, 50% owned unconsolidated affiliates of
the Company and its subsidiaries employed approximately 4,400 employees,
including approximately 3,500 at BFDS. None of the Company's employees are
represented by a labor union or covered by a collective bargaining agreement.
The Company considers its employee relations to be good.

ITEM 2. PROPERTIES

The following table provides certain summary information with respect to the
principal properties owned or leased by the Company. The Company believes the
facilities, office space and other properties owned or leased are adequate for
its current operations.

<TABLE>
<CAPTION>
OWNED/ SQUARE
LOCATION USE (1) LEASED (2) FEET
- -------- ---------------- ---------- --------
<S> <C> <C> <C>
FINANCIAL SERVICES SEGMENT (3)
Kansas City, MO......................................... Office space Leased 540,000
Kansas City, MO......................................... Data center (4) Owned 163,000
Kansas City, MO......................................... Office space Owned 132,000
Kansas City, MO......................................... Production Owned 16,000
Boston, MA.............................................. Office space Leased 24,000
Canada.................................................. Office space Leased 49,000
United Kingdom.......................................... Office space Leased 47,000
Australia............................................... Office space Leased 28,000
Ten other smaller properties............................ Office space Leased 32,000
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
OWNED/ SQUARE
LOCATION USE (1) LEASED (2) FEET
- -------- ---------------- ---------- --------
<S> <C> <C> <C>
OUTPUT SOLUTIONS SEGMENT (3)
El Dorado Hills, CA..................................... Production Owned 366,000
El Dorado Hills, CA..................................... Office space Leased 29,000
Sacramento, CA.......................................... Production Leased 304,000
Kansas City, MO......................................... Production (4) Owned 299,000
Kansas City, MO......................................... Production Leased 32,000
Kansas City, MO......................................... Office space Owned 13,000
Hartford, CT............................................ Production Owned 150,000
Hartford, CT............................................ Production Leased 48,000
Westwood, MA............................................ Production Leased 128,000
Braintree, MA........................................... Production Leased 81,000
Melville, NY............................................ Production Leased 85,000
New York, NY............................................ Production Leased 30,000
Mt. Prospect, IL........................................ Production Leased 110,000
Denver, CO.............................................. Production Leased 94,000
St. Louis, MO........................................... Production Leased 40,000
Canada.................................................. Production Owned 61,000
Canada.................................................. Production Leased 34,000
Three other smaller properties.......................... Office space Leased 19,000

CUSTOMER MANAGEMENT SEGMENT (3)
Rancho Cordova, CA...................................... Office space Leased 153,000
El Dorado Hills, CA..................................... Office space Owned 48,000
Charlotte, NC........................................... Office space Leased 53,000
United Kingdom.......................................... Office space Leased 31,000
Nine other smaller properties........................... Office space Leased 64,000

INVESTMENTS AND OTHER SEGMENT
Kansas City, MO......................................... Office space Owned 81,000
Kansas City, MO......................................... Office space Leased 3,000
</TABLE>

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

(1) Property specified as used for production in the above table includes space
used for manufacturing operations and warehouse space.

(2) Within Kansas City, MO, the Company owns a number of surface parking lots,
various undeveloped properties, and a 515,000 square foot underground
storage facility that is primarily leased to third parties. The Company also
owns approximately 250 acres of undeveloped land adjacent to its buildings
in El Dorado Hills, CA. The Company is constructing two Output Solutions
facilities with a total of 147,000 square foot of space in El Dorado Hills,
CA. In addition to the property listed in the table and discussed above, the
Company leases space in the Netherlands, South Africa, Hong Kong, Singapore,
Thailand, Philippines, New Zealand and Brazil.

(3) Includes approximately 1,596,000 square feet of property owned or leased by
the Company's real estate subsidiaries, which are part of the Investments
and Other Segment. These properties are leased to other segments of the
Company, including approximately 688,000 sq. ft. in the Financial Services
Segment, 860,000 sq. ft. in the Output Solutions Segment, and 48,000 sq. ft.
in the Customer Management Segment.

(4) The Winchester Data Center is mortgaged with indebtedness of $19.9 million
as of December 31, 1999. Another property is mortgaged with indebtedness of
$1.4 million as of December 31, 1999.

21
<PAGE>
The discussion under "Winchester Information Processing Services" in Item 1
hereto is hereby incorporated by reference in partial response to this Item 2.

ITEM 3. LEGAL PROCEEDINGS

The Company and its subsidiaries are involved in various legal proceedings
arising in the normal course of their businesses. While the ultimate outcome of
these legal proceedings cannot be predicted with certainty, management believes,
after consultation with legal counsel, that the final outcome in such
proceedings, in the aggregate, would not have a material adverse effect on the
consolidated financial condition or results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY

Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to paragraph
(b) of Item 401 of Regulation S-K, the following list is included as an
unnumbered Item in Part I of this Annual Report on Form 10-K in lieu of being
included in the Company's Definitive Proxy Statement in connection with its
annual meeting of stockholders scheduled for May 9, 2000.

All executive officers are elected by and serve at the discretion of the
Company's Board of Directors. Certain of the executive officers have employment
agreements with the Company. There are no arrangements or understandings between
the executive officers and any other person pursuant to which he or she was or
is to be selected as an officer, except with respect to the executive officers
who have entered into employment agreements, which agreements designate the
position or positions to be held by the executive officer. None of the executive
officers are related to one another.

THOMAS A. MCDONNELL, age 54, has served as director of the Company since 1971.
He has served as Chief Executive Officer of the Company since October 1984 and
as President of the Company since January 1973 (except for a 30 month period
from October 1984 to April 1987). He served as Treasurer of the Company 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 Kansas
City Southern Industries, Inc. ("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., Computer Sciences Corporation, Euronet Services, Inc., and Informix
Software, Inc.

THOMAS A. MCCULLOUGH, age 57, is Executive Vice President of the Company. He has
served as director of the Company since 1990 and as Executive Vice President
since April 1987. His responsibilities include full-service mutual fund
processing, remote-service mutual fund client servicing, information systems,
Automated Work Distribution products, portfolio accounting, securities transfer,
product sales and marketing and DST Canada, Inc., a wholly owned subsidiary of
the Company.

JAMES C. CASTLE, Ph.D., age 63, has served as director of the Company since
December 1998 and as Chairman, Chief Executive Officer and director of USCS
since 1992.

CHARLES W. SCHELLHORN, age 51, has served since March 1999 as Vice Chairman of
USCS. He had previously served since 1990 as President and since 1991 as
Chairman of Output Technology Solutions, Inc., a wholly owned subsidiary of the
Company. He has served as President of Argus Health Systems, Inc. since March
1999.

JONATHAN J. BOEHM, age 39, joined the Company as a Group Vice President in
November 1997. He is responsible for the Company's full-service mutual fund
processing and corporate support. Prior to

22
<PAGE>
joining the Company, he had been an officer of Kemper Service Company from
October 1990 through November 1997.

ROBERT C. CANFIELD, age 61, has served as Senior Vice President, General Counsel
and Secretary of the Company since August 1995 and as Senior Vice President-Law
of the Company from March 1992 to August 1995.

KENNETH V. HAGER, age 49, has served as Vice President and Chief Financial
Officer of the Company since April 1988 and as Treasurer since August 1995. He
is responsible for the financial and internal audit functions of the Company. He
is a director of Digital Holdings, Inc.

C. RANDLES LINTECUM, age 55, has served as President of Output Technology
Solutions, Inc., a wholly owned subsidiary of the Company, since March 1999. He
served from July 1995 to June 1999 as President of Output Technology Solutions
of California, Inc., a wholly owned subsidiary of the Company. He served from
February 1995 to July 1995 as Senior Vice President Marketing and Distribution
of USCS and from May 1993 to February 1995 as Vice President Corporate
Development of USCS.

JOHN W. MCBRIDE, age 58, joined the Company in 1985 and has served as Group Vice
President of the Company since 1993. He is responsible for the operations of the
Company's Winchester and AWD Data Centers.

MICHAEL F. MCGRAIL, age 52, has served since April 1995 as President of DST
Innovis, Inc., a wholly owned subsidiary of the Company. Since December 1993, he
has been President and Managing Director of DST Innovis, Ltd., a wholly owned
subsidiary of DST Innovis, Inc.

ROBERT L. TRITT, age 44, joined the Company in 1977 and has served as Group Vice
President of the Company since 1989. He is responsible for the Company's remote
mutual fund processing operations and for mutual fund product development.

MICHAEL A. WATERFORD, age 57, has served as Group Vice President of the Company
since 1986. He is responsible for certain of the Company's development projects
and Year 2000 readiness.

J. MICHAEL WINN, age 53, has served since June 1993 as Managing Director of DST
International Limited, a wholly owned subsidiary of the Company.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades under the symbol "DST" on the New York Stock
Exchange ("NYSE") and the Chicago Stock Exchange. As of March 2, 2000, there
were approximately 28,000 beneficial owners of the Company's common stock.

No cash dividends have been paid since the initial public offering of the
Company's common stock on October 31, 1995. The Company intends to retain its
earnings for use in its business and therefore does not anticipate paying any
cash dividends in the foreseeable future.

The information set forth in response to Item 201 of Regulation S-K in Part II
Item 8, Financial Statements, and Supplementary Data at Note 14, Quarterly
Financial Data (Unaudited) ("Note 14"), in this Form 10-K is incorporated by
reference in partial response to this Item 5. The prices set forth in Note 14 do
not include commissions and do not necessarily represent actual transactions.
The closing price of the Company's common stock on the NYSE on December 31, 1999
was $76.3125.

23
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company. The selected consolidated balance sheet data as of December 31, 1999
and 1998 and the selected consolidated income statement data for the years ended
December 31, 1999, 1998 and 1997 were derived from the Company's audited
consolidated financial statements and the related notes thereto which are
included in Item 8 of this annual report on Form 10-K. The selected consolidated
balance sheet data as of December 31, 1997 and the selected consolidated income
statement data for the year ended December 31, 1996 were derived from the
Company's audited consolidated financial statements, not included herein. The
selected consolidated balance sheet data as of December 31, 1996 and 1995 and
the selected consolidated income statement data for the year ended December 31,
1995 were derived from the separate audited financial statements of DST and
USCS, as adjusted for the USCS Merger, not included herein. This selected
consolidated financial data should be read in conjunction with and is qualified
by reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 7 of this Annual Report on Form 10-K and
the Company's audited consolidated financial statements, including the notes
thereto and the report of independent accountants thereon and the other
financial information included in Item 8 of this Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $1,203.3 $1,096.1 $ 950.0 $ 844.0 $713.4
Costs and expenses............................ 880.8 834.7 719.6 653.0 571.6
Depreciation and amortization................. 122.8 108.8 103.5 99.1 87.7
Merger charges and other expenses (1) (2)..... 33.1 13.7
-------- -------- -------- -------- ------
Income from operations (3).................... 199.7 119.5 126.9 78.2 54.1
Interest expense.............................. (5.2) (8.6) (8.5) (10.5) (26.9)
Other income, net............................. 13.2 7.4 5.8 4.5 4.9
Gains on sales of Continuum and IFTC
(2) (4)..................................... 223.4 43.6
Equity in earnings (losses) of unconsolidated
affiliates.................................. 6.6 (2.7) (1.3) (4.0) 6.4
-------- -------- -------- -------- ------
Income before income taxes and minority
interests................................... 214.3 115.6 122.9 291.6 82.1
Income taxes.................................. 76.9 44.3 42.9 113.3 49.5
-------- -------- -------- -------- ------
Income before minority interests.............. 137.4 71.3 80.0 178.3 32.6
Minority interests............................ (0.7) (0.3) 0.6 0.5
-------- -------- -------- -------- ------
Net income (1) (2) (3) (4).................... $ 138.1 $ 71.6 $ 79.4 $ 177.8 $ 32.6
======== ======== ======== ======== ======
Basic earnings per share (5).................. $ 2.19 $ 1.14 $ 1.25 $ 2.82 $ 0.71
Diluted earnings per share (5)................ 2.13 1.11 1.23 2.78 0.70

Total assets.................................. $2,326.3 $1,897.0 $1,548.5 $1,303.7 $912.8
Long-term obligations......................... 44.4 49.7 97.4 81.5 103.6
Cash dividends per common share (5)........... $ $ $ $ $
</TABLE>

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

(1) The Company recognized $33.1 million in merger and integration costs in
1998. See Note 3 to the consolidated financial statements.

(2) In 1996, The Continuum Company, Inc. ("Continuum") merged with Computer
Sciences Corporation ("CSC") in a tax-free share exchange and as a result
became a wholly owned subsidiary of CSC. As a result of the CSC/Continuum
merger, the Company received CSC common stock for its investment in
Continuum and recognized a one-time gain after taxes and other expenses of
$127.6 million. In conjunction with the merger, the Company elected to make
a

24
<PAGE>
one-time $13.7 million contribution to provide funding for certain Continuum
employee withdrawals from DST's Employee Stock Ownership Plan.

(3) Effective January 1, 1999, DST adopted, as required, Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which requires that certain costs incurred for
the development of internal use software be capitalized. Prior to the
adoption of SOP 98-1, the Company expensed the development costs of internal
use software as incurred. For the year ended December 31, 1999, the Company
capitalized $24.0 million of costs related to such development, including
$2.4 million of capitalized costs at an unconsolidated subsidiary. If
internal use software development costs had been expensed rather than
capitalized, consolidated net income for the year ended December 31, 1999
would have been $122.7 million ($1.94 per basic share, $1.89 per diluted
share).

(4) In 1995, the Company received shares of State Street Corporation common
stock in a tax-free exchange for the Company's 50% interest in Investors
Fiduciary Trust Company. The Company recognized a one-time gain after
deferred taxes of $8.6 million from the transaction.

(5) The Company's capital structure substantially changed as a result of public
offerings of the Company's common stock in the fourth quarter 1995 and
second quarter 1996. Earnings per share data prior to the 1995 public
offering is reflective of being a wholly owned subsidiary of Kansas City
Southern Industries, Inc. ("KCSI"). The Company paid cash dividends of
$150.0 million to KCSI in 1995, which has been excluded from this table. The
declaration and payment of dividends is at the discretion of the Board of
Directors which, prior to the 1995 public offering, was controlled by KCSI.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The discussions set forth in this Annual Report on Form 10-K contain statements
concerning potential future events. Such forward-looking statements are based
upon assumptions by the Company's management, as of the date of this Annual
Report, including assumptions about risks and uncertainties faced by the
Company. Readers can identify these forward-looking statements by their use of
such verbs as expects, anticipates, believes or similar verbs or conjugations of
such verbs. If any of management's assumptions are incorrect or should
unanticipated circumstances arise, the Company's actual results could materially
differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's amended
Current Report on Form 8-K/A dated March 25, 1999, which is hereby incorporated
by reference. This report has been filed with the United States Securities and
Exchange Commission ("SEC") in Washington, D.C. and can be obtained by
contacting the SEC's Public Reference Branch. Readers are strongly encouraged to
obtain and consider the factors listed in the March 25, 1999 Current Report and
any amendments or modifications thereof when evaluating any forward-looking
statements concerning the Company. The Company will not update any
forward-looking statements in this Annual Report to reflect future events or
developments.

INTRODUCTION

Originally established in 1969, DST is a leading global provider of
sophisticated information processing and computer software services and products
to the financial services industry (primarily mutual funds and investment
managers), video/broadband/satellite TV industry, communications industry, and
other service industries. In December 1998, USCS International, Inc. ("USCS")
became a wholly owned subsidiary of the Company through a merger resulting in
the issuance of approximately 13.8 million shares of DST common stock ("USCS
Merger"). The USCS Merger was accounted for under the pooling of interests
accounting method. The Company's business units are reported as three operating
segments (Financial Services, Output Solutions and Customer Management). In
addition, certain

25
<PAGE>
investments in equity securities, financial interests and real estate holdings
have been aggregated into an Investments and Other Segment.

The Financial Services Segment's revenues are generated from a variety of
sources. The Company's mutual fund, securities transfer and portfolio accounting
processing revenues are primarily dependent upon the number of accounts,
portfolios or transactions processed. The Company also licenses its work
management software, certain investment management and portfolio accounting
software and securities exchange systems and, outside the U.S., certain mutual
fund shareowner accounting systems. Revenues for licensed software products are
primarily comprised of: (i) license fees; (ii) consulting and development
revenues based primarily on time and materials billings; and (iii) annual
maintenance fees. The license fee component of these revenues is not material.
The Financial Services Segment derives part of its income from its pro rata
share in the earnings (losses) of certain unconsolidated affiliates, primarily
Boston Financial Data Services, Inc. ("BFDS"), Argus Health Systems, Inc.
("Argus") and European Financial Data Services Limited ("EFDS"). The Company
provides data processing services to Argus and Computer Sciences Corporation
Financial Services Group ("CSC-FSG") to process their proprietary applications.
Revenues from Argus and CSC-FSG are primarily based upon data center capacity
utilized, which is significantly influenced by each company's volume of
transactions. The Company's data processing contract with CSC-FSG expires in
2000 and is not expected to be renewed.

The Output Solutions Segment's revenues for presentation and delivery (either
printed or electronic) of customer documents and archival depend on the number
of statements mailed and/or the number of images produced. Formatting and custom
programming revenues are based on time and materials billings or on the number
of images produced.

The Customer Management Segment primarily derives its revenues from customer
management processing and computer software services and products based on the
number of end-users of the services offered by its clients, the number of bills
mailed and/or the number of images produced under multi-year bundled service and
usage agreements. Certain of the Company's customers, principally outside the
U.S., license the customer management software. Revenues for fixed fee license
agreements are recognized as the software is delivered and all customer
obligations have been met. Such fixed fee license amounts have not been
material.

The Investments and Other Segment's investment income (dividends, interest and
gains/losses on sale of securities) is recorded as other income. Income from
financing leases is recognized as revenue at a constant periodic rate of return
on the net investment in the lease. Rental income from Company owned and
operated real estate is recorded as revenue, but is eliminated in consolidation
for the portion that relates to real estate leased to the Company's other
segments.

SIGNIFICANT EVENTS

USCS MERGER

The Company's December 21, 1998 merger with USCS was accounted for as a pooling
of interests. Accordingly, the Company's consolidated financial statements for
periods prior to December 21, 1998 were restated in 1998 to include the
financial position and results of operations of USCS.

In December 1998, DST's management approved plans which included initiatives to
integrate the operations of certain DST and USCS subsidiaries and consolidate
facilities. Total accrued integration costs of $16.9 million were recorded in
the fourth quarter of 1998, of which $0.7 million, $12.8 million and $3.4
million related to the Financial Services, Output Solutions, and Customer
Management Segments, respectively.

26
<PAGE>
million) Segments, principally in North America. At December 31, 1999,
approximately $1.8 million of employee separation accruals remain related to
approximately 50 employees.

The 1998 integration costs included $10.2 million related to lease abandonment
costs, elimination of certain non-strategic business lines and the closing of
certain production and administration centers associated with the Output
Solutions ($9.1 million) and Customer Management ($1.1 million) Segments. For
the locations to be closed and the non-strategic business lines to be
eliminated, the tangible and intangible assets to be disposed of were written
down by $4.6 million to fair value. The integration costs also included $2.7
million ($0.7 million, $1.8 million, and $0.2 million for the Financial
Services, Output Solutions, and Customer Management Segments, respectively)
related to purchased software and other committed costs of
software/communications systems that will be abandoned. Additionally, $0.8
million ($0.4 million in each of the Output Solutions and Customer Management
Segments) of costs were expensed related to terminating certain contractual
obligations which had no future benefit as a result of the USCS Merger.

The cash and non-cash elements of the integration costs were approximately $9.5
million and $7.4 million, respectively. Details of the merger charge are as
follows (in millions):

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
ORIGINAL UTILIZED DECEMBER 31, UTILIZED DECEMBER 31,
AMOUNT IN 1998 1998 IN 1999 1999
-------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Employee severance benefits................. $ 3.2 $0.6 $2.6 $0.8 $1.8
Other....................................... 6.3 6.3 2.8 3.5
Write down of long-lived assets............. 7.4 7.4
----- ---- ---- ---- ----
$16.9 $8.0 $8.9 $3.6 $5.3
===== ==== ==== ==== ====
</TABLE>

Most of the remaining employee severance benefits are expected to be paid in
2000. The balance of the accrued costs relates primarily to facilities that will
be closed. Lease payments on closed facilities and abandoned equipment have
terms which end in 2000 through 2003. Four locations have been closed as of
December 31, 1999. The remainder will be closed in 2000 once arrangements have
been made to process continuing business at other facilities. The costs of
transitioning the continuing business have not been accrued.

During 1999, the Company expensed additional integration costs that could not be
accrued in the integration plans under current accounting rules. These amounts
did not materially impact the Company's consolidated results of operations,
liquidity or financial position. The Company expects that other integration
costs will be incurred in the future which cannot be accrued under current
accounting rules and are dependent on management decisions. Such costs could
include, among other things, additional employee costs, relocation and
integration costs of moving to common internal systems. Although precise
estimates cannot be made, management does not believe such costs will have a
material adverse effect on the Company's consolidated results of operations,
liquidity or financial position.

27
<PAGE>
A summary of historical results of DST and USCS for 1998 and 1997 are as follows
(in millions):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues
DST Systems, Inc.......................................... $ 749.0 $650.7
USCS International, Inc................................... 347.1 299.3
-------- ------
Total revenues.......................................... $1,096.1 $950.0
======== ======
Net income
DST Systems, Inc.......................................... $ 73.9 $ 59.0
USCS International, Inc................................... 21.0 22.4
Conforming of accounting policies......................... (3.9) (2.0)
Merger costs.............................................. (19.4)
-------- ------
Total net income........................................ $ 71.6 $ 79.4
======== ======
</TABLE>

In conjunction with the USCS Merger, certain conforming accounting adjustments
were recorded to conform the accounting policies relating primarily to USCS'
depreciation and amortization policies and the accounting for the costs of
software developed for internal USCS use. As a result of conforming accounting
policies, net income decreased $3.9 million and $2.0 million for the years ended
December 31, 1998 and 1997, respectively. Non-current assets decreased $33.3
million at December 31, 1998 as a result of conforming accounting policies. DST
purchased 1.1 million shares of USCS common stock during the fourth quarter of
1997 at a cost of $21.7 million. Prior to the USCS Merger, there were no
significant intercompany transactions between the Company and USCS.

In the fourth quarter of 1998, the Company recorded $26.0 million ($19.4 million
net of taxes) of charges related to the USCS Merger. Transaction costs for the
USCS Merger of $9.1 million include investment banker fees, legal fees and other
costs paid in connection with the merger.

STOCK REPURCHASE PROGRAM

In December 1998, the Board of Directors approved a plan for DST to repurchase
600,000 shares of DST common stock at the rate of approximately 25,000 shares
per month in approximately equal monthly amounts beginning in February 1999, to
provide additional shares needed as a result of the USCS Merger and for use
under various DST option and benefit programs. In August 1999, as a result of
expected additional share requirements for such programs, the Board of Directors
authorized the repurchase of an additional 3,575,000 shares for a total of
4,175,000 shares, with the then 4,000,000 remaining unpurchased shares to be
acquired during a twenty-four month period commencing September 1999. Such
purchases may be made in private or market transactions and will be made in
compliance with SEC regulations. The Company expended $52.2 million in 1999 to
purchase shares under this plan.

EQUISERVE

In December 1998, Boston EquiServe LP ("Boston EquiServe") and First Chicago
Trust Company of New York completed a transaction creating EquiServe LP
("EquiServe"), the largest securities transfer agent in the U.S. Prior to the
transaction, Boston EquiServe was a limited partnership 50% owned by Boston
Financial Data Services, Inc. ("BFDS") (a 50% owned joint venture of DST and
State Street Corporation) and 50% by BankBoston Corporation.

DST is currently developing Fairway, a new securities transfer system to be used
exclusively by EquiServe to process all of its accounts. DST has also agreed
with EquiServe to provide data

28
<PAGE>
processing services for EquiServe to use Fairway. Upon acceptance of defined
components of Fairway, DST will, subject to approval of the Office of the
Comptroller of the Currency ("OCC"), contribute Fairway and its non-EquiServe
securities transfer processing business (approximately 2 million accounts) to
EquiServe for a 20% direct ownership interest in EquiServe (the "EquiServe
Contribution"). DST will also have a 10% indirect ownership interest in
EquiServe through BFDS after the EquiServe Contribution. DST believes that an
ownership in EquiServe provides the most effective participation in the
opportunities presented by the consolidation of the securities transfer
industry.

CUSTIMA ACQUISITION

In August 1998, USCS purchased 100% of the stock ("Custima Acquisition") of
United Kingdom based Custima International Holdings, plc ("Custima") for
approximately $15.4 million. The business acquired provides customer management
software for the utilities industry. The acquisition was accounted for as a
purchase, and accordingly, the Company's financial statements include Custima's
results of operations from the date of acquisition.

The purchase included existing technology, in-process research and development
(IPR&D), trademarks and in-place workforce with an aggregate value of
approximately $18.1 million. The purchase price exceeded the fair market value
of net tangible assets acquired by $15.1 million; however, the purchase price
was less than the estimated fair value of all assets (tangible and intangible)
acquired. Accordingly, the non-current assets recorded in the transaction
(including IPR&D projects) were reduced on a pro-rata basis such that the total
amount of the assets recorded did not exceed the consideration paid.

The Company engaged a third party to perform an appraisal of the Custima
Acquisition (including the IPR&D projects acquired). The IPR&D projects included
improvements and increased functionality to the core billing product to adapt it
for competitive use within the U.S. and development of a new Java-based product
which will allow large utilities to benefit from an advanced billing system
while utilizing their existing legacy database.

The IPR&D projects were estimated to be approximately 60% complete as of the
date of acquisition and were assigned a total value of $7.1 million (using the
income method discounted at 30% which did not differ significantly from the
stage of completion method) which was reduced to $6.0 million as a result of the
total amount of the assets acquired from Custima exceeding the consideration
paid. Phased completion and delivery of the projects are expected through 2000.
As with any software development project, there are inherent development risks
and periodic review of the projects can result in changes to the development
plan and the Company's business plans for the software.

In accordance with applicable accounting principles, the assigned value of the
IPR&D ($6.0 million) was expensed at the date of acquisition. Also, a charge for
redundant facilities and workforce of $1.1 million was recorded in connection
with USCS's purchase and consolidation of Custima. Intangible assets (other than
IPR&D) are being amortized on a straight-line basis over periods ranging from 3
to 10 years. On a pro forma basis, the acquisition did not have a material
impact on the Company's historical results of operations or financial position.

DBS SYSTEMS CORPORATION ("DBS SYSTEMS")

In October 1997, the Company purchased the remaining 20% minority interest in
DBS Systems for $13.2 million in cash. The $11.6 million excess of the purchase
price over the net assets acquired has been assigned a useful life of 12 years.
The Company had previously acquired 20% and 60% of DBS Systems in December 1995
and May 1993, respectively. On a pro forma basis, the acquisition did not have a
material impact on the Company's historical results of operations or financial
position.

29
<PAGE>
RESULTS OF OPERATIONS

The following table summarizes the Company's operating results (amounts in
millions, except per share amounts).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING RESULTS

REVENUES
Financial Services........................................ $ 554.9 $ 507.6 $425.0
Output Solutions.......................................... 488.0 412.4 366.4
Customer Management....................................... 203.0 220.1 201.6
Investments and Other..................................... 32.9 34.1 33.7
Eliminations.............................................. (75.5) (78.1) (76.7)
-------- -------- ------
$1,203.3 $1,096.1 $950.0
======== ======== ======
% change from prior year.................................. 9.8% 15.4% 12.6%

INCOME FROM OPERATIONS BEFORE MERGER CHARGES
Financial Services........................................ $ 122.8 $ 85.4 $ 66.2
Output Solutions.......................................... 49.0 33.9 24.3
Customer Management....................................... 21.3 24.5 28.3
Investments and Other..................................... 6.6 8.8 8.1
-------- -------- ------
199.7 152.6 126.9
MERGER CHARGES.............................................. 33.1
-------- -------- ------
INCOME FROM OPERATIONS...................................... 199.7 119.5 126.9
Interest expense.......................................... (5.2) (8.6) (8.5)
Other income, net......................................... 13.2 7.4 5.8
Equity in earnings (losses) of unconsolidated
affiliates.............................................. 6.6 (2.7) (1.3)
-------- -------- ------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS........... 214.3 115.6 122.9
Income taxes.............................................. 76.9 44.3 42.9
Minority interests........................................ (0.7) (0.3) 0.6
-------- -------- ------
NET INCOME.................................................. $ 138.1 $ 71.6 $ 79.4
======== ======== ======
Basic earnings per share.................................... $ 2.19 $ 1.14 $ 1.25
Diluted earnings per share.................................. $ 2.13 $ 1.11 $ 1.23
Diluted shares outstanding.................................. 64.8 64.3 64.7
</TABLE>

CONSOLIDATED REVENUES

Consolidated revenues increased $107.2 million or 9.8% in 1999 and $146.1
million or 15.4% in 1998. Revenue growth in 1999 was primarily a result of
higher Financial Services and Output Solutions Segments revenues. Financial
Services Segment revenues increased $47.3 million, or 9.3% in 1999. This
increase in 1999 Financial Services Segment revenues resulted from increased
U.S. revenues of $36.9 million or 9.5%, primarily from an increase in mutual
fund shareowner accounts processed of 13.3% to 56.4 million at December 31,
1999, and an increase in international revenues of $10.4 million or 8.9% from
growth in Canadian mutual fund processing revenues. These same trends
contributed to the 1998 Financial Services Segment revenue growth of $82.6
million or 19.4% as U.S. mutual fund shareowner accounts processed increased
10.7% to 49.8 million at December 31, 1998.

Output Solutions Segment revenues increased $75.6 million or 18.3% in 1999 and
$46.0 million or 12.6% in 1998. The growth is a result of an increase in volume
of statements and images produced

30
<PAGE>
from the growth in existing customers in the Financial Services and Customer
Management Segments and new customers, primarily in telecommunications and other
high-volume markets.

Customer Management Segment revenues decreased $17.1 million or 7.8% in 1999 and
increased $18.5 million or 9.2% in 1998. Exclusive of Tele-Communications, Inc.
("TCI") (a discontinued customer), revenues increased $7.4 million or 4.0% in
1999 and $31.3 million or 20.5% in 1998. Growth in non-TCI customer management
revenues resulted primarily from increases in the number of subscribers of
existing and new clients in the U.S. and international markets, and increased
services. In addition, revenues from Custima totaled $7.0 million and $4.2
million in 1999 and 1998, respectively.

Investments and Other Segment revenues decreased $1.2 million or 3.5% in 1999
and increased $0.4 million or 1.2% in 1998. Segment revenues are primarily
rental income for facilities leased to the Company's other business segments.

INCOME FROM OPERATIONS BEFORE MERGER CHARGES

Consolidated income from operations before merger charges increased $47.1
million or 30.9% in 1999 and $25.7 million or 20.3% in 1998. The operating
margin before merger charges, was 16.6%, 13.9% and 13.4% in 1999, 1998 and 1997,
respectively. The growth in 1999 was primarily a result of a $37.4 million or
43.8% increase in the Financial Services Segment which resulted in an operating
margin, before merger charges, of 22.1% in 1999 compared to 16.8% in 1998. The
increase in 1999 Financial Services Segment operating margin resulted from
increased U.S. revenues and the capitalization of $18.1 million of internal use
software development costs. The improvement in 1998 Financial Services operating
margin resulted from increased U.S. revenues and a significant improvement in
international operations.

Output Solutions Segment income from operations before merger charges increased
$15.1 million or 44.5% in 1999 and $9.6 million or 39.5% in 1998. Output
Solutions Segment operating margin was 10.0%, 8.2% and 6.6% in 1999, 1998 and
1997, respectively. The increase in 1999 Output Solutions Segment operating
margin results from increased revenues and the capitalization of $3.5 million of
internal use software development costs. The improvement in the 1998 operating
margin percentage results from processing efficiencies and increased volumes.

In 1999, Customer Management Segment income from operations before merger
charges decreased $3.2 million or 13.1%, primarily attributable to a decline in
processing and software services revenues and a decrease in equipment revenues
mostly related to transitioning TCI off of the Company's services. In 1998,
Customer Management Segment income from operations before merger charges,
decreased $3.8 million or 13.4% from costs incurred in transitioning new
customers onto the Company's products and services while transitioning TCI off
and the consolidation of Custima's operations.

Investments and Other Segment income from operations before merger charges, was
$6.6 million, $8.8 million, and $8.1 million in 1999, 1998 and 1997,
respectively. The 1999 amount declined primarily due to a one-time charge
related to certain equipment leased to third parties. The improvement in 1998
was primarily from an increase in rental income as compared to 1997.

MERGER CHARGES

The 1998 results include recognition of $26.0 million of merger charges related
to the USCS Merger and $7.1 million of merger charges related to the Custima
Acquisition.

INTEREST EXPENSE

Interest expense was $5.2 million in 1999 as compared to $8.6 million in 1998.
Average debt balances were lower for 1999 compared to 1998. Interest expense for
1998 and 1997 were essentially the same.

31
<PAGE>
OTHER INCOME, NET

Other income consists mainly of interest income, dividends received on
investments held by the Company (principally shares of State Street stock), net
gains on sales of available-for sale investments, amortization of deferred
non-operating gains, and gains (losses) from equipment dispositions. The 1999,
1998 and 1997 amounts include $8.9 million, $1.9 million and $1.5 million
respectively, of net gains related to the sale of available-for-sale securities.
These gains were offset by net losses on equipment dispositions of $3.0 million
in 1999.

EQUITY IN EARNINGS AND LOSSES OF UNCONSOLIDATED AFFILIATES

Equity in earnings (losses) of unconsolidated affiliates, net of income taxes
provided by the unconsolidated affiliates and related goodwill amortization is
as follows (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Boston Financial Data Services, Inc......................... $ 8.9 $ 7.2 $ 6.2
European Financial Data Services Limited.................... (5.3) (11.1) (11.8)
Argus Health Systems, Inc................................... 2.6 2.7 4.5
Other....................................................... 0.4 (1.5) (0.2)
----- ------ ------
$ 6.6 $ (2.7) $ (1.3)
===== ====== ======
</TABLE>

Equity in earnings of unconsolidated affiliates increased $9.3 million in 1999
as a result of decreased losses at EFDS, reflecting an increase in accounts
serviced to 2.0 million at December 31, 1999 as compared to 1.4 million accounts
at December 31, 1998. Equity in losses of unconsolidated affiliates increased
$1.4 million in 1998 as a result of lower earnings at Argus and non-recurring
real estate debt financing costs. Argus' 1998 earnings declined as a result of a
significant client not renewing its processing contract which expired in the
first quarter of 1998.

DST recorded losses from EFDS of $5.3 million, $11.1 million and $11.8 million
in 1999, 1998 and 1997, respectively. The losses at EFDS were the result of the
continued development of the new FAST software and conversion activity
associated with adding new clients and converting existing clients from the old
system to FAST. The Company's share of internal use software development costs
capitalized by EFDS was $2.4 million for the year ended December 31, 1999.

INCOME TAXES

The Company's effective tax rate was 35.9%, 38.4% and 34.9% for the years ended
December 31, 1999, 1998 and 1997, respectively. Excluding the impact of the
previously discussed 1998 merger charges, the Company's effective tax rate would
have been 35.9%, 34.5% and 34.9% for 1999, 1998 and 1997, respectively. The
primary difference between the Company's effective tax rate and the combined
federal and state statutory rates is the result of deferred taxes being provided
for unremitted earnings of U.S. unconsolidated affiliates net of the dividends
received deduction provided under current tax law, increased tax benefits
associated with 1998 international operations, and the benefits associated with
new 1998 Missouri income apportionment rules designed to attract and retain
mutual fund service companies.

NET INCOME

The Company's net income (and earnings per share) for 1999, 1998 and 1997 was
$138.1 million ($2.19 basic earnings per share and $2.13 diluted earnings per
share), $71.6 million ($1.14 basic earnings per share and $1.11 diluted earnings
per share), and $79.4 million ($1.25 basic earnings per share and $1.23 diluted
earnings per share), respectively. Excluding the impact of the previously
discussed 1998 merger

32
<PAGE>
charges, the Company's net income and earnings per share for 1998 would have
been $97.7 million ($1.58 basic earnings per share and $1.52 diluted earnings
per share).

YEAR TO YEAR BUSINESS SEGMENT COMPARISONS

FINANCIAL SERVICES SEGMENT

REVENUES

Financial Services Segment revenues for 1999 increased 9.3% over 1998 to $554.9
million. U.S. Financial Services revenues increased 9.5% to $427.0 million in
1999. U.S. mutual fund processing revenues for 1999 increased 12.0% over the
prior year as shareowner accounts serviced increased 13.3% from 49.8 million at
December 31, 1998 to 56.4 million at December 31, 1999. The Company has
contracts with new clients to convert approximately 4.5 million new accounts to
its system in 2000.

Financial Services Segment revenues from international operations for 1999
increased 8.9% to $127.9 million. The revenue increase resulted primarily from
growth in Canadian mutual fund shareowner processing revenues. Canadian
shareowner accounts serviced increased 50.0% from 1.6 million at December 31,
1998 to 2.4 million at December 31, 1999.

Segment revenues for the year ended December 31, 1998 increased 19.4% over 1997
to $507.6 million. U.S. revenues increased 15.4% to $390.1 million in 1998. U.S.
mutual fund processing revenues for 1998 increased 16.0% over the prior year as
shareowner accounts serviced increased 10.7% from 45.0 million at December 31,
1997 to 49.8 million at December 31, 1998. The Company recognized a $3.9 million
contract termination fee in the fourth quarter 1998 from GT Global which
terminated its services with the Company as a result of its acquisition by the
AIM Management Group and a one-time $2.6 million contract termination fee from
Zurich Kemper Investments in the first quarter 1998 as a result of its merged
operations with Scudder. U.S. AWD product revenues for 1998 increased 16.8% over
the prior year primarily due to an increase in the number of AWD workstations
licensed.

Segment revenues from international operations for 1998 increased 35.1% to
$117.5 million. The revenue increase resulted primarily from increased
investment accounting software licenses and services and growth in Canadian
mutual fund shareowner processing revenues.

COSTS AND EXPENSES

Segment costs and expenses for 1999 and 1998 increased 1.4% to $365.6 million
and 19.3% to $360.5 million over the comparable prior year periods. Costs and
expenses for 1999 were reduced by $18.1 million as a result of capitalizing
costs of internal use software as required under SOP 98-1, which was partially
offset by the increase in personnel costs to support revenue growth and volumes.
1998 personnel costs increased 24.0% over 1997 costs as a result of increased
staff levels to support volume growth, development costs for the Company's new
securities transfer system (Fairway) and increased wages for data processing
professionals. In addition, the renegotiation of certain third party software
agreements, effective March 31, 1998, resulted in certain amounts being recorded
as costs and expenses instead of as depreciation expense.

DEPRECIATION AND AMORTIZATION

Segment depreciation and amortization for 1999 increased 7.6% or $4.8 million.
The increase is primarily attributable to increased capital additions during
1999 and a one-time $3.7 million asset impairment charge for certain
international securities processing systems. Segment depreciation and
amortization for 1998 increased 9.2% or $5.2 million. The increase is primarily
attributable to increased capital additions during 1998 and the fourth quarter
of 1997, a one-time write-off of intangible assets totaling $3.2 million in the
first quarter 1998 and a $1.4 million accelerated write-off of personal
computers scheduled for replacement in the fourth quarter 1998, partially offset
by the renegotiation of

33
<PAGE>
certain third party software agreements, effective March 31, 1998, resulting in
certain amounts being recorded as costs and expenses instead of as depreciation
expense.

INCOME FROM OPERATIONS BEFORE MERGER CHARGES

The Segment's income from operations before merger charges for 1999 and 1998
increased 43.8% to $122.8 million and 29.0% to $85.4 million over the comparable
prior year periods. The Segment's operating margins, excluding merger charges,
were 22.1%, 16.8%, and 15.6% in 1999, 1998 and 1997, respectively. The increases
in Financial Services Segment operating margins are a result of increased U.S.
revenue, improvements in international operations and capitalization of costs of
software developed for internal use in 1999.

OUTPUT SOLUTIONS SEGMENT

REVENUES

Output Solutions Segment revenues for 1999 increased 18.3% to $488.0 million as
compared to 1998. Output Solutions Segment revenues for 1998 increased by 12.6%
to $412.4 million from $366.4 million in 1997. The growth in segment revenue was
derived from an increase in the volume of statements and images produced which
was partially related to the growth of existing customers in the Financial
Services and Customer Management Segments and new customers, primarily in
telecommunications and other high-volume markets.

COSTS AND EXPENSES

Segment costs and expenses for 1999 and 1998 increased 15.7% to $406.0 million
and 12.1% to $350.8 million over the comparable prior year periods. Personnel
costs for 1999 and 1998 increased 15.5% and 11.9% over the comparable prior year
periods as a result of increased staff levels to support volume growth and
research and development costs relating primarily to ongoing product
development. In addition, 1999 costs included integration costs to combine the
output related businesses which were partially offset by the effect of
capitalizing $3.5 million of internal use software development costs.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased 19.1% to $33.0 million in 1999.
Depreciation and amortization for 1998 decreased 5.5% to $27.7 million as
compared to 1997. The increase in depreciation and amortization in 1999 as
compared to 1998 is attributable to increased print/mail capital additions to
support revenue growth. The containment of depreciation and amortization
expenses in 1998 is primarily the result of lower capital expenditures in 1997
and 1998 compared to prior years, decreases in the unit costs of electronic data
processing equipment and the Company's use of accelerated depreciation methods.

INCOME FROM OPERATIONS BEFORE MERGER CHARGES

The Segment's income from operations before merger charges for 1999 increased
$15.1 million or 44.5% principally from increased revenues and the effect of
capitalized internal use software development costs. In 1998, the Output
Solutions Segment's income from operations before merger charges, increased $9.6
million or 39.5% as compared to 1997 primarily attributable to realizing
processing efficiencies and economies of scale. The Segment's operating margins,
excluding merger charges, were 10.0%, 8.2% and 6.6% in 1999, 1998 and 1997,
respectively.

34
<PAGE>
CUSTOMER MANAGEMENT SEGMENT

REVENUES

Exclusive of revenues from TCI, Customer Management Segment revenues for 1999
increased 4.0% over 1998 to $191.6 million. Processing and software revenues
increased 10.9% in 1999 to $180.2 million and equipment sales and services
decreased 47.5% to $11.4 million in 1999. During 1998, segment revenues,
exclusive of TCI, increased 20.5% over 1997 to $184.2 million. Processing and
software revenues increased 16.6% to $162.5 million in 1998 from $139.4 in 1997.
Equipment sales and services increased 60.7% to $21.7 million in 1998 from $13.5
million in 1997. The growth in Customer Management Segment software and services
revenues, exclusive of revenue from TCI, came primarily from increases in the
number of subscribers of existing and new clients in the U.S. and international
markets, and the inclusion of $7.0 million of revenues in 1999 from the third
quarter 1998 acquisition of Custima. For the four months ended December 31,
1998, Custima revenues were $4.2 million.

During 1999, TCI continued to remove subscribers from the Company's systems. TCI
related revenues and percentage of total Customer Management Segment revenues,
respectively, were $11.4 million and 5.6% in 1999, $35.9 million and 16.3% in
1998, and $48.7 million and 24.2% in 1997. TCI subscribers serviced by the
Company totaled 0.1 million, 2.4 million and 10.9 million at December 31, 1999,
1998, and 1997, respectively.

Customer Management Segment revenues for 1999 decreased 7.8% to $203.0 million
from $220.1 million in 1998. Equipment sales and services revenue decreased to
$12.4 million in 1999 from $25.0 million in 1998. Customer Management Segment
revenues for 1998 increased by 9.2% to $220.1 million from $201.6 million in
1997 as equipment sales and services revenue increased 33.0% over 1997.

COSTS AND EXPENSES

Segment costs and expenses for 1999 and 1998 decreased 9.1% to $167.3 million
and increased 12.7% to $184.0 million over the comparable prior year periods.
The decrease in segment costs and expenses in 1999 is primarily attributable to
a decrease in equipment related costs related to sales to customers. This
decrease was partially offset by personnel costs for 1999 and 1998 that
increased 8.2% and 19.6%, respectively, over the comparable prior year periods
as a result of increased staff levels to support volume growth and research and
development costs relating primarily to ongoing product development.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization for 1999 and 1998 increased 24.1% to $14.4 million
and 14.9% to $11.6 million over the comparable prior year periods. The increase
in 1999 is primarily attributable to increased amortization of capitalized
software development costs and goodwill amortization relating to the Custima
Acquisition in August 1998. The increase in 1998 as compared to 1997 is
primarily attributable to increased goodwill amortization relating to the
Company's purchase of the remaining 20% minority interest in DBS Systems in
October 1997.

INCOME FROM OPERATIONS BEFORE MERGER CHARGES

The Segment's income from operations before merger charges for 1999 decreased
$3.2 million as compared to 1998. The 1999 decrease is attributable to decreased
equipment sales for the year, increased amortization of capitalized software
development costs and increased intangible amortization relating to the Custima
Acquisition. The Segment's income from operations before merger charges for 1998
decreased $3.8 million as compared to 1997. The 1998 decrease is attributable to
costs associated with transitioning new customers on to the Company's products
and services while transitioning TCI off, increased goodwill amortization
relating to the Company's purchase of the remaining 20% minority interest in DBS
Systems in October 1997 and the 1998 consolidation of Custima's operations. The

35
<PAGE>
Segment's operating margin before merger charges was 10.5%, 11.2% and 14.0% in
1999, 1998 and 1997, respectively.

INVESTMENTS AND OTHER SEGMENT

REVENUES

Investments and Other Segment revenues totaled $32.9 million, $34.1 million, and
$33.7 million in 1999, 1998, and 1997, respectively. Real estate revenues of
$26.7 million, $27.8 million and $28.9 million in 1999, 1998 and 1997,
respectively were primarily derived from the lease of facilities to the
Company's other business segments. Revenues of $6.2 million, $6.3 million and
$4.8 million in 1999, 1998 and 1997, respectively, were derived from the
Segment's hardware leasing activities.

COSTS AND EXPENSES

Investments and Other Segment costs and expenses decreased in 1999 and increased
in 1998 primarily as a result of changes in real estate related costs.

DEPRECIATION AND AMORTIZATION

Investments and Other Segment depreciation and amortization increased $1.1
million in 1999 as a result of a one-time charge related to certain equipment
leased to third parties. Depreciation and amortization increased by $0.2 million
in 1998 as a result of increased depreciation related to additional real estate
leasing activities and an increase in depreciation related to equipment leased
to customers.

INCOME FROM OPERATIONS BEFORE MERGER CHARGES

The segment's income from operations before merger charges totaled $6.6 million,
$8.8 million and $8.1 million in 1999, 1998, and 1997, respectively. The
decrease in 1999 income from operations as compared to 1998 is primarily related
to the one-time charge related to certain leased equipment to third parties. The
increase in 1998 income from operations as compared to 1997 is primarily related
to increased revenues from real estate and hardware leasing activities.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flow from operating activities totaled $252.3 million, $274.8
million and $148.7 million in 1999, 1998 and 1997, respectively. 1999 operating
cash flows were primarily impacted by net income of $138.1 million, the impact
of depreciation and amortization of $122.8, deferred taxes of $8.4, increases in
accounts receivable of $38.2 million and increases in accounts payable and other
accrued liabilities of $33.1 million. The Company utilized its 1999 operating
cash flow to reinvest in its existing business, fund investments and advances to
unconsolidated affiliates and fund treasury stock purchases. The Company had
$89.0 million of cash and cash equivalents at December 31, 1999.

Accounts receivable increased in 1999 by approximately $38.2 million or 13.5%
primarily because of the increase in revenue. The Company collects from its
clients and remits to the U.S. Postal Service a significant amount of postage. A
significant number of contracts allow the Company to pre-bill and/or require
deposits from its clients to mitigate the effect on cash flow.

The Company continues to make significant investments in capital equipment and
facilities. During the years ended December 31, 1999, 1998 and 1997, the Company
expended approximately $139.0 million,

36
<PAGE>
$132.7 million and $82.6 million, respectively, in capital expenditures for
equipment and facilities which includes amounts directly paid by third-party
lenders. Capital expenditures for 1999 and 1998 include $9.6 million and $17.4
million for assets placed in service in 1998 and 1997, respectively. Capitalized
costs of software developed for internal use totaled $21.6 million in 1999.
Capitalized development costs for systems to be sold or licensed to third
parties were $5.0 million, $2.5 million and $3.1 million for 1999, 1998 and
1997, respectively. Future capital expenditures are expected to be funded
primarily by cash flows from operating activities, secured term notes or bank
lines of credit as required.

The Company expended approximately $60.8 million, $48.0 million and $16.1
million primarily for investments and advances to unconsolidated affiliates
during 1999, 1998 and 1997, respectively. In addition, the Company expended
$14.2 million and $16.8 million during 1998 and 1997, respectively, for
acquisitions of subsidiaries, net of cash acquired. The Company received
proceeds from the sale of investments of $24.8 million, $6.7 million and $12.4
million in 1999, 1998 and 1997, respectively.

The Company maintains $110 million in bank lines of credit for working capital
requirements and general corporate purposes, of which $60 million matures May
2000 and $50 million matures March 2001. The Company also maintains a $125
million revolving credit facility with a syndicate of banks which is available
through December 2001. Borrowings under these facilities totaled $20.7 million
at December 31, 1999.

In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deemed appropriate. The Company expended $10.0 million
and $20.3 million in 1998 and 1997, respectively to complete the purchases under
this plan.

During the fourth quarter 1999, the Company entered into a forward stock
purchase agreement for the repurchase of up to 2.7 million shares of its common
stock through September 2002 as a means of securing potentially favorable prices
for future purchases of its stock. During 1999, no shares were purchased by the
Company under this agreement. As of February 29, 2000, the cost to settle the
agreement would be approximately $158.1 million for 2.6 million shares of common
stock. The agreement contains provisions which allow the Company to elect a net
cash or net share settlement in lieu of physical settlement of the shares.

In the fourth quarter 1997, DST expended $21.6 million to purchase 1.1 million
shares of USCS common stock. These shares were retired in conjunction with the
USCS Merger.

USCS, prior to the USCS Merger, expended approximately $6.2 million in 1998 and
$10.2 million in 1997 for the repurchase of common stock in order to meet
obligations under stock option plans, employee stock purchase plans and 401(k)
retirement plans. Substantially all these shares were reissued under the plans,
prior to the consummation of the USCS Merger.

37
<PAGE>
The Company believes that its existing cash balances and other current assets,
together with cash provided by operating activities and, as necessary, the
Company's bank and revolving credit facilities, will suffice to meet the
Company's operating and debt service requirements and other current liabilities
for at least the next 12 months. Further, the Company believes that its longer
term liquidity and capital requirements will also be met through cash provided
by operating activities and bank credit facilities, as well as the Company's
$125 million revolving credit facility described above.

OTHER

YEAR 2000

During 1999, the Company completed the process of preparing for the Year 2000
date change. This process involved identifying and remediating date recognition
issues in the Company's computer systems, products and services, working with
third parties to address their Year 2000 issues, and developing contingency
plans to address potential risks in the event of Year 2000 failures. To date,
the Company has successfully managed the transition.

Although considered unlikely, unanticipated issues in the Company's products,
services and systems, including problems associated with its major vendors and
suppliers and disruptions to the economy in general, could still occur despite
efforts to date to achieve Year 2000 readiness. The Company will continue to
monitor its computer systems, products and services, including interaction with
clients, major vendors and suppliers as needed through 2000 to address Year 2000
issues.

The costs to address the Year 2000-related issues to date have not been
material, and the Company does not anticipate such costs to become material in
the future. Although the Company is not aware of any material operational or
financial Year 2000-related issues not being addressed, the Company cannot
assure that its computer systems, products or services or the computers and
other systems of others upon which the Company depends will not incur Year 2000
issues, that the costs of its Year 2000 program will not become material or that
the Company's alternative plans will be adequate. If any such risks (either with
respect to the Company or its customers or suppliers) materialize, the Company
could experience material adverse consequences to its business.

INTERNAL USE SOFTWARE

Effective January 1, 1999, the Company adopted, as required, Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Prior to the adoption of SOP 98-1, the Company
expensed the costs of internally developed proprietary software as it was
incurred. SOP 98-1, effective for fiscal periods beginning after December 15,
1998, required that certain costs for the development of internal use software
be capitalized, including the costs of coding, software configuration, upgrades
and enhancements. The Company capitalized $24.0 million of costs related to the
development of internal use software for the year ended December 31, 1999, net
of related amortization, including $2.4 million which is included in equity of
unconsolidated affiliates. These costs will be amortized under the Company's
current policy on a straight-line basis, depending on the nature of the project,
generally over a three year period beginning on the date such software is
complete.

SEASONALITY

Generally, the Company does not have significant seasonal fluctuations in its
business operations. Processing and output solutions volumes for mutual fund
customers are usually highest during the quarter ended March 31 due primarily to
processing year-end transactions and printing and mailing of year-end statements
and tax forms during January. The Company has historically added operating
equipment in the last half of the year in preparation for processing year-end
transactions which has the effect of increasing costs for the second half of the
year. Revenues and operating results from individual license sales depend
heavily on the timing and size of the contract.

38
<PAGE>
COMPREHENSIVE INCOME

The Company's comprehensive income totaled $311.5 million, $232.8 million and
$181.9 million in 1999, 1998 and 1997, respectively. Comprehensive income
consists of net income of $138.1 million, $71.6 million and $79.4 million and
other comprehensive income of $173.4 million, $161.2 million and $102.5 million
in 1999, 1998 and 1997, respectively. Other comprehensive income consists of
unrealized gains (losses) on available-for-sale securities, net of deferred
taxes, reclassifications for gains included in net income and foreign currency
translation adjustments. The Company had net unrealized gains on
available-for-sale securities of $174.1 million, $161.2 million and $104.1
million in 1999, 1998 and 1997, respectively. The Company's net unrealized gains
on available-for-sale securities results primarily from market appreciation of
the Company's investments in approximately 8.6 million shares of CSC common
stock and 6.0 million shares of State Street common stock. At December 31, 1999,
these two investments had an aggregate pre-tax unrealized gain of $861.6
million. The amounts of foreign currency translation adjustments included in
other comprehensive income are immaterial.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the operations of its businesses, the Company's financial results can be
affected by changes in equity pricing, interest rates and currency exchange
rates. Changes in interest rates and exchange rates have not materially impacted
the consolidated financial position, results of operations or cash flows of the
Company. Changes in equity values of the Company's investments have had a
material effect on the Company's comprehensive income and financial position.

AVAILABLE-FOR-SALE EQUITY PRICE RISK

The Company's investments in available-for-sale equity securities are subject to
price risk. The fair value of the Company's available-for-sale investments as of
December 31, 1999 was approximately $1.3 billion. The impact of a 10% change in
fair value of these investments would be approximately $83 million to
comprehensive income. As discussed under "Comprehensive Income" above, net
unrealized gains on the Company's investments in available-for-sale securities
have had a material effect on the Company's comprehensive income and financial
position.

INTEREST RATE RISK

At December 31, 1999, the Company had $62.8 million of long-term debt, of which
$29.4 million was subject to variable interest rates (Federal Funds rates, LIBOR
rates, Prime rates). The Company estimates that a 10% increase in interest rates
would not be material to the Company's consolidated pretax earnings or to the
fair value of its debt.

FOREIGN CURRENCY EXCHANGE RATE RISK

The operation of the Company's subsidiaries in international markets results in
exposure to movements in currency exchange rates. The principal currencies
involved are the British pound, Canadian dollar, and Australian dollar. As
currency exchange rates change, translation of the financial results of
international operations into U.S. dollars does not now materially affect, and
has not historically materially affected, the consolidated financial results of
the Company.

The Company's international subsidiaries use the local currency as the
functional currency. The Company translates all assets and liabilities at
year-end exchange rates and income and expense accounts at average rates during
the year. While it is generally not the Company's practice to enter into
derivative contracts, from time to time the Company and its subsidiaries do
utilize forward foreign currency exchange contracts to minimize the impact of
currency movements.

39
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT

To the Stockholders of DST Systems, Inc.

The accompanying consolidated financial statements of DST Systems, Inc. and its
subsidiaries were prepared by management in conformity with accounting
principles generally accepted in the United States. In preparing the financial
statements, management has made judgments and estimates based on currently
available information. Other financial information included in this annual
report is consistent with that in the consolidated financial statements.

The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that its assets are safeguarded and that its
financial records are reliable. Management monitors the system for compliance,
and the Company's internal auditors measure its effectiveness and recommend
possible improvements thereto.

Independent accountants provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
regularly evaluate the system of internal accounting controls and perform such
tests and other procedures as they deem necessary to express an opinion on the
fairness of the consolidated financial statements.

The Board of Directors pursues its oversight role in the area of financial
reporting and internal accounting controls through its Audit Committee which is
composed solely of directors who are not officers or employees of the Company.
This committee meets regularly with the independent accountants, management and
internal auditors to discuss the scope and results of their work and their
comments on the adequacy of internal accounting controls and the quality of
external financial reporting.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of DST Systems, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
DST Systems, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States 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 provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Kansas City, Missouri
February 29, 2000

40
<PAGE>
DST SYSTEMS, INC.

CONSOLIDATED BALANCE SHEET

(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 89.0 $ 28.1
Accounts receivable (includes related party receivables of
$12.0 and $9.9)......................................... 320.6 282.4
Inventories............................................... 15.6 16.3
Deferred income taxes..................................... 10.3 21.3
Other assets.............................................. 29.0 27.7
-------- --------
464.5 375.8
Investments................................................. 1,477.7 1,130.5
Properties.................................................. 338.7 328.4
Intangibles and other assets................................ 45.4 62.3
-------- --------
Total assets............................................ $2,326.3 $1,897.0
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year.................................. $ 18.4 $ 12.1
Accounts payable.......................................... 93.7 85.3
Accrued compensation and benefits......................... 57.9 53.4
Deferred revenues and gains............................... 44.1 41.1
Other liabilities......................................... 71.7 76.7
-------- --------
285.8 268.6
Long-term debt.............................................. 44.4 49.7
Deferred income taxes....................................... 452.2 343.2
Other liabilities........................................... 80.3 68.5
-------- --------
862.7 730.0
-------- --------
Commitments and contingencies (Note 12).....................
-------- --------
Minority interests.......................................... 0.8
-------- --------
Stockholders' equity
Preferred stock, $0.01 par, 10,000,000 shares authorized
and unissued............................................
Common stock, $0.01 par, 125,000,000 shares authorized,
63,843,101 shares issued................................ 0.6 0.6
Additional paid-in capital................................ 454.2 462.3
Retained earnings......................................... 516.2 378.1
Treasury stock, at cost................................... (40.1) (34.1)
Accumulated other comprehensive income.................... 532.7 359.3
-------- --------
Total stockholders' equity.............................. 1,463.6 1,166.2
-------- --------
Total liabilities and stockholders' equity............ $2,326.3 $1,897.0
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

41
<PAGE>
DST SYSTEMS, INC.

CONSOLIDATED STATEMENT OF INCOME

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues (includes related parties revenues of $120.4,
$105.0 and $90.2)......................................... $1,203.3 $1,096.1 $950.0

Costs and expenses.......................................... 880.8 834.7 719.6
Depreciation and amortization............................... 122.8 108.8 103.5
Merger charges.............................................. 33.1
-------- -------- ------
Income from operations...................................... 199.7 119.5 126.9

Interest expense............................................ (5.2) (8.6) (8.5)
Other income, net........................................... 13.2 7.4 5.8
Equity in earnings (losses) of unconsolidated affiliates.... 6.6 (2.7) (1.3)
-------- -------- ------
Income before income taxes and minority interests........... 214.3 115.6 122.9

Income taxes................................................ 76.9 44.3 42.9
-------- -------- ------
Income before minority interests............................ 137.4 71.3 80.0

Minority interests.......................................... (0.7) (0.3) 0.6
-------- -------- ------
Net income.................................................. $ 138.1 $ 71.6 $ 79.4
======== ======== ======

Average common shares outstanding........................... 63.2 62.7 63.6
Diluted shares outstanding.................................. 64.8 64.3 64.7

Basic earnings per share.................................... $ 2.19 $ 1.14 $ 1.25
Diluted earnings per share.................................. $ 2.13 $ 1.11 $ 1.23
</TABLE>

The accompanying notes are an integral part of these financial statements.

42
<PAGE>
DST SYSTEMS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(IN MILLIONS)

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL OTHER TOTAL
NUMBER PAR PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
OF SHARES VALUE CAPITAL EARNINGS STOCK INCOME EQUITY
--------- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996................ 63.9 $0.6 $463.7 $248.7 $(12.4) $ 95.6 $ 796.2
Comprehensive income:
Net income..................... 79.4
Other comprehensive income..... 102.5
Comprehensive income......... 181.9

Issuance of common stock......... 0.3 2.4 2.4 4.8
Repurchase of common stock....... (1.6) (21.6) (30.4) (52.0)
---- ---- ------ ------ ------ ------ --------
DECEMBER 31, 1997................ 62.6 0.6 466.1 306.5 (40.4) 198.1 930.9
Comprehensive income:
Net income..................... 71.6
Other comprehensive income..... 161.2
Comprehensive income......... 232.8

Issuance of common stock......... 0.7 (2.9) 21.6 18.7
Repurchase of common stock....... (0.4) (0.9) (15.3) (16.2)
---- ---- ------ ------ ------ ------ --------
DECEMBER 31, 1998................ 62.9 0.6 462.3 378.1 (34.1) 359.3 1,166.2
Comprehensive income:
Net income..................... 138.1
Other comprehensive income..... 173.4
Comprehensive income......... 311.5

Issuance of common stock......... 1.1 (8.1) 46.2 38.1
Repurchase of common stock....... (0.9) (52.2) (52.2)
---- ---- ------ ------ ------ ------ --------
DECEMBER 31, 1999................ 63.1 $0.6 $454.2 $516.2 $(40.1) $532.7 $1,463.6
==== ==== ====== ====== ====== ====== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

43
<PAGE>
DST SYSTEMS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS--OPERATING ACTIVITIES:
Net income.................................................. $ 138.1 $ 71.6 $ 79.4
------- ------- -------
Depreciation and amortization............................... 122.8 108.8 103.5
Non-cash merger charges..................................... 13.5
Equity in (earnings) losses of unconsolidated affiliates.... (6.6) 2.7 1.3
Cash dividends received from unconsolidated affiliates...... 0.5 9.9
Net realized gain from sale of investments.................. (12.4) (1.9) (1.5)
Deferred taxes.............................................. 8.4 (10.0) (3.1)
Changes in accounts receivable.............................. (38.2) (13.0) (40.3)
Changes in inventories and other current assets............. (0.8) 6.6 (12.3)
Changes in accounts payable and accrued liabilities......... 33.1 82.0 11.8
Other, net.................................................. 7.4 4.6 9.9
------- ------- -------
Total adjustments to net income............................. 114.2 203.2 69.3
------- ------- -------
Net..................................................... 252.3 274.8 148.7
------- ------- -------
CASH FLOWS--INVESTING ACTIVITIES:
Proceeds from sale of investments........................... 24.8 7.0 12.4
Investments and advances to unconsolidated affiliates....... (60.8) (48.0) (16.1)
Capital expenditures........................................ (139.0) (132.7) (82.6)
Net investment in leases.................................... (9.5) (11.9) (8.0)
Principal collections on leases............................. 9.8 6.4 8.6
Payment for purchases of subsidiaries, net of cash
acquired.................................................. (14.2) (16.8)
Other, net.................................................. 11.6 2.3 2.4
------- ------- -------
Net..................................................... (163.1) (191.1) (100.1)
------- ------- -------
CASH FLOWS--FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 24.2 7.9 2.4
Proceeds from issuance of long-term debt.................... 11.5 7.4
Principal payments on long-term debt........................ (13.7) (23.4) (19.4)
Net increase (decrease) in revolving credit facilities...... 3.2 (37.5) 28.1
Common stock repurchased.................................... (52.2) (16.2) (52.2)
Other, net.................................................. (1.3) (12.4) (5.6)
------- ------- -------
Net..................................................... (28.3) (74.2) (46.7)
------- ------- -------
Net increase in cash and cash equivalents................... 60.9 9.5 1.9
Cash and cash equivalents, beginning of year................ 28.1 18.6 16.7
------- ------- -------
Cash and cash equivalents, end of year...................... $ 89.0 $ 28.1 $ 18.6
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

44
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

DST Systems, Inc. (the "Company" or "DST") provides sophisticated information
processing and computer software services and products to the financial services
industry (primarily mutual funds and investment managers), communications
industry, video/broadband/satellite TV industry, and other service industries.
In December 1998, the Company completed its merger ("USCS Merger") with USCS
International, Inc. ("USCS") through the issuance of approximately 13.8 million
shares of common stock. The USCS Merger was accounted for under the pooling of
interests accounting method. Accordingly, the DST financial results for all
periods prior to the merger were restated in 1998 to combine the historical
results of operations of DST and USCS, adjusted for conformity of accounting
policies relating primarily to USCS' depreciation and amortization policies and
accounting for the costs of software developed for internal USCS use.

FINANCIAL SERVICES

The Financial Services Segment provides sophisticated information processing and
computer software services and products primarily to mutual funds, investment
managers, insurance companies, banks, brokers and financial planners. The
Company's proprietary software systems include mutual fund shareowner and unit
trust accounting and recordkeeping systems offered to the U.S. and international
mutual funds; a defined-contribution participant recordkeeping system for the
U.S. market; a variety of portfolio accounting and investment management systems
offered to U.S. and international fund accountants and investment managers; a
workflow management system offered primarily to mutual funds, insurance
companies, brokerage firms and banks; and a securities transfer system offered
to corporate trustees and transfer agents and, through affiliated companies, to
corporate clients.

OUTPUT SOLUTIONS

The Output Solutions Segment provides complete bill and statement processing
services and solutions, including electronic presentment, which include
generation of customized statements that are produced in sophisticated automated
facilities designed to minimize turnaround time and mailing costs. This Segment
provides statement processing services and solutions in North America to
customers of the Company's Financial Services and Customer Management business
segments, and to telecommunications, utilities and other high volume industries
which require high quality, accurate and timely statement processing.

CUSTOMER MANAGEMENT

The Customer Management Segment provides sophisticated customer management and
open billing solutions to the video/broadband, direct broadcast satellite
("DBS"), wireless, wire-line and Internet-

45
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

protocol telephony, Internet and utility markets worldwide. The Company's
software systems enable its clients to manage their operations across all
aspects of their business including order processing, customer support,
financial reporting, decision support, marketing, field services and
collections.

INVESTMENTS AND OTHER

2. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include all majority-owned subsidiaries of
DST. All significant intercompany balances and transactions have been
eliminated. Certain amounts in the prior year's consolidated financial
statements have been reclassified to conform to the current year presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

Computer processing and services revenues are recognized upon completion of the
services provided. Revenues under bundled service agreements are recognized over
the life of the agreement based on usage and as the bundled services are
provided. Software license fees, maintenance fees and other ancillary fees are
recognized as services are provided or delivered and all customer obligations
have been met. The Company generally does not have customer obligations that
extend past one year. Revenue from equipment sales and sales-type leases is
recognized as equipment is shipped. Income from financing leases is recognized
as revenue at a constant periodic rate of return on the net investment in the
lease. Revenue from rentals and operating leases is recognized monthly as the
rent accrues. Billing for services in advance of performance is recorded as
deferred revenue. Allowances for billing adjustments are determined as revenues
are recognized and are recorded as reductions in revenues. Doubtful account
expense for the Company is immaterial.

The Company has entered into various agreements with related parties,
principally unconsolidated affiliates, to utilize the Company's data processing
facilities and its computer software systems. The

46
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company believes that the terms of its contracts with related parties are fair
to the Company and are no less favorable to the Company than those obtained from
unaffiliated parties.

COSTS AND EXPENSES

Costs and expenses include all costs, excluding depreciation and amortization,
incurred by the Company to produce revenues. The Company believes that the
nature of its business as well as its organizational structure, in which
virtually all officers and associates have operational responsibilities, does
not allow for a meaningful segregation of selling, general and administrative
costs. These costs, which the Company believes to be immaterial, are also
included in costs and expenses. Substantially all depreciation and amortization
are directly associated with the production of revenues.

SOFTWARE DEVELOPMENT AND MAINTENANCE

Purchased software is recorded at cost and is amortized over the estimated
economic lives of three to five years. Effective January 1, 1999, the Company
adopted, as required, Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" issued by the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants. SOP 98-1, effective for periods beginning after
December 15, 1998, requires that certain costs for the development of internal
use software including coding and software configuration costs, and costs of
upgrades and enhancements be capitalized. These costs will be amortized under
the Company's current policy on a straight-line basis, depending on the nature
of the project, generally over a three year period. Prior to the adoption of SOP
98-1, costs of software developed for internal use were expensed as incurred.
The Company capitalized $24.0 million of costs related to the development of
internal use software for the year ended December 31, 1999. If internal use
software development costs had been expensed rather than capitalized,
consolidated net income for the year ended December 31, 1999 would have been
$122.7 million ($1.94 per basic share, $1.89 per diluted share).

Research and development costs for software that will be sold or licensed to
third parties are expensed as incurred and consist primarily of software
development costs incurred prior to the achievement of technological
feasibility. The Company capitalizes software development costs for software
that will be sold or licensed to third parties after the products reach
technological feasibility and it has been determined that the software will
result in probable future economic benefits and management has committed to
funding the project. These capitalized development costs are amortized on a
product-by-product basis using the greater of the amount computed by taking the
ratio of current year's net revenue to current year's net revenue plus estimated
future net revenues or the amount computed by the straight-line method over the
estimated useful life of the product, generally three to five years. The Company
evaluates the net realizable value of capitalized software development costs on
a product-by-product basis. The cost of custom development that is required and
funded by a specific client is charged to costs and expenses as incurred.

A portion of the Company's development costs is funded by customers through
various programs, including product support and shared-cost arrangements.
Amounts received under the arrangements reduce the amount of development costs
either expensed or capitalized, depending on the terms of the agreement and the
nature of the software being developed.

Operating costs include non-capitalizable software development and maintenance
costs relating to internal proprietary systems and non-capitalizable costs for
systems to be sold or licensed to third parties of approximately $145.8 million,
$163.0 million and $132.5 million for the years ended

47
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 1999, 1998 and 1997, respectively. The Company capitalized $24.0
million of costs related to the development of internal use software for the
year ended December 31, 1999. Capitalized development costs for systems to be
sold or licensed to third parties were $5.0 million, $2.5 million and $3.1
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Amortization expense related to capitalized development costs totaled $1.8
million and $0.4 for the years ended December 31, 1999 and 1998, while no
amortization expense was recognized in 1997.

CASH EQUIVALENTS

Short-term liquid investments with a maturity of three months or less are
considered cash equivalents. Due to the short-term nature of these investments,
carrying value approximates market value.

INVENTORIES

Inventories are valued at the lower of cost or market. Cost is determined on the
specific identification or first-in, first-out basis. Inventories are comprised
primarily of paper and envelope stocks.

INVESTMENTS IN SECURITIES

The equity method of accounting is used for all entities in which the Company or
its subsidiaries have at least a 20% voting interest and significant influence
but do not control; the cost method of accounting is used for investments of
less than 20% voting interest. Investments classified as available-for-sale
securities are reported at fair value with unrealized gains and losses excluded
from earnings and recorded net of deferred taxes directly to stockholders'
equity as accumulated other comprehensive income.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost with major additions and
improvements capitalized. Cost includes the amount of interest cost associated
with significant capital additions. Depreciation of buildings is recorded using
the straight-line method over 15 to 40 years. Equipment and furniture are
depreciated using straight-line and accelerated methods over the estimated
useful lives, principally three to five years. Leasehold improvements are
depreciated using the straight-line method over the lesser of the term of the
lease or life of the improvements. The Company reviews, on a quarterly basis,
its property and equipment for possible impairment. In management's opinion, no
such impairment exists at December 31, 1999.

INTANGIBLES

Goodwill resulting from the cost of investments in excess of the underlying fair
value of identifiable net assets acquired is amortized over periods ranging from
3 to 20 years. On a quarterly basis, the Company reviews the recoverability of
goodwill. The measurement of possible impairment is based primarily on the
ability to recover the balance of the goodwill from expected future operating
cash flows on an undiscounted basis. These analyses are performed on an
individual investment basis with the primary focus of the analyses being the
expected future cash flows from significant products of each of the investments.
In management's opinion, no such impairment exists at December 31, 1999.

48
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INCOME TAXES

Deferred income tax effects of transactions reported in different periods for
financial reporting and income tax return purposes are recorded by the liability
method. This method gives consideration to the future tax consequences of
deferred income or expense items and immediately recognizes changes in income
tax laws upon enactment. The income statement effect is generally derived from
changes in deferred income taxes on the balance sheet.

CUSTOMER DEPOSITS

The Company requires postage deposits from certain of its clients based on
long-term contractual arrangements. The Company does not anticipate repaying in
the next year amounts classified as non-current.

FOREIGN CURRENCY TRANSLATION

The Company's international subsidiaries use the local currency as the
functional currency. The Company translates all assets and liabilities at period
end exchange rates and income and expense accounts at average rates during the
period. Translation adjustments are recorded in stockholders' equity and were
not material at December 31, 1999 and 1998. While it is generally not the
Company's practice to enter into derivative contracts, from time to time the
Company and its subsidiaries do utilize forward foreign currency exchange
contracts to minimize the impact of currency movements.

EARNINGS PER SHARE

Basic earnings per share is determined by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted earnings
per share is determined by including the diluted effect of all potential common
shares outstanding during the year.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations, and has presented the required SFAS No. 123,
"Accounting for Stock-Based Compensation," pro forma disclosures in Note 9.

COMPREHENSIVE INCOME

The Company's comprehensive income consists of net income, unrealized gains
(losses) on available-for-sale securities, net of deferred income taxes, and
foreign currency translation adjustments and is presented in the Consolidated
Statement of Stockholders' Equity.

3. ACQUISITIONS AND DISPOSITIONS

USCS MERGER

In December 1998, DST's management approved plans which included initiatives to
integrate the operations of certain DST and USCS subsidiaries and consolidate
facilities. Total accrued integration

49
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

costs of $16.9 million were recorded in the fourth quarter of 1998, of which
$0.7 million, $12.8 million and $3.4 million related to the Financial Services,
Output Solutions, and Customer Management Segments, respectively.

1998 integration costs included $3.2 million for the severance cost of
involuntary separation benefits related to approximately 250 employees. Employee
separations affect the majority of business functions and job classifications
across the Output Solutions ($1.5 million) and Customer Management ($1.7
million) Segments, principally in North America. At December 31, 1999,
approximately $1.8 million of employee separation accruals remain related to
approximately 50 employees.

The cash and non-cash elements of the integration costs were approximately $9.5
million and $7.4 million, respectively. Details of the merger charge are as
follows (in millions):

50
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of historical results of DST and USCS for 1998 and 1997 are as follows
(in millions):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues
DST Systems, Inc....................................... $ 749.0 $ 650.7
USCS International, Inc................................ 347.1 299.3
-------- --------
Total revenues....................................... $1,096.1 $ 950.0
======== ========
Net income
DST Systems, Inc....................................... $ 73.9 $ 59.0
USCS International, Inc................................ 21.0 22.4
Conforming of accounting policies...................... (3.9) (2.0)
Merger costs........................................... (19.4)
-------- --------
Total net income..................................... $ 71.6 $ 79.4
======== ========
</TABLE>

EQUISERVE

In December 1998, Boston EquiServe LP ("Boston EquiServe") and First Chicago
Trust Company of New York completed a transaction creating EquiServe LP
("EquiServe"), the largest securities transfer agent in the U.S. Prior to the
transaction, Boston EquiServe was a limited partnership 50% owned by Boston
Financial Data Services, Inc. ("BFDS") (a 50% owned joint venture of DST and
State Street Corporation) and 50% by BankBoston Corporation.

51
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As Fairway is accepted and the transaction is completed, the Company plans to
account for the EquiServe Contribution as a non-cash, non-taxable, like-kind
exchange of similar productive assets. Accordingly, no gain will be recognized
from the EquiServe Contribution. The capitalizable costs associated with Fairway
development along with the net assets of the securities transfer business
contributed will become the basis of the Company's investment in EquiServe. The
Company expensed costs of Fairway development of $9.1 million, $8.7 million and
$3.6 million in 1999, 1998 and 1997, respectively.

CUSTIMA

52
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DBS SYSTEMS CORPORATION ("DBS SYSTEMS")

In October 1997, the Company purchased the remaining 20% minority interest in
DBS Systems for $13.2 million in cash. The excess of the purchase price over the
net assets acquired of $11.6 million has been assigned a useful life of 12
years. The Company had previously acquired 20% and 60% of DBS Systems in
December 1995 and May 1993, respectively. On a pro forma basis, the acquisition
did not have a material impact on the Company's historical results of operations
or financial position.

4. PROPERTIES

Properties and related accumulated depreciation are as follows (in millions):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 25.9 $ 20.1
Buildings................................................... 128.5 128.2
Data processing equipment................................... 264.1 296.9
Data processing software.................................... 151.1 120.7
Furniture, fixtures and other equipment..................... 233.1 214.1
Leasehold improvements...................................... 46.3 35.9
Construction-in-progress.................................... 24.1 28.6
------ ------
873.1 844.5
Less accumulated depreciation and amortization.............. 534.4 516.1
------ ------
Net properties.............................................. $338.7 $328.4
====== ======
</TABLE>

Depreciation expense for the years ended December 31, 1999, 1998 and 1997, was
$108.2 million, $92.9 million and $94.8 million, respectively.

53
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENTS

Investments are as follows (in millions):

<TABLE>
<CAPTION>
CARRYING VALUE
-------------------
1999 DECEMBER 31,
OWNERSHIP -------------------
PERCENTAGE 1999 1998
---------- -------- --------
<S> <C> <C> <C>
Available-for-sale securities:
Computer Sciences Corporation........................ 5% $ 816.8 $ 554.6
State Street Corporation............................. 4% 438.4 420.8
Euronet Services, Inc................................ 12% 14.4 4.5
Other available-for-sale securities.................. 63.3 38.7
-------- --------
1,332.9 1,018.6
-------- --------
Unconsolidated affiliates:
Boston Financial Data Services, Inc.................. 50% 48.3 39.4
European Financial Data Services Ltd................. 50% 8.0 5.5
Argus Health Systems, Inc............................ 50% 6.4 3.8
Other unconsolidated affiliates...................... 34.8 25.6
-------- --------
97.5 74.3
-------- --------
Other:
Net investment in leases............................. 16.0 16.3
Other................................................ 31.3 21.3
-------- --------
47.3 37.6
-------- --------
Total investments.................................. $1,477.7 $1,130.5
======== ========
</TABLE>

Computer Sciences Corporation ("CSC") is a provider of outsourcing, system
integration, information technology, management consulting and other
professional services to industry and government. The aggregate market value of
the Company's investment in CSC's common stock presented above was based on the
closing price on the New York Stock Exchange.

State Street Corporation ("State Street") is a financial services corporation
that provides banking, trust, investment management, global custody,
administration and securities processing services to both U.S. and non-U.S.
customers. The aggregate market value of the Company's investment in State
Street's common stock presented above was based on the closing price on the New
York Stock Exchange. The Company received $3.5 million, $3.0 million and $2.5
million in dividends from State Street in 1999, 1998 and 1997, respectively,
which have been recorded in other income.

Euronet Services, Inc. ("Euronet") operates an independent, non-bank owned
automatic teller machine network as a service provider to banks and other
financial institutions in certain Central European countries. The aggregate
market value of the Company's investment in Euronet's common stock presented
above was based on the closing price on the NASDAQ.

The Company's investments in available-for-sale securities had an aggregate
market value of $1,332.9 million and $1,018.6 million and an aggregate cost
basis of $456.5 million and $427.9 million at December 31, 1999 and 1998,
respectively. Proceeds of $24.8 million and $7.0 million and gross realized
gains of $12.4 million and $1.9 million were recorded in 1999 and 1998,
respectively, from the sale of available-for-sale securities. Gross unrealized
holding gains totaled $877.9 million, $591.2 million and

54
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

$326.2 million at December 31, 1999, 1998 and 1997, respectively. Gross
unrealized holding losses totaled $1.5 million and $0.5 million at December 31,
1999 and 1998. There were no gross unrealized holding losses at December 31,
1997.

Boston Financial Data Services, Inc. ("BFDS") is a corporate joint venture of
the Company and State Street Corporation. BFDS performs shareowner accounting
services for mutual fund companies using the Company's proprietary application
system for mutual fund shareowner recordkeeping, TA2000, and retirement plan
recordkeeping services using TRAC2000. BFDS also performs remittance and proxy
processing, teleservicing and class action administration services.

European Financial Data Services Limited ("EFDS") is a United Kingdom joint
venture of DST and State Street. EFDS provides full and remote processing for
United Kingdom unit trusts and related products. EFDS is also implementing a new
unit trust accounting system for the United Kingdom market.

Argus Health Systems, Inc. ("Argus") is a corporate joint venture of the Company
and a privately held life insurance holding company. Argus provides pharmacy
benefit plan processing services to the health care industry. Argus utilizes the
Company's data processing facility for its claims processing services. The
Company received a $9.5 million cash dividend from Argus in 1998.

Equity in earnings (losses) of unconsolidated affiliates, net of income taxes
provided by the unconsolidated affiliates and related goodwill amortization is
as follows (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BFDS.................................................. $ 8.9 $ 7.2 $ 6.2
EFDS.................................................. (5.3) (11.1) (11.8)
Argus................................................. 2.6 2.7 4.5
Other................................................. 0.4 (1.5) (0.2)
----- ------ ------
$ 6.6 $ (2.7) $ (1.3)
===== ====== ======
</TABLE>

Certain condensed financial information of the unconsolidated affiliates follows
(in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................ $439.3 $411.1 $336.1
Costs and expenses.................................. 412.6 418.9 337.6
Net income (loss)................................... 26.7 (7.8) (1.5)
Current assets...................................... 123.8 118.0
Noncurrent assets................................... 286.5 223.6
Current liabilities................................. 50.3 51.8
Noncurrent liabilities.............................. 186.2 221.7
Partners' and stockholders' equity.................. 173.8 68.1
</TABLE>

Net investment in leases of $16.0 million and $16.3 million at December 31, 1999
and 1998, respectively, reflects the gross lease receivable from sales-type
leases and the estimated residual value of the leased equipment less unearned
income.

55
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INTANGIBLES AND OTHER ASSETS

Intangibles and other assets include the following items (in millions):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Intangibles................................................. $96.3 $103.3
Less accumulated amortization............................... 52.3 43.9
----- ------
Net..................................................... 44.0 59.4
Other assets................................................ 1.4 2.9
----- ------
Total................................................... $45.4 $ 62.3
===== ======
</TABLE>

Intangibles exclude goodwill of $4.2 million and $4.5 million at December 31,
1999 and 1998, respectively, related to unconsolidated affiliates which is
classified as part of the investments in the unconsolidated affiliates.
Amortization expense, including amortization related to goodwill recorded in
investments, totaled $14.9 million, $13.8 million and $8.7 million for the years
ended December 31, 1999, 1998 and 1997, respectively.

7. LONG-TERM DEBT

The Company is obligated under notes and other indebtedness as follows (in
millions):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Secured notes payable....................................... $ 12.2 $ 10.5
Mortgage notes.............................................. 21.3 24.8
Revolving credit facilities................................. 27.4 24.2
Other....................................................... 1.9 2.3
------ ------
62.8 61.8
Less debt due within one year............................... (18.4) (12.1)
------ ------
Long-term debt.............................................. $ 44.4 $ 49.7
====== ======
</TABLE>

The secured notes payable primarily represent notes, which are secured by data
processing and production equipment and minimum rental receivables. These notes
are generally payable over 12 to 24 month periods with interest rates from 3.73%
to 8.81% at December 31, 1999.

The mortgage notes represent real estate borrowings due in installments with the
balance due at the end of the term. Interest rates are fixed and range from
8.25% to 10.0% at December 31, 1999.

In December 1996, the Company entered into an amended and restated five-year
revolving credit facility of $105 million (increased to $125 million in February
1997) with a syndicate of U.S. and international banks. Borrowings under the
facility are available at rates based on the Eurodollar, Prime, Base CD, or
Federal Funds rates. A commitment fee of 0.085% per annum is required on the
total amount of the facility. An additional utilization fee of .050% is required
if the principal amount outstanding is greater than 50% of the total facility.
Among other provisions, the agreement limits subsidiary indebtedness and sales
of assets and requires the Company to maintain certain coverage and leverage
ratios. No borrowings were outstanding at December 31, 1999 or 1998.

56
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company and its subsidiaries maintain additional lines of credit totaling
$110 million for working capital requirements and general corporate purposes of
which $60 million matures May 2000 and $50 million matures March 2001.
Borrowings under the facilities are available at rates tied to the Eurodollar,
federal funds rates or LIBOR rates. Commitment fees of 0.25% to 0.50% per annum
are required on the unused portions. Borrowings of $20.7 million and $23.0
million were outstanding under these additional lines of credit at December 31,
1999 and 1998, respectively.

Future principal payments of indebtedness at December 31, 1999 are as follows
(in millions):

<TABLE>
<S> <C>
2000........................................................ $18.4
2001........................................................ 26.7
2002........................................................ 2.0
2003........................................................ 2.2
2004........................................................ 2.5
Thereafter.................................................. 11.0
-----
Total....................................................... $62.8
=====
</TABLE>

Based upon the borrowing rates currently available to the Company and its
subsidiaries for indebtedness with similar terms and average maturities, the
carrying value of long-term debt is considered to approximate fair value at
December 31, 1999 and 1998.

8. INCOME TAXES

As a result of the USCS Merger, USCS was included with the Company and its
consolidated U.S. subsidiaries in filing a consolidated federal income tax
return after December 21, 1998. Prior to the USCS Merger, USCS and its
consolidated U.S. subsidiaries filed a separate consolidated federal income tax
return.

Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is generally the result of changes in
the assets or liabilities for deferred taxes.

The following summarizes pretax income (loss) (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S................................................. $187.4 $108.9 $133.0
International....................................... 26.9 6.7 (10.1)
------ ------ ------
Total............................................... $214.3 $115.6 $122.9
====== ====== ======
</TABLE>

57
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Income tax expense consists of the following components (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current
Federal............................................. $55.1 $ 43.3 $37.0
State and local..................................... 5.2 5.0 6.0
International....................................... 8.2 6.0 3.0
----- ------ -----
Total current..................................... 68.5 54.3 46.0
----- ------ -----
Deferred
Federal............................................. 7.2 (5.0) (1.2)
State and local..................................... (0.1) (2.8) (0.7)
International....................................... 1.3 (2.2) (1.2)
----- ------ -----
Total deferred.................................... 8.4 (10.0) (3.1)
----- ------ -----
Total income tax expense.............................. $76.9 $ 44.3 $42.9
===== ====== =====
</TABLE>

Differences between the Company's effective income tax rate and the U.S. federal
income tax statutory rate are as follows (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax expense using the statutory rate in
effect............................................... $75.0 $40.5 $43.0
Tax effect of:
State and local income taxes, net.................... 3.3 1.4 3.4
International income taxes, net...................... 1.1 (0.6) 1.1
Earnings of U.S. unconsolidated affiliates........... (3.4) (2.8) (3.1)
Transaction costs for USCS Merger.................... 3.2
Acquired in-process research and development costs... 2.1
Other................................................ 0.9 0.5 (1.5)
----- ----- -----
Total income tax expense............................... $76.9 $44.3 $42.9
===== ===== =====
Effective tax rate..................................... 35.9% 38.4% 34.9%
Statutory federal tax rate............................. 35.0% 35.0% 35.0%
</TABLE>

58
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The federal and state deferred tax assets (liabilities) recorded on the
Consolidated Balance Sheet are as follows (in millions):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Liabilities:
Investments in available for sale securities............ $(483.4) $(359.8)
Unconsolidated affiliates and investments............... (0.5) (2.1)
Other................................................... (3.1) (9.4)
------- -------
Gross deferred tax liabilities.......................... (487.0) (371.3)
------- -------
Assets:
Book accruals not currently deductible for tax.......... 12.1 17.2
Accumulated depreciation and amortization............... 13.5 16.0
Deferred compensation and other employee benefits....... 16.5 11.9
International operating loss carryforwards.............. 2.5
Other................................................... 3.0 1.8
------- -------
Gross deferred tax assets............................... 45.1 49.4
------- -------
Net deferred tax liability................................ $(441.9) $(321.9)
======= =======
</TABLE>

Prior to 1993, the Company generally did not provide deferred income taxes for
unremitted earnings of certain investees accounted for under the equity method
because those earnings have been and will continue to be reinvested. Beginning
in 1993, pursuant to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, the Company began providing deferred taxes for
unremitted earnings of U.S. unconsolidated affiliates net of the 80% dividends
received deduction provided for under current tax law. Through December 31,
1999, the cumulative amount of such unremitted earnings was $50.5 million. These
amounts would become taxable to the Company if distributed by the affiliates as
dividends, in which case the Company would be entitled to the dividends received
deduction for 80% of the dividends; alternatively, these earnings could be
realized by the sale of the affiliates' stock, which would give rise to tax at
federal capital gains rates and state ordinary income tax rates, to the extent
the stock sale proceeds exceeded the Company's tax basis. Deferred taxes
provided on unremitted earnings through December 31, 1999 and 1998 were $3.5
million and $2.5 million, respectively. Determination of the amount of the
unrecognized deferred tax liability related to investments in international
subsidiaries, including but not limited to unremitted earnings and cumulative
translation adjustments, is not practicable.

59
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCKHOLDERS' EQUITY

EARNINGS PER SHARE

The computation of basic and diluted earnings per share is as follows (in
millions, except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income............................................ $138.1 $71.6 $79.4
====== ===== =====

Average common shares outstanding..................... 63.2 62.7 63.6
Incremental shares from assumed conversions of stock
options............................................. 1.6 1.6 1.1
------ ----- -----
Diluted shares outstanding............................ 64.8 64.3 64.7
====== ===== =====

Basic earnings per share.............................. $ 2.19 $1.14 $1.25
Diluted earnings per share............................ $ 2.13 $1.11 $1.23
</TABLE>

COMPREHENSIVE INCOME

Components of other comprehensive income consist of the following (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains on investments:
Unrealized holding gains arising during the
period........................................ $ 298.1 $ 266.4 $170.9
Less reclassification adjustment for gains
included in net income........................ (12.4) (1.9)
Foreign currency translation adjustments.......... (0.7) (1.6)
Deferred income taxes............................. (111.6) (103.3) (66.8)
------- ------- ------
Other comprehensive income........................ $ 173.4 $ 161.2 $102.5
======= ======= ======
</TABLE>

Components of the related tax provision of other comprehensive income consists
of the following (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains on investments:
Unrealized holding gains arising during the
period........................................... $116.4 $104.0 $66.8
Less reclassification adjustment for gains included
in net income.................................... (4.8) (0.7)
------ ------ -----
Deferred income taxes................................ $111.6 $103.3 $66.8
====== ====== =====
</TABLE>

60
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

STOCK ISSUANCE AND REPURCHASES

In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts. The Company
expended $10.0 million and $20.3 million in 1998 and 1997, respectively, to
complete the purchases under this plan.

In December 1998, the Board of Directors approved a plan for DST to repurchase
600,000 shares of DST common stock at the rate of approximately 25,000 shares
per month in approximately equal monthly amounts beginning in February 1999, to
provide additional shares needed as a result of the USCS Merger for use under
various DST option and benefit programs. In August 1999, as a result of expected
additional share requirements under these programs, the Board of Directors
authorized the repurchase of an additional 3,575,000 shares for a total of
4,175,000, with the then 4,000,000 remaining unpurchased shares to be purchased
during a twenty-four month period commencing September 1999. Such purchases may
be made in private or market transactions and will be made in compliance with
SEC regulations. The Company expended $52.2 million in 1999 to purchase 840,000
shares under this plan.

In the fourth quarter 1997, DST expended $21.7 million to purchase 1.1 million
shares of USCS common stock. These shares were retired in conjunction with the
USCS Merger.

The Company had 0.7 million and 0.9 million shares of common stock held in
treasury at December 31, 1999 and 1998, respectively.

STOCK BASED COMPENSATION

In September 1995, the Company established the Stock Option and Performance
Award Plan, which now provides for the availability of 9,000,000 shares of the
Company's common stock for the grant of awards to officers, directors and other
designated employees. The awards may take the form of an option, stock
appreciation right, limited right, performance share or unit, dividend
equivalent, or any other right, interest or option relating to shares of common
stock granted under the plan. The option prices must be at least equal to the
fair market value of the underlying shares on the date of grant. Options become
exercisable and expire as determined by the Compensation Committee of the Board
of Directors at the date of grant.

61
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

USCS, prior to its merger with DST, issued stock options under five stock option
plans to directors, officers and key employees of USCS. Under the 1988, 1990,
1993 and 1996 USCS Stock Option Plans, options were granted at prices and with
terms and conditions established by USCS' Board of Directors at the date of
grant. Options under these plans vest over periods of up to sixty months and
expire ten years after the date of grant. Under the USCS Director's Stock Option
Plan, options were granted at fair market value and vested annually over three
years and expire five years after the date of grant. Upon completion of the USCS
Merger, each outstanding option to purchase USCS common stock issued pursuant to
USCS' stock option plans was assumed by DST. Each such option now constitutes an
option to acquire, on the same terms and conditions as were applicable under
such assumed option, the number of shares of DST common stock equal to the
product of the merger exchange ratio of 0.62 and the number of shares of USCS
common stock subject to such option rounded down to the nearest whole share. The
exercise price per share of DST common stock is equal to the exercise price per
share of such option before the USCS Merger divided by the merger exchange ratio
of 0.62, rounded up to the nearest whole cent. Pursuant to certain change in
control provisions in the USCS Option Plans, approximately 50% of the unvested
portions of the options accelerated and became exercisable at the completion of
the USCS Merger.

Summary stock option activity is presented in the table below (shares in
millions):

<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1............ 5.3 $29.28 4.6 $23.01 3.7 $18.50
Granted............................. 1.5 55.44 1.3 47.69 1.3 31.95
Exercised........................... (1.1) 24.21 (0.4) 16.34 (0.3) 7.52
Forfeited........................... (0.2) 43.31 (0.2) 31.30 (0.1) 20.67
---- ---- ----
Outstanding at December 31.......... 5.5 $36.87 5.3 $29.28 4.6 $23.01
==== ==== ====
Exercisable at December 31.......... 3.5 $29.02 3.5 $23.45 1.7 $18.87
</TABLE>

Summary information concerning outstanding and exercisable stock options as of
December 31, 1999 follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
PER SHARE (IN MILLIONS) (IN MILLIONS) PER SHARE (IN MILLIONS) PER SHARE
- ----------------------------- ------------- ---------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$0.34 -- $11.91.............. 0.1 4.6 $ 6.79 0.1 $ 6.76
20.17 -- 21.51............... 1.9 5.9 20.86 1.8 20.89
26.21 -- 41.74............... 1.2 7.4 31.55 0.9 31.80
47.79 -- 68.28............... 2.3 8.9 54.78 0.7 52.14
--- --- ------ --- ------
$0.34 -- $68.28.............. 5.5 7.4 $36.87 3.5 $29.02
</TABLE>

62
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Had compensation cost been determined consistent with SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net income would have been reduced
to the following pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net income (millions): As reported $138.1 $71.6 $79.4
Pro forma 120.0 58.0 71.3

Basic earnings per share: As reported 2.19 1.14 1.25
Pro forma 1.90 0.92 1.12

Diluted earnings per share: As reported 2.13 1.11 1.23
Pro forma 1.85 0.90 1.10
</TABLE>

The weighted average fair value of options granted was $20.01, $17.31 and $13.06
for 1999, 1998 and 1997, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 1999, 1998 and
1997, respectively: expected option term of 5.0, 5.3 and 5.7 years, volatility
of 29.4%, 28.4% and 30.7%, dividend yield of 0% and risk-free interest rate of
5.3%, 5.4% and 6.2%.

Prior to the USCS Merger, shares were issued under the USCS Employee Stock
Purchase Plan ("Plan"). Common stock purchases under the Plan totaled
approximately 32,000 shares and 12,000 shares in 1998 and 1997, respectively.
The weighted average fair value of the employee purchase rights and compensation
expense was not material.

RIGHTS PLAN

The Company is party to a Stockholder's Right Agreement (the "Rights Plan")
dated as of October 6, 1995, and amended as of July 9, 1998 and September 10,
1999. Each share of the Company's common stock held of record on October 18,
1995 (when Kansas City Southern Industries, Inc. ("KCSI") was then the sole
stockholder of the Company) and all shares of common stock issued in and
subsequent to the Offerings have received one Right. Each Right entitles its
holder to purchase 1/1000th share of preferred stock of the Company, or in some
circumstances, other securities of the Company. In certain circumstances, the
Rights entitle their holders to purchase shares in a surviving entity or its
affiliates resulting from transactions in which the Company is not the surviving
entity or disposes of more than 50% of the Company's assets or earnings power.

The Rights, which are automatically attached to common stock, are not
exercisable or transferable separately from shares of common stock until ten
days following the earlier of an announcement that a person or group (an
"Acquiring Person"), has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of the Company's common
stock, or ten days following the commencement or announcement of any person's
intention to make a tender offer or exchange offer that would result in
ownership of 15% or more of the outstanding common stock, unless the Board of
Directors sets a later date in either event. The Rights attached to the stock of
an Acquiring Person become void. KCSI, its indirect subsidiary, Stilwell
Management, Inc. ("Stilwell"), and certain entities affiliated with Stilwell are
in certain circumstances excluded from the definition of an "Acquiring Person"
under the Rights Plan.

The Rights Plan is intended to encourage a potential acquiring person to
negotiate directly with the Board of Directors, but may have certain
anti-takeover effects. The Rights Plan could significantly

63
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

dilute the interests in the Company of an acquiring person. The Rights Plan may
therefore have the effect of delaying, deterring or preventing a change in
control of the Company.

10. BENEFITS PLANS

The Company sponsors defined contribution plans that cover domestic and
non-domestic employees following the completion of an eligibility period. The
total expense under these plans was $15.5 million, $12.5 million and $11.7
million in 1999, 1998 and 1997, respectively.

Prior to 1998, DST participated in a multi-employer ESOP. In January 1998, the
Company formed The DST Systems, Inc. Employee Stock Ownership Plan ("DST ESOP")
and transferred all balances from DST's portion of the multi-employer ESOP to
the DST ESOP. This plan provides for employer contributions made at the
discretion of the Board of Directors, and based primarily upon employee
participation. The total expense under this plan was $1.0 million, $1.0 million
and $2.0 million in 1999, 1998 and 1997, respectively. The DST ESOP was
terminated effective January 1, 2000, upon which all active participants became
fully vested, and future contributions will not be made to the plan.

The Company has active and non-active non-qualified deferred compensation plans
for senior management, certain highly compensated employees and directors. The
active plans permit participants to defer a portion of their compensation and
may provide additional life insurance benefits until termination of their
employment, at which time payment of amounts deferred is made in a lump sum or
annual installments. Deferred amounts earn interest at a rate determined by the
Board of Directors or are credited with deemed gains or losses of the underlying
hypothetical investments. Amounts deferred under the plans totaled approximately
$31.5 million and $22.5 million at December 31, 1999 and 1998, respectively.

11. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest paid during the year.......................... $ 5.0 $11.4 $ 6.2
Income taxes paid during the year...................... 55.2 40.7 43.6
</TABLE>

The Company purchased mainframe computer equipment and other capital additions
in the amount of $30.2 million in 1997 through secured notes payable or vendor
financed installment notes which required no direct outlay of cash. No such
purchases occurred in 1999 or 1998.

The renegotiation of certain third party software agreements, effective March
31, 1998, resulted in certain amounts being recorded as costs and expenses
instead of as depreciation expense.

12. COMMITMENTS AND CONTINGENCIES

The Company has future obligations under certain software license agreements and
operating leases. The operating leases, which include facilities, data
processing and other equipment have lease terms ranging from 1 to 25 years
excluding options to extend the leases for various lengths of time. Rental
expense from operating leases was $59.7 million, $40.9 million and $43.2 million
for the years ended

64
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 1999, 1998 and 1997, respectively. Future minimum rentals for the
non-cancelable term of all operating leases and obligations under software
license agreements are as follows (in millions):

<TABLE>
<CAPTION>
SOFTWARE
NON-CANCELABLE LICENSE
LEASES AGREEMENTS TOTAL
-------------- ---------- --------
<S> <C> <C> <C>
2000........................................ $ 51.4 $ 8.0 $ 59.4
2001........................................ 46.7 9.3 56.0
2002........................................ 44.1 10.4 54.5
2003........................................ 34.3 11.4 45.7
2004........................................ 20.0 13.4 33.4
Thereafter.................................. 63.9 16.8 80.7
------ ----- ------
Total....................................... $260.4 $69.3 $329.7
====== ===== ======
</TABLE>

Certain leases have clauses that call for the annual rents to be increased
during the term of the lease. Such lease payments are expensed on a
straight-line basis.

The Company leases certain facilities from unconsolidated real estate affiliates
and incurred occupancy expenses of $8.3 million, $6.8 million and $6.6 million
for the years ended December 31, 1999, 1998 and 1997, respectively.

The Company has also entered into agreements with co-participants in certain
joint venture subsidiaries whereby upon defined circumstances constituting a
change in control of either party to the venture, the other party has the right
to acquire, at a specified price, the entire interest in the joint venture.

The Company has entered into agreements with certain officers whereby upon
defined circumstances constituting a change in control of the Company, certain
benefit entitlements are automatically funded and such officers are entitled to
specific cash payments upon termination of employment.

The Company has also established trusts to provide for the funding of corporate
commitments and entitlements of Company officers, directors, employees and
others in the event of a change in control of the Company. Assets held in such
trusts at December 31, 1999 were not significant.

The Company and its subsidiaries are involved in various legal proceedings
arising in the normal course of their businesses. While the ultimate outcome of
these legal proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with legal counsel, that the final outcome in
such proceedings, in the aggregate, would not have a material adverse effect on
the consolidated financial condition or results of operations of the Company

13. SEGMENT AND GEOGRAPHIC INFORMATION

The Company has several operating business units that offer sophisticated
information processing and software services and products. These business units
are reported as three operating segments (Financial Services, Output Solutions
and Customer Management). In addition, certain investments in equity securities,
financial interests and real estate holdings are reflected in an Investments and
Other Segment. The Company evaluates the performance of its segments based on
income before income taxes, non-recurring items and interest expense. Effective
July 1, 1999, certain intersegment revenue agreements between the Output
Solutions Segment and the Customer Management Segment were revised. The segment
information prior to July 1, 1999 have been restated to reflect this change.
Intersegment revenues are reflected at rates prescribed by the Company and may
not be reflective of

65
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

market rates. Summarized financial information concerning the segments is shown
in the following tables (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------
FINANCIAL OUTPUT CUSTOMER INVESTMENTS/ CONSOLIDATED
SERVICES SOLUTIONS MANAGEMENT OTHER ELIMINATIONS TOTAL
--------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues................... $553.3 $435.1 $203.0 $11.9 $ $1,203.3
Intersegment revenues............... 1.6 52.9 21.0 (75.5)
------ ------ ------ ----- ------ --------
Total revenues...................... 554.9 488.0 203.0 32.9 (75.5) 1,203.3

Costs and expenses.................. 365.6 406.0 167.3 17.4 (75.5) 880.8
Depreciation and amortization....... 66.5 33.0 14.4 8.9 122.8
------ ------ ------ ----- ------ --------
Income from operations.............. 122.8 49.0 21.3 6.6 199.7
Other income (loss), net............ (1.0) 0.2 (0.6) 14.5 0.1 13.2
Equity in earnings of unconsolidated
affiliates........................ 6.1 0.2 0.3 6.6
------ ------ ------ ----- ------ --------
Earnings before interest and income
taxes............................. $127.9 $ 49.4 $ 20.7 $21.4 $ 0.1 $ 219.5
====== ====== ====== ===== ====== ========

<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------
FINANCIAL OUTPUT CUSTOMER INVESTMENTS/ CONSOLIDATED
SERVICES SOLUTIONS MANAGEMENT OTHER ELIMINATIONS TOTAL
--------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues................... $506.4 $358.5 $220.1 $11.1 $ $1,096.1
Intersegment revenues............... 1.2 53.9 23.0 (78.1)
------ ------ ------ ----- ------ --------
Total revenues...................... 507.6 412.4 220.1 34.1 (78.1) 1,096.1

Costs and expenses.................. 360.5 350.8 184.0 17.5 (78.1) 834.7
Depreciation and amortization....... 61.7 27.7 11.6 7.8 108.8
Merger charges...................... 33.1 33.1
------ ------ ------ ----- ------ --------
Income from operations.............. 85.4 33.9 24.5 8.8 (33.1) 119.5
Other income (loss), net............ 1.5 0.5 (0.6) 5.4 0.6 7.4
Equity in losses of unconsolidated
affiliates........................ (1.4) (1.3) (2.7)
------ ------ ------ ----- ------ --------
Earnings before interest and income
taxes............................. $ 85.5 $ 34.4 $ 23.9 $12.9 $(32.5) $ 124.2
====== ====== ====== ===== ====== ========
</TABLE>

66
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
FINANCIAL OUTPUT CUSTOMER INVESTMENTS/ CONSOLIDATED
SERVICES SOLUTIONS MANAGEMENT OTHER ELIMINATIONS TOTAL
--------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues................... $424.3 $312.2 $201.6 $11.9 $ $950.0
Intersegment revenues............... 0.7 54.2 21.8 (76.7)
------ ------ ------ ----- ------ ------
Total revenues...................... 425.0 366.4 201.6 33.7 (76.7) 950.0

Costs and expenses.................. 302.3 312.8 163.2 18.0 (76.7) 719.6
Depreciation and amortization....... 56.5 29.3 10.1 7.6 103.5
------ ------ ------ ----- ------ ------
Income from operations.............. 66.2 24.3 28.3 8.1 126.9
Other income (loss), net............ 0.8 0.7 (0.6) 4.7 0.2 5.8
Equity in losses of unconsolidated
affiliates........................ (0.9) (0.4) (1.3)
------ ------ ------ ----- ------ ------
Earnings before interest and income
taxes............................. $ 66.1 $ 25.0 $ 27.7 $12.4 $ 0.2 $131.4
====== ====== ====== ===== ====== ======
</TABLE>

Earnings before interest and income taxes in the segment reporting information
above less interest expense of $5.2 million, $8.6 million and $8.5 million for
the years ended December 31, 1999, 1998 and 1997, respectively, is equal to the
Company's income before income taxes and minority interests on a consolidated
basis for the corresponding year.

The Financial Services Segment derives its revenues from two primary products
and services. Revenues from shareowner accounting products and services totaled
$434.5 million, $384.0 million and $326.8 million in 1999, 1998, and 1997,
respectively. Revenues from portfolio/investment management accounting products
and services totaled $96.6 million, $101.0 million and $77.1 million in 1999,
1998, and 1997, respectively

Information concerning principal geographic areas is as follows (in millions):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues (1):
U. S........................................... $1,022.9 $ 929.0 $817.0
U. K........................................... 57.8 55.9 55.7
Canada......................................... 39.4 31.4 26.4
Australia...................................... 16.8 13.9 13.8
Netherlands.................................... 9.1 8.3 4.6
Switzerland.................................... 9.1 6.1 0.5
South Africa................................... 5.7 6.1 5.6
Germany........................................ 4.0 8.6 1.3
Others......................................... 38.5 36.8 25.1
-------- -------- ------
$1,203.3 $1,096.1 $950.0
======== ======== ======
</TABLE>

67
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) Revenues are attributed to countries based on location of the client.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Long-lived assets:
U. S...................................................... $344.8 $347.4
Europe.................................................... 17.5 17.0
Canada.................................................... 13.0 12.5
Others.................................................... 8.8 13.8
------ ------
$384.1 $390.7
====== ======
</TABLE>

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

(dollars in millions, except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $292.8 $299.6 $298.7 $312.2 $1,203.3
Cost and expenses................................. 215.4 220.4 221.6 223.4 880.8
Depreciation and amortization..................... 27.5 27.8 28.8 38.7 122.8
------ ------ ------ ------ --------
Income from operations............................ 49.9 51.4 48.3 50.1 199.7
Interest expense.................................. (1.5) (1.2) (1.2) (1.3) (5.2)
Other income, net................................. 1.7 (0.9) 4.2 8.2 13.2
Equity in earnings of unconsolidated affiliates... 2.2 2.6 1.5 0.3 6.6
------ ------ ------ ------ --------
Income before income taxes and minority
interests....................................... 52.3 51.9 52.8 57.3 214.3
Income taxes...................................... 18.8 18.6 19.0 20.5 76.9
------ ------ ------ ------ --------
Income before minority interests.................. 33.5 33.3 33.8 36.8 137.4
Minority interests................................ (0.1) (0.1) (0.1) (0.4) (0.7)
------ ------ ------ ------ --------
Net income........................................ $ 33.6 $ 33.4 $ 33.9 $ 37.2 $ 138.1
====== ====== ====== ====== ========

Basic average shares outstanding.................. 63.0 63.1 63.4 63.2 63.2
Basic earnings per share.......................... $ 0.53 $ 0.53 $ 0.53 $ 0.59 $ 2.19(1)

Diluted average shares outstanding................ 64.7 64.8 65.1 64.8 64.8
Diluted earnings per share........................ $ 0.52 $ 0.52 $ 0.52 $ 0.57 $ 2.13

Common stock price ranges: High................... $68.25 $64.63 $69.00 $76.31 $ 76.31
Low...................... $51.19 51.88 $55.75 $51.69 $ 51.19
</TABLE>

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

(1) Earnings per share are computed independently for each of the quarters
presented. Accordingly, the accumulation of 1999 quarterly earnings per
share may not equal the total computed for the year.

68
<PAGE>
DST SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $266.0 $269.8 $268.8 $291.5 $1,096.1
Cost and expenses................................. 198.4 207.6 207.0 221.7 834.7
Depreciation and amortization..................... 27.2 24.6 26.2 30.8 108.8
Merger charges.................................... 7.1 26.0 33.1
------ ------ ------ ------ --------
Income from operations............................ 40.4 37.6 28.5 13.0 119.5
Interest expense.................................. (2.6) (2.3) (2.0) (1.7) (8.6)
Other income, net................................. 1.0 1.3 3.7 1.4 7.4
Equity in earnings (losses) of unconsolidated
affiliates...................................... (0.4) 0.1 (1.2) (1.2) (2.7)
------ ------ ------ ------ --------
Income before income taxes and minority
interests....................................... 38.4 36.7 29.0 11.5 115.6
Income taxes...................................... 14.3 13.6 11.3 5.1 44.3
------ ------ ------ ------ --------
Income before minority interests.................. 24.1 23.1 17.7 6.4 71.3
Minority interests................................ (0.2) (0.1) (0.3)
------ ------ ------ ------ --------
Net income........................................ $ 24.1 $ 23.3 $ 17.7 $ 6.5 $ 71.6
====== ====== ====== ====== ========

Basic average shares outstanding.................. 62.6 62.8 62.8 62.8 62.7
Basic earnings per share.......................... $ 0.38 $ 0.37 $ 0.28 $ 0.10 $ 1.14(1)

Diluted average shares outstanding................ 64.0 64.2 64.5 64.5 64.3
Diluted earnings per share........................ $ 0.38 $ 0.36 $ 0.27 $ 0.10 $ 1.11

Common stock price ranges: High................... $53.00 $56.81 $69.94 $59.75 $ 69.94
Low...................... $40.25 $50.13 $47.88 $35.81 $ 35.81
</TABLE>

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

(1) Earnings per share are computed independently for each of the quarters
presented. Accordingly, the accumulation of 1998 quarterly earnings per
share may not equal the total computed for the year.

69
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The Company has incorporated by reference certain information in response or
partial response to the Items under this Part III of this Annual Report on Form
10-K pursuant to General Instruction G(3) of this Form 10-K and Rule 12b-23
under the Exchange Act. The Company's definitive proxy statement in connection
with its annual meeting of stockholders scheduled for May 9, 2000 (the
"Definitive Proxy Statement"), will be filed with the Securities and Exchange
Commission no later than 120 days after December 31, 1999.

(A) DIRECTORS OF THE COMPANY

The information set forth in response to Item 401 of Regulation S-K under the
headings "Proposal-Election of Three Directors" and "The Board of Directors" in
the Company's Definitive Proxy Statement is hereby incorporated herein by
reference in partial response to this Item 10.

(B) EXECUTIVE OFFICERS OF THE COMPANY

The information set forth in response to Item 401 of Regulation S-K under the
heading "Executive Officers of the Company" in Part I of this Form 10-K is
incorporated herein by reference in partial response to this Item 10.

The information set forth in response to Item 405 of Regulation S-K under the
heading "Other Matters-Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's Definitive Proxy Statement is hereby incorporated herein by
reference in partial response to this Item 10.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth in response to Item 402 of Regulation S-K under "The
Board of Directors - Compensation of Directors" and under "Executive
Compensation" in the Company's Definitive Proxy Statement (other than The
Compensation Committee Report on Executive Compensation and the Stock
Performance Graph) is hereby incorporated herein by reference in response to
this Item 11.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth in response to Item 403 of Regulation S-K under the
heading "Principal Stockholders and Stockholdings of Management" in the
Company's Definitive Proxy Statement is hereby incorporated herein by reference
in response to this Item 12.

The Company has no knowledge of any arrangement the operation of which may at a
subsequent date result in a change of control of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth in response to Item 404 of Regulation S-K under the
heading "Compensation Committee Interlocks and Insider Participation" in the
Company's Proxy Statement is incorporated herein by reference in response to
this Item 13.

70
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

(1) Consolidated Financial Statements

The consolidated financial statements and related notes, together with the
report of PricewaterhouseCoopers LLP, appear in Part II Item 8 Financial
Statements and Supplementary Data of this Form 10-K.

(2) Consolidated Financial Statement Schedules

All schedules have been omitted because they are not applicable,
insignificant or the required information is shown in the consolidated
financial statements or notes thereto.

(3) List of Exhibits

The Company has incorporated by reference herein certain exhibits as
specified below pursuant to Rule 12b-32 under the Exchange Act.

2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION

<TABLE>
<C> <S>
2 The Company's Agreement and Plan of Merger, dated
September 2, 1998 by and among DST Systems, Inc., DST
Acquisitions, Inc. and USCS International, Inc, which is
attached as Exhibit 2 to the Company's Registration
Statement on Form S-4 dated November 20, 1998, (Commission
file no. 333-67611) ("S-4"), is hereby incorporated by
reference as Exhibit 2.
</TABLE>

3. ARTICLES OF INCORPORATION AND BY-LAWS

<TABLE>
<C> <S>
3.1 The Company's Amended Delaware Certificate of Incorporation,
as restated, which is attached as Exhibit 3.1 to the
Company's Registration Statement dated September 1, 1995, as
amended August 31, 1995 (Commission file no. 33-96526) (the
"IPO Registration Statement"), is hereby incorporated by
reference as Exhibit 3.1.

3.2 The Company's Amended and Restated By-laws as adopted
August 28, 1995, which are attached as Exhibit 3.2 to the
Company's IPO Registration Statement, are hereby
incorporated by reference as Exhibit 3.2.
</TABLE>

4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

<TABLE>
<C> <S>
4.1 The Registration Rights Agreement dated October 24, 1995,
between the Company and Kansas City Southern
Industries, Inc. ("KCSI"), which is attached as Exhibit 4.1
to the Company's IPO Registration Statement, is hereby
incorporated by reference as Exhibit 4.1.

4.1.1. The First Amendment to the Registration Rights Agreement
dated June 30, 1999, between the Company and KCSI, which is
attached as Exhibit 4.15.1 to the Company's Form 10-Q dated
August 13, 1999, is hereby incorporated by reference as
Exhibit 4.1.1.

4.1.2. The Assignment, Consent and Acceptance to the Registration
Rights Agreement dated August 11, 1999, between the Company
and KCSI, and KCSI's wholly-owned subsidiary, Stilwell
Financial, Inc., which is attached as Exhibit 4.15.2 to the
Company's Form 10-Q dated August 13, 1999, is hereby
incorporated by reference as Exhibit 4.1.2.

4.2. The Certificate of Designations dated October 16, 1995,
establishing the Series A Preferred Stock of the Company,
which is attached as Exhibit 4.3 to the Company's IPO
Registration Statement, is hereby incorporated by reference
as Exhibit 4.2.
</TABLE>

71
<PAGE>
<TABLE>
<C> <S>
4.3. The Summary of the preferred stock purchase rights set forth
in Form 8-A dated November 15, 1995 (Commission file
no. 1-14036), and the related Rights Agreement dated as of
October 6, 1995, between the Company and State Street Bank
and Trust Company, as rightsagent, which is attached as
Exhibit 4.4 to the Company's IPO Registration Statement, are
hereby incorporated by reference as Exhibit 4.3.

4.3.1. The First Amendment dated as of July 9, 1998 to the Rights
Agreement dated as of October 6, 1995 between the Registrant
and State Street Bank and Trust Company attached as
Exhibit 99 to Amendment No.1, dated July 30, 1998, to the
Company's Registration Statement on Form 8-A for its
Preferred Share Purchase Rights (Commission file
no. 1-14036), is hereby incorporated by reference as Exhibit
4.3.1.

4.3.2. The Second Amendment dated as of September 10, 1999 to the
Rights Agreement dated as of October 6, 1995 and as amended
on July 9, 1998, between the Registrant and State Street
Bank and Trust Company attached as Exhibit 99 to Amendment
No.2, dated September 27, 1999, to the Company's
Registration Statement on Form 8-A12B/A for its Preferred
Share Purchase Rights (Commission file no. 1-14036), is
hereby incorporated by reference as Exhibit 4.3.2.

4.4. The Registration Rights Agreement dated October 31, 1995,
between the Company and UMB Bank, N.A. as trustee of The
Employee Stock Ownership Plan of DST Systems, Inc. ("UMB"),
which is attached as Exhibit 4.4 to the Company's Annual
Report for the year ended December 31, 1995 (Commission file
no. 1-14036), is hereby incorporated by reference as
Exhibit 4.4.

4.5. The Stock Exchange Agreement dated October 26, 1995, between
KCSI and UMB, which is attached as Exhibit 4.6 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 4.5.

4.6. The description set forth under the heading "Dividend
Policy" in the Company's IPO Registration Statement of the
Common Stock on Form 8-A (Commission file no. 1-14036), is
hereby incorporated by reference as Exhibit 4.6.

4.7. The description of the Company's common stock, par value
$0.01 per share, set forth in the Company's Registration
Statement on Form 8-A dated January 21, 1998, (Commission
file no. 1-14036), is hereby incorporated by reference as
Exhibit 4.7.

4.8. Paragraphs fourth, fifth, sixth, seventh, tenth, eleventh,
and twelfth of Exhibit 3.1 are hereby incorporated by
reference as Exhibit 4.8.

4.9. Article I, Sections 1, 2, 3, and 11 of Article II,
Article V, Article VIII, Article IX of Exhibit 3.2 are
hereby incorporated by reference as Exhibit 4.9.

4.10. The Affiliate Agreement with James C. Castle dated
October 28, 1998, which is attached as Exhibit 4.10 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 4.10.

4.11. The Affiliate Agreement with George L. Argyros, Sr., dated
September 3, 1998, is attached as Exhibit 4.11 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 4.11.

4.12. The Stockholder Agreement with KCSI dated September 2, 1998,
which is attached as Exhibit 4.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998
(Commission file no. 1-14036), is hereby incorporated by
reference as Exhibit 4.12.
</TABLE>

72
<PAGE>
<TABLE>
<C> <S>
4.12.1. The First Amendment to the Stockholder Agreement with Kansas
City Southern Industries, Inc. dated October 29, 1998, which
is attached as Exhibit 4.2.1 to the Company's S-4, is hereby
incorporated by reference as Exhibit 4.12.1.

4.13. The Stockholder Agreement with George L. Argyros, Sr. dated
September 2,1998, which is attached to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998
(Commission file no. 1-14036), is hereby incorporated by
reference as Exhibit 4.13.

4.14. The Stockholder Agreement with James C. Castle, dated
September 2, 1998, which is attached as Exhibit 4.14 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 4.14.

4.15. The Registration Rights Agreement with George L. Argyros,
Sr., James C. Castle and certain other individuals dated
December 21, 1998, which is attached as Exhibit 4.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 4.15.

4.16. The Five-Year Competitive Advance and Revolving Credit
Facility Agreement ("Chase Agreement") among the Company,
the lenders named therein, The Chase Manhattan Bank, N.A. as
Documentation, Syndication, and Administrative Agent dated
December 30, 1996, which is attached as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 4.16.

4.16.1. The Amendment to the Chase Agreement dated November 19,
1998, which is attached as Exhibit 4.16.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998 (Commission file no. 1-14036), is hereby incorporated
by reference as Exhibit 4.16.1.
</TABLE>

The Company agrees to furnish to the Commission a copy of any long-term debt
agreements that do not exceed 10 percent of the total assets of the Company upon
request.

9. VOTING TRUST AGREEMENT

Not applicable.

10. MATERIAL CONTRACTS

<TABLE>
<C> <S>
10.1. The Tax Disaffiliation Agreement between the Company and
KCSI dated October 23, 1995, which is attached as
Exhibit 10.4 to the Company's IPO Registration Statement, is
hereby incorporated by reference as Exhibit 10.1

10.2. The Stock Purchase, Sale of Assets, Assignment and
Assumption Agreement dated August 30, 1995, among the
Company, DST Realty, Inc., Tolmak, Inc., Mulberry Western
Company and KCSI, which is attached as Exhibit 10.5 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 10.2.

10.3. The Agreement between State Street Boston Financial
Corporation and Data-Sys-Tance dated June 1, 1974 ("State
Street Agreement"), which is attached as Exhibit 10.14 to
the Company's IPO Registration Statement, is hereby
incorporated by reference as Exhibit 10.3.

10.3.1. The Amendment to the State Street Agreement between the
Company and State Street, dated October 1, 1987, which is
attached as Exhibit 10.14.1 to the Company's IPO
Registration Statement, is hereby incorporated by reference
as Exhibit 10.3.1.
</TABLE>

73
<PAGE>
<TABLE>
<C> <S>
10.3.2. The Amendment to the State Street Agreement between the
Company and State Street, dated February 6, 1992, which is
attached as Exhibit 10.3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (Commission
file no. 1-14036), is hereby incorporated by reference as
Exhibit 10.3.2. Portions of this agreement are subject to
confidential treatment.

10.4. The Data Processing Services Agreement between the Company
and The Continuum Company, Inc. dated October 1, 1993, which
is attached as Exhibit 10.15 to the Company's IPO
Registration Statement, is hereby incorporated by reference
as Exhibit 10.4.

10.5. The Agreement among the Company, Financial Holding
Corporation, KCSI and Argus Health Systems, Inc. dated
June 30, 1989, which is attached as Exhibit 10.16 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 10.5.

10.6. The Stock Transfer Restriction and Option Agreement between
the Company, Argus Health Systems, Inc. and Financial
Holding Corporation dated June 30, 1989, which is attached
as Exhibit 10.16.1 to the Company's IPO Registration
Statement, is hereby incorporated by reference as
Exhibit 10.6.

10.7. The Contribution Agreement between DST Systems, Inc. and
Boston EquiServe Limited Partnership dated November 30,
1998, which is attached as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998 (Commission file no. 1-14036), is hereby incorporated
by reference as Exhibit 10.7.

10.8. The Fairway System Software Development Agreement dated
November 30, 1998, which is attached as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 10.8.

10.9. The Company's Executive Plan effective as of October 31,
1995, which is attached as Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995 (Commission file no. 1-14036), is hereby incorporated
by reference as Exhibit 10.9.

10.10. The Company's Officers Incentive Plan as amended and
restated on February 2, 2000, is attached as Exhibit 10.10
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (Commission file no. 1-14036).

10.11. The Company's Deferred Compensation Plan dated May 12, 1998,
which is attached as Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998
(Commission file no. 1-14036), is hereby incorporated by
reference as Exhibit 10.11.

10.12. The Company's DST Systems, Inc. Supplemental Executive
Retirement Plan effective January 1, 1999, attached as
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 (Commission file
no. 1-14036).

10.13. The Company's Directors' Deferred Fee Plan effective
September 1, 1995, which is attached as Exhibit 10.19 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 10.13.

10.14. The 1999 USCS Executive Bonus Plan, which is attached as
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (Commission file
no. 1-14036), is hereby incorporated by reference as Exhibit
10.14. Portions of this agreement are subject to
confidential treatment.
</TABLE>

74
<PAGE>
<TABLE>
<C> <S>
10.15. The USCS International, Inc. Deferred Compensation Plan,
which is attached as Exhibit 10.7 to USCS
International, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997 (Commission file
no. 000-28268), is hereby incorporated by reference as
Exhibit 10.15.

10.16. The USCS International, Inc. Bonus Deferral Plan, which is
attached as Exhibit 4.1 to USCS International, Inc.'s
Registration Statement on Form S-8 dated August 29, 1997
(Commission file no. 333-34801), is hereby incorporated by
reference as Exhibit 10.16.

10.17. The Trust Agreement between the Company as settlor and
United Missouri Bank of Kansas City, N.A. as Trustee dated
December 31, 1987, which is attached as Exhibit 10.20 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 10.17.

10.17.1. The Eighth Amendment to the Trust Agreement between the
Company as settlor and United Missouri Bank of Kansas City,
N.A. as Trustee dated December 31, 1998, which is attached
as Exhibit 10.16.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (Commission
file no. 1-14036), is hereby incorporated by reference as
Exhibit 10.17.1.

10.18. Trust Agreement by and between the Company as settlor and
United Missouri Bank of Kansas City, N.A., Trustee dated
June 30, 1989, for the benefit of James Horan, which is
attached as Exhibit 10.20.1 to the Company's IPO
Registration Statement, is hereby incorporated by reference
as Exhibit 10.18.

10.18.1. The Amendment to the Trust Agreement by and between the
Company as settlor and United Missouri Bank of Kansas City,
N.A., Trustee dated December 31, 1998, for the benefit of
James Horan, which is attached as Exhibit 10.17.1 to the
Company's Annual Report of Form 10-K for the year ended
December 31, 1998 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 10.18.1.

10.19. The Employment Agreement between the Company and Thomas A.
McDonnell dated January 1, 1999, which is attached as
Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (Commission file
no. 1-14036), is hereby incorporated by reference as
Exhibit 10.19.

10.20. The Employment Agreement between the Company, KCSI and
Thomas A. McCullough dated April 1, 1992, as amended
October 9, 1995, which is attached as Exhibit 10.9 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 10.20.

10.21. The Employment Agreement between the Company, KCSI and James
P. Horan dated April 1, 1992, as amended October 9, 1995,
which is attached as Exhibit 10.10 to the Company's IPO
Registration Statement, is hereby incorporated by reference
as Exhibit 10.21.

10.22. The Employment Agreement between the Company, KCSI and
Robert C. Canfield, dated April 1, 1992, as amended
October 9, 1995, which is attached as Exhibit 10.11 to the
Company's IPO Registration Statement, is hereby incorporated
by reference as Exhibit 10.22.

10.23. The Employment Agreement between the Company, KCSI and
Charles W. Schellhorn, dated April 1, 1992, as amended
October 9, 1995, which is attached as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission file no. 1-14036), is hereby
incorporated by reference as Exhibit 10.23.

10.24. The Employment Agreement between USCS and James C. Castle
dated August 10, 1992, which is attached to USCS'
Registration Statement on Form S-1, Registration No.
333-03842, is hereby incorporated by reference as
Exhibit 10.24.
</TABLE>

75
<PAGE>
<TABLE>
<C> <S>
10.25. The USCS International, Inc. 1996 Directors' Stock Option
Plan (the "Directors' Plan") dated as of April 18, 1996,
which is attached as Exhibit 10.5 to USCS
International, Inc.'s Registration Statement on Form S-1
(Commission File No. 333-3842) dated May 29, 1996, is hereby
incorporated by reference as Exhibit 10.25.*

10.25.1. The First Amendment to the Directors' Plan dated
February 22, 1998, which is attached as Exhibit 4.6.2 to the
Company's Registration Statement on Form S-8 dated March 2,
1999 (Commission File No. 333-73241), is hereby incorporated
by reference as Exhibit 10.25.1.*

10.26. The USCS International, Inc. 1988 Incentive Stock Option
Plan ("the 1988 USCS Plan") dated July 1, 1988, as amended
and restated as of March 5, 1997, which is attached as
Exhibit 4.6.1 to the Company's Registration Statement on
Form S-8 dated December 21, 1998 (Commission File
No. 333-69393), is hereby incorporated by reference as
Exhibit 10.26.*

10.26.1. The Amendment dated January 22, 1998, to the 1988 USCS Plan,
which is attached as Exhibit 4.6.2 to the Company's
Registration Statement on Form S-8 dated December 21, 1998
(Commission File No. 333-69393), is hereby incorporated by
reference as Exhibit 10.26.1.*

10.27. The USCS International, Inc. 1990 Stock Option Plan ("the
1990 USCS Plan") dated December 31, 1990, as amended and
restated as of March 5, 1997, which is attached as
Exhibit 4.7.1 to the Company's Registration Statement on
Form S-8 dated December 21, 1998 (Commission File
No. 333-69393), is hereby incorporated by reference as
Exhibit 10.27.*

10.27.1. The Amendment dated January 22, 1998, to the 1990 USCS Plan,
which is attached as Exhibit 4.7.2 to the Company's
Registration Statement on Form S-8 dated December 21, 1998
(Commission File No. 333-69393), is hereby incorporated by
reference as Exhibit 10.27.1.*

10.28. The USCS International, Inc. 1993 Incentive Stock Option
Plan ("the 1993 USCS Plan") dated May 18, 1993, as amended
and restated as of March 5, 1997, which is attached as
Exhibit 4.8.1 to the Company's Registration Statement on
Form S-8 dated December 21, 1998 (Commission File
No. 333-69393), is hereby incorporated by reference as
Exhibit 10.28.*

10.28.1. The Amendment dated January 22, 1998, to the 1993 USCS Plan,
which is attached as Exhibit 4.8.2 to the Company's
Registration Statement on Form S-8 dated December 21, 1998
(Commission File No. 333-69393), is hereby incorporated by
reference as Exhibit 10.28.1.*

10.29. The USCS International, Inc. 1996 Stock Option Plan ("the
1996 USCS Plan") dated April 12, 1996, which is attached as
Exhibit 4.9.1 to the Company's Registration Statement on
Form S-8 dated December 21, 1998 (Commission File
No. 333-69393), is hereby incorporated by reference as
Exhibit 10.29.*

10.29.1. The Amendment dated July 25, 1996, to the 1996 USCS Plan,
which is attached as Exhibit 4.9.2 to the Company's
Registration Statement on Form S-8 dated December 21, 1998
(Commission File No. 333-69393), is hereby incorporated by
reference as Exhibit 10.29.1.*

10.29.2. The Amendment dated January 23, 1997, to the 1996 USCS Plan,
which is attached as Exhibit 4.9.3 to the Company's
Registration Statement on Form S-8 dated December 21, 1998
(Commission File No. 333-69393), is hereby incorporated by
reference as Exhibit 10.29.2.*

10.29.3. The Amendment dated January 22, 1998, to the 1996 USCS Plan,
which is attached as Exhibit 4.9.4 to the Company's
Registration Statement on Form S-8 dated December 21, 1998
(Commission File No. 333-69393), is hereby incorporated by
reference as Exhibit 10.29.3.*

10.30. The Company's 1995 Stock Option and Performance Award Plan,
amended and restated as of February 29, 2000, is attached as
Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 (Commission file
no. 1-14036).
</TABLE>

76
<PAGE>
<TABLE>
<C> <S>
10.31. The Employment Agreement between the Company and J. Michael
Winn, dated June 23, 1993, is attached as Exhibit 10.31 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (Commission file no. 1-14036).
</TABLE>

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

* The agreements and the amendments thereto are included as exhibits only to
the extent that they are incorporated into the option agreements assumed by
the Company with its acquisition of USCS.

11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

Not applicable.

12. STATEMENTS RE COMPUTATION OF RATIOS

Not applicable.

13. ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR QUARTERLY REPORT TO SECURITY
HOLDERS

Not applicable.

16. LETTER RE CHANGE IN CERTIFYING ACCOUNTANT

Not applicable.

18. LETTER RE CHANGE IN ACCOUNTING PRINCIPLES

Not applicable.

21. SUBSIDIARIES OF THE COMPANY

The list of the Company's significant subsidiaries, which is attached as
Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, (Commission file no. 1-14036).

22. PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS

Not applicable.

23. CONSENTS OF EXPERTS AND COUNSEL

The consent of PricewaterhouseCoopers LLP is attached hereto as Exhibit 23.1.

24. POWER OF ATTORNEY

Not applicable.

27. FINANCIAL DATA SCHEDULE

A Financial Data Schedule prepared in accordance with Item 601 (c) of Regulation
S-K is attached hereto as Exhibit 27.1.

99. ADDITIONAL EXHIBITS

Not applicable.

(B) REPORTS ON FORM 8-K DURING THE LAST CALENDAR QUARTER

The Company filed a Form 8-K dated October 22, 1999, under Item 5 of such form,
reporting the announcement of financial results for the three and nine months
ended September 30, 1999.

77
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

<TABLE>
<S> <C> <C>
DST SYSTEMS, INC.

By: /s/ Thomas A. McDonnell
-----------------------------------------
Thomas A. McDonnell
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
DIRECTOR
Dated: February 29, 2000
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
capacities indicated on February 29, 2000.

<TABLE>
<S> <C>
/s/ A. Edward Allinson /s/ Thomas A. McDonnell
------------------------------------------- -------------------------------------------
A. EDWARD ALLINSON THOMAS A. MCDONNELL
DIRECTOR PRESIDENT AND CHIEF EXECUTIVE OFFICER, DIRECTOR

/s/ George L. Argyros, Sr. /s/ Thomas A. McCullough
------------------------------------------- -------------------------------------------
GEORGE L. ARGYROS, SR. THOMAS A. MCCULLOUGH
DIRECTOR EXECUTIVE VICE PRESIDENT, DIRECTOR

/s/ Michael G. Fitt /s/ James C. Castle
------------------------------------------- -------------------------------------------
MICHAEL G. FITT JAMES C. CASTLE
DIRECTOR DIRECTOR

/s/ William C. Nelson /s/ Kenneth V. Hager
------------------------------------------- -------------------------------------------
WILLIAM C. NELSON KENNETH V. HAGER
DIRECTOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASUER
(PRINCIPAL FINANCIAL OFFICER)

/s/ M. Jeannine Standjord /s/ Gregg Wm. Givens
------------------------------------------- -------------------------------------------
M. JEANNINE STANDJORD GREGG WM. GIVENS
DIRECTOR VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>

78
<PAGE>
DST SYSTEMS, INC.,
1999 FORM 10-K ANNUAL REPORT
INDEX TO EXHIBITS

The following Exhibits are attached hereto. See Part IV of this Annual Report on
Form 10-K for a complete list of exhibits.

<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT
- --------------------- --------
<C> <S>
10.10 Officers Incentive Plan as amended and restated February 2,
2000

10.12 DST Systems, Inc. Supplemental Executive Retirement Plan

10.30 1995 Stock Option and Performance Award Plan, amended and
restated as of February 29, 2000

10.31 Employment Agreement with J. Michael Winn

21.1 Subsidiaries of the Company

23.1 Consent of Independent Accountants

27.1 Financial Data Schedule
</TABLE>

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

<PAGE>

Exhibit 10.10

DST SYSTEMS, INC.
OFFICERS INCENTIVE PLAN
(AMENDED AND RESTATED AS OF FEBRUARY 2, 2000)

SECTION 1. PURPOSE

The purpose of the Officers Incentive Plan is to reward plan participants for
achieving defined earnings per share objectives that support increasing
profitability of DST Systems, Inc. The Plan provides both annual and long-term
incentives, contingent upon meeting annual and cumulative Earnings Per Share
goals. The Company intends that the Plan will facilitate in securing, retaining,
and motivating employees of superior capability; in providing competitive
management compensation; and in linking incentive awards to objectives that
should enhance shareholder value.

SECTION 2. DEFINITIONS

When used in the Plan, the following words and phrases shall have the following
meanings:

(a) "Affiliate" means Boston EquiServe Limited Partnership, a Delaware
limited partnership, and any successor thereto and any other entity
(other than the Company or a Subsidiary) of which the Company or a
Subsidiary directly or indirectly owns 50% or more of the combined
voting power of all classes of stocks of such entity or 50% or more of
the ownership interests in such entity.

(b) "Beneficiary" means the person, persons, trust, or trusts which have
been designated by a Participant in his or her most recent written
beneficiary designation filed with the Company to receive the benefits
specified under this Plan, if any, upon the Participant's death, or, if
there is no designated Beneficiary or surviving designated Beneficiary,
then the person, persons, trust, or trusts entitled by will or the laws
of descent and distribution to receive such benefits.

(d) "Committee" means the Compensation Committee of the Board or such other
Board Committee as may be designated by the Board to administer the
Plan; provided, however, that the Committee shall consist of two or
more directors of the Company each of whom is a "disinterested person"
within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended from time to time and an "outside director" as
required by Section 162(m) of the Internal Revenue Code.

(e) "Common Stock" means the Common Stock of the Company.

(f) "Common Stock Outstanding" means the weighted average number of actual
shares of Common Stock issued and outstanding during the Plan Year,
determined in accordance

<PAGE>

with generally accepted principles. In the event of a reorganization,
recapitalization, stock split, spin off, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in
the capital structure of the Company, the Committee may make such
adjustment, if any, as it deems appropriate in the determination of
Common Stock Outstanding.

(g) "Company" means DST Systems, Inc., a corporation organized under the
laws of Delaware, or any successor company.

(h) "Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his or her
customary position of employment (or is unable to engage in any
substantial gainful activity for DST) for an indefinite period which
the Committee considers will be of long continued duration. The Plan
considers a Participant disabled on the date the Committee determines
the Participant satisfies the definition of disability. The Committee
may require a Participant to submit to a physical examination in order
to confirm disability. The Committee will apply the provisions of this
section in a nondiscriminatory, consistent and uniform manner.

(i) "Earnings Per Share" or "EPS" means diluted earnings per share,
determined in accordance with generally accepted accounting principles.

(j) "Equity" shall mean either Restricted Common Stock or Options.

(k) "Income" means net income of the Company and its consolidated
Subsidiaries, determined in accordance with generally accepted
principles, consistently applied, for any Plan Year for which the
incentive awards are calculated, as reported by the Company and
certified by the Company's independent certified public accountants.

(l) "Market Price" means the closing price of Common Stock on the New York
Stock Exchange.

(m) "Options" shall mean non-qualified options to purchase Common Stock
granted pursuant to Sections 5 and 7.

(n) "Participant(s)" mean all officers of the Company and such officers of
Subsidiaries and Affiliates as designated from time to time by the
Compensation Committee.

(o) "Plan" means this Officers Incentive Plan, as it may be amended from
time to time.

(p) "Plan Year" means the fiscal year of the Company. The first Plan Year
will begin January 1, 1997 and end December 31, 1997.

(q) "Restricted Common Stock" means Common Stock delivered in payment of an
incentive award and subject to restrictions described in Section 7.

<PAGE>

(r) "Subsidiary" means a corporation, domestic or foreign, the majority of
the voting stock of which is owned directly or indirectly by the
Company.

(s) "Targeted Earnings Per Share" or "Targeted EPS" means the Earnings Per
Share criteria to be established by the Committee, from time to time
and in its sole discretion, pursuant to Section 4(b) for purposes of
determining incentive awards.

SECTION 3. ELIGIBILITY AND PARTICIPATION

Except in the event of (i) retirement on or after age 60, (ii) Disability, (iii)
death, or (iv) termination without cause, a Participant must be an active
employee of the Company, a Subsidiary, or Affiliate on December 31 of the Plan
Year to be eligible for an incentive award. In the event of retirement,
Disability, death, or termination without cause, the incentive award as
calculated at the end of and for the full Plan Year shall be pro-rated to
reflect the actual period of employment during the Plan Year.

SECTION 4. INCENTIVE AWARD DETERMINATION

(a) INCENTIVE AWARD OPPORTUNITY As soon as practical after adoption of the
Plan, the Committee shall establish Threshold, Target, and Maximum
incentive award opportunity levels (expressed as percentages of base
salary as of the beginning of the Plan Year) for each Participant level
in the Plan for the 1997, 1998, and 1999 Plan Years. For Plan Years
following 1999, the Committee shall establish award opportunity levels
at the times and in the manner it deems appropriate for carrying out
the intent of this Plan.

The amount of the incentive award earned will be pro-rated between
incentive award opportunity levels to reflect actual performance
attained. No incentive award will be payable with respect to a
performance measure and weighting where less than Threshold performance
has been attained. No incentive award for a Plan Year shall exceed 250%
of the Participant's base salary as of the beginning of the Plan Year.

(b) PERFORMANCE MEASURES AND WEIGHTING As soon as practical after adoption
of the Plan, the Committee shall establish performance criteria and
weighting between performance criteria for each level of incentive
award opportunity for the 1997, 1998, and 1999 Plan Years. The
performance criteria shall be based upon 1997 Targeted Earnings Per
Share for each of the Threshold, Target and Maximum incentive award
opportunity levels, annual increases in the Targeted Earnings Per Share
for 1998 and 1999, and cumulative Targeted Earnings Per Share. For Plan
Years following 1999, the Committee shall establish performance
criteria and weighting among criteria for each Participant at the times
and in the manner it deems appropriate for carrying out the intent of
this Plan.

Weighting between annual and cumulative Targeted Earnings Per Share
goals for the first three Plan Years shall be as follows:

<PAGE>

1997 Plan Year: 100% on 1997 Targeted EPS.

1998 Plan Year: 67% on 1998 Targeted EPS; 33% on cumulative 1997 and
1998 Targeted EPS.

1999 Plan Year: 50% on 1999 Targeted EPS; 50% on cumulative 1997, 1998,
and 1999 Targeted EPS.

SECTION 5. PAYMENT OF EARNED INCENTIVE AWARDS

As soon as practical after the end of the Plan Year and upon the compilation of
the necessary information, the Committee shall determine the degree of
attainment of the performance measures and the awards payable in accordance with
Section 4 and this Section 5. The Committee shall certify, in writing, prior to
the payment of incentive awards that the performance goals and other material
terms of the Plan have been satisfied.

The aggregate incentive award determined for a Plan Year (annual and cumulative)
shall be paid to the Participant in a combination of cash and Equity, depending
on the level of incentive award earned, as follows:

(a) 100% cash for that portion of a Participant's incentive award up to and
including his or her Threshold incentive opportunity level;

(b) 50% cash and 50% Equity for that portion of a Participant's incentive
award above his or her Threshold incentive opportunity levels up to and
including his or her Maximum incentive opportunity level; and

Upon the Committee's written certification, the Company shall pay the cash
portion of the incentive award earned, less any amounts required to be withheld
for federal, state and local taxes, as soon as practicable and shall grant the
Equity portion in accordance with the procedures and restrictions set forth in
Section 7.

SECTION 6. LIMITATIONS ON INCENTIVE AWARDS

The aggregate value of all incentive awards for a Plan Year shall not exceed ten
percent (10%) of the Company's pre-tax income for such Plan Year. If incentive
awards generated in a Plan Year exceed this amount, the incentive awards for all
Participants shall be reduced pro-rata.

SECTION 7. EQUITY ELECTION AND PROCEDURES

(a) PARTICIPANT ELECTION Each Participant who may receive an award of
Equity pursuant to Section 5 may elect to receive either Restricted
Stock or Options. The procedures for making such election shall be
determined from time to time by the Committee.

<PAGE>

(b) RESTRICTED COMMON STOCK

(i) ISSUANCE OF RESTRICTED COMMON STOCK Each Participant electing
to receive Restricted Common Stock shall have issued in his or
her name a number of full shares of Restricted Common Stock
equal to the whole number of the quotient obtained by dividing
the dollar amount of the incentive award to be settled in
Equity, as determined in Section 5, by the Market Price on the
"date of grant". The date that the Committee approves the
incentive awards for the Plan Year shall be deemed to be the
date of grant. If the amount of the award is not evenly
divisible by such Market Price, then the remainder shall be
paid to the Participant in cash.

(ii) RIGHTS AND OBLIGATIONS ON RESTRICTED COMMON STOCK A
certificate for all shares of Restricted Common Stock
registered in the name of a Participant shall be delivered to
the office of the corporate secretary for safekeeping. The
Participant shall thereupon be a stockholder and have all the
rights of a stockholder with respect to such shares, including
the right to vote and receive all dividends or other
distributions made or paid with respect to such shares;
provided, that, in the discretion of the Compensation
Committee, all such distributions that are not capital stock
of the employer of the Participant shall be converted to
capital stock of such employer, and provided further, that
such shares of Restricted Common Stock, and any new,
additional or different securities the Participant may become
entitled to receive with respect to such shares by virtue of a
stock split or stock dividend or any other change in the
corporate or capital structure of the Company, shall be
subject to the restrictions described in Section 7 (b)(iii).

(iii) RESTRICTIONS ON RESTRICTED COMMON STOCK Prior to their release
as provided in Section 7(b)(iv), the shares of Restricted
Common Stock may not be sold, exchanged, transferred, pledged,
hypothecated, or otherwise disposed of by the Participant.
However, nothing herein shall preclude a Participant from
making a gift of any shares of Restricted Common Stock to a
spouse, child, step-child, grandchild, parent or sibling, or
legal dependent of the Participant or to a trust of which the
beneficiary or beneficiaries of the corpus and the income
shall be either such a person or the Participant; provided
that, the Restricted Common Stock so given shall remain
subject to the restrictions, obligations and conditions
described in this Section.

(iv) RELEASE OF RESTRICTIONS AND DELIVERY OF SHARES All
restrictions on Restricted Common Stock shall lapse on the
first day of the fourth fiscal year following the Plan Year
for which the Restricted Common Stock was awarded (the
"Release of Restriction Date"); provided, however that in the
event of termination of employment with the Company,
Subsidiary, or Affiliate prior to the Release of Restriction
Date for any reason other than the Participant's (i)
retirement on or after 60, (ii) Disability, (iii) death, or
(iv) termination by the Company without cause, all rights to
any shares of Restricted Common Stock with respect to such

<PAGE>

award shall be forfeited to the Company and certificates for
such shares shall be cancelled and of no further effect.

Any shares of Restricted Common Stock held by the office of
the corporate secretary on the Release of Restriction Date
shall be delivered, free and clear of all restrictions, to (A)
the Participant upon the Release of Restriction Date, his or
her retirement on or after 60, Disability, or termination
without cause; or (B) his or her Beneficiary upon his or her
death before retirement.

(i) COMPUTATION OF NUMBER Each Participant electing to receive
Options shall have granted to him or her an option for that
number of shares of Common Stock equal to the whole number of
the quotient obtained by dividing (A) the dollar amount of the
incentive award to be settled in Common Stock options, as
determined in Section 5 times 1.25 by (B) the Black-Scholes
value of the options on the "date of grant." The date that the
Committee approves the incentive awards for the Plan Year
shall be deemed to be the date of grant. If the amount of the
award is not evenly divisible by such value, then the
remainder shall be paid to the Participant in cash.

(ii) OPTION TERMS The Common Stock options shall be subject to an
agreement between the grantee and the Corporation (an "Option
Agreement") and will contain the following terms:

(A) the Common Stock options shall be non-qualified
options granted pursuant to the DST Systems, Inc.
1995 Stock Option and Performance Award Plan (the
"Option Plan");

(B) the option price shall be the fair market value (as
defined in the Option Plan) on the date of grant;

(C) the options shall become exercisable on the last day
of the third calendar year following the calendar
year for which the bonus allocated to the option was
earned, subject to becoming exercisable earlier upon
retirement, death, disability;

(D) the options shall have a reload feature which would
be effective only if the fair market value of the
Common Stock has increased at least 20% from the date
of grant to the date of exercise;

(E) the options shall be further subject to the terms and
conditions set forth in the Option Agreement.

<PAGE>

SECTION 8. CHANGE IN CONTROL

(a) EFFECT ON RESTRICTED COMMON STOCK AND OPTIONS In the event of a Change
in Control (as defined below), all time periods and requirements
necessary to cause a release of restrictions as set forth in Section
7(b)(iv) shall be deemed to have been met; and, the Release of
Restrictions Date will be deemed to be upon such Change in Control. Any
shares of Restricted Common Stock then held by the office of the
corporate secretary shall be delivered to the Participant upon such
Release of Restrictions, free and clear of all restrictions. The effect
of a change of control on Options shall be determined under the Option
Agreement.

(b) EFFECT ON PLAN YEAR Notwithstanding anything in the Plan to the
contrary, in the event of a Change in Control:

(i) the Plan Year will end as of the Change in Control;

(ii) the attained level of performance with respect to any and all
performance goals and weighting and the resulting incentive
award earned for the Plan Year shall be deemed to be at
Maximum, without reduction for a short Plan Year; and

(iii) the incentive award for the Plan Year shall be paid promptly
in cash.

(c) CHANGE IN CONTROL DEFINED For purposes of this Plan, a "Change in
Control" shall be deemed to have occurred if the conditions in (i),
(ii), or (iii) are met:

(i) for any reason at any time less than seventy-five percent
(75%) of the members of the Board shall be individuals who
fall into any of the following categories:

(A) individuals who were members of such Board on
September 1, 1995;

(B) individuals whose election, or nomination for
election by the Company's stockholders, was approved
by a vote of at least seventy-five percent (75%) of
the members of the Board then still in office who
were members of such Board on September 1, 1995; or

(C) individuals whose election, or nomination for
election by the Company's stockholders, was approved
by a vote of at least seventy-five percent (75%) of
the members of the Board then still in office who
were elected in the manner described in (A) or (B)
above.

(ii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) shall have become, according to
a public announcement or filing, without the prior approval of
the Board, the "beneficial owner" (as defined in Rule 13(d)-3
under the Exchange Act) directly or indirectly, of securities
of the Company representing twenty percent (20%) or more

<PAGE>

(calculated in accordance with Rule 13(d)-3) of the combined
voting power of the Company's then outstanding voting
securities (such "person" hereafter referred to as a "Major
Stockholder"). For purposes of the Plan, Kansas City Southern
Industries, Inc. shall not be deemed to be a Major Stockholder
unless its ownership of voting securities of the Company,
directly or indirectly, falls below twenty percent (20%) and
subsequently increases to represent twenty percent (20%) or
more of the Company's then outstanding voting securities.

(iii) the stockholders of the Company shall have approved a merger,
consolidation or dissolution of the Company or a sale, lease,
exchange or disposition of all or substantially all of the
Company's assets, or a Major Stockholder shall have proposed
any such transaction, unless such merger, consolidation,
dissolution, sale, lease, exchange or disposition shall have
been approved by at least seventy-five percent (75%) of the
members of the Board who are individuals falling into any
combination of the following categories:

(A) individuals who were members of such Board on
September 1, 1995;

(B) individuals whose election or nomination for election
by the Company's stockholders was approved by at
least seventy-five percent (75%) of the members of
the Board then still in office who are members of the
Board on September 1, 1995; or

(C) individuals whose election, or nomination for
election by the Company's stockholders was approved
by a vote of at least seventy-five percent (75%) of
the members of the Board then still in office who
were elected in the manner described in (A) or (B)
above.

SECTION 9. PLAN ADMINISTRATION

The Plan shall be administered by the Committee which is authorized to establish
such rules and procedures necessary to carry out its tasks. The Committee shall
have sole discretion in interpreting and in exercising its authority under the
Plan. Any action of the Committee with respect to the Plan shall be final,
conclusive and binding on all persons including the Company, Subsidiaries,
Affiliates, Participants, and any person claiming any rights under the Plan from
or through any Participant.

Except for those functions that must be performed by the Committee pursuant to
Section 16 of the Securities Exchange Act of 1934 and other applicable law, the
Committee may delegate to officers of the Company the authority, subject to such
terms as the Committee shall determine, to perform administrative functions.
Notwithstanding anything herein to the contrary, the Committee shall be solely
responsible for certifying, in writing, prior to payment of any incentive awards
that the performance goals and other material terms were satisfied.

<PAGE>

SECTION 10. NO RIGHT TO CONTINUED EMPLOYMENT

Neither the establishment of the Plan, the participation by an individual in the
Plan nor the payment of any award hereunder or any other action pursuant to the
Plan shall be held or construed to confer upon any Participant the right to
continue in the employ of the Company, a Subsidiary, or Affiliate or affect any
right which the Company or its Subsidiaries have to terminate at will the
employment of any such Participant.

SECTION 11. NON-TRANSFERABILITY OF AWARDS

Except as otherwise provided in this Plan, no amount payable at any time under
the Plan shall be subject to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge, or encumbrance of any kind
nor in any manner be subject to the debts or liabilities of any person, and any
attempt to so alienate or subject any such amount shall be void.

SECTION 12. AMENDMENT AND TERMINATION OF THE PLAN

The Committee may amend or terminate this Plan in whole or in part at any time
without the consent of or prior notice to any Participant including, but not
limited to modifying (a) the Targeted EPS, (b) the incentive award opportunity
levels for any or all Participants, (c) the weighting between annual and
cumulative Targeted EPS, (d) the percentages of cash, restricted stock (or other
equity components such as options) to be paid to a Participant as an incentive
award. No such amendment or termination shall adversely affect the right of a
Participant to receive any amount to which he has become entitled by achieving
goals prior to such amendment or termination. In the event of a termination of
the Plan or an amendment which adversely affects the computation of an award to
a Participant which occurs during a Plan Year, the Participant shall be entitled
to receive (i) a prorata award to the effective date of such termination or
amendment, calculated under the terms and conditions of the Plan immediately
prior to such effective date and (ii) any award provided by such amended Plan
for the balance of such Plan Year. Upon termination of this Plan, any Restricted
Common Stock held by the office of the corporate secretary shall remain subject
to the restrictions, obligations, rights and conditions described in Sections 7
and 8 as though the Plan had not terminated.

SECTION 13. INDEMNIFICATION

The Company shall indemnify and hold harmless the Committee and each Committee
member against any and all claims, loss, damage, expense or liability arising
from any good faith action or failure to act with respect to this Plan.

SECTION 14. INCAPACITY

If the Committee determines that any person entitled to payments under the Plan
is unable to care for his or her affairs because of illness or accident, or has
died without naming a

<PAGE>

Beneficiary, unless a prior claim has been made by a duly appointed legal
representative, any payment due to such person or his or her estate may, if the
Committee so directs, be paid to the person's spouse, child, a relative, an
institution maintaining or having custody of such person, or any other person
the Committee deems to be a proper recipient on behalf of the person entitled to
the payment.

SECTION 15. GOVERNING LAW

The provisions of the Plan shall be construed and interpreted according to the
laws of the State of Missouri without reference to its principles of conflicts
of law.

SECTION 16. SEVERABILITY

If any provision of the Plan is held invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provision of the Plan, and the
Plan shall be construed and enforced as if such provision had not been included.

SECTION 17. HEADINGS

The headings of sections of the Plan are for convenience of reference. In case
of any conflict, the text of the Plan, rather than such headings, shall control.

* * * * *

This Plan adopted by the Compensation Committee this 27th day of February, 1997.

By: /s/ M. Jeannine Strandjord
--------------------------------------------------
M. Jeannine Strandjord
Chair, DST Systems, Inc. Compensation Committee

The Plan amended by the Compensation Committee on May 12, 1998, December 16,
1999 and February 2, 2000 and Restated as of February 2, 2000.

/s/ M. Jeannine Strandjord
--------------------------
M. Jeannine Strandjord
Chair, DST Systems, Inc.
Compensation Committee

<PAGE>

Exhibit 10.12

DST SYSTEMS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

ARTICLE I.
GENERAL

1.1 PURPOSE.

The purpose of this Supplemental Executive Retirement Plan ("SERP") is
to supplement the DST Systems, Inc. 401(k) Profit Sharing Plan and its
predecessor plans (collectively called the "401(k) Plan"), and The Employee
Stock Ownership Plan and Trust Agreement of DST Systems, Inc. (the "ESOP"). The
401(k) Plan and the ESOP are collectively referred to herein as the "Qualified
Plan." The SERP is intended to generally replace lost benefits under the
Qualified Plan due to limitations applicable to plans of that nature under the
Internal Revenue Code of 1986, as amended (the "Code").

1.2 NATURE OF SERP.

The SERP is, and shall be administered as, an employee pension plan
benefiting a select group of management or highly compensated employees under
the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The SERP shall be "unfunded" for tax purposes and for
purposes of Title I of ERISA. Any and all payments under the SERP shall be made
solely from the general assets of DST Systems, Inc. ("DST"). A Participant's
interests under the SERP do not represent or create a claim against specific
assets of DST or any Affiliated Company. Nothing herein shall be deemed to
create a trust of any kind or create any fiduciary relationship between DST or
its Board of Directors, any Affiliated Company, the Committee or its delegates,
and a Participant, a Beneficiary or any other person or entity claiming for or
through a Participant or Beneficiary. To the extent any person acquires a right
to receive payments from DST under this SERP, such right is no greater than the
right of any other unsecured general creditor of DST.

ARTICLE II.
DEFINITIONS

Except as expressly provided herein, capitalized terms used in the SERP
shall have the same meanings as set forth in the 401(k) Plan, and the 401(k)
Plan's definitions and operative terms are incorporated herein by reference. In
the event of a conflict between the meaning of the terms used in the SERP and
the meaning of terms used in the 401(k) Plan, the meaning as set forth in the
SERP shall prevail.

2.1 "ACCOUNT" means the bookkeeping account established by the Committee or
its delegate to reflect allocations made on behalf of a Participant and
credited earnings, gains or losses thereon.

2.2 "BENEFICIARY" means the primary and contingent beneficiaries designated
by a Participant by written instrument delivered to the Committee or its
designee to receive any benefits payable hereunder following the
Participant's death. A Participant may designate the

<PAGE>

proportions in which such beneficiaries are to receive such payments and may
change such designation from time to time. The last written designation filed
with the Committee or its designee prior to the Participant's death shall
control. In the event no beneficiary is designated, or if the designated
beneficiary predeceases the Participant, "Beneficiary" shall mean first the
Participant's surviving spouse, then the Participant's known natural or adopted
surviving children in equal amounts or, if there are no such surviving spouse or
children, the Participant's estate.

2.3 "COMMITTEE" means the Compensation Committee of the DST Board of
Directors.

2.4 "COMPENSATION" means the Participant's base salary actually paid during a
specified Plan Year, plus the value of accrued cash bonuses for such year.
Solely for the 1999 Plan Year, "Compensation" shall also include the dollar
value of restricted stock granted to such Participant for 1999 under the DST
Systems, Inc.

Officers Incentive Plan.

2.5 "EFFECTIVE DATE" means January 1, 1999, the first day of the first Plan
Year for which this SERP is effective.

2.6 "KEY EMPLOYEE" means an employee of DST or an Affiliated Company who is
in a select group of management or highly compensated employees.

2.7 "PARTICIPANT" means any individual who is designated as a participant by
the Committee pursuant to Section 3.2 and whose benefits under the SERP have
not been fully distributed.

2.8 "RETIREMENT" means a Termination of Employment by a Participant after
attaining Normal Retirement Age, or such other Termination of Employment as
determined by the Committee or its delegate from time to time .

2.9 "VALUATION DATE" means each March 31, June 30, September 30 and December
31 or such other dates as determined by the Committee in its sole discretion.

ARTICLE III.
PARTICIPATION

3.1 ELIGIBILITY.

The following Key Employees shall be eligible to participate in the
SERP:

(a) For the 1999 Plan Year, Key Employees of DST and any Affiliated
Company (other than USCS International, Inc. and its
subsidiaries); and

(b) For subsequent Plan Years, Key Employees of DST and its Affiliated
Companies, including Key Employees of USCS International, Inc. and
its subsidiaries, other than any Key Employee who is a participant
in a nonqualified deferred compensation plan sponsored by such
Affiliated Company.

-2-

<PAGE>

PARTICIPATION.

An eligible individual under Section 3.1 shall become a Participant in
the SERP for a Plan Year for which such individual is designated by the
Committee or its delegate to receive an allocation credit for such Plan Year.
Once an eligible individual is designated by the Committee to receive any
allocation credit for such Plan Year, such individual shall continue to receive
an allocation credit for following Plan Years unless he or she ceases to be a
Key Employee or the Committee otherwise provides. Once amounts are credited to
an individual's Account under Article IV, such individual shall remain a
Participant until his or her Account is distributed in full in accordance with
Article V. Notwithstanding anything in this Section 3.2 to the contrary, in
order for the Participant's Account to be credited with an allocation for a Plan
Year, the Participant must satisfy the requirements of Section 4.3 for such Plan
Year.

ARTICLE IV.
SERP ACCOUNTS AND CREDITS

4.1 ESTABLISHMENT OF SERP ACCOUNTS.

The Committee or its delegate shall establish an Account on behalf of
each Participant. The amounts specified in Sections 4.4 and 4.5 shall be
credited to the Participant's Account.

4.2 NATURE OF SERP ACCOUNTS.

A Participant's Account shall be used solely as a measuring device to
determine the amount (if any) to be paid a Participant under this SERP. No
amounts shall actually be set aside with respect to any Account. All amounts at
any time attributable to an Account shall be, and remain, the sole property of
DST. A Participant's rights hereunder are limited to the right to receive SERP
benefits as provided herein. An Account represents an unsecured promise by DST
to pay the benefits provided by the SERP.

4.3 ALLOCATION REQUIREMENTS.

To receive an allocation pursuant to Section 4.4 for a Plan Year, a
Participant must satisfy each of the following requirements:

(a) The Participant must have Compensation of at least the threshold
amount. The threshold amount for 1999 is $170,000. For all
subsequent Plan Years, the threshold amount is equal to the annual
compensation limit in effect for the Plan Year under Code Section
401(a)(17). Notwithstanding Section 2.4 to the contrary, in
determining if the threshold amount is satisfied, the dollar value
of the equity portion of awards granted to a Participant for any
Plan Year under the DST Systems, Inc. Officers Incentive Plan
shall always be disregarded in determining Compensation for
purposes of this Section 4.3(a);

(b) The Participant must be employed by DST or an Affiliated Company
on the last day of such Plan Year;

-3-

<PAGE>

(d) The Participant must be designated by the Committee, as provided
in Section 3.2, as eligible to participate in any allocation
credit for such year.

4.4 ALLOCATION CREDITS.

With respect to each Participant who has satisfied the requirements of
Section 4.3 for a Plan Year, the Committee or its delegate shall credit for such
Plan Year to such Participant's Account, as of the last day of such Plan Year,
the sum of the following amounts:

(a) a percentage of Compensation, as defined for this purpose under
the Qualified Plan, determined in the sole discretion of the
Committee to generally approximate the percentage of employer
contributions and forfeitures allocated under the Qualified Plan
for the Plan Year, multiplied by the Participant's Compensation
hereunder for the Plan Year in excess of the limit specified in
Section 4.3(a); and

(b) an additional percentage, if any, determined in the sole
discretion of the Committee, multiplied by the Participant's
Compensation for such Plan Year.

Notwithstanding anything to the contrary, the allocation credit under this
Section 4.4 shall be at the discretion of the Committee. For a Plan Year, the
Committee may determine a zero percentage (0%) allocation credit under (a)
and/or (b) above. The formula of (a) above shall not be construed as an
obligation to exactly match the applicable percentage under the Qualified Plan.

4.5 INCOME, GAIN OR LOSS ADJUSTMENT ON SERP ACCOUNTS.

As of each Valuation Date, the Committee or its delegate shall also
adjust each Account to reflect the income, gain or loss that would have been
earned on the Account had such amounts been invested since the preceding
Valuation Date in one or more investment vehicles as selected by the Committee
or its delegate prior to the applicable valuation period. The investment
vehicle(s) may be indexed or other mutual funds, but in no event shall the
investment vehicle be common stock of DST.

ARTICLE V.
SERP BENEFITS

5.1 NO IN-SERVICE DISTRIBUTIONS.

Benefits hereunder shall not be payable to a Participant prior to the
Participant's Termination of Employment.

5.2 BENEFITS UPON TERMINATION OF EMPLOYMENT (OTHER THAN RETIREMENT).

Upon a Participant's Termination of Employment (for any reason other
than Retirement), the vested portion of the Participant's SERP benefits shall be
distributed to the Participant in a lump sum cash payment as soon as
administratively practicable after the Valuation Date coinciding with or
immediately following such Termination of Employment. The amount to be

-4-

<PAGE>

distributed to a Participant pursuant to this Section 5.2 shall be the value of
the vested portion of the Participant's Account as of the Valuation Date
coinciding with or immediately following the Participant's Termination of
Employment.

5.3 BENEFITS UPON RETIREMENT.

Upon a Participant's Retirement, the Participant's SERP benefits shall
be distributed to the Participant in a lump sum cash payment or in substantially
equal annual cash installments over a fixed period not to exceed such period
established by the Committee or its delegate, as elected by the Participant in
accordance with Section 5.5.

(a) If lump sum distribution is elected by the Participant or if no
installment election is given effect under Section 5.5, the amount
to be distributed shall be the value of the Participant's Account
as of the Valuation Date immediately following the Participant's
Retirement and such distribution shall be made as soon as
administratively practicable after the Valuation Date coinciding
with or immediately following such Retirement.

(b) If installments are elected by the Participant, the first annual
installment shall be made as soon as administratively practicable
following December 31 of the Plan Year in which the Participant's
Retirement occurs, and as soon as administratively practicable
following each succeeding December 31 until the Participant's
Account is distributed in full. The amount of the first
installment payment shall equal the value of the Participant's
Account as of the December 31 of the Plan Year in which the
Participant's Retirement occurs, divided by the total number of
annual installment payments to be made. The amount of each
succeeding installment payment shall equal the value of the vested
portion of the Participant's Account as of the December 31
immediately preceding such payment, divided by the total number of
annual installment payments remaining to be made (including the
installment being calculated).

5.4 BENEFITS UPON DEATH.

If the Participant dies prior to full payment of his or her SERP
benefits under Section 5.2 or 5.3 above, the Participant's SERP benefits shall
be paid to the Participant's Beneficiary in a lump sum cash payment as soon as
administratively practicable after the Valuation Date coinciding with or
immediately following the Participant's death.

5.5 FORM ELECTION.

If a Participant's Termination of Employment is due to Retirement,
distribution may be made under Section 5.3 in substantially equal cash
installments over a fixed period not to exceed ten (10) years. A Participant may
file a distribution election with the Committee on forms prescribed by the
Committee. A distribution election, once given effect under this Section 5.5,
will apply to the Participant's total benefits. To be given effect under this
Section 5.5, any distribution election for benefits payable under Section 5.3
must have been filed with the Committee at least twelve (12) months before the
Participant's Retirement. If a Participant's distribution election has not been
on file with the Committee for the full twelve (12)-month period, it will not be
recognized or given effect by the Committee. In that event, distribution

-5-

<PAGE>

shall be made in accordance with the Participant's most recent distribution
election which was filed with the Committee at least twelve (12) months before
the Participant's Retirement.

ARTICLE VI.
VESTING AND FORFEITURE

6.1 VESTING.

A Participant's right to amounts allocated to his Account pursuant to
Article IV shall become nonforfeitable based on such Participant's credited
Years of Service from the Effective Date of the Plan in accordance with the
following schedule:

YEARS OF SERVICE PERCENTAGE VESTED
<S> <C>
Less than 5 0%
5 or more 100%

</TABLE>

Notwithstanding the above, a Participant shall become fully vested in his or her
Account upon his or her Retirement, death, Disability, or upon a "Change of
Control" of DST, as the phrase "Change of Control" is defined under the DST
Systems, Inc. 1995 Stock Option and Performance Award Plan, as may be amended or
restated from time to time.

6.2 APPLICATION OF FORFEITURES.

Any amounts forfeited under this Article VI shall remain the sole
property of DST and shall not be credited to the Accounts of other Participants
as a forfeiture reallocation.

ARTICLE VII.
ADMINISTRATION

7.1 ADMINISTRATION.

The Committee is responsible for the administration of the SERP. In
such capacity, the Committee is granted the following rights and duties:

(a) The Committee shall have the exclusive duty, authority and
discretion to interpret and construe the provisions of the SERP,
to determine eligibility for and the amount of any benefit payable
under the SERP, and to decide any dispute which may arise
regarding the rights of SERP Participants (or their Beneficiaries)
under this SERP;

(b) The Committee shall have the sole and complete authority to adopt,
alter, and repeal such administrative rules, regulations, and
practices governing the operation of the SERP as it shall from
time to time deem advisable;

-6-

<PAGE>

(d) The decision of the Committee in matters pertaining to this SERP
shall be final, binding, and conclusive upon DST and any
Affiliated Company, and the SERP Participant, such Participant's
Beneficiary, and upon any person affected by such decision,
subject to the claims procedure set forth in Article VIII; and

(e) In any matter relating solely to a Committee member's individual
rights or benefits under this SERP, such Committee member shall
not participate in any Committee proceeding pertaining to, or vote
on, such matter.

ARTICLE VIII.
CLAIMS AND APPEALS PROCEDURES

8.1 GENERAL.

Any claim for benefits under the SERP must be filed by the SERP
Participant or Beneficiary ("claimant") in writing with the Committee or its
delegate. If a claim for a SERP benefit is wholly or partially denied, notice of
the decision will be furnished to the claimant by the Committee or its delegate
within a reasonable period of time, not to exceed sixty (60) days, after receipt
of the claim by the Committee or its delegate. Any claimant who is denied a
claim for benefits will be furnished written notice setting forth:

(a) the specific reason or reasons for the denial;

(b) specific reference to the pertinent SERP provision upon which the
denial is based;

(d) an explanation of the SERP's appeals procedure.

8.2 APPEALS PROCEDURE.

To appeal a denial of a claim, a claimant or the claimant's duly
authorized representative:

(a) may request a review by written application to the Committee not
later than sixty (60) days after receipt by the claimant of the
written notification of denial of a claim;

(b) may review pertinent documents; and

A decision on review of a denied claim will be made by the Committee
not later than sixty (60) days after receipt of a request for review, unless
special circumstances require an extension of time for processing, in which case
a decision will be rendered within a reasonable period of time, but not later
than one hundred twenty (120) days after receipt of a request for review. The
decision on review will be in writing and shall include the specific reasons for
the denial and the specific references to the pertinent SERP provisions on which
the decision is based.

-7-

<PAGE>

ARTICLE IX.
MISCELLANEOUS PROVISIONS

9.1 AMENDMENT, SUSPENSION OR TERMINATION OF SERP.

DST, by action of the Committee, reserves the right to amend, suspend
or to terminate the SERP in any manner that it deems advisable. Notwithstanding
the preceding sentence, the SERP may not be amended, suspended or terminated to
cause a Participant to forfeit the Participant's then-existing vested Account.

9.2 NON-ALIENABILITY.

The rights of a SERP Participant to the payment of benefits as provided
in the SERP may not be assigned, transferred, pledged or encumbered or be
subject in any manner to alienation or anticipation. No SERP Participant may
borrow against the Participant's interest in the SERP. No interest or amounts
payable under the SERP may be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution
or levy of any kind, whether voluntary or involuntary, including but not limited
to, any liability which is for alimony or other payments for the support of a
spouse or former spouse, or for any other relative of any Participant.

9.3 NO EMPLOYMENT RIGHTS.

Nothing contained herein shall be construed as conferring upon a SERP
Participant the right to continue in the employ of DST or any Affiliated Company
in the Participant's current position or in any other capacity.

9.4 WITHHOLDING AND EMPLOYMENT TAXES.

DST or an Affiliated Company may withhold from a SERP Participant's
current compensation or from SERP distributions, as the case may be, such taxes
as are required to be withheld for federal, state or local government purposes.

9.5 INCOME AND EXCISE TAXES.

Each SERP Participant (or the Participant's Beneficiaries) is solely
responsible for the payment of all federal, state, and local income and excise
taxes resulting from the Participant's participation in this SERP.

9.6 SUCCESSORS AND ASSIGNS.

The provisions of this SERP are binding upon and inure to the benefit
of DST, its successors and assigns, and each SERP Participant, such
Participant's Beneficiaries, heirs, and legal representatives.

-8-

<PAGE>

9.7 FORFEITURE OF UNCLAIMED AMOUNTS.

Unclaimed amounts shall consist of the amounts credited to the Account
of a Participant that cannot be distributed because of the Committee's
inability, after a reasonable search, to locate a Participant or his
Beneficiary, as applicable, within a period of two (2) years after the date on
which the payment of benefits became due. Unclaimed amounts shall be forfeited
at the end of such two-year period. These forfeitures will reduce the
obligations of DST under the SERP. After an unclaimed amount has been forfeited,
the Participant or Beneficiary, as applicable, shall have no further right to
his Account.

9.8 GOVERNING LAW.

This SERP shall be subject to and construed in accordance with the laws
of the State of Missouri to the extent not preempted by federal law.

IN WITNESS WHEREOF, this Supplemental Executive Retirement Plan has
been executed as of the 29th day of February, 2000, to be effective January 1,
1999.

DST SYSTEMS, INC.
By: /s/ Kenneth V. Hager
------------------------------------
Title: VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
----------------------------------

-9-

<PAGE>

DST SYSTEMS, INC.
1995 STOCK OPTION AND PERFORMANCE AWARD PLAN,
AMENDED AND RESTATED AS OF 02/29/2000

SECTION 1. PURPOSE.

The purposes of the DST Systems, Inc. 1995 Stock Option and Performance
Award Plan (the "Plan") are to generate an increased incentive for Employees of
the Company to contribute to the Company's future success, to secure for the
Company and its stockholders the benefits inherent in equity ownership by
Employees of the Company and to enhance the ability of the Company and its
Affiliates to attract and retain exceptionally qualified Employees upon whom, in
large measure, the sustained progress, growth and profitability of the Company
depend. By encouraging Employees of the Company and its Affiliates to acquire a
proprietary interest in the Company's growth and performance, the Company
intends to more closely align the interests of the Company's Employees,
management and stockholders and motivate Employees to enhance the value of the
Company for the benefit of all stockholders.

SECTION 2. DEFINITIONS.

As used in the Plan, the following terms shall have the meanings set
forth below:

(a) "Affiliate" means (i) any Person that directly, or through
one (1) or more intermediaries, controls, or is controlled
by, or is under common control with, the Company, (ii) any
entity in which the Company has an equity interest of at
least fifty percent (50%), and (iii) any entity in which the
Company has any other significant equity interest, as
determined by the Committee.

(b) "Award" means any Option, Stock Appreciation Right, Limited
Right, Performance Share, Performance Unit, Restricted
Stock, Shares, Dividend Equivalent, or any other right,
interest, or option relating to Shares granted pursuant to
the provisions of the Plan.

(c) "Award Agreement" means any written agreement, contract, or
other instrument or document evidencing any Award granted
hereunder and signed by both the Company and the Participant
or by both the Company and an Outside Director.

(d) "Board" means the Board of Directors of the Company.

(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

(f) "Committee" means the Compensation Committee of the Board,
or such other committee designated by the Board, authorized
to administer the

<PAGE>

Plan under Section 3 hereof. The Committee shall consist of
not less than three (3) directors, each of whom is a
Disinterested Person within the meaning of Rule 16b-3 and an
outside director within the meaning of Code Section 162(m).
Until the date of completion of the Public Offering, the
KCSI Compensation and Organization Committee shall serve as
the Committee authorized to administer this Plan.

(g) "Company" means DST Systems, Inc., a Delaware corporation.

(h) "Dividend Equivalent" means any right granted pursuant to
Section 13(f) hereof.

(i) "Employee" means any management employee or employee with
long standing service with the Company or of any Affiliate,
as determined by the Committee, regularly employed for more
than twenty (20) hours per week and more than five (5)
months per year.

(j) "Exchange Act" means the Securities and Exchange Act of
1934, as amended, or any successors thereto, and the rules
and regulations promulgated thereunder, all as shall be
amended from time to time.

(k) "Fair Market Value" means, with respect to any property, the
market value of such property determined by such methods or
procedures as shall be established from time to time by the
Committee.

(l) "Incentive Stock Option" means an Option granted under
Section 6 hereof that is intended to meet the requirements
of Section 422 of the Code or any successor provision
thereto.

(m) "KCSI" means Kansas City Southern Industries, Inc., a
Delaware corporation.

(n) "Limited Right" means any right granted to a Participant
pursuant to Section 7(b) hereof.

(o) "Non-Qualified Stock Option" means an Option granted under
Section 6 hereof that is not intended to be an Incentive
Stock Option, and an Option granted to an Outside Director
pursuant to Section 9 hereof.

(p) "Option" means an Incentive Stock Option or Non-Qualified
Stock Option.

(q) "Outside Director" means a member of the Board who is not an
Employee of the Company or of any Affiliate.

2
<PAGE>

(r) "Participant" means an Employee who is selected to receive
an Award under the Plan.

(s) "Performance Award" means any Award of Performance Shares or
Performance Units pursuant to Section 8 hereof.

(t) "Performance Period" means that period established by the
Committee at the time any Performance Award is granted or at
any time thereafter during which any performance goals
specified by the Committee with respect to such Award are to
be measured.

(u) "Performance Share" means any grant pursuant to Section 8
hereof of a unit valued by reference to a designated number
of Shares.

(v) "Performance Unit" means any grant pursuant to Section 8
hereof of (i) a bonus consisting of cash or other property
the amount or value of which, and/or the entitlement to
which, is conditioned upon the attainment of any performance
goals specified by the Committee, or (ii) a unit valued by
reference to a designated amount of property other than
Shares.

(w) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated
organization, or government or political subdivision
thereof.

(x) "Public Offering" means a public offering of Shares of the
Company which results in a reduction of KCSI's ownership of
Shares to less than eighty percent (80%).

(y) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of
1934, as amended, or any successor rule or regulation
thereto.

(z) "Shares" means shares of the common stock of the Company,
one cent ($.01) par value.

(aa) "Stock Appreciation Right" means any right granted to a
Participant pursuant to Section 7(a) hereof.

(ab) "Stockholders Meeting" means the annual meeting of
stockholders of the Company in each year.

(ac) "Restricted Stock" means any Share issued with the
restriction that the holder may not sell, transfer, pledge,
or assign such Share and with such other restrictions as the
Committee, in its sole discretion, may impose

3
<PAGE>

(including, without limitation, any restriction on the right
to vote such Share, and the right to receive any cash
dividends), which restrictions may lapse separately or in
combination upon such conditions and at such time or times,
in installments or otherwise, as the Committee may deem
appropriate, and which restriction shall provide that the
Shares subject to such restriction shall be forfeited if the
restriction does not lapse prior to such date or such event
as the Committee may deem appropriate.

(ad) "Restricted Stock Award" means an award of Restricted Stock
under Section 8A hereof.

SECTION 3. ADMINISTRATION.

The Plan shall be administered by the Committee. Subject to applicable
law and the terms of the Plan, the Committee shall have full power and authority
to: (i) designate Participants; (ii) determine the type or types of Awards to be
granted to each Participant hereunder; (iii) determine the number of Shares to
be covered by or with respect to which payments, rights, or other matters are to
be calculated in connection with each Award; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards, or other property, or canceled, forfeited, or
suspended, and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent and
under what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under this Plan
shall be deferred either automatically or at the election of the Participant or
the Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for administration of the Plan. Subject to the terms of the Plan
(including without limitation Section 11 hereof), the Committee shall also have
the authority to grant Awards in replacement of Awards previously granted under
this Plan or any other compensation plan of the Company or an Affiliate. Unless
otherwise expressly provided in the Plan, all determinations, designations,
interpretations, and other decisions of the Committee shall be final, conclusive
and binding upon all Persons, including the Company, any Participant, any
stockholder, and any Employee of the Company or of any Affiliate. All
determinations of the Committee shall be made by a majority of its members. The
Committee, in its discretion, may delegate its authority and duties under the
Plan to the Chief Executive Officer and/or to other officers of the Company
under such conditions and/or limitations as the Committee may establish;
provided, however, that only the Committee may select and grant Awards, or
otherwise take any action with respect to Awards, to Participants who are (i)
officers or directors of the Company for purposes of Section 16 of the Exchange
Act; or (ii) Participants who are "covered employees" under Section 162(m) of
the Code.

4
<PAGE>

SECTION 4. SHARES SUBJECT TO THE PLAN.

(a) Subject to adjustment as provided in Section 4(c), a total of
Nine Million (9,000,000) Shares shall be available for the
grant of Awards under the Plan. Any Shares issued hereunder
may consist, in whole or in part, of authorized and unissued
shares or treasury shares. If any Shares subject to any Award
granted hereunder are forfeited or such Award otherwise
terminates without the issuance of such Shares or of other
consideration in lieu of such Shares, the Shares subject to
such Award, to the extent of any such forfeiture or
termination, shall again be available for grant under the
Plan. In addition, to the extent permitted by Section 422 of
the Code, any Shares issued by, and any Awards granted by or
that become obligations of, the Company through or as the
result of the assumption of outstanding grants or the
substitution of Shares under outstanding grants of an acquired
company shall not reduce the Shares available for grants under
the Plan (except in the case of Awards granted to Participants
who are officers or directors of the Company to the extent
required by Section 16 of the Exchange Act).

(b) For purposes of this Section 4,

(i) If an Award (other than a Dividend Equivalent) is
denominated in Shares, the number of Shares covered
by such Award, or to which such Award relates, shall
be counted on the date of grant of such Award against
the aggregate number of Shares available for granting
Awards under the Plan;

(ii) Dividend Equivalents and Awards not denominated in
Shares shall be counted against the aggregate number
of Shares available for granting Awards under the
Plan in such amount and at such time as the Committee
shall determine under procedures adopted by the
Committee consistent with the purposes of the Plan;
and

(iii) Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or
that are substituted for, other Awards or awards
under other Company plans may be counted or not
counted under procedures adopted by the Committee in
order to avoid double counting.

(c) In the event that the Committee shall determine that any dividend
or other distribution (whether in the form of cash, Shares, or
other securities or property), stock split, reverse stock split,
merger, reorganization, consolidation, recapitalization,
split-up, spin-off, repurchase, exchange of shares, issuance of
warrants or other rights to purchase Shares or other securities
of the Company, or other transaction or event affects the Shares
such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or

5
<PAGE>

enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee may: (i) make
adjustments in the aggregate number and class of shares or
property which may be delivered under the Plan and may substitute
other shares or property for delivery under the Plan, including
shares of another entity which is a party to any such merger,
reorganization, consolidation or exchange of shares; and (ii)
make adjustments in the number, class and option price of shares
or property subject to outstanding Awards and Options granted
under the Plan, and may substitute other shares or property for
delivery under outstanding Awards and Options, including shares
of another entity which is a party to any such merger,
reorganization, consolidation or exchange of shares, as may be
determined to be appropriate by the Committee in its sole
discretion, provided that the number of Shares subject to any
Award or Option shall always be a whole number. The preceding
sentence shall not limit the actions which may be taken by the
Committee under Section 10 of the Plan. No adjustment shall be
made with respect to Awards of Incentive Stock Options that would
cause the Plan to violate Section 422 of the Code.

SECTION 5. ELIGIBILITY.

Any Employee shall be eligible to be selected as a Participant.
Notwithstanding any other provision of the Plan to the contrary, no Participant
may be granted an Option, Limited Right, Stock Appreciation Right, Performance
Shares, Shares or Restricted Stock with respect to a number of Shares in any one
(1) calendar year which, when added to the Shares subject to any other Option,
Limited Right, Stock Appreciation Right, Performance Shares, Shares or
Restricted Stock granted to such Participant in the same calendar year shall
exceed Four Hundred Thousand (400,000) Shares. If an Option, Limited Right,
Stock Appreciation Right, or Performance Share is cancelled, the cancelled
Option, Limited Right, Stock Appreciation Right or Performance Share continues
to count against the maximum number of Shares for which an Option, Limited
Right, Stock Appreciation Right or Performance Share may be granted to a
Participant in any calendar year. All Shares specified in this Section 5 shall
be adjusted to the extent necessary to reflect adjustments to Shares required by
Section 4(c) hereof. No Participant may be granted Performance Units in any one
(1) calendar year which when added to all other Performance Units granted to
such Participant in the same calendar year shall exceed 300% of the
Participant's annual base salary as of the first day of such calendar year (or,
if later, as of the date on which the Participant becomes an Employee);
provided, however, that no more than $1,000,000 of annual base salary may be
taken into account for purposes of determining the maximum amount of Performance
Units which may be granted in any calendar year to any Participant.

6
<PAGE>

SECTION 6. STOCK OPTIONS.

Options may be granted hereunder to Participants either alone or in
addition to other Awards granted under the Plan. Options may be Incentive Stock
Options within the meaning of Section 422 of the Code or Non-Qualified Stock
Options (i.e., stock options which are not Incentive Stock Options), or a
combination thereof. Any Option granted to a Participant under the Plan shall be
evidenced by an Award Agreement in such form as the Committee may from time to
time approve. Any such Option shall be subject to the following terms and
conditions and to such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall deem desirable:

(a) Option Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however,
that such purchase price shall not be less than one hundred
percent (100%) of the Fair Market Value of the Share on the
effective date of the grant of the Option (or, if the Committee
so determines, in the case of any Option retroactively granted in
tandem with or in substitution for another Award or any
outstanding Award granted under any other plan of the Company, on
the effective date of grant of such other Award or award under
another Company plan).

(b) Option Term. The term of each Option shall be fixed by the
Committee in its sole discretion; except as provided below for
Incentive Stock Options.

(c) Exercisability. Options shall be exercisable at such time or
times and subject to such exercise acceleration conditions (if
any) as determined by the Committee at or subsequent to grant;
except as otherwise provided in Section 10(a).

(d) Method of Exercise. Subject to the other provisions of the Plan
and any applicable Award Agreement, any Option may be exercised
by the Participant in whole or in part at such time or times, and
the Participant may make payment of the option price in such form
or forms as the Committee shall determine, including, without
limitation, payment by delivery of cash, Shares, Restricted
Stock, or other consideration (including, where permitted by law
and the Committee, Awards) having a Fair Market Value on the
exercise date equal to the total option price, or by any
combination of cash, Shares, Restricted Stock and other
consideration as the Committee may specify in the applicable
Award Agreement; provided, however, that if Restricted Stock is
surrendered to pay the option price, an equal number of shares
issued as a result of the option exercise shall be subject to the
same restrictions.

(e) Incentive Stock Options. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value
(determined as of the time of grant) of the Shares with respect
to which Incentive Stock Options held by any Participant are
exercisable for the first time by such Participant during any
calendar year under the Plan (and under any other benefit plans
of the Company

7
<PAGE>

or of any parent or subsidiary corporation of the Company as
defined in Section 424 of the Code) shall not exceed One Hundred
Thousand Dollars ($100,000) or, if different, the maximum
limitation in effect at the time of grant under Section 422 of
the Code, or any successor provision, and any regulations
promulgated thereunder. The option price per Share purchasable
under an Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value of the Share on
the date of grant of the Option. Each Incentive Stock Option
shall expire not later than ten (10) years from its date of
grant. No Incentive Stock Option shall be granted to any
Participant if at the time the Option is granted such Participant
owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, its
parent or its subsidiaries unless (i) the option price per Share
is at least one hundred and ten percent (110%) of the Fair Market
Value of the Share on the date of grant, and (ii) such Option by
its terms is not exercisable after the expiration of five (5)
years from the date such Option is granted. The terms of any
Incentive Stock Option granted hereunder shall comply in all
respects with the provisions of Section 422 of the Code, or any
successor provision, and any regulations promulgated thereunder.

(f) Form of Settlement. In its sole discretion, the Committee may
provide at the time of grant that the Shares to be issued upon an
Option's exercise shall be in the form of Shares subject to
restrictions as the Committee may determine, or other similar
securities, or may reserve the right so to provide after the time
of grant.

(g) Reload Options. If and to the extent the Committee expressly
provides, at the time of grant or later, that the Participant
shall have the right to receive reload options with respect to
Non-Qualified Stock Options, the Participant shall receive reload
options in accordance with and subject to the following terms and
conditions:

(i) Grant of the Reload Option; Number of Shares; Price. Subject
to paragraph (ii) of this Subsection and, except as provided
in paragraph (viii) hereof, to the availability of Shares to
be optioned to the Participant under the Plan (including the
limitations set forth in Section 5), if a Participant has an
Option (the "original option") with reload rights and pays
for the exercise of the original option by surrendering
Shares or Restricted Stock (whether by means of delivering
Shares or Restricted Stock previously held by the optionee
or by delivering Shares or Restricted Stock simultaneously
acquired on exercise of the original option), the
Participant shall receive a new Option ("reload option") for
the number of Shares or Restricted Shares so surrendered at
an option price per Share equal to the Fair Market Value of
a Share on the date of the exercise of the original option.

8
<PAGE>

(ii) Conditions to Grant of Reload Option. A reload option will
not be granted: (A) if the Fair Market Value of a Share on
the date of exercise of the original option is less than the
exercise price of the original option; or (B) if the
Participant is no longer an Employee of the Company or an
Affiliate.

(iii) Term of Reload Option. The reload option shall expire on
the same date as the original option, or at such later date
as the Committee may provide.

(iv) Type of Option. The reload option shall be a Non-Qualified
Stock Option.

(v) Additional Reload Options. Except as expressly provided by
the Committee (at the time of the grant of the original
option or reload option or later), reload options shall not
include any right to subsequent reload options.

(vi) Date of Grant, Vesting. The date of grant of the reload
option shall be the date of the exercise of the original
option. The reload options shall be exercisable in full
beginning from date of grant, except as otherwise provided
by the Committee.

(vii) Stock Withholding; Grants of Reload Options. If and to the
extent permitted by the Committee, if the other requirements
of this Subsection are satisfied, and if Shares are withheld
or Shares surrendered for tax withholding pursuant to
Section 13(g), a reload option will be granted for the
number of Shares surrendered as payment for the exercise of
the original option plus the number of Shares surrendered or
withheld to satisfy tax withholding.

(viii) Share Limits. Reload options shall not be counted against
or as a reduction from the number of shares available for
grant under Section 4 hereof because such grants are a
substitute for Shares transferred to or withheld by the
Company.

(ix) Other Terms and Conditions. In connection with reload
options for officers who are subject to Section 16 of the
Exchange Act, the Committee may at any time impose any
limitations which, in the Committee's sole discretion, are
necessary or desirable in order to comply with Section 16(b)
of the Exchange Act and the rules and regulations
thereunder, or in order to obtain any exemption therefrom.
Except as otherwise provided in this Subsection, all the
provisions of the Plan shall apply to reload options.

9
<PAGE>

SECTION 7. STOCK APPRECIATION AND LIMITED RIGHTS.

(a) Stock Appreciation Rights may be granted hereunder to Participants
either alone or in addition to other Awards granted under the Plan and
may, but need not, relate to a specific Option granted under Section
6. The provisions of Stock Appreciation Rights need not be the same
with respect to each recipient. Any Stock Appreciation Right related
to a Non-Qualified Stock Option may be granted at the same time such
Option is granted or at any time thereafter before exercise or
expiration of such Option. Any Stock Appreciation Right related to an
Incentive Stock Option must be granted at the same time such Option is
granted and must have a grant price equal to the option price of such
Option. In the case of any Stock Appreciation Right related to any
Option, the Stock Appreciation Right or applicable portion thereof
shall terminate and no longer be exercisable upon the termination or
exercise of the related Option, except that a Stock Appreciation Right
granted with respect to less than the full number of Shares covered by
a related Option shall not be reduced until the exercise or
termination of the related Option exceeds the number of Shares not
covered by the Stock Appreciation Right. Any Option related to any
Stock Appreciation Right shall no longer be exercisable to the extent
the related Stock Appreciation Right has been exercised. Any Stock
Appreciation Right related to an Option shall be exercisable to the
extent, and only to the extent, that the related Option is
exercisable. The Committee may impose such other conditions or
restrictions on the exercise of any Stock Appreciation Right as it
shall deem appropriate. Subject to the terms of the Plan and any
applicable Award Agreement, a Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of one (1)
Share on the date of exercise or with respect to any right related to
an Option other than an Incentive Stock Option, at any time during a
specified period before or after the date of exercise as determined by
the Committee over (ii) the grant price of the right as specified by
the Committee, which shall not be less than the Fair Market Value of
one (1) Share on the date of grant of the Stock Appreciation Right
(or, if the Committee so determines, in the case of any Stock
Appreciation Right retroactively granted in tandem with or in
substitution for another Award or any outstanding award granted under
any other plan of the Company, on the date of grant of such other
Award or award), multiplied by the number of Shares as to which the
holder is exercising the Stock Appreciation Right. Subject to the
terms of the Plan and any applicable Award Agreement, the terms and
conditions of any Stock Appreciation Right shall be as determined by
the Committee. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it may
deem appropriate.

(b) Limited Rights may be granted hereunder to Participants only with
respect to an Option granted under Section 6 hereof or a stock option
granted under another plan of the Company. The provisions of Limited
Rights need not be the same

10
<PAGE>

with respect to each recipient. Any Limited Right related to a
Non-Qualified Stock Option may be granted at the same time such Option
is granted or at any time thereafter before exercise or expiration of
such Option. Any Limited Right related to an Incentive Stock Option
must be granted at the same time such Option is granted. A Limited
Right shall terminate and no longer be exercisable upon termination or
exercise of the related Option, except that a Limited Right granted
with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination
of the related Option exceeds the number of Shares not covered by the
Limited Right. Any Option related to any Limited Right shall no longer
be exercisable to the extent the related Limited Right has been
exercised. Any Limited Right shall be exercisable to the extent, and
only to the extent, the related Option is exercisable and only during
the three (3) month period immediately following a Change in Control
of the Company (as defined in Section 10 hereof). The Committee may
impose such other conditions or restrictions on the exercise of any
Limited Right as it shall deem appropriate. Subject to the terms of
the Plan and any applicable Award Agreement, a Limited Right granted
under the Plan shall confer on the holder thereof a right to receive,
upon exercise thereof, an amount equal to the excess of (i) the Fair
Market Value of one (1) Share on the date of exercise or if greater
and only with respect to any Limited Right related to an Option other
than an Incentive Stock Option, the highest price per Share paid in
connection with any Change in Control of the Company, over (ii) the
option price of the related Option, multiplied by the number of Shares
as to which the holder is exercising the Limited Right. The amount
payable to the holder shall be paid by the Company in cash. Subject to
the terms of the Plan and any applicable Award Agreement, the terms
and conditions of any Limited Right shall be as determined by the
Committee. The Committee may impose such conditions or restrictions on
the exercise of any Limited Right as it may deem appropriate.

SECTION 8. PERFORMANCE AWARDS.

Performance Awards may be issued hereunder to Participants in the form
of Performance Shares or Performance Units, for no cash consideration or for
such minimum consideration as may be required by applicable law, either alone or
in addition to other Awards granted under the Plan. The value represented by a
Performance Share or Unit shall be payable to, or upon the exercise by, the
Participant holding such Award, in whole or in part, following achievement of
such performance goals during such Performance Period as determined by the
Committee. Except as provided in Section 10, Performance Awards will be paid
only after the end of the relevant Performance Period. Performance Awards may be
paid in cash, Shares, Restricted Stock, Options, other property or any
combination thereof, in the sole discretion of the Committee at the time of
payment. The length of the Performance Period, the performance criteria or
levels to be achieved for each Performance Period, and the amount of the Award
to be distributed shall be conclusively determined by the Committee. Performance
Awards may be paid in a lump sum or in installments following the close of the

11
<PAGE>

Performance Period or, in accordance with procedures established by the
Committee, on a deferred basis. Notwithstanding the foregoing, an Award
Agreement may condition the vesting or exercise of a Performance Award on any
combination of the achievement of one or more performance goals and/or the
completion of a specified period of service as the Committee shall determine at
the time of grant. To the extent determined by the Committee, when making
Performance Awards the Committee shall adopt performance goals, certify
completion of such goals and comply with any other Code requirements necessary
to be in compliance with the performance-based compensation requirements of Code
Section 162(m). Performance goals for Performance Awards may be based, in whole
or in part, on one or more of the following performance-based criteria or such
other criteria as the Committee may determine: (i) attainment during the
Performance Period of a specified price per share of the Company's common stock;
(ii) attainment during the Performance Period of a specified rate of growth or
increase in the amount of growth in the price per share of the Company's common
stock; (iii) attainment during the Performance Period of a specified level of
the Company's earnings or earnings per share of the Company's common stock; (iv)
attainment during the Performance Period of a specified rate of growth or
increase in the amount of growth of the Company's earnings or earnings per share
of the Company's common stock; (v) attainment during the Performance Period of a
specified level of the Company's cash flow or cash flow per share of the
Company's common stock; (vi) attainment during the Performance Period of a
specific rate of growth or increase in the amount of growth of the Company's
cash flow or cash flow per share of the Company's common stock; (vii) attainment
during the Performance Period of a specified level of the Company's return on
equity; (viii) attainment during the Performance Period of a specific rate of
growth or increase in the amount of growth of the Company's return on equity;
(ix) attainment during the Performance Period of a specified level of the
Company's return on assets; or (x) attainment during the Performance Period of a
specific rate of growth or increase in the amount of growth of the Company's
return on assets.

SECTION 8A. RESTRICTED STOCK.

(a) Issuance. Restricted Stock Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum
consideration as may be required by applicable law, either alone or in
addition to other Awards granted under the Plan. The provisions of
Restricted Stock Awards need not be the same with respect to each
recipient. The granting of Restricted Stock shall take place on the
date the Committee decides to grant the Restricted Stock, or if the
Restricted Stock Award provides that the grant of Restricted Stock is
conditioned upon the achievement of performance goals specified in the
Restricted Stock Award, on a date established by the Committee
following the achievement of such performance goals.

(b) Registration. Any Restricted Stock issued hereunder may be evidenced
in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or
issuance of a stock certificate or certificates. In the event any
stock certificate is issued in respect of shares of Restricted Stock
awarded under the Plan, such certificate shall be

12
<PAGE>

registered in the name of the Participant, shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable
to such Award, and shall be held in escrow by the Company.

(c) Forfeiture. A Restricted Stock Award may condition the grant of
Restricted Stock and/or the lapse of any restriction or restrictions
on Restricted Stock on any combination of the achievement of one or
more performance goals and/or the completion of a specified period of
service as the Committee shall determine at the time the Restricted
Stock Award is made. To the extent determined by the Committee, when
making Restricted Stock Awards the Committee shall adopt performance
goals, certify completion of such goals and comply with any other Code
requirements necessary to be in compliance with the performance-based
compensation requirements of Code Section 162(m). Performance goals
for Restricted Stock Awards may be based, in whole or in part, on one
or more of the following performance-based criteria or such other
criteria as the Committee may determine: (i) attainment during the
Performance Period of a specified price per share of the Company's
common stock; (ii) attainment during the Performance Period of a
specified rate of growth or increase in the amount of growth in the
price per share of the Company's common stock; (iii) attainment during
the Performance Period of a specified level of the Company's earnings
or earnings per share of the Company's common stock; (iv) attainment
during the Performance Period of a specified rate of growth or
increase in the amount of growth of the Company's earnings or earnings
per share of the Company's common stock; (v) attainment during the
Performance Period of a specified level of the Company's cash flow or
cash flow per share of the Company's common stock; (vi) attainment
during the Performance Period of a specific rate of growth or increase
in the amount of growth of the Company's cash flow or cash flow per
share of the Company's common stock; (vii) attainment during the
Performance Period of a specified level of the Company's return on
equity; (viii) attainment during the Performance Period of a specific
rate of growth or increase in the amount of growth of the Company's
return on equity; (ix) attainment during the Performance Period of a
specified level of the Company's return on assets; or (x) attainment
during the Performance Period of a specific rate of growth or increase
in the amount of growth of the Company's return on assets.

As soon as practicable following the lapse of the restrictions on
Restricted Stock, unrestricted Shares, evidenced in such manner as the
Committee shall deem appropriate, shall be issued to the grantee.

Except as otherwise determined by the Committee at the time of
grant, upon termination of employment for any reason before the
restriction lapses, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant (who shall sign any
document and take any other action required to assign such shares back
to the Company) and reacquired by the Company.

13
<PAGE>

SECTION 9. OUTSIDE DIRECTORS' OPTIONS.

(a) Grant of Options. Immediately prior to the Public Offering, and when
an Outside Director first takes a position on the Board after the
Public Offering, the Outside Director shall receive an Option to
purchase Shares ("Initial Options"). On the date of each Stockholders'
Meeting, each Outside Director shall automatically be granted an
Option to purchase Shares ("Annual Options"); provided, however, that
an Outside Director shall not be entitled to receive and shall not be
granted any Annual Options on the date of any particular Stockholders'
Meeting if he will not continue to serve as an Outside Director
immediately following such Stockholders' Meeting. An Outside Director
who first takes a position on the Board at the annual Stockholders'
Meeting shall be entitled to receive the Initial Options plus the
Annual Options. All such Options shall be Non-Qualified Stock Options.
The number of Shares to be subject to the Initial Option and Annual
Option grants shall be determined from time to time by the Committee.
The price at which each Share covered by such Options may be purchased
shall be one hundred percent (100%) of the fair market value of a
Share on the date the Option is granted. Fair market value for
purposes of this Section 9 shall be deemed to be the average of the
high and low prices of the Shares as reported on the New York Stock
Exchange Composite Transactions tape on the day the Option is granted
or, if no sale of Shares shall have been made on that day, the next
preceding day on which there was a sale of Shares. For purposes of
Options granted immediately prior to the Public Offering, the Fair
Market Value of the Shares subject to such Options shall be the
offering price at which Shares are first sold in the Public Offering.

(b) Exercise of Options. Except as set forth in this Section 9, all Shares
subject to an Option granted to an Outside Director shall become
exercisable as follows: fifty percent (50%) on the day preceding the
date of the first Stockholders' Meeting after the date of the grant of
the Option; twenty-five percent (25%) on the day preceding the date of
the second Stockholders' Meeting after the date of grant of the
Option; and the remaining twenty-five percent (25%) on the day
preceding the third Stockholders' Meeting after the date of grant of
the Option. However, no Option shall be exercisable more than ten (10)
years after the date of grant. Options may be exercised by an Outside
Director during the period that: (i) the Outside Director remains a
member of the Board; (ii) for a period of one (1) year after ceasing
to be a member of the Board by reason of death; (iii) for the
remaining term of the Option in the event of an Outside Director's
disability; (iv) for the remaining term of the Option if the Outside
Director retires (as defined below) from the Board; or (v) for a
period of ninety (90) days after ceasing to be a member of the Board
for reasons other than retirement, death or disability; however, only
those Options exercisable at the date the Outside Director ceases to
be a member of the Board shall remain exercisable. All Options held by
an Outside Director shall become exercisable

14
<PAGE>

immediately prior to termination of the Outside Director's service on
the Board by reason of an Outside Director's death, disability or
retirement, except that Options shall not be exercisable earlier than
six (6) months from the date of grant to the extent required by
Section 16(b) of the Exchange Act. For purposes of this Section 9,
"retire" or "retirement" shall mean discontinuance of service as a
director after the director has reached age sixty (60) and has at
least five (5) years or more of service on the Board. Notwithstanding
any provision herein to the contrary, no Option hereunder shall be
exercisable more than ten (10) years after the date of grant. All
Options shall immediately become exercisable in the event of a Change
in Control, as hereinafter defined, except that Options shall not be
exercisable earlier than six (6) months from the date of grant if
required for exemption under Rule 16(b)-3 under the Exchange Act.

If a former Outside Director shall die holding an Option that has
not expired and has not been fully exercised, the Option shall remain
exercisable until the later of one (1) year after the date of death or
the end of the period in which the former Outside Director could have
exercised the Option had he not died, but in no event shall the Option
be exercisable more than ten (10) years after the date of grant. In
the event of the death of an Outside Director or former Outside
Director, his Options shall be exercisable only to the extent that
they were exercisable at his date of death and only by the executor or
administrator of the Outside Director's estate, by the person or
persons to whom the Outside Director's rights under the Option shall
pass under the Outside Director's will or the laws of descent and
distribution, or by a beneficiary designated in writing in accordance
with Section 13(a) hereof.

(c) Payment. An Option granted to an Outside Director shall be exercisable
only upon payment to the Company of the full purchase price of the
Shares with respect to which the Option is being exercised. Payment
for the Shares shall be in United States dollars, payable in cash or
by check or by delivery of Shares having a Fair Market Value on the
exercise date equal to the total option price, or by any combination
of cash and Shares.

SECTION 10. CHANGE IN CONTROL.

(a) In order to maintain the Participants' rights in the event of any
Change in Control of the Company, as hereinafter defined, the
Committee, as constituted before such Change in Control, may, in its
sole discretion, as to any Award, either at the time an Award is made
hereunder or any time thereafter, take any one (1) or more of the
following actions: (i) provide for the purchase by the Company of any
such Award, upon the Participant's request, for an amount of cash
equal to the amount that could have been attained upon the exercise of
such Award or realization of the Participant's rights had such Award
been currently exercisable or payable; (ii) make such adjustment to
any such Award then outstanding as the Committee deems appropriate to
reflect such Change in

15
<PAGE>

Control; or (iii) cause any such Award then outstanding to be assumed,
or new rights substituted therefor, by the acquiring or surviving
corporation after such Change in Control. In the event of a Change of
Control, there shall be an automatic acceleration of any time periods
relating to the exercise or realization of any such Award and all
performance award standards shall be deemed satisfactorily completed
without any action required by the Committee so that such Award may be
exercised or realized in full on or before a date fixed by the
Committee, except no Award shall be exercisable earlier than six (6)
months after the date of grant to the extent required by Section 16 of
the Exchange Act. The 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 the
Company.

(b) For purposes of this Plan, a "Change in Control" shall be deemed to
have occurred if (i) for any reason at any time less than seventy-five
percent (75%) of the members of the Board of Directors of the Company
shall be individuals who fall into any of the following categories:
(A) individuals who were members of such Board on September 1, 1995;
or (B) individuals whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least
seventy-five percent (75%) of the members of the Board then still in
office who were members of such Board on September 1, 1995; or (C)
individuals whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least
seventy-five percent (75%) of the members of the Board then still in
office who were elected in the manner described in (A) or (B) above,
or (ii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) shall have become, according to a public
announcement or filing, without the prior approval of the Board of
Directors of the Company, the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act) directly or indirectly, of securities
of the Company representing forty percent (40%) or more (calculated in
accordance with Rule 13(d)-3) of the combined voting power of the
Company's then outstanding voting securities (such "person" hereafter
referred to as a "Major Stockholder"); or (iii) the stockholders of
the Company shall have approved a merger, consolidation or dissolution
of the Company or a sale, lease, exchange or disposition of all or
substantially all of the Company's assets, or a Major Stockholder
shall have proposed any such transaction, unless such merger,
consolidation, dissolution, sale, lease, exchange or disposition shall
have been approved by at least seventy-five percent (75%) of the
members of the Board of Directors of the Company who are individuals
falling into any combination of the following categories: (A)
individuals who were members of such Board of Directors on September
1, 1995, or (B) individuals whose election or nomination for election
by the Company's stockholders was approved by at least seventy-five
percent (75%) of the members of the Board of Directors then still in
office who are members of the Board of Directors on September 1, 1995,
or (C) individuals whose election, or nomination for election by the
Company's

16
<PAGE>

stockholders was approved by a vote of at least seventy-five percent
(75%) of the members of the Board then still in office who were
elected in manner described in (A) or (B) above.

SECTION 11. AMENDMENTS AND TERMINATION.

The Board may amend, alter, suspend, discontinue, or terminate the
Plan, but no amendment, alteration, suspension, discontinuation, or termination
shall be made that would materially impair the rights of an optionee or
Participant under an Award theretofore granted, without the optionee's or
Participant's consent. In addition, the Board may consider for each amendment
whether the approval of stockholders is desirable or is necessary for the
amendment to be effective.

The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, and may also substitute new Awards for Awards
previously granted under this Plan or for awards granted under any other
compensation plan of the Company or an Affiliate to Participants, including
without limitation previously granted Options having higher option prices, but
no such amendment or substitution shall materially impair the rights of any
Participant without his consent.

The Committee shall be authorized, without the Participant's consent,
to make adjustments in Performance Award criteria or in the terms and conditions
of other Awards in recognition of events that it deems in its sole discretion to
be unusual or nonrecurring that affect the Company or any Affiliate or the
financial statements of the Company or any Affiliate, or in recognition of
changes in applicable laws, regulations or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
the dilution or enlargement of benefits or potential benefits under the Plan.
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry it into effect. In the event the Company shall assume
outstanding employee benefit awards or the right or obligation to make future
such awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such adjustments in
the terms of Awards under the Plan as it shall deem appropriate.

SECTION 12. TERMINATION OF EMPLOYMENT AND NONCOMPETITION.

The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances any Award shall be canceled or
suspended and shall promulgate rules and regulations to (i) determine what
events constitute disability, retirement, termination for an approved reason and
termination for cause for purposes of the Plan, and (ii) determine the treatment
of a Participant under the Plan in the event of his death, disability,
retirement, or termination for an approved reason. If a Participant's employment
with the Company or an Affiliate is terminated for cause, all unexercised,
unearned, and/or unpaid Awards, including, but not by way of limitation, Awards
earned, but not yet paid, all unpaid dividends and dividend equivalents, and all
interest accrued on the foregoing shall be canceled

17
<PAGE>

or forfeited, as the case may be, unless the Participant's Award Agreement
provides otherwise. In addition, but without limitation, all outstanding Awards
to any Participant shall be canceled if the Participant, without the consent of
the Committee, while employed by the Company or after termination of such
employment, becomes associated with, employed by, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined by the
Committee), any business that is in competition with the Company or any
Affiliate, or with any business in which the Company or any Affiliate has a
substantial interest as determined by the Committee or such officers or
committee of senior officers to whom the authority to make such determination is
delegated by the Committee.

SECTION 13. GENERAL PROVISIONS.

(a) Nonassignability. No Award shall be assignable or transferable by a
Participant or an Outside Director otherwise than by will or by the
laws of descent and distribution; provided, however, that a
Participant or Outside Director may, pursuant to a written designation
of beneficiary filed with and approved by the Committee prior to his
death, designate a beneficiary to exercise the rights of the
Participant with respect to any Award upon the death of the
Participant or Outside Director. Each Award shall be exercisable
during the lifetime of the Participant or the Outside Director, only
by the Participant or the Outside Director or, if permissible under
applicable law, by the guardian or legal representative of the
Participant or Outside Director.

(b) Terms. Except for Options granted pursuant to Section 9, the term of
each Award shall be for such period of months or years from the date
of its grant as may be determined by the Committee; provided, however,
that in no event shall the term of any Incentive Stock Option or any
Stock Appreciation or Limited Right related to any Incentive Stock
Option exceed a period of ten (10) years from the date of its grant.

(c) Rights to Awards. No Employee, Participant or other Person shall have
any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Employees, Participants, or
holders or beneficiaries of Awards under the Plan.

(d) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be
required by applicable law.

(e) Restrictions. All certificates for Shares delivered under the Plan
pursuant to any Award shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Shares are then
listed, and any applicable Federal or state

18
<PAGE>

securities law, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions.

(f) Dividend Equivalents. Subject to the provisions of this Plan and any
Award Agreement, the recipient of an Award (including, without
limitation, any deferred Award) may, if so determined by the
Committee, be entitled to receive, currently or on a deferred basis,
interest or dividends, or interest or dividend equivalents, with
respect to the number of Shares covered by the Award, as determined by
the Committee, in its sole discretion, and the Committee may provide
that such amounts (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested.

(g) Withholding. The Company shall be authorized to withhold from any
Award granted, payment due or shares or other property transferred
under the Plan the amount of income, withholding and payroll taxes due
and payable in respect of an Award, payment or shares or other
property transferred hereunder and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for
the payment of such taxes. The Company may require the Participant or
Outside Director to pay to it such tax prior to and as a condition of
the making of such payment or transfer of Shares or property under the
Plan. In accordance with any applicable administrative guidelines it
establishes, the Committee may allow a Participant to pay the amount
of taxes due or payable in respect of an Award by withholding from any
payment of Shares due as a result of such Award, or by permitting the
Participant to deliver to the Company, Shares having a fair market
value, as determined by the Committee, equal to the amount of such
taxes.

(h) Deferral of Awards. At the discretion of the Committee, payment of a
Performance Dividend Equivalent or any portion thereof may be deferred
by a Participant until such time as the Committee may establish. All
such deferrals shall be accomplished by the delivery on a form
provided by the Company of a written, irrevocable election by the
Participant prior to such time payment would otherwise be made.
Further, all deferrals shall be made in accordance with administrative
guidelines established by the Committee to ensure that such deferrals
comply with all applicable requirements of the Code and its
regulations. Deferred payments shall be paid in a lump sum or
installments, as determined by the Committee. The Committee may also
credit interest, at such rates to be determined by the Committee, on
cash payments that are deferred and credit Dividend Equivalents on
deferred payments denominated in the form of Shares.

(i) No Limit on Other Compensation Arrangements. Nothing contained in this
Plan shall prevent the Company or any Affiliate from adopting other or
additional compensation arrangements, subject to stockholder approval
if such

19
<PAGE>

approval is required and such arrangements may be either generally
applicable or applicable only in specific cases.

(j) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable
Federal law.

(k) Severability. If any provision of this Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the
Plan or any Award under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering
the intent of the Plan or the Award, it shall be stricken and the
remainder of the Plan and any such Award shall remain in full force
and effect.

(l) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at
any time terminate the employment of a Participant, free from any
liability, or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.

(m) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate
pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company or any Affiliate.

(n) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be
paid or transferred in lieu of any fractional Shares, or whether such
fractional Shares or any rights thereto shall be canceled, terminated,
or otherwise eliminated.

(o) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.

(p) With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any provision of
this Plan or action by the Committee fails

20
<PAGE>

to so comply, the Committee may deem, for such persons, such provision
or action null and void to the extent permitted by law.

SECTION 14. EFFECTIVE DATE OF PLAN.

The Plan shall be effective as of September 1, 1995.

SECTION 15. TERM OF PLAN.

No Award shall be granted pursuant to the Plan after August 31, 2005,
but any Award theretofore granted may extend beyond that date.

<PAGE>

Exhibit 10.31

DATED 23rd June 1993
- --------------------------------------------------------------------------------
(1) CLARK & TILLEY LIMITED

(2) MICHAEL WINN
- --------------------------------------------------------------------------------
DIRECTOR'S SERVICE AGREEMENT
- --------------------------------------------------------------------------------
CAMERON MARKBY HEWITT
Sceptre Court
40 Tower Hill
London EC3N 4BB

Tel: 071-702-2345
Fax: 071-702-2303
Telex: 925779

(NM/55800)

<PAGE>

INDEX

- ---------------------------------------- --------------------------------------------------------------- -------------
<S> <C> <C>
CLAUSE HEADING PAGE NO.

- ---------------------------------------- --------------------------------------------------------------- -------------
1. Definitions 1

- ---------------------------------------- --------------------------------------------------------------- -------------
2. Employment 2

- ---------------------------------------- --------------------------------------------------------------- -------------
3. Duties of Directors 3

- ---------------------------------------- --------------------------------------------------------------- -------------
4. Remuneration 5

- ---------------------------------------- --------------------------------------------------------------- -------------
5. Pension P.H.I and Medical Insurance 5

- ---------------------------------------- --------------------------------------------------------------- -------------
6. Expenses 6

- ---------------------------------------- --------------------------------------------------------------- -------------
7. Motor Car 6

- ---------------------------------------- --------------------------------------------------------------- -------------
8. Illness 7

- ---------------------------------------- --------------------------------------------------------------- -------------
9. Holidays 8

- ---------------------------------------- --------------------------------------------------------------- -------------
10. Inventions 8

- ---------------------------------------- --------------------------------------------------------------- -------------
11. Confidentiality 9

- ---------------------------------------- --------------------------------------------------------------- -------------
12. Location 9

- ---------------------------------------- --------------------------------------------------------------- -------------
13. Summary Termination 9

- ---------------------------------------- --------------------------------------------------------------- -------------
14. Resignation from Directorships 11

- ---------------------------------------- --------------------------------------------------------------- -------------
15. Reconstruction or Amalgamation 11

- ---------------------------------------- --------------------------------------------------------------- -------------
16. Non-Solicitation - Company Clients 11

- ---------------------------------------- --------------------------------------------------------------- -------------
17. Non-Solicitation - Group Clients 12

- ---------------------------------------- --------------------------------------------------------------- -------------
18. Non-Competition 12

- ---------------------------------------- --------------------------------------------------------------- -------------
19. Ambit of Restrictions 12

- ---------------------------------------- --------------------------------------------------------------- -------------
20. Notices 13

- ---------------------------------------- --------------------------------------------------------------- -------------
21. Prior Agreements 13

- ---------------------------------------- --------------------------------------------------------------- -------------
22. Particulars of Employment 13

- ---------------------------------------- --------------------------------------------------------------- -------------
23. Miscellaneous 13
- ---------------------------------------- --------------------------------------------------------------- -------------
</TABLE>

<PAGE>

THIS AGREEMENT is made as of the 23rd day of June 1993 BETWEEN:

(1) CLARKE & TILLEY LIMITED whose registered office is situate at Hanover
House Station Approach Cheam Surrey SM2 7AU (hereinafter called the
"Company") and

(2) MICHAEL WINN of Rosemary Cottage Northchurch Berkhamsted Hertfordshire
HP4 3QS (hereinafter called the "Director")

WHEREBY IT IS AGREED as follows:

1. DEFINITIONS

IN this Agreement

1.1 Unless the context otherwise requires the following expressions shall have
the meanings following:

the "Act" means the Employment Protection (Consolidation)
Act of 1978 (as amended)

the "Appointment" means the employment of the Director by the
Company on the terms and conditions set out
herein

the "Board" means the Board of Directors for the time being
of the Company

the "Effective Date" means 23rd June 1993

the "Group" means

(i) a company having an ordinary share
capital (as defined in S.832
of the Income and Corporation Taxes
Act 1988) of which not less than 25%
is owned directly or indirectly by
the Company or its holding company
applying the provisions of
S.838 of the Income and Corporation
Taxes Act 1988 in the determination of
ownership;

(ii) a holding company (as defined in
S.736 of the Companies Act 1985) of
the Company; or

(iii) a Subsidiary (as defined in S.736
of the Companies Act 1985) of any
such holding company

<PAGE>

"Incapacity" means illness of the Director or
other cause incapacitating him from
attending fully to his duties under
the Appointment

"Intellectual includes letters patent trade marks
Property whether registered or unregistered
registered or unregistered designs
utility models copyrights including
design copyrights applications for any
of the foregoing and the right to
apply for them in any part of the
world discoveries creations inventions
or improvements upon or additions to
an invention confidential information
know-how and any research effort
relating to any of the above mentioned
business names whether registrable or
not moral rights and any similar
rights in any country

"Member of the Group" means any such company as is included
in the definition of "Group"

1.2 Any reference to a statutory provision shall be deemed to include a
reference to any statutory modification or re-enactment of the same and
in particular (but without limiting the generality of the foregoing)
references to the Companies Act 1985 are to such act as amended by the
Companies Act 1989

1.3 References to any statute include reference to any regulations or
other subordinate legislation made thereunder

1.4 The index and clause headings are included for guidance only and do
not affect the interpretation of this Agreement

1.5 Any reference to the Director shall if appropriate include his
personal representatives

1.6 References to a person being "connected with" the Director shall be
construed in accordance with the provisions of section 346 of the
Companies Act 1985

1.7 Reference to Schedules herein are references to the Schedules to this
Agreement

2. EMPLOYMENT

2.1 THE Appointment shall (unless terminated in accordance with the
provisions of clauses 8 or 13) continued from the Effective Date for
an initial period of three

<PAGE>

years and thereafter until terminated by either party given to the
other notice of termination in accordance with the provisions of
sub-clause 2.2

2.2 The Appointment may be terminated at the end of the initial three year
term or thereafter by either party giving to the other a period of
notice being not less than twelve months

3. DUTIES OF DIRECTOR

3.1 DURING the continuation of the Appointment the Director shall unless
prevented by ill health devote his whole time and attention during
normal working hours (or such greater amount of time and attention to
the businesses of the Company or the Group as is necessary for the
proper and diligent performance of the Director's duties hereunder) to
the businesses of the Company and the Group and shall do all in his
power to promote develop and extend the businesses of the Company and
the Group and shall undertake such duties and exercise such powers in
relation to the businesses of the Company and the Group as the Board
shall from time to time assign to or vest in him

3.2 The Director shall in the discharge of such duties and in the exercise
of such powers give at all times the full benefit of his knowledge,
expertise, technical skill and ingenuity and shall perform such duties
and exercise such powers (being consistent with the appointment
hereunder) in relation to the conduct and management of the affairs of
the Company and the Group as may from time to time reasonably be
assigned or communicated to or vested in him by the Board and shall use
his best endeavours to give to the Board such information regarding the
affairs of the Company and the Group as it shall reasonably require and
at all times shall observe and comply with all reasonable resolutions
regulations and directions from time to time made or given to him by
the Board

3.3 During the continuation of the Appointment the Director shall not
without the previous consent in writing of the Board (evidenced by a
Board Resolution in writing)

3.3.1 do or refrain from doing any act whereby his office as a director of
the Company is or becomes liable to be vacated

3.3.2 do anything that would cause him to be disqualified from continuing to
act as a Director of the Company

3.3.3 engage or be interested directly or indirectly in any trade business or
occupation whatsoever other than the businesses of the Company or the
Group; or

3.3.4 be concerned or interested directly or indirectly in any other business
of a similar nature to or competitive with that carried on by the
Company or by any Member of the Group

<PAGE>

Provided always that nothing contained in this sub-clause shall prevent
the Director or any person connected with him from holding (whether
directly or through nominees) or being otherwise interested as an
investor in any shares or other securities of any company which are for
the time being quoted on any recognised Stock Exchange so long as not
more than five per cent (5%) of the shares or stock of any class of any
one company shall be so held or beneficially owned by the Director
together with all persons connected with him. In this Clause the
expression "occupation" shall include any public or private work which
in the reasonable opinion of the Company may hinder or otherwise
interfere with the performance by the Director of his duties under this
Agreement

3.4 Subject to and in accordance with the provisions of this Agreement the
Director shall serve the Company in the capacity of Managing Director
or in such other executive capacity (of equal or greater status with
the position of Managing Director) as the Board shall from time to time
request the Director to fulfil

3.5 The Company shall be at liberty from time to time to appoint any other
person or persons to act jointly with the Director in the capacity of
Managing Director or in such other executive capacity and to assign to
him or them duties and responsibilities identical to or similar with
those placed upon the Director hereunder or to require the Director to
cease to perform or exercise the said or any executive duties or powers

3.6 The Director shall:

3.6.1 at all times promote the interests and welfare and maintain the
goodwill of the Company and (if and to the extent the Board has
required the Director to render services to any other Member of the
Group) those of such other company;

3.6.2 faithfully and diligently perform such duties and exercise such powers
as may from time to time be assigned to or vested in him and in the
performance thereof have particular regard to any specific directions
or requirements of the Board from time to time in respect of the
Director's responsibilities the initial statement thereof being as
annexed hereto;

3.6.3 perform services for such Member of the Group wheresoever situate as
the Board may require without further fees or remuneration; and

3.6.4 accept appointment as a director of any Member of the Group as the
Board may require in connection with the Appointment and also a
director of any other company as the Company may reasonably require and
shall resign without claim for compensation from office as a director
of any Member of the Group or any such other company at any time on
request by the Company which resignation shall not affect the
continuation in any way of this Agreement

<PAGE>

4. REMUNERATION

4.1 SUBJECT as hereinafter provided the Company shall pay to the Director
during the continuance of his employment hereunder at a salary at the
rate of L100,000 per annum (or such higher rate as may from time to
time be agreed between the parties or determined upon and notified to
the Director by the Company and so that reference in this Agreement to
the basic salary shall refer to the salary at the level at which the
same is payable following any increase or increases). In the event of
any increase of salary being so agreed or notified such increase shall
thereafter have effect as if it were specifically provided for as a
term of this Agreement. No additional payment shall be made to the
Director in respect of director's fees of the Company or any other
Member of the Group, or in respect of any services provided by him to
such other company. The said salary shall be payable by equal monthly
instalments (and proportionately for any lesser period each monthly
instalment being deemed to accrue rateably from day to day) in arrears
on the last day of each month.

4.2 The salary referred to in sub-clause 4.1 of this Clause shall be
reviewed (such review not leading to any decrease) not less frequently
than once in every year of this Agreement, having regard to all
relevant circumstances. The amount of any increase made in the light of
such review shall be determined by the Board in its absolute
discretion.

4.3 In addition to the salary payable to the Director there shall be paid
to the Director in respect of each financial year of the Company during
the continuance of his employment commencing with the financial year
ending 31st December 1992:

4.3.1 a commission which shall accrue be calculated and be paid in accordance
with the provisions set out in the First Schedule hereto [SEE NOTE AT
BEGINNING OF THE FIRST SCHEDULE]; and

4.3.2 a bonus at the rate of L12,500 per annum (and pro rata in respect of
any lesser period) which shall be paid by monthly intervals in arrears
[SEE NOTE AT BEGINNING OF THE FIRST SCHEDULE].

4.4 As additional consideration to the Director for the services to be
performed hereunder during the initial term, the Company shall pay to
the Director within ten days of the execution of this Agreement, a
payment of L540,000.

5. PENSION PHI AND MEDICAL INSURANCE

5.1 THE Director shall during his employment under this Agreement become a
member of the Clarke & Tilley Limited Pension Scheme (the "Scheme"
which

<PAGE>

includes any scheme set up in place of it) and the Company will
promptly pay contributions due under the Scheme in accordance with
sub-clause 5.2 hereof.

5.2 The Company shall contribute to the Company's money purchase pension
scheme an amount equal to the lower of 20% of the Director's basic
salary (as referred to in sub-clause 4.1) and such lesser amount as
would not cause the Inland Revenue limits as to the benefits which may
be available to the Director under the Scheme to be exceeded.

5.3 Subject in each case to the Director being acceptable (following
medical inspections from time to time if required) for coverage at
normal rates the Company shall (through its relevant scheme from time
to time in place and subject to the respective terms and conditions
thereof) during the Appointment pay the cost of membership at such
normal rates for the Director of:

5.3.1 the Company's death in service and permanent health insurance scheme
subject in each case to the rules of the respective schemes; and

5.3.2 the Company's medical plan with the British United Provident
Association (BUPA) or such other reputable medical expenses insurance
scheme as shall be notified by the Company to the Director subject in
each case to the rules of the respective schemes.

6. EXPENSES

THE Company shall reimburse the Director all reasonable hotel and other
expenses wholly necessarily and exclusively incurred by him in or about
the performance of his duties hereunder, the Director providing to the
Company such vouchers or other evidence of actual payment of such
expenses as the Company may reasonably require.

7. MOTOR CAR

7.1 THE Director shall be responsible for providing at his own cost and
expense an appropriate car for use by him for business purposes (in
addition to use by him of the said car for private purposes) and for
paying all insurance premiums maintenance and repair expenses and other
standing and running expenses except for the costs of petrol and oil
which costs shall be paid by the Company.

7.2 For the purposes of this Clause "an appropriate car" shall be construed
as a car of a cost and standard not less than a Ford Granada not more
than three years old and of a type otherwise suitable for use by the
Director in connection with the Company's or the Group's business.

<PAGE>

7.3 It is a term of the Director's employment hereunder that he be the
holder at all times of a valid UK driving licence entitling him to
drive motor cars.

8. ILLNESS

8.1 IN case of Incapacity the Director shall continue to be paid his basic
salary during such absence (such payment to be inclusive of any
Statutory Sick Pay or social security benefits to which the Director
may be entitled and for Statutory Sick Pay purposes the Director's
qualifying days shall be Monday to Friday) and commission shall
continue to accrue in accordance with clause 4.3 and the First Schedule
provided that if such absences shall aggregate in all thirteen weeks in
any fifty two consecutive weeks the Company may forthwith by notice in
writing to the Director given on a date not more than twenty eight days
after the end of the last of such thirteen weeks:

8.1.1 discontinue payment in whole or in pat of the said salary and accrual
of the commission on and from such date as may be specified in the
notice until the Incapacity shall cease or

8.1.2 (whether or not payment of the said salary and accrual of the said
commission shall already have been discontinued as aforesaid) determine
this Agreement forthwith or on such date as may be specified in the
notice.

8.2 If in the case of Incapacity the same shall be or appear to be
occasioned by actionable negligence of a third party in respect of
which damages are or may be recoverable the Director shall immediately
notify the Board of that fact and of any claim compromise settlement or
judgment made or awarded in connection with it and shall give the Board
all particulars the Board may reasonably require and shall if required
by the Board refund to the Company that part of any damages recovered
relating to loss of earnings for the period of the Incapacity as the
Board may reasonably determine provided that the amount to be refunded
shall not exceed the amount of damages or compensation recovered by him
less any costs borne by the Director in connection with the recovery of
such damages or compensation and shall not exceed the total
remuneration paid to him by way of salary and commission in respect of
the period of Incapacity.

Subject as herein provided the said salary shall notwithstanding the
Incapacity continue to be paid to the Director in accordance with
Clause 4 hereof and the said commission shall continue to accrue in
respect of the service of the Director in respect of the period of
Incapacity prior to the date of effective discontinuance or
determination as herein provided.

8.3 Except as expressly provided by this Clause the Director shall not be
entitled to any salary or commission in respect of any period during
which he shall fail or be unable from any cause to perform all or any
of his duties hereunder without

<PAGE>

prejudice to any right of action accruing or accrued to either party
in respect of any breach of this Agreement.

8.4 The Director shall submit himself to a medical examination at the
reasonable request and expense of the Board at any time during the
continuation of the Appointment and whether or not the Director is or
has been absent by reason of Incapacity.

9. HOLIDAYS

THE Director shall (in addition to the usual public and bank holidays)
be entitled to twenty five weekdays paid holiday in each calendar year
to be taken at such time or times as the Board shall consider most
convenient having regard to the business of the Company and the Group.
The Director may not without the consent of the Board carry forward any
unused part of his holiday entitlement to a subsequent calendar year.
The Director's holiday entitlement accrues pro rata over the course of
the calendar year.

10. INVENTIONS

10.1 THE parties foresee that the Director may make discover or create
Intellectual Property in the course of the Appointment and agree that
in this respect the Director has a special obligation to further the
interests of the Company.

10.2 Subject to the provisions of the Patents Act 1977 and the Copyright,
Designs and Patents Act 1988 if at any time during the Appointment the
Director makes or discovers or participates in the making or discovery
of any Intellectual Property relating to or capable of being used in
the business for the time being carried on by the Company or any member
of the Group full details of the Intellectual Property shall
immediately be communicated by him to the Company and shall be the
absolute property of the Company. At the request and expense of the
Company the Director shall give and supply all such information data
drawings and assistance as may be requisite to enable the Company to
exploit the Intellectual Property to the best advantage and shall
execute all documents and do all things which may be necessary or
desirable for obtaining patent or other protection for the Intellectual
Property in such parts of the world as may be specified by the Company
and for vesting the same in the Company or as it may direct.

10.3 The Director irrevocably appoints the Company to be his attorney in the
name and on his behalf to sign execute or do any such instrument or
thing and generally to use his name for the purpose of giving to the
Company (or its nominee) the full benefit of the provisions of his
Clause and in favour of any third party a certificate in writing signed
by any director or the secretary of the Company that any instrument or
act falls within the authority conferred by this Clause shall be
conclusive evidence that such is the case.

<PAGE>

10.4 The Director hereby waives all "Moral Rights" as defined in the
Copyright, Design and Patents Act 1988 in respect of any acts of the
Company or any acts of third parties done with the Company's authority
in relation to the property which is the property of the Company by
virtue of clause 10.2.

10.5 Rights and obligations under this Clause shall continue in force after
termination of this agreement in respect of Intellectual Property made
during the Appointment and shall be binding upon the Director's
personal representatives.

11. CONFIDENTIALITY

THE Director is aware that in the course of the Appointment he may have
access to and be entrusted with information in respect of the business
and financing of the Company and the Group and its and their respective
dealings, transactions and affairs all of which information is or may
be confidential. Without prejudice to the Director's legal duties in
respect thereof the Director shall not (except in the proper course of
his duties hereunder) either during or after the period of the
Appointment divulge to any person or persons whatsoever, or otherwise
make use of, and shall use his best endeavours to prevent the
publication or disclosure of, any trade secret or manufacturing process
or any confidential information concerning the business or finances of
the Company or the Group or any of its or their respective dealings
transactions or affairs or those of any of its or their respective
suppliers, agents, distributors or customers. All notes and memoranda
of such trade secrets or confidential information made or received by
the Director during the course of the Appointment shall be the property
of the Company and shall be surrendered by the Director to someone duly
authorised in that behalf at the termination of the Appointment or at
the request of the Board at any time during the course of the
Appointment.

12. LOCATION

12.1 THE normal place of work of the Director shall be at Hanover House
Station Approach Cheam but the Company may at any time change the
location of the Director's normal place of work to anywhere else in the
United Kingdom either in Central London or South or West of Central
London.

12.2 The Director may be required to travel on business of the Company
anywhere in the world but shall not be required to reside outside the
United Kingdom.

13. SUMMARY TERMINATION

13.1 THE Appointment may be terminated by the Company without notice or
payment in lieu of notice:

<PAGE>

13.1.1 if the Director shall commit any serious or persistent breach of any of
the provisions herein contained; or

13.1.2 if the Director shall be guilty of any material default misconduct or
neglect in the discharge of his duties or in connection with or
affecting the business of the Company or the Group; or

13.1.3 in the event of any breach of non-observance by the Director of any of
the stipulations herein contained which is materially detrimental to
the Company's interest and which (if capable of remedy) is not remedied
within thirty days' notice in writing to the Director specifying the
breach complained of an requiring remedy; or

13.1.4 if the Director becomes bankrupt of makes any composition or enters
into any deed of arrangement with his creditors; or

13.1.5 if the Director is convicted of any arrestable criminal offence (other
than an offence under the road traffic legislation in the United
Kingdom or elsewhere for which a fine or non-custodial penalty is
imposed and which does not result in the loss or withdrawal or
suspension for a period in excess of three months of the Director's
driving licence); or

13.1.6 if the Director shall become of unsound mind or become a patient under
the Mental Health Act 1983; or

13.1.7 if the Director is convicted of an offence under the Companies
Securities (Insider Dealing) Act 1985; or

13.1.8 if the Director shall at any time and for any reason cease to be the
holder of a valid UK driving licence or the Director's licence shall be
withdrawn or his right to drive thereunder suspended for a period in
excess of three months and the Board shall in its sole discretion
determine that the business of the Company or the Group or the ability
of the Director to perform his services hereunder is materially
adversely affected as a result thereof; or

13.1.9 if the Director shall be disqualified from acting as a director by
reason of any provision of the Companies Act 1985 or otherwise.

13.2 If the Director shall cease to be a Director of the Company this
Agreement shall thereupon automatically determine but if such cessation
shall be caused by any act or omission of either party without the
consent concurrence or complicity of the other such act or omission
shall be deemed a breach of this Agreement and determination hereunder
shall be without prejudice to any claim for damages in respect of such
breach.

<PAGE>

13.3 Upon the termination of this Agreement for whatsoever reason the
Director shall deliver up to the Company all written information
(whether or not written by such Director) of any sort pertaining or
relating to the customers and business of the Company or any company in
the Group and all other property of the Company or the Group in his
possession.

13.4 Any termination of this Agreement shall be without prejudice to any
rights of either of the parties against the other which may have
accrued up to the date of such termination.

14. RESIGNATION FORM DIRECTORSHIPS

UPON termination by whatever means of this Agreement or the
Appointment:

14.1 The Director shall at the request of the Company immediately resign
from office as a director of the Company and of any other Member of the
Group without claim for compensation and in the event of his failure so
to do the Company is hereby irrevocably authorised to appoint some
person in his name and on his behalf to sign and deliver such
resignation or resignations to the Company and such other Members of
the Group.

14.2 The Director shall not without the consent of the Company at any time
thereafter represent himself still to be connected with the Company or
any other Member of the Group.

15. RECONSTRUCTION OR AMALGAMATION

IF the Appointment shall be terminated by reason of the liquidation of
the Company for the purpose of reconstruction or amalgamation and the
Director shall be offered employment with any concern or undertaking
resulting from such reconstruction or amalgamation on terms and
conditions not less favourable than the terms of this Agreement then
the Director shall have no claim against the Company in respect of the
termination of the Appointment by reason of such liquidation.

16. NON-SOLICITATION - COMPANY CLIENTS

THE Director HEREBY COVENANTS with the Company that he will not
(without the prior consent of the Company in writing under the hand of
a Director) within one year after the termination (howsoever caused or
arising) of the Appointment in connection with the carrying on of any
business similar to the business of the Company as carried on during
the period of this Agreement on his own behalf or on behalf of any
person, firm or company and whether directly or indirectly:

<PAGE>

16.1 seek to procure orders from or to do business with any person, firm or
company who has at any time during the twelve months immediately
preceding such termination done business with the Company and with whom
in the course of the Appointment the Director shall have had dealings;
or

16.2 offer employment to or procure employment for any person who has at any
time during the twelve months immediately preceding such termination
been employed by the Company or any Member of the Group (whether or not
such person would commit any breach of his contract of employment with
the Company or such Member of the Group by reason of his leaving
service).

Provided always that nothing contained in this Clause shall prohibit
the seeking or procuring of orders or the doing of business not
relating or similar to the business or businesses aforesaid or any of
them.

17. NON-SOLICITATION - GROUP CLIENTS

THE Director HEREBY COVENANTS with the Company in identical terms to
Clause 16 hereof save that the reference to a client or customer shall
refer only to a person who is or was during the period specified
therein a client or customer of any other Member of the Group and with
whom in the course of the Appointment the Director shall have had
dealings.

18. NON-COMPETITION

THE Director HEREBY COVENANTS with the Company that he will not in the
United Kingdom within one year after termination of the Appointment
(howsoever caused or arising) without such consent as is specified in
Clause 16 hereof either alone or jointly with or as manger or agent
consultant or employee for any person firm or company and whether
directly or indirectly carry on or be engaged in any business similar
to the business or businesses carried on by the Company (or (as a
separate and independent covenant) any other Member of the Group to
whom the Director has provided services hereunder at any time within
the period of twelve months prior to such date of termination) at the
date of termination of the Appointment.

19. AMBIT OF RESTRICTIONS

The restrictions contained in Clauses 16, 17 and 18 are considered
reasonable by the parties but in the event that any such restriction
shall be found to be void but would be valid if some part thereof were
deleted or the period or area of application reduced such restriction
shall apply with such modifications as may be necessary to make it
valid and effective.

<PAGE>

20. NOTICES

ANY notice given under this Agreement shall be in writing and shall be
deemed well served if it is sent by first class mail addressed in the
case of notice to the Director to him at the address shown in this
Agreement or to such other address as he may from time to time notify
to the Company (in accordance with the provisions of this Clause) for
the giving of notices or in the case of a notice to the Company to its
registered office for the time being and in the case of service by post
every notice so given shall be deemed to have been served forty eight
hours after the time of posting.

21. PRIOR AGREEMENTS

THIS Agreement shall take effect in substitution with effect from the
Effective Date for all previous agreements and arrangements whether
written oral or implied between the Company and the Director relating
to the service of the Director all of which agreements and arrangements
shall be deemed to have been terminated by mutual consent with effect
from the Effective Date.

22. PARTICULARS OF EMPLOYMENT

THE Appointment shall also be subject to the terms set out in the
Second Schedule paragraph 2 of which is added in accordance with the
requirements of Section 1 of the Act.

23. MISCELLANEOUS

23.1 THE invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.

23.2 The determination of this Agreement howsoever arising shall not affect
such of the provisions hereof as are expressed to operate or have
effect thereafter and shall be without prejudice to any right of action
already accrued to either party in respect of any breach of this
Agreement by the other party.

23.3 The Director shall during the continuance of this Agreement account to
the Company for any remuneration received by him as a director or other
officer of or shareholder in any company promoted by the Company or any
Member of the Group.

23.4 The Director warrants that he will not by virtue of entering into or
performing this Agreement be in breach of any express or implied terms
of any contract or other obligation binding upon him.

<PAGE>

23.5 The Director and the Company confirm and agree that any outstanding
offer or commitments by the Company to grant options to the Director
are hereby withdrawn and of no further effect.

IT WITNESS where these presents have been executed and delivered as a Deed the
day and year first above written.

<PAGE>

NOTE: MR. WINN AND DST INTERNATIONAL LIMITED ("DSTI") HAVE AGREED THAT SECTIONS
4.3.1 AND 4.3.2 OF THE AGREEMENT AND THIS FIRST SCHEDULE DO NOT APPLY TO MR.
WINN'S COMPENSATION. DSTI HAS PAID MR. WINN ANNUAL BONUSES AS DESCRIBED IN THE
DST SYSTEMS, INC. PROXY STATEMENT DATED MARCH 30, 2000.

THE FIRST SCHEDULE

COMMISSION

(A) The Company shall during the continuation of the Appointment pay to the
Director in respect of each financial year or part thereof during which
he shall be employed by the Company a commission which shall accrue be
calculated and be paid as provided in this Schedule.

(B) For the purposes of this Schedule:

(1) references to a financial year are to a financial year of the
Company commencing on 1st January and ending on 31st December;
each financial year shall be divided into four quarters
("financial quarters") ending on respectively 31st March 30th
June 30th September and 31st December in each year.

(2) "the Profits" shall mean the profits of the Company as shown
in the audited profit and loss account of the Company or (if
the Company has any subsidiaries) the audited consolidated
profit and loss account of the Company and all subsidiaries
from time to time for the financial period in question
computed on recognised accounting principles applied on a
consistent basis from year to year with the following
adjustments unless already taken into account in such profit
and loss account:

(i) after deducting all expenses of working and
management and directors' fees and remuneration
(other than commission under (iv) below) depreciation
as charged in the accounts interest on borrowed
monies and any revenue expenses charged directly
against reserves;

(ii) after excluding any profits of gains arising from any
disposal of property or other fixed assets (whether
or not such profits or gains are treated in the said
accounts as items of an extraordinary or exceptional
nature) or otherwise of a capital nature but
including (for the avoidance of doubt) any profits or
gains or losses arising from any disposal of computer
hardware forming part of the trading stock from time
to time of the Company or the relevant Subsidiary;

<PAGE>

(iii) before deducting any taxation on profits ("Taxation",
which shall include corporation tax and any similar
or additional or substituted tax)

(iv) before deducting the commission payable to the
Director hereunder but after deducting any commission
payable by reference to the profits of the Company
(or the Company and its subsidiaries from time to
time) payable to any other director or employee of
the Company;

(v) before any extraordinary item but after any prior
year adjustment to the profit and loss account or (as
applicable) the consolidated profit and loss account;

(vi) after crediting interest received and after deducting
Notional Interest; and

(vii) after making such other adjustments (if any) as the
Auditors shall consider fair and reasonable.

(3) "The Distributable Profits" shall mean an amount calculated by
deducting from the amount of the Profits in respect of a
particular financial period an amount (the "Margin Amount")
equivalent to four per cent (4%) of the turnover of the
Company for such financial period.

(4) "The Reduced Rate" means subject as referred to in paragraph
(I) below three and three quarters per cent (3-3/4%).

(5) "The Full Rate" means subject as referred to in paragraph (I)
below ten percent (10%).

(6) For the purposes of this Schedule the Excluded Reasons
comprise:

(i) death of the Director;

(ii) Incapacity of the Director; or

(iii) wrongful or constructive dismissal of the Director.

(7) (i) "Notional Interest" shall mean the amount by
which an investment of the "Notional Reserve" would
have increased over the Relevant Period if it had
been invested in N M Rothschild's Old Court Reserve
Sterling Fund (the "Fund") on the first working day
of the financial year provided that if at any time
the Fund shall cease to be available there shall be
substituted in the said calculations for the rate or
rates of interest which would have

<PAGE>

been available during the Relevant Period in respect
of the Fund such rate or rates of interest as the
Auditors of the Company for the time being shall
advise as would in their opinion have represented the
rate or rates which would have been available in
respect of the Fund had the same continued to be
available.

(ii) "The Relevant Period" shall mean in respect of any
part of the Notional Reserve which shall remain held
by the Company throughout the whole of the financial
year such period and in respect of any part of the
Notional Reserve which shall be received by the
Company at any time after the beginning of the
financial year and/or be paid by the Company to any
other person (whether to the Inland Revenue pursuant
to sub-paragraphs (B)(8)(iii) or (iv) or to
shareholders of the Company pursuant to
sub-paragraphs (B)(8)(v), (vi) or (viii) or to loan
stockholders pursuant to subparagraph (B)(8)(x)) at
any time before the end of such financial year shall
mean the relevant part of the financial year (accrued
from day to today and calculated on the basis of a
year of 365 days) and so that Notional Interest shall
be calculated separately in relation to each part
of the Notional Reserve (according to whether such
part shall have been held by the Company during the
whole or part only of a financial period) and such
calculations aggregated.

(8) "The Notional Reserve" shall mean the first working day of
1992, the cash sum of L1,329,258 and at each anniversary
thereof shall mean the Notional Reserve of the preceding year:

(i) increased by the Notional Interest for the preceding
year;

(ii) increased by the Profits for the preceding year;

(iii) reduced by the amount of advance corporation tax
payable in respect of the current year;

(iv) reduced by the amount of Taxation for the preceding
year (the amount of such Taxation being calculated
after allowing for any credit against the same in
respect of such advance corporation tax to the extent
such advance corporation tax shall have previously
been deducted from the Notional Reserve);

(v) reduced by the net amount (net of advance corporation
tax) of any dividends paid by the Company;

<PAGE>

(vi) reduced by the amount of any payment made by the
Company for the purchase of its own shares;

(vii) increased by the amount of any payments received by
the Company on the exercise by any person of any
option to subscribe for any shares of the Company;

(viii) reduced by any capital repayment or other
distribution made to shareholders;

(ix) increased by any subscriptions for the allotment of
shares or other capital receipts from shareholders;

(x) reduced by net amount (net of any income tax or
advance corporation tax) of all interest payments
made by the Company to holders of any unsecured loan
stock of the Company which may be created and
constituted.

For the avoidance of doubt the Notional Reserve:

(a) shall not be reduced by the amount of any losses of
the Company or of the Company and its Subsidiaries
but;

(b) shall include any unsecured loan stock of the Company
which may at any time or from time to time be created
and constituted by the Company and distributed to
members of the Company full paid or credited as fully
paid by way of application of any cash forming part
of the said sum initially or subsequently
constituting the Notional Reserve and referred to
above.

(1) if he shall be employed by the Company at the end of the
relevant financial year provided that notice shall not have
been given on or before expiry of such financial year by
either the Director or the Company to the other to terminate
the Appointment (other than for an Excluded Reason) to
commission of such amount as shall (but subject to the
provisions of this Schedule) equal the Full Rate of the
Distributable Profits:

(2) If:

(i) a notice shall have been given on or before expiry of
such financial year to terminate the Appointment
(other than for an Excluded Reason) or;

<PAGE>

(ii) if the Appointment shall have been terminated (other
than for an Excluded Reason) prior to expiry of such
financial year to commission of such amount as shall
(but subject to the provisions of this Schedule)
equal the Reduced Rate of the Distributable Profits.

(D) If the Director shall be employed under the Agreement of which this
Schedule forms part for part only of any financial year of the Company
he (or his personal representatives where applicable) shall subject to
the remaining provisions of this Schedule and the said Agreement be
entitled to a rateable proportion of the commission he would have
received if he had been employed for the whole of that year on the
basis that the Director shall:

(1) if either:

(i) the circumstances referred to in paragraph (C)(1)
shall apply or;

(ii) if the Appointment shall have terminated (or notice
thereof shall have been given) for an Excluded
Reason;

be entitled to a rateable proportion of commission at the Full
Rate; or

(2) if either of the circumstances referred to in paragraph (C)(2)
shall apply be entitled to a rateable proportion of commission
at the Reduced Rate.

(E) Where the Director (or, in the case of death, his personal
representatives) shall be entitled to a rateable proportion (in
accordance with paragraph (D)) of the commission at the Full Rate or
the Reduced Rate (as applicable) which the Director would have
received if he had been employed for the whole of the financial year
during which the Appointment terminated such proportion shall be
calculated on a time basis and the Director (or, where applicable, his
personal representatives) shall be entitled to the same proportion of
the commission at the Full Rate or the Reduced Rate (as applicable)
which the number of days during which the Director shall have been
employed by the Company during the relevant financial year bears to
the number of days in such financial year.

(F) In calculating the amount of commission to which the Director shall be
entitled in respect of a financial year there shall be deducted from
such amount any amount determined to be deductible therefrom in
accordance with paragraph (H).

(G) There shall be deducted from the amount of commission which shall be
determined to be due to the Director or his personal representatives
hereunder in respect of any financial year (adjusted if applicable by
the

<PAGE>

deduction as referred to in paragraph (F)) an amount equal to the
aggregate of:

(1) the amount of any dividend paid in cash on the Option Shares
during any financial year;

(2) the amount of any tax credit relating to such dividend; and

(3) the amount of all payments on account of or by way of
commission made to the Director during or in respect of a
financial year.

(H) If the result of the calculation set out in paragraph (G) shall be a
positive amount the Company shall pay the same to the Director (or, if
applicable, his personal representatives) within one month after the
making of the calculation referred to in paragraph (G); if the result
of the calculation set out in paragraph (G) shall be a negative amount
the same shall be carried forward and shall be deducted from any
commission payments (if any) which would otherwise be or become due to
the Director (or his personal representatives) in respect of the next
succeeding financial year of the Company. For the avoidance of doubt
any negative amount resulting from such calculation shall not be
treated as a debt due from the Director to the Company and if no
further commission shall be or become due to the Director (or his
personal representatives) any such negative amount shall not have any
further effect or significance.

(I) (1) Upon each occasion on which the Director shall exercise
any of the Director's options the Full Rate and the Reduced
Rate shall be adjusted thereafter by deducting from the amount
of the same from time to time (and as so adjusted from time to
time) the result of the calculation

A X B
-----
C

where:

A represents the Full Rate or the Reduced Rate at its
original numerical value of (respectively) 10 and
3.75.

B represents the number of Option Shares in respect of
which the Director shall exercise the Director's
Option on such occasion and

C represents 162,000

<PAGE>

and so that in this paragraph "The Director's Option" means
the Option granted to the Director by the Company by a Deed of
even date herewith to subscribe for up to an aggregate of
162,000 Ordinary Shares of 25p each of the Company (the
"Option Shares") and if there shall be a sub-division or
consolidation of the Ordinary Shares of the Company the
numerical value of "C" shall be adjusted as the Auditors shall
certify as in their opinion appropriate to take due account of
such adjustment;

(2) Accordingly the Director's entitlement to commission shall be
treated as accruing from day to day during the relevant
financial year at the Full Rate or the Reduced Rate (as
applicable) but as adjusted from time to time during such
financial year;

(3) If in respect of any financial year commission on the
Distributable Profits (calculated as referred to in this
Schedule and subject to the deductions from the amount of
commission referred to herein) calculated at ten per cent
(10%) (if commission shall be due at the Full Rate) or at
three and three quarters per cent (3.75%) (if commission shall
be due at the Reduced Rate) (as applicable) shall exceed the
aggregate of:

(a) the net amount of dividends paid on the Option
Shares; and

(b) the tax credit on such dividends; and

any balance in respect of such financial year shall be due
(and shall be paid) to the Director by the Company.

(J) The Company shall make payments on account to the Director within one
month of the end of each financial quarter as follows:

(1) within one month of 31st March of such amount as shall
represent A as determined by the calculation:
0.0375 (P-0.04T) = A;

(2) within one month of 30th June of such amount as shall
represent B as determined by the calculation:
0.0375 (P-0.04T) - A = B; and

(3) within one month of 30th September of such amount as shall
represent C as determined by the calculation:
0.0375 (P-0.04T) - A - B = C;

<PAGE>

Where:

P represents the Profits for the relevant financial quarter half
year or three quarters respectively (calculated as referred to
in paragraph (B) of this schedule but for the purpose of this
paragraph (K) only as shown by the management accounts for the
relevant financial period) and

T represents the turnover of the Company for the relevant
financial quarter half year or three quarters respectively (as
shown by the management accounts for the relevant financial
period).

(K) In the event of any dispute or disagreement between the Director and
the Company as to any of the calculations referred to in this schedule
the same shall be determined by the Auditors of the Company for the
time being (or, if they shall be unable or unwilling to act, by an
independent Chartered Accountant to be appointed at the instance of
either Company or the Director by the President for the time being of
the Institute of Chartered Accountants in England and Wales and so
that references herein to "the Auditors" shall include also reference
to such independent Chartered Accountant) who shall act as experts and
not as arbitrators (and so that the Arbitration Acts 1950 to 1979
shall not apply thereto) and their decision shall in the absence of
manifest error be final and binding on the Company and the Director.

<PAGE>

THE SECOND SCHEDULE

1. Amplification of terms of employment:

(a) Name of Company : Clarke & Tilley
Limited

Address of Company : Hanover House
Station Approach
Cheam
Surrey SM2 7AU

(b) Name of Director : Michael Winn

Address of Director : Rosemary Cottage
Northchurch
Berkhamsted
Hertfordshire HP4
3QS

Company hereunder : 1st February 1992

Any period of employment with a previous employer does not count as
part of the Director's continuous period of employment with the
Company.

2. In accordance with section 1(3) of the Act the following terms of the
Director's employment apply on the date of the Agreement to which this
is a Schedule:

(a) Remuneration - see clause 4: L100,000 per annum and the first
monthly instalment will be payable on 28th February 1992

(b) Hours of Work: There are no fixed hours of work, see clause
3.

(c) Holidays: The Director is entitled to twenty five weekdays
holiday with pay - see clause 9 of the Agreement. The
entitlement to holiday (and on termination of employment to
holiday pay in lieu of holiday) accrues pro rata throughout
each year of employment hereunder, during the first year (from
the Effective Date) at the rate of two days per calendar
month.

(d) Sickness or injury: The Director is entitled to be paid during
any period of absence from work during sickness or injury
subject however to and in accordance with the provisions of
clause 8 of the Agreement.

(e) Notice - see Clauses 2, 8 and 13 of the Agreement.

(f) The date when the Agreement expires: indefinite period.

<PAGE>

(g) Job title: Deputy Managing Director. The Company reserves
the right to alter the Director's job function and/or title in
accordance with the provisions of the Agreement.

(h) Pension: The Company is contracted out of the State Pension
Scheme. There is a Company pension scheme and the Director
will join this Scheme, see clause 5.

3. The following information is supplied pursuant to this Act and reflects
the Company's current practice.

(a) Disciplinary Rules. A copy of the Company's Disciplinary Rules
and Regulations when formulated will be supplied to the
Director. These rules may be altered or added to from time to
time by the Company and details of such changes will be
publicised on notice boards and/or supplied to the Director.

(b) Grievance procedure. Any grievances of the Director are to be
referred in writing to the Board, which will propose a
solution within 21 days of the application by the Director.

THE COMMON SEAL OF CLARKE & )
TILLEY LIMITED was affixed to this Deed ) /s/ Thomas A. McDonnell
in the presence of: )

Director

Director/Secretary

SIGNED and DELIVERED AS A DEED )
by the said MICHAEL WINN in the ) /s/ J. Michael Winn
presence of: )

<PAGE>

Exhibit 21.1

SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Entity State of Incorporation / Jurisdiction & Date Doing Business As
- -------------- --------------------------------------------- -----------------
<S> <C> <C>
DST International Limited United Kingdom - 8/21/92
Output Technology Solutions, Inc. Missouri - 12/28/90
USCS International, Inc. Delaware - 4/10/95
West Side Investments, Inc. Nevada - 2/11/98
</TABLE>

Note: Significant subsidiaries as calculated under Rule 1-02(w) of
Regulation S-X, listed in alphabetical order. DST International Limited and
Output Technology Solutions, Inc. are not significant subsidiaries under Rule
1-02(w) of Regulation S-X as of December 31, 1999.

DST International Limited represents the consolidation of nine international
subsidiaries, each of which is engaged in the Company's Financial Services
Segment.

Output Technology Solutions, Inc. represents the consolidation of eight U.S.
and four international subsidiaries, each of which is engaged in the
Company's Output Solutions Segment.

USCS International, Inc. represents the consolidation of six U.S. and two
international subsidiaries, primarily engaged in the Company's Output
Solutions and Customer Management Segments.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-04197, 333-69377, 333-69393, 333-69611,
333-73241, 333-89699 and 333-89703) of DST Systems, Inc. of our report dated
February 29, 2000 relating to the financial statements, which appears in this
Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Kansas City, Missouri
March 15, 2000

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-K, CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET
AND STATEMENT OF INCOME OF DST SYSTEMS, INC., COMMISSION FILE NO. 1-14036, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000714603
<NAME> DST SYSTEMS, INC.
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 321
<ALLOWANCES> 0
<INVENTORY> 16
<CURRENT-ASSETS> 465
<PP&E> 873
<DEPRECIATION> 534
<TOTAL-ASSETS> 2,326
<CURRENT-LIABILITIES> 286
<BONDS> 44
0
0
<COMMON> 1
<OTHER-SE> 1,463
<TOTAL-LIABILITY-AND-EQUITY> 2,326
<SALES> 0
<TOTAL-REVENUES> 1,203
<CGS> 0
<TOTAL-COSTS> 1,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 214
<INCOME-TAX> 77
<INCOME-CONTINUING> 138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138
<EPS-BASIC> 2.19
<EPS-DILUTED> 2.13

</TABLE>