10-K

                   SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C.  20549
                                FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (FEE REQUIRED)
     For the fiscal year ended December 31, 1994
     
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
     For the transition period from __________ to ___________

                    Commission file number 1-4717
                                    
                  KANSAS CITY SOUTHERN INDUSTRIES, INC.
         (Exact name of registrant as specified in its charter)
                                    
             Delaware                        44-0663509     
 (State or other jurisdiction of          (I.R.S. Employer
  incorporation or organization)         Identification No.)

114 West 11th Street, Kansas City, Missouri                  64105 
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code (816) 556-0303

Securities registered pursuant to Section 12 (b) of the Act:
                                                   Name of each exchange on
    Title of each class                                  which registered
 Preferred Stock, Par Value $25 Per Share, 
 4% Maximum Dividend, Noncumulative                   New York Stock Exchange

Common Stock, $.01 Per Share Par Value                New York Stock Exchange

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

Indicate by check mark whether the Registrant (1) has filed all reports re-
quire 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
registrant 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]

As of March 3, 1995, 43,565,233 shares of Common stock and 243,170 shares of
voting Preferred stock were outstanding.  On such date, the aggregate market
value of the voting Common and Preferred stock held by non-affiliates was
$1,642,728,650 (amount computed based on closing prices of Preferred and
Common stock on New York Stock Exchange).

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated herein by reference into
Part of the Form 10-K as indicated:
                                                      Part of Form 10-K into  
   Document                                            which incorporated     
Registrant's 1994 Annual Report to Stockholders         Parts I, II and IV
for the fiscal year ended December 31, 1994,  
Exhibit 13.1 hereto

Registrant's Definitive Proxy Statements for the 1995             Part III
Annual Meeting of Stockholders, which will be filed 
no later than 120 days after December 31, 1994

A listing of explanations of graphics used in the 
Management's Discussion and Analysis of Financial                  Part II
Condition and Results of Operations for the year
ended December 31, 1994, Exhibit 99.1 hereto
                  KANSAS CITY SOUTHERN INDUSTRIES, INC.
                       1994 FORM 10-K ANNUAL REPORT
                                    
                            Table of contents
                                    
                                                                  Page


PART I
                       
Item 1.     Business . . . . . . . . . . . . . . . . . . . .        1
Item 2.     Properties . . . . . . . . . . . . . . . . . . .       20
Item 3.     Legal Proceedings. . . . . . . . . . . . . . . .       23
Item 4.     Submission of Matters to a Vote of Security Holders.   24


                                 PART II

Item 5.     Market for the Registrant's Common Stock and
            Related Stockholder Matters. . . . . . . . . . .       26
Item 6.     Selected Financial Data. . . . . . . . . . . . .       26
Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations. . . . . . .       27
Item 8.     Financial Statements and Supplementary Data. . .       27
Item 9.     Changes in and Disagreements with Accountants on 
            Accounting and Financial Disclosure. . . . . . .       27


                                PART III

Item 10.    Directors and Executive Officers of the Registrant .   28
Item 11.    Executive Compensation . . . . . . . . . . . . .       28
Item 12.    Security Ownership of Certain Beneficial Owners and
            Management . . . . . . . . . . . . . . . . . . .       28
Item 13.    Certain Relationships and Related Transactions .       28


                                 PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports 
            on Form 8-K. . . . . . . . . . . . . . . . . . .       29
            Signatures . . . . . . . . . . . . . . . . . . .       33



















                              




                                      ii
               
Part I

Item 1. Business

(a)  GENERAL DEVELOPMENT OF REGISTRANT BUSINESS

The major business developments of Kansas City Southern Industries, Inc.
("Registrant" or "KCSI") and the Registrant's subsidiaries for 1994 are as
follows:

Transportation Services

Illinois Central Transaction. On July 19, 1994, the Registrant announced that
it had entered into a letter of intent with Illinois Central Corporation
("IC") for merger of the Registrant's Transportation Services operations with
IC.  The Registrant incurred expenses related to this transaction in 1994
totalling $.04 per share.

On October 24, 1994, the Registrant and IC jointly announced that they
mutually agreed to terminate the letter of intent between them.  The
Registrant and the IC were not able to reach a definitive agreement on a
number of issues.  Pursuant to the letter of intent with IC, the Registrant is
unable to enter into certain types of business combinations prior to October
1995, without payment of a fee to IC of $25 million.

MidSouth Acquisition.  As previously disclosed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, the Registrant
closed the acquisition of MidSouth on June 10, 1993.  

Effective January 1, 1994, MidSouth was operationally and administratively
merged into The Kansas City Southern Railway Company ("KCSR", a wholly-owned
subsidiary of the Registrant).The previous MidSouth geographic area is now
called the KCSR Eastern Division.

SWEPCO Litigation.  As was previously disclosed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, KCSR was a defendant
in a lawsuit filed in the District Court of Bowie County, Texas by
Southwestern Electric Power Company ("SWEPCO").  In that case, SWEPCO alleged
that KCSR was required to reduce SWEPCO's coal transportation rate due to
changed circumstances allegedly creating a "gross inequity" under the
provisions of the coal transportation contract existing among SWEPCO, KCSR and
the Burlington Northern Railroad.  SWEPCO is KCSR's largest single customer. 
KCSR and SWEPCO have settled this litigation and the case against KCSR has
been dismissed.  This matter was concluded without material adverse effect on
the financial condition or future results of operations of the Registrant.

Other Transportation Services Activity.  In May 1992, KCSR signed an 
agreement with the Atchison, Topeka, and Santa Fe Railway ("Santa Fe") to
purchase portions of its rail line in the Dallas, Texas area.  The sale
consists of approximately 90 miles of track and an 80 acre intermodal
facility.  The agreement will be implemented in phases over several years and
has gained KCSR direct access to the Dallas market for the first time in the
Registrant's history.  Phase I of this agreement, completed on October 31,
1993, included the portion of Santa Fe's line between Farmersville, Texas and
a switch at Zacha Junction, Texas.  Phase II was partially completed in April
1994 and included the Zacha Junction intermodal facility.  It is anticipated
that the final portion of Phase II of the acquisition, which includes certain
industry access', is anticipated to be completed in the first half of 1995.

During 1994, KCSR continued emphasis of important safety and quality programs,
which includes the Safety Training Observation Program (S.T.O.P. - originally
established by E.I. DuPont).  The S.T.O.P. program is designed to curtail
employee injuries through elimination of unsafe acts in the workplace. 
Increased safety awareness achieved positive results in 1992 and 1993 with an
approximate 31% reduction in Federal Railroad Administration reportable
employee injuries in 1993 as compared to 1992 and an approximate 28% reduction
in employee injuries in 1992 when compared to 1991.  In 1994, however, the
Company experienced a doubling of Federal Railroad Administration reportable 

[Page 1]
employee injuries compared to 1993.  This significant increase in injuries is
primarily attributable to the merger of the MidSouth into KCSR, (MidSouth
statistics are not included prior to 1994).  KCSR continued its substantial
commitment towards a safer work environment in 1994 and remains committed to
continuing safety awareness.    

During 1994, KCSR revenues, including full year MidSouth for comparative
purposes, rose 3% compared to 1993.  General commodity revenues, excluding
intermodal traffic, rose on slightly higher traffic volumes.  The higher
traffic volumes resulted, in part, from a strengthening of economic conditions
in the Registrant's service area.  Higher traffic volumes were experienced in
carloadings of chemicals, petroleum products, non-metallic ores, food
products, and stone/clay.  Offsetting these somewhat were lower carload
volumes in farm products where the reduced grain supplies as a result of the
flood of 1993 caused export grain shipments to decline; and paper and wood due
mainly to connection problems from the strike affected SOO Line.  Intermodal
units increased (+46%) in 1994.  Increased volume on the Kansas City/Dallas
corridor and initiation of through train service from Atlanta, Georgia through
the Meridian, Mississippi gateway, to Dallas, Texas, in conjunction with the
Norfolk Southern Railway Company commencing in mid-November 1994, contributed
to the increased carloadings.  Unit coal revenues were down 4% from 1993, due
for the most part to the absence of shipments to the Monticello, Texas,
electric generating plant.  This plant was shut down in 1994 due to a smoke
stack collapse in late 1993.  The plant is expected to be back on line in late
1995.

In late 1994, KCSR completed a transaction for the private placement of
financing of locomotives and rolling stock using Equipment Trust Certificates
("ETC's").  The ETC's were placed for an aggregate of $54.7 million
representing 31 locomotives, 625 boxcars and 300 covered hopper cars, which
had been placed in service during 1993 and 1994.  The financing represents 85%
of equipment value, bears interest at a rate of 8.56%, and matures in 2006.

During 1994, KCSR completed the major portion of a rail track and structure
program which first began in 1986.  In addition, as part of the MidSouth
Corporation acquisition, a planned upgrade of the existing MidSouth roadbed
was added to the program.  Increased traffic levels on both the original KCSR
route and the recently acquired MidSouth, however, accentuated the need to
accelerate the MidSouth portion of the program.  By the end of 1994, KCSR had
essentially completed the MidSouth upgrade program, thereby improving the
capacity, efficiency and safety of the East/West MidSouth route, now called
the KCSR Eastern Division.  Accordingly, total capital expenditures for 1994
were $207.9 million, versus $108.9 million in 1993.

During 1994, Pabtex, Inc. ("Pabtex") the Registrant's petroleum coke export
facility, continued improvements in operating income on increased volumes. 
Southern Leasing Corporation, the Registrant's leveraged lease finance
subsidiary, also showed improvement in operating income on improved business
volumes.

In February 1995, KCSR filed a petition with the Interstate Commerce
Commission ("ICC") seeking approval for construction of an approximate nine
mile rail line from KCSR's main line into the Geismar, Louisiana industrial
area.  The Geismar area is a large industrial corridor, which includes
companies engaged in the petro-chemical industry, and is currently served by
only one rail carrier.  The rail line would expect to be completed in
approximately 12 to 18 months after ICC approval.  The Geismar project extends
KCSR's rail line and could be a significant source of traffic and revenues
thereby complementing its business in the petro-chemical industry.  The KCSR
Geismar line extension has received the support of certain shippers in the
Geismar industrial area and would provide those shippers with additional rail
storage facilities, production efficiencies and competitive transportation
service.
[Page 2]
Information and Transaction Processing

DST Systems, Inc. ("DST")

DST Public Offering.  On January 26, 1995, the Registrant announced that its
Board of Directors had authorized development of a plan for a public offering
by DST Systems, Inc. ("DST"), a wholly-owned subsidiary of the Registrant, of
approximately 51% of DST's common equity.  

The purpose of the offering would be to obtain better market recognition of
DST's performance and to obtain proceeds for the retirement of debt, including
debt owed to the Registrant, and for general corporate purposes.  Payments
received by the Registrant from DST for debt repayment may be used by the
Registrant to reduce its own debt, to repurchase Registrant common stock, and
for general corporate purposes.  Any such offering would be made only pursuant
to a prospectus filed as part of a DST registration statement with the
Securities and Exchange Commission ("SEC").  Any repurchase of the
Registrant's common stock would occur only after public announcement and in
compliance with SEC regulations.

Sale of Investors Fiduciary Trust Company.  On July 19, 1994, the Registrant
announced that DST and Kemper Financial Services, Inc. ("Kemper") had entered
into a letter of intent for the acquisition of their jointly owned affiliate
Investors Fiduciary Trust Company ("IFTC") by State Street Boston Corporation
("State Street").  On September 27, 1994, the Registrant announced that DST
and Kemper entered into a definitive agreement with State Street for the sale
to State Street of all of the outstanding stock of IFTC Holdings, Inc., which
wholly owns IFTC.  On January 31, 1995, the Registrant announced that DST had
completed the sale of its 50% interest to State Street.  At closing of the
transaction DST received 2,986,111 shares of State Street common stock in a
tax free exchange.  This represents an approximate 4% ownership interest by
DST in State Street.  DST recognized a net gain, after consideration of
appropriate tax effects, of approximately $4.7 million on the transaction in
first quarter 1995.

With the closing of the transaction, IFTC ceases to be an unconsolidated
affiliate of DST and no further equity in earnings of IFTC will be recorded by
DST.  DST recognized equity in earnings from IFTC of $6.5, $4.8 and $4.8
million in 1994, 1993, and 1992, respectively.  If State Street continues its
prior history with respect to the payment of dividends, DST will record
dividend income on any dividends from State Street.

Kemper Transactions.  In early March 1995, DST signed a definitive agreement
to purchase substantially all of the assets and business operations of
Supervised Service Company, Inc. ("SSC"), a subsidiary of Kemper.  SSC,
headquartered in Kansas City, Missouri, provides mutual fund transfer agency
services to non-Kemper mutual fund companies (approximately 250,000 accounts),
financial institutions and financial services firms.  In conjunction with and
subject to the SSC transaction, DST also agreed to enter into long term
contracts with Kemper to provide mutual fund shareholder system services and
portfolio accounting system services for the Kemper Mutual Funds.  Kemper is
the investment advisor to the Kemper Mutual Fund Group.  As a result of these
transactions, DST expects to continue to process approximately 2 million
Kemper accounts, which had been anticipated to be converted from the DST
system in 1995.  The SSC transaction is subject to regulatory approval.

Vantage Computer Systems, Inc./The Continuum Company, Inc. Transaction.
Effective September 30, 1993, the Registrant's wholly-owned subsidiary, DST,
completed the merger of its 90.5% owned subsidiary, Vantage Computer Systems,
Inc. ("Vantage"), into a subsidiary of The Continuum Company, Inc.
("Continuum").  In the transaction, DST received approximately 3.6 million
shares of Continuum stock.  As a result of this transaction, and additional
Continuum stock purchases made by DST, DST owned approximately 24% of the
outstanding common stock of Continuum at December 31, 1993.  In 1994, DST
purchased additional Continuum shares through privately negotiated
transactions.  Accordingly, at December 31, 1994, DST owned approximately 29%
of Continuum's outstanding common stock (5.5 million shares).  For the year
ended December 31, 1994, Continuum contributed $7.2 million before tax to the
Registrant's earnings.  

[Page 3]
Continuum is a publicly traded international consulting and computer services
firm based in Austin, Texas, which primarily serves the needs of life and
property and casualty insurance companies for computer software and services.

Other DST Activity.  Financial institutions within the industries served by
DST will continue to evaluate whether to internalize or outsource their
servicing and technology needs.  This process will have both positive and
negative effects on DST's results; however, on an overall basis, DST's
customer base is expected to grow.  In  1994, DST experienced an overall
increase in the number of mutual fund accounts serviced; at December 31, 1994,
DST serviced a record total of 32.1 million mutual fund accounts, a 4.1
million account increase over the 28 million accounts serviced at December 31,
1993.  The 1994 account increase is a result of overall mutual fund account
growth.  Kemper Financial Services ("Kemper"), a DST customer, continued the
processing of approximately 2 million of its mutual fund shareowner accounts,
which were anticipated to be removed in 1994 from the DST system.  DST
serviced 28 million mutual fund accounts at December 31, 1993, a 5.6 million
increase from the 22.4 million accounts serviced at December 31, 1992 and 18.7
million accounts at December 31, 1991. 
  
During  1994, DST continued marketing of its Automated Work Distributor TM
System ("AWD "), an image-based clerical work management system which was
completed and placed in service during 1990.  The AWD  System's image
technology can also be combined with principles of an intelligent work
station.  AWD  was initially implemented in several mutual fund transfer
agencies, but through expansion, now resides on more than 8,000 work stations
in companies worldwide (a 90% increase since December 31, 1993) and is used to
service approximately 54% of the mutual fund shareowner accounts on DST's
system.  AWD  is also used in industries such as insurance, banking and health
care.  DST and Continuum reached a license agreement, whereby Continuum will
market AWD  for use in insurance industry applications.

During  1994, DST continued marketing of its record keeping system for 401(k)
plans, TRAC-2000 TM.  TRAC-2000 TM, introduced in late 1991, represents a
major commitment by DST to offer the mutual fund industry a fully integrated
service for such plans.  Integrated with TA2000 TM, DST's mutual fund record
keeping system, TRAC-2000 TM delivers comprehensive 401(k) record keeping and
ancillary services including full compliance testing in accordance with
Department of Labor regulations.

DST's output processing businesses, Output Technologies, Inc. ("OTI")
continued to expand in 1994.  OTI serves as a holding company for businesses
which perform printed output processing, commercial printing,
telecommunications and fulfillment, graphics design, computer output
microfilm/microfiche and printing and mailing of laser printed output,
primarily for DST's mutual fund clients but also for a wide range of
customers.  During 1994 OTI's laser click volume was 802 million pages of
printed output, an increase of 20% over the 669 million pages in 1993. 
Management expects growth in the OTI business will result from DST mutual fund
account growth along with expansion and acquisitions in future years.

DST's core business operations continued to experience improvements in both
revenue growth and profitability in 1994.  DST's mutual fund shareowner
accounts serviced continued to grow in 1994 rising 15% from 1993, even in a
difficult year for many mutual funds.  This growth in shareowner accounts also
lead to an increase of 20% in the volume of pages printed by DST's output
processing businesses.  While improved core business volumes resulted in
revenue and profitability growth, these profitability improvements were,
however, unfavorably affected by lower results from DST's developmental and
international business units.  As previously disclosed in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993, DST began an
expansion of certain of its product offerings and geographic locations.  It
increased its Portfolio Accounting product offerings with the acquisition of
Clarke & Tilley, Ltd. ("Clarke & Tilley", a United Kingdom entity) and
Belvedere Financial Systems, ("Belvedere").  Clarke & Tilley develops and
distributes investment accounting software, primarily in Europe, South Africa,
and Australia.  Belvedere develops and markets an investment accounting
product (the Global Portfolio System) that has potential worldwide
applications.  DST expanded its mutual fund product offerings with the 1993
 
[Page 4]
acquisition of Corfax Benefit Systems, Ltd. ("Corfax", a Canadian Company),
and the formation of Clarke & Tilley Data Services, Ltd., ("CTDS", a United
Kingdom entity).  Corfax develops and distributes mutual fund shareowner
accounting software and provides pension administration processing services. 
CTDS is developing a unit trust accounting system for the U.K. and Luxembourg
markets incorporating DST work management technology.  In 1994 DST entered
into a series of transactions with State Street wherein DST acquired State
Street's 3.75% ownership interest in Clarke & Tilley in exchange for one sixth
ownership in Clarke & Tilley Data Services from DST.  The net ownership result
after these transactions is that DST now owns 100% of Clarke & Tilley and 50%
of Clarke & Tilley Data Services, with State Street owning the other 50%.  DST
also acquired DBS Systems, Inc., a 60% owned subsidiary, which has developed
software to provide billing services for DirecTV TM, a commercial direct
broadcast satellite system.

As a result of rising levels in business volumes, DST began a physical
expansion of its Winchester Data Center in 1994.  This expansion, which is
expected to be completed in 1995, will approximately double the square footage
of this facility and is projected to cost slightly over $24 million.



Financial Asset Management

Janus Capital Corporation

Janus Compensation Arrangements Termination.  In the fourth quarter 1994, the
Registrant recorded certain one time charges to earnings for Janus Capital
Corporation ("Janus") resulting from the Janus early termination of employment
and earnings related compensation arrangements for certain key employees.  The
Janus compensation arrangements, which began in 1991, permitted individuals to

earn units which vested over time, based upon Janus earnings.  These
arrangements were scheduled to be fully vested at the end of 1996.  The
Company negotiated the early termination of the arrangements, which resulted
in payments of $48 million, by Janus, in cash in late 1994 and early 1995, of
which approximately $21 million had been accrued, upon vesting, in 1994 and
previous years.  Termination of the arrangements resulted in a net reduction
in Janus' contribution to KCSI's consolidated earnings of $13.6 million or
$.30 per share.  By terminating these arrangements, future years will benefit
from a decline in Janus operating expenses amounting to approximately $8
million pretax annually, based on 1994 earnings.

Minority Interest Ownership Restructuring.  Agreements between the Registrant
and Janus minority owners contain, among other provisions, mandatory stock
purchase provisions whereby, under certain circumstances, the Registrant would
be required to purchase the minority interest.  In late 1994, the Registrant
was notified that certain Janus minority owners made effective the mandatory
purchase provisions for a certain percentage of their ownership.  In the
aggregate, the shares made effective for mandatory purchase totalled $59
million.  Concurrent with the early termination of the Janus compensation
arrangements, discussed above, recipients of amounts paid to terminate the
arrangements used their after tax net proceeds to purchase certain portions of
the shares made effective for mandatory purchase in early 1995.  The Janus
minority group was restructured to allow for minority ownership by other key
Janus employees.  These employees purchased other portions of the minority
shares effective for mandatory purchase through payment of cash and creation
of recourse loans financed by KCSI in the amount of $10.5 million.  The
remaining minority shares effective for mandatory purchase were purchased by
Janus for treasury, $6.1 million, and by the Registrant for $12.7 million.  As
a result of the combination of the Registrant acquiring additional Janus
shares and the reduction of outstanding shares with Janus' treasury purchase,
the Registrant increased its ownership in Janus from approximately 81% to 83%,
upon closing of the transaction in January 1995.  The shares purchased by the
Registrant resulted in the recording of intangibles as the purchase price
exceeded the value of underlying tangible assets and will be amortized over
its estimated economic life.

Other Janus Activity.  Janus Capital Corporation ("Janus"), which manages 

[Page 5]
investments for the Janus group of mutual funds, the IDEX equity funds,
insurance companies and other institutional accounts, experienced moderate
growth in terms of assets under management during 1994.  Janus assets under
management grew from $22.2 billion at December 31, 1993, to $22.9 billion at
December 31, 1994.  This growth was chiefly attributable to continued strong
fund sales of $6.5 billion, exceeding fund redemptions of $5.3 billion and net
fund depreciation of $.5 billion.  Growth occurred in a difficult year for
investment managers as rising interest rates affected market conditions in
general.  Total number of shareholders remained essentially unchanged from
December 31, 1993 to December 31, 1994, at 2 million.

Janus operations experienced significant growth in 1993 and 1992 with
operating income comprising 38% and 36%, respectively, of the Registrant's
consolidated operating income.  In 1994, however, operating income declined
compared to 1993 while revenues rose 11%.  This decline in operating income is
primarily attributable to the one time charge to earnings of $13.6 million,
$27.1 million pre-tax, from the early termination of compensation
arrangements, discussed earlier.  Excluding this charge, operating income
would have risen compared to 1993, but not at levels seen in prior years.  In
late 1994, Janus embarked on a new marketing program, which incorporates an
extensive multimedia advertising campaign.  Initial outlays for production and
placement of advertisements were completed in 1994, with further expenditures
for placing advertisements continuing into 1995.

In 1994 Janus introduced two new fund portfolios; Janus Overseas Fund, an
international equity fund in the Janus family, and; Janus International Fund,
part of the Aspen Series, both of which opened in May 1994.

During 1993, Janus continued to expand the distribution channels of the Janus
funds by participating in Schwab's Mutual Fund "OneSource" service of Charles
Schwab as well as a similar program offered by Fidelity Investments, both
begun in 1992.  In addition, Janus introduced two new Janus fund portfolios;
Janus Mercury Fund, an equity fund; Janus Federal Tax Exempt Fund, a tax
exempt income fund; and the Janus Aspen Series, which consists of six
portfolios funded through variable annuity contracts, such as the Janus
Retirement Advantage.  During 1992, Janus introduced three funds; Janus
Enterprise Fund, an equity fund; Janus Balanced Fund, a combination
equity/fixed income fund and Janus Short-Term Bond Fund, an income fund. 
Additional portfolio managers and research analysts have joined the Janus
staff concurrent with the growth in assets under management and new investment
products.

Janus has expanded its assets under management by marketing advisory services
directly to pension plan sponsors, insurance, banking and brokerage firms for
their proprietary investment products.  These relationships generated
approximately $948, $920, and $340 million in new assets in 1994, 1993, and
1992, respectively.

Berger Associates, Inc.

On October 14, 1994, the Registrant completed the acquisition of a controlling
interest in Berger Associates, Inc. ("Berger").  Berger is the investment
advisor to The Berger One Hundred Fund, The Berger One Hundred and One Fund
and The Berger Small Company Growth Fund, as well as to private and other
accounts, (collectively, "Berger Funds").  Berger had a total of approximately
$3 billion in assets under management at December 31, 1994.  The Registrant
made payments of $47.5 million, in cash, pursuant to a Stock Purchase
Agreement, (the "Agreement").  The Agreement also provides for additional
purchase price payments, totalling approximately $62.4 million, contingent
upon Berger attaining certain levels (up to $10 billion) of assets under
management, as defined in the Agreement, over a five year period.

The acquisition, which was accounted for as a purchase, increased the
Registrant's ownership in Berger from approximately 18% (acquired in 1992) to
over 80%.  Adjustments to appropriate asset and liability balances have been
recorded based upon estimated fair values of such assets and liabilities.  The
transaction resulted in the recording of intangibles as the purchase price
exceeded the fair value of underlying tangible assets.  The intangible amounts


[Page 6]
will be amortized over their estimated economic life of 15 years, subject to
completion of an economic life analysis.  The financial statements of Berger
were consolidated into the Registrant effective with the closing of the
transaction.  Assuming the transaction had been completed on January 1, 1994,
the addition of Berger's revenues and net income, including adjustments to
reflect the effects of the acquisition, on a pro forma basis, as of and for
the twelve months ended December 31, 1994, would have had an immaterial effect
on the consolidated results of the Registrant.

Berger established minority stock ownership for certain key employees which
resulted in a one-time pretax increase in Berger's operating expenses of $1.8
million in fourth quarter 1994.  The additional minority stock provides
ownership incentive to key employees for future growth of Berger and had been
anticipated in the acquisition discussed earlier.  Combined, the one-time
Janus and Berger transactions reduced KCSI's consolidated 1994 earnings by
$.32 per share.

Financial Asset Management revenues and operating income increases are a
direct result of increases in assets under management and  processing
services.  Assets under management and shareholder accounts have grown in
recent years from a combination of new money investments or fund sales and
market appreciation.  Fund sales have risen in response to marketing efforts,
favorable fund performance and the current popularity of no-load mutual funds.

Market appreciation has resulted from increases in stock investment values. 
However, a decline in the stock and bond markets and/or an increase in the
rate of return of alternative investments could negatively impact Financial
Asset Management revenues and operating income.  In addition, the mutual fund
market, in general, faces increasing competition as the number of mutual funds
continues to increase, marketing and distribution channels become more
creative and complex, and investors place greater emphasis on published fund
recommendations and investment category rankings.  These factors could also
affect Financial Asset Management and negatively impact revenues and operating
income.

Unconsolidated Affiliates (primarily DST related)

A significant portion of DST and Registrant's consolidated earnings are
derived from operations of unconsolidated affiliates, primarily connected with
DST.  1994 earnings from such unconsolidated affiliates increased 76% over
1993, from $14.1 million to $24.8 million.  Major developments for
unconsolidated affiliates during 1994 were:

(i)  Investors Fiduciary Trust Company ("IFTC", a 50% owned affiliate of DST)
equity earnings for 1994 were up 35% ($1.7 million) from 1993.  Although
assets under custody were only slightly higher at $125.9 billion compared to
$125.1 at December 31, 1993, higher interest earnings and gains on securities
sales accounted for the improvement.  As disclosed earlier, DST sold its 50%
interest in IFTC to State Street effective January 31, 1995.  
(ii)  The Continuum Company ("Continuum", approximately 29% owned affiliate of
DST) increased equity earnings $6.5 million over 1993's $700,000 contribution.

This was due primarily to DST recognizing their share of Continuum for an
entire year as opposed to three months (fourth quarter) in 1993, but also to
improved year to year revenues and earnings for Continuum.  Improved revenues
included several new agreements for Continuum to provide outsource data
processing for customers.
(iii)  Boston Financial Data Services ("BFDS", a 50% owned affiliate of DST)
equity earnings for 1994 were 143% ($3 million) over 1993.  Increased earnings
were driven by a combination of credits on account balances from State Street
(the owner of the remaining 50% of BFDS) and higher mutual fund volumes.
(iv)  Argus Health Systems, Inc. ("Argus", a 50% owned affiliate of DST)
equity earnings for 1994 were 57% ($1.3 million) higher than 1993 on record
volumes of pharmaceutical benefit claims processed.  Argus processed
approximately 106 million claims in 1994 compared to 78 million in 1993, a 36%
increase.
(v)  Midland Data Systems, Inc. and Midland Loan Services, L.P. (collectively
"Midland", 45% owned affiliates of DST) had higher earnings ($850,000 or 99%)
than 1993, mainly on improved margins on loan securitizations.



[Page 7]
Corporate and Other

New KCSI Credit Agreements.  During 1994 the Registrant established or
increased credit agreements with several lending institutions.  These new or
expanded credit lines increased the Company's borrowing ability by $150
million to $450 million.  The agreements bear interest rates below prime.  In
1994, these agreements were utilized to finance the Berger acquisition and
subsidiary working capital requirements.  Remaining credit capacity under
these agreements is intended for general corporate purposes.  At December 31,
1994, the Registrant had an aggregate of $115 million of indebtedness
outstanding on these agreements.

Debt Securities Registration and Offerings - 1993.  The Registrant filed a
Registration Statement on Form S-3 with the Securities and Exchange Commission
("SEC") on March 29, 1993, (File No. 33-60192), registering $200 million in
debt securities to be offered in the form of Medium Term Notes.  The
Registrant's Form S-3 was amended on May 3, 1993 and declared effective on May
10, 1993.  Proceeds from the sale of the debt securities were expected to be
added to the general funds of the Registrant and used to principally repay
debt and for other general corporate purposes, including working capital,
capital expenditures and acquisitions of or investments in businesses or
assets.  On June 24, 1993, pursuant to an Indenture and Purchase Agreement,
the Registrant issued $100 million of debt securities under this Registration
Statement.  The transaction, which closed on July 8, 1993, is comprised of
Notes bearing interest at a rate of 5.75% maturing in 1998.  The net proceeds
of this transaction of $99 million, along with certain proceeds from the
Registrant's $250 million credit agreement, were used to refinance certain
MidSouth debt in July 1993.

$500 Million "Universal Shelf" Registration.  On September 29, 1993, the
Registrant filed a Registration Statement on Form S-3 with the SEC (File No.
33-69648), registering $500 million in securities.  The securities may be
offered in the form of Common Stock, New Series Preferred Stock $1 par value,
Convertible Debt Securities, or other Debt Securities (collectively, "the
Securities").  Net proceeds from the sale of the Securities are expected to be
added to the general funds of the Registrant and used principally for general
corporate purposes, including working capital, capital expenditures and
acquisitions of or investments in businesses and assets.  The SEC has cleared
the Registration Statement without review, but the Registrant has not yet
requested that it be declared effective and no securities have been issued.

Termination of Common Stock Rights.  In third quarter 1994, the Registrant's
Board of Directors authorized redemption of the Common stock "Rights" issued
pursuant to its Rights Plan in 1986.  The Board action terminates the
exercisability of such Rights and resulted in a payment on September 20, 1994
of one and one-quarter cents ($.0125) per share to Common stockholders of
record on August 26, 1994, amounting to approximately $540,000 in the
aggregate.

Establishment of Par Value for Common Stock.  On May 6, 1994, the Registrant
amended its certificate of incorporation to set a par value for the Common
stock.  The amendment established a par value of $.01 per Common share, which
had previously been no par, and had the effect of reallocating amounts between
categories within stockholders' equity but had no overall effect upon the
total amount of stockholders' equity.

Increase in Authorized Common Shares.  On May 6, 1994, the Registrant amended
its certificate of incorporation to increase the number of authorized Common
shares from 100,000,000 to 400,000,000.

(b)  INDUSTRY SEGMENT FINANCIAL INFORMATION

Financial information by industry segment for the three years ended December
31, 1994, which appears on pages 68 through 71 of Registrant's 1994 Annual
Report to Stockholders, is hereby incorporated herein by reference (see
Exhibit 13.1).




[Page 8]
(c)  NARRATIVE DESCRIPTION OF THE BUSINESS

The Registrant is a Delaware corporation, organized in 1962, with executive
offices located at 114 West 11th Street, Kansas City, Missouri.  The
Registrant is a holding company which supervises the operations of its
subsidiaries, supplying them with managerial, legal, tax, financial and
accounting services, and manages its portfolio of other "non-operating" and
more passive investments.

Employees - As of December 31, 1994, the Registrant and its majority owned
subsidiaries employed approximately 8,217 persons, with approximately 2,889
employed in the Transportation Services, 4,490 in Information & Transaction
Processing, 800 in Financial Asset Management, and 40 in Corporate and Other. 
In addition, unconsolidated affiliates of the Registrant and its subsidiaries
employed approximately 6,225 persons, including 2,700 and 1,860 at The
Continuum Company Inc. ("Continuum") and Boston Financial Data Services, Inc.,
("BFDS"), respectively, the largest employers of such ventures.

The Registrant's business activities, by industry segment, with principal
subsidiary companies are:

Transportation Services - The Kansas City Southern Railway Company, its 
trucking affiliates (collectively "KCSR"), Pabtex, Inc. ("Pabtex") and
Southern Leasing Corporation ("Southern Leasing"); along with other
subsidiaries supporting the transportation segment.

Information & Transaction Processing - DST Systems, Inc. ("DST") and its
subsidiaries.

Financial Asset Management - Janus Capital Corporation ("Janus") its
subsidiaries, and Berger Associates, Inc.

Eliminations, Corporate & Other - Registrant's Corporate general and
administrative operations, and passive investments.

Unconsolidated Affiliates, (primarily DST related) - DST Joint Ventures, The
Continuum Company, Inc., Investors Fiduciary Trust Company, Boston Financial
Data Services, Inc., Argus Health Systems, Inc., First of Michigan Capital
Corporation, Clarke & Tilley Data Systems, Ltd., Midland Data Systems, Inc.
and Midland Loan Services, L.P.

Transportation Services

General Description of the Business-Commodities.  The Kansas City Southern
Railway Company ("KCSR"), a wholly-owned subsidiary of the Registrant,
comprises the largest percentage of the Registrant's revenue and assets
employed.  KCSR operates a rail system of 2,880 main and branch line route
miles and 4,104 total track miles in a  nine state region.  KCSR serves the
states of Missouri, Kansas, Arkansas, Oklahoma, Mississippi, Alabama,
Tennessee, Louisiana, and Texas, and in conjunction with Union Pacific haulage
rights, the two additional states of Nebraska and Iowa.  KCSR has the shortest
rail route between Kansas City and the Gulf of Mexico, serving the ports of
Beaumont and Port Arthur, Texas; and New Orleans, Baton Rouge, Reserve and
West Lake Charles, Louisiana.  Through haulage rights, KCSR also serves the
ports of Houston and Galveston, Texas.  Kansas City, Missouri, as the second
largest rail center in the United States, represents an important gateway for
KCSR where it interchanges freight with eight major rail carriers.  KCSR also
has important interchange gateways in the cities of New Orleans and
Shreveport, Louisiana; and  Dallas and Beaumont, Texas.  The Registrant
completed the acquisition of MidSouth Corporation ("MidSouth") in June 1993 at
which time it became a wholly-owned subsidiary of the Registrant.  MidSouth
was a regional railroad holding company, which operated over 1,100 track
miles.  MidSouth, through four operating subsidiaries, served the states of
Mississippi, Louisiana, Alabama and Tennessee.  The MidSouth acquisition
provides an important East/West rail line, as a complement to KCSR's
predominantly North/South route, and adds interchange gateways in Jackson and
Meridian, Mississippi and Birmingham, Alabama.  This East/West rail line
running from Dallas, Texas to Meridian, Mississippi will allow the Registrant 


[Page 9]
to be more competitive in the transcontinental intermodal transportation
market, among others.  The acquisition of the MidSouth adds a base of
customers in the South Central U.S. to KCSR's traffic base and presents
opportunities for the rerouting of certain commodity movements over less
circuitous routes.  Through haulage rights, MidSouth also serves the city of
Gulfport, Mississippi.  Effective January 1, 1994, MidSouth was operationally
and administratively merged into KCSR.  

Major commodities handled by KCSR include coal, grain and farm products,
petroleum, chemicals, paper and forest products as well as other general
commodities and intermodal traffic.  Coal continues to be the largest single
commodity handled by KCSR since the advent of unit coal train shipments in the
mid-1970's from the Powder River Basin in Wyoming, via the Burlington Northern
and Union Pacific interchange at Kansas City, for movement south by KCSR. 
KCSR delivers coal to six electric generating plants located at Amsterdam,
Missouri; Flint Creek, Arkansas; Welsh, Texas; Mossville (near Lake Charles),
Louisiana, Kansas City, Missouri and Pittsburg, Kansas.  KCSR also delivers
lignite, originating on its line at Thermo, Texas, to an electric generating
plant at Monticello, Texas ("Tumco"), a distance of approximately 30 miles. 
During 1993, the Tumco plant was shut down when one of its smoke stacks
collapsed.  The plant is not scheduled to be back in service until late 1995.

The MidSouth merger is strategically important in reducing KCSR's dependence
on coal traffic.  MidSouth  derived only minimal revenues from coal.  On a
stand alone basis, KCSR coal revenues represented 30% of total revenues in
1993.  However, when combined with MidSouth revenues since the June 1993
acquisition, the percentage of coal revenues to total combined freight
revenues has been reduced to 23% for 1994.  Conversely, MidSouth's primary
commodity traffic was in the pulp/paper and forest products area, which allows
KCSR to complement its revenues in that industry.

Gross revenue from unit coal traffic aggregated $102, $106 and $106 million,
in 1994, 1993, and 1992, respectively.  Certain coal transportation contracts
contain "take or pay" and volume discount clauses.  Revenue from Southwestern
Electric Power Company ("SWEPCO"), operator of two electric generating
facilities served under long-term contracts by KCSR, continues to represent
the greatest portion of coal revenues.  

KCSR serves the petroleum and chemicals industry, via refineries located in
the Gulf states of Texas and Louisiana, through tank and hopper car service
primarily to markets in the Southeast and Northeast through interchange with
other rail carriers.  Petroleum and chemical products as a combined group
represent the  largest commodity to KCSR in terms of revenues.  KCSR provides
rail transportation of chemical products, primarily vinyl chloride used in the
production of polyvinyl chloride ("PVC") materials, as well as other chemical
products, some used in paper production to customers primarily in the
Mississippi and Alabama areas.  These products are shipped via rail
interchange to many destinations throughout the United States.  As part of
serving the petroleum and chemicals industry, KCSR transports hazardous
materials and has a Shreveport, Louisiana based hazardous materials emergency
team available to handle environmental problems which might occur in the
transport of such materials.  

KCSR serves eleven paper mills directly and seven others indirectly through
short-line connections.  International Paper Co. at South Texarkana, Texas and
Georgia Pacific at Ashdown, Arkansas, both served by KCSR, have completed
plant expansions in recent years which increases their operating capacity.
Paper/pulp and primary forest products represent the largest component of KCSR
Eastern Division revenue carloadings.  KCSR provides transportation of
pulpwood, woodchips, poles and raw fiber used in the production of paper, pulp
and paperboard.  KCSR also serves as the first leg of rail transportation
throughout the United States for finished paper products from major
manufacturers such as, International Paper, Riverwood International
Corporation, Stone Container and Packaging Corporation of America.  By
combining KCSR and MidSouth, KCSR is now the third largest railroad in terms
of pulp and paper carload originations in the U.S.  KCSR's geographic location
provides a stable market due to the abundance and fast growth of timber in the
area.   


[Page 10]
KCSR farm products carloadings decreased 12% in 1994, due principally to a
reduction in the export grain market.  This trend, which was experienced
throughout the rail industry, came as a result of reduced crop sizes as an
aftermath of damage sustained in the flood of 1993.  Domestic grain shipments
are transported from the grain producing states of Iowa and Nebraska southward
to poultry feed mills served by KCSR in the states of Missouri, Arkansas,
Oklahoma, Louisiana and Texas.  Consumer demand for poultry consumption
remains constant thereby generating demand for feed grains delivered by KCSR. 

During 1994 KCSR experienced a 46% increase in intermodal ("TOFC/COFC")
traffic.  Most of the increase occurred on KCSR's predominantly North/South
rail line, especially between Dallas and Kansas City.  A small amount of the
increase is due to the availability of reliable and effective East/West
service from Dallas, Texas, to Atlanta, Georgia.  KCSR is better able to
provide this new service as a result of the capital improvement program
largely completed on the Eastern Division and the acquisition of the Zacha
Junction intermodal facility in Dallas, both previously discussed.  In
November of 1994, KCSR began through train intermodal service between Dallas,
Texas, and Atlanta, Georgia, in conjunction with the Norfolk Southern Railway
Company.  In addition, KCSR has entered into agreements with several over the
road trucking companies to move intermodal trailers on both its East/West and
North/South routes. 

KCSR continued to implement its roadway capital improvement program to provide
safer commodity movements.  This long-term capital improvements project is
designed to improve the integrity and quality of service to KCSR customers. 
The MidSouth acquisition required the Registrant to complete a capital
improvement program for MidSouth roadbed, locomotives and facilities.  This
program upgraded and expanded MidSouth's track to handle greater traffic
levels at higher train speeds. 

The KCSR marketing department has primary responsibility for developing
transportation business and is supported by field sales offices at various
locations throughout the United States.  Heavy emphasis is placed on providing
the highest quality of transportation service and on servicing the current
needs of customers and also on the promotion of additional growth through
efforts to locate industrial and manufacturing companies in the KCSR service
area.  

Other wholly-owned subsidiaries comprising the Transportation Services
industry segment include Trans-Serve, Inc.; Carland, Inc.; Southern Leasing
Corporation; Pabtex, Inc.; Rice-Carden Corporation; Tolmak, Inc.; Southern
Development Company and Mid-South Microwave, Inc.

Trans-Serve, Inc. owns and operates a railroad wood tie treating facility in
Vivian, Louisiana and a vehicle fleet maintenance operation for the KCSR
Engineering, Mechanical and Transportation department vehicles, with locations
in Shreveport, Louisiana, Pittsburg, Kansas and Heavener, Oklahoma.  

Carland, Inc., a subsidiary of Southern Credit Corporation, headquartered in 
Kansas City, leases various types of equipment including railroad rolling
stock, roadway maintenance equipment and vehicles.  KCSR is the principal
customer of Trans-Serve and Carland.

Southern Leasing Corporation, a subsidiary of Southern Credit Corporation, is
involved in finance leasing and other forms of secured financing, generally
for equipment acquisition by small to medium sized businesses.

Pabtex, Inc. ("Pabtex") owns and operates a bulk materials handling facility
which stores and transfers coal and petroleum coke from trucks and rail cars
to ships and barges primarily for export.  This facility, located in Port
Arthur, Texas, with deep water access to the Gulf of Mexico, is served on an
inbound basis by KCSR and independent truckers.  In 1992, the Registrant
purchased 530 acres of land adjacent to the Registrant's Pabtex coal and
petroleum coke storage, barge and ship loading facility in Port Arthur, Texas.


The 530 acres includes 4,000 linear feet of deep water frontage on the Sabine-
Neches Waterway, which has direct access to the Gulf of Mexico via the
Intercoastal Waterway.  This acquisition increases the Transportation Services

[Page 11]
deep water access in the Port Arthur, Texas area and will permit capacity
expansion of the Pabtex coal and coke facility and development of additional
port operations in KCSR's service area.  The Registrant currently owns 1,025
acres of property located on the waterfront in the Port Arthur, Texas area,
which includes approximately 22,000 linear feet of deep water frontage and
three docks.  Port Arthur is an uncongested port with direct access to the
Gulf of Mexico.  Approximately 75% of this property is available for
development.

Mid-South Microwave, Inc. owns and leases a 1,600 mile industrial frequency
microwave transmission system, which is the primary communications facility
used by KCSR.

Rice-Carden Corporation and Tolmak, Inc. both wholly-owned subsidiaries of the
Registrant and both headquartered in Kansas City, own and operate various
industrial real estate and spur rail trackage contiguous to the KCSR right of
way.  These properties are leased to various industrial businesses, many of
whom are serviced by KCSR.

Southern Development Company, a wholly-owned subsidiary of the Registrant,
owns and operates the headquarters building of the Registrant and KCSR located
in Downtown Kansas City.  Southern Development leases a substantial portion of
the building to KCSR for its executive, financial, marketing, operating and
engineering departments.

Regulatory Influence.  Transportation operations are subject to the regulatory
jurisdiction of the Interstate Commerce Commission ("ICC"), various state reg-
ulatory agencies, the Department of Transportation ("DOT") and the
Occupational Safety and Health Administration ("OSHA").  The ICC has
jurisdiction over interstate rates charged, routes, service, issuance or
guarantee of securities, extension or abandonment of rail lines, and
consolidation, merger or acquisition of control of rail common carriers. 
State agencies regulate some aspects of rail operations with respect to health
and safety and in some instances intrastate freight rates.  The DOT and OSHA
have jurisdiction over certain health and safety features of railroad
operations.  In addition, railway operations are subject to extensive
regulation under environmental protection laws concerning, among other things,
discharges to waters and the generation, handling, storage, transportation and
disposal of waste and other materials, where environmental risks are inherent.

KCSR and some of the Registrant's other subsidiaries land holdings have been
used for industrial purposes or leased to commercial and industrial companies
whose activities may have resulted in discharges onto the property. 
Accordingly, the Registrant and its subsidiaries may become subject from time
to time to environmental clean-up and enforcement actions.  In particular, the
Registrant is subject to regulatory legislation such as; the Federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "superfund law"; the Toxic Substances Control
Act ("TSCA"); the Federal Water Pollution Control Act, commonly known as the
"Clean Water Act" and the Hazardous Materials Transportation Act ("HAZMAT"). 
This legislation generally imposes joint and several liability for clean up
and enforcement costs, without regard to fault or legality of the original
conduct, on current and predecessor owners and operators of a site.  The
discharge of hazardous materials or contamination of property by hazardous
materials may arise from the transportation, production, storage, use and
disposal of such materials by rail operations.  Normal rail transportation
operations may result in hazards and expose the Registrant to claims and
potential liability for injuries to employees, other persons, property and the
environment.  Registrant management does not foresee that compliance with the
requirements imposed by these agencies' standards under present statutes will
impair its competitive capability or result in any material additional
operating or maintenance costs.  KCSR continued to implement extensive safety
programs during 1994 designed to reduce employee injuries through promotion of
a safe work environment.  The Registrant expects these programs will exceed
safety requirements of the various regulatory agencies governing
transportation operations.


[Page 12]
Railroad Industry Trends and Competition.  In 1994, and continuing into 1995,
the railroad industry displayed signs of ongoing consolidation.  Specifically,
Burlington Northern Industries ("BNI") the parent company of the Burlington
Northern Railroad and Santa Fe Pacific Corporation ("SFP") the parent company
of the Atchison, Topeka, and Santa Fe Railway have announced plans whereby BNI
would acquire SFP.  KCSR competes with both of these railroads in its
marketplace.  In March 1995, Union Pacific Railroad ("UP") and Chicago and
North Western Transportation Company ("CNW") announced that they have agreed
that UP would acquire 100% of CNW's common stock.  KCSR is in direct
competition with the UP for certain freight traffic moving between Kansas City
and Gulf Ports served by KCSR.  Since these transactions are not complete, the
Registrant cannot predict their outcome or effect on KCSR.

KCSR, in conjunction with SFP, also competes with the Southern Pacific
Transportation Company ("SP") for certain transcontinental freight traffic in
the Dallas-New Orleans corridor.  

In 1988, the UP and KCSR signed a haulage and trackage rights agreement which
facilitated and supported the acquisition of control of the Missouri-Kansas-
Texas Railroad Company ("MKT") by the UP.  This agreement gave KCSR haulage
rights between Omaha and Lincoln, Nebraska; Council Bluffs, Iowa; Topeka and
Atchison, Kansas and Kansas City, Missouri.  KCSR also received haulage rights
over UP tracks between Beaumont, Houston and Galveston, Texas.  Under this
haulage rights agreement, UP is required to move KCSR traffic in UP trains. 
Under the trackage rights, KCSR is allowed to operate its own trains over UP
tracks.  The "rights" between Beaumont, Houston and Galveston, Texas are
restricted to transporting grain and grain products.  However, the "North end
rights" between Kansas City, Missouri and Omaha and Lincoln, Nebraska; Council
Bluffs, Iowa and Atchison and Topeka, Kansas are unrestricted.  These "rights"
enable KCSR to be more competitive, particularly in feed grains, with the UP
and Burlington Northern railroads in both the Gulf port and domestic
transportation corridors.  KCSR has made extensive use of these haulage rights
with the UP in accessing the corn belt states of Nebraska and Iowa.

During 1993, the ICC ruled that it had jurisdiction regarding the UP
acquisition of certain voting stock of CNW Holding Corp., ("CNW") a holding
company for the Chicago North Western Railroad.  UP was required by the ICC to
submit evidence regarding marketing and operating coordination and related
public benefits which UP alleged will stem from the CNW transaction.  The
Registrant filed a responsive application with the ICC supporting protective
conditions designed to upgrade current haulage rights to Omaha/Council Bluffs
and provide direct access, by way of additional haulage and local gathering
rights to CNW grain origins in Iowa, Nebraska and South Dakota.  In 1994, the
Registrant received upgrades to its haulage rights.  The ICC also granted the
UP voting rights for its CNW stock.

In addition to competition within the railroad industry, highway carriers
compete with KCSR throughout its territory.  An example of this is the
East/West intermodal business between Dallas, Texas, and Atlanta, Georgia,
which competes directly with truckers along the Interstate 20 corridor.  Since
deregulation of the railroad industry, competition has resulted in extensive
downward pressure on freight rates.  Truck carriers have eroded the railroad
industry's share of total transportation revenues.  However, rail carriers,
including KCSR have, in recent years, placed a greater effort towards
competing in the intermodal marketplace.  Rail carriers are working together
to provide end-to-end transportation of products and forming working
partnerships with truck carriers in an effort to recapture market share.  In
some cases, additions to box car fleets and upgrade of existing box car
equipment are underway to attract new business.  Mississippi and Missouri
River barge traffic also compete with KCSR in the transportation of bulk
commodities such as grains, steel, aluminum and petroleum products.

Labor Relations.  Approximately 85% of the KCSR's employees are covered under
collective bargaining agreements.  The current agreements, executed in 1992,
included implementation of productivity improvements and cost sharing of
health care premiums with contract employees.  These agreements, with the
exception of that with the International Association of Machinist and
Aerospace Workers ("IAM") were reopened for negotiation in November 1994.  The


[Page 13]
IAM contract is eligible for renegotiation in 1995.  KCSR, along with most
other Class I Railroads, has designated the National Railway Labor Conference
as its agent for collective bargaining purposes.  Bargaining is governed by
the Railway Labor Act of 1926.  The railroads are negotiating for "national
handling" i.e. with the railroads as a collective entity and each national
union as a bargaining entity.  National handling has prevailed in the industry
in every round since the mid-1930's.  Management believes relations with
collective bargaining employees are good.





























































[Page 14]
                   
Information & Transaction Processing

DST Systems, Inc.

General Description of the Business.  DST Systems, Inc., formed in 1968,
together with its subsidiaries and joint ventures (principally The Continuum
Company, Inc., Boston Financial Data Services, Inc., Investors Fiduciary Trust
Company (prior to its sale, discussed earlier), Argus Health Systems, Inc.,
Midland Data Services, Inc. and Midland Loan Services L.P.), designs,
maintains and operates proprietary on-line shareowner accounting and record
keeping data processing systems, primarily for mutual funds and financial
services institutions and insurance companies.  Historically, the majority of
DST's revenue has been derived from full-service and remote-service record
keeping for the mutual fund industry.  The growth of the mutual fund industry
is a major contributor to the substantial increase in revenues of DST. 
Currently, DST's growth results from an increase in both existing and new
mutual fund customers as well as acquisitions and expansion of existing
business lines and products.

Output Technologies, Inc. ("OTI"), a wholly-owned subsidiary of DST, was
formed in early 1991 as a holding company for DST's business' involved in the
financial printing, mailing, output processing and related business lines.
During 1993, OTI completed the internal reorganization of its subsidiaries,
which included renaming of subsidiaries and merging of certain operations. 
The overall objective of the internal reorganization was a consolidation of
output related activities, identification of businesses with the OTI name and
alignment into geographic operating regions.  Included under OTI are its
wholly-owned subsidiaries; Output Technologies Central Region, Inc.; formerly
United Micrographics Systems, Inc. and Network Graphics, Inc., which process
computer output microfilm and microfiche, and printing and mailing of
specialized laser printing output and perform graphics design services; Output
Technologies SRI Group, Inc., formerly Support Resources, Inc. and Output
Technologies Eastern Region, Inc., formerly Mail Processing Systems, Inc.
provide laser printing and mailing of value-added customer information; Output
Technologies of Illinois, Inc., was formed in 1992 and performs telemarketing
and fulfillment services; Output Technologies Phoenix Litho Group, Inc.,
formerly Phoenix Litho, Inc., performs commercial printing services, and
Output Technologies Vital Records Storage Group, Inc., formerly Data Retrieval
Services, which performs vital records storage.  

Effective September 30, 1993, DST completed the merger of Vantage Computer
Systems, Inc. ("Vantage") into a subsidiary of The Continuum Company, Inc.
("Continuum").  Vantage, a 90.5% owned subsidiary, along with its wholly-owned
subsidiary Vantage P&C Systems, Inc., provides record keeping services and
custom designed software packages to the life and property/casualty insurance
industries.   As a result of this transaction and additional Continuum stock
purchases made by DST in January 1994, DST owned approximately 29% of
Continuum's outstanding common stock at December 31, 1994.  

The Vantage/Continuum transaction allows DST to expand its presence in the
information processing market for the insurance industry and combines the
strengths of both Vantage and Continuum.  Prior to the merger, Vantage's
business was primarily centered in the U.S. domestic market while Continuum
has a significant international and domestic presence.  Subsequent to this
transaction, DST assumed all of the North American operations data processing
functions for Continuum.  DST and Continuum signed an agreement whereby DST
has made available the capabilities of the Winchester Data Center for
Continuum processing requirements.  Concurrent with the Continuum/Vantage
merger, DST and Continuum reached a license agreement, whereby Continuum
markets AWD  for use in insurance industry applications.

DST also engages, directly and through its affiliates, in trust accounting,
security clearing services, portfolio accounting for investment fund managers,
asset management administration, commercial loan servicing, broker-dealer
services, pharmaceutical claim processing and processing for the insurance
industry through Investors Fiduciary Trust Company, Boston Financial Data
Services, Inc., Midland Data Systems, Inc., Midland Loan Services, L.P., First



[Page 15]
of Michigan Capital Corporation, Argus Health Systems, Inc., Clarke & Tilley
Data Services, Ltd., and The Continuum Company, Inc. in which DST is either a
joint venture partner or investor.  These affiliates are further described
below:

  The Continuum Company, Inc. ("Continuum"), a publicly held company,
  approximately 29% owned by DST, is an international consulting and computer
  services firm based in Austin, Texas, serving the needs of life insurance,
  property and casualty insurance and other financial services companies for
  computer software and services.

  Investors Fiduciary Trust Company ("IFTC"), a 50% joint venture previously
  owned with Kemper Financial Services, Inc., is incorporated under the
  banking laws of Missouri and provides fiduciary and other custodial
  services to its clients.  IFTC serves as trustee for unit trusts, tax
  deferred retirement and compensation plans, including IRAs, Keogh Plans and
  other deferred compensation plans offered by DST's clients.  IFTC also
  serves as transfer agent and custodian for several mutual funds and
  sponsors a federally insured money market deposit account.  As described
  earlier, DST exchanged its ownership in IFTC for shares in State Street
  Boston Corporation in January 1995.

  Boston Financial Data Services, Inc. ("BFDS"), a Boston based 50% joint
  venture between DST and State Street Boston Corporation, performs full
  service transfer agency functions for open and closed end mutual funds and
  corporations using DST's proprietary software on a remote basis through
  telecommunication transmissions with DST's computer facility located in
  Kansas City.

  Midland Data Systems, Inc. and Midland Loan Services, L.P. (collectively
  "Midland") 45% owned joint ventures provide comprehensive commercial loan
  servicing for assets, both performing and non-performing loans and related
  asset management services for governmental and institutional clients.  

  First of Michigan Capital Corporation, ("FOM"), a publicly held company,
  21% owned by DST, provides full service retail securities brokerage
  services and maintains several offices throughout the State of Michigan.  

  Argus Health Systems, Inc., ("Argus"), a 50% joint venture owned with
  Financial Holding Corporation provides pharmaceutical claim insurance
  processing services for several health care providers through a data base
  network.

  Clarke & Tilley Data Services, Ltd., a United Kingdom entity 50% owned by
  DST, is developing a unit trust accounting system for the U.K. and
  Luxembourg markets.


Product Base and Competitive Influence.  DST's reputation is based largely on
service, ability to handle volume increases, commitment to software
development and, to a lesser degree, price.  The advantages of DST include its
experience in providing service to the markets it serves, the number and size
of its clients, its use of centralized data processing facilities which
enables it to achieve economies of scale, the breadth of services it and its
joint ventures offer, and the reputations of its joint venture partners.  In
addition, DST's systems are complex, having been enhanced over a number of
years to provide a high quality service and to meet changing regulatory and
user requirements.  The complex nature of the business, the software systems
and the significant resource base needed to operate and/or duplicate such
systems make it difficult for new firms to enter these markets.  Although
market entry by new firms may be difficult, several strong competitors in
DST's marketplace do exist.  In recent years, the competitive environment for
shareowners processing has changed as several major bank competitors exited
from direct participation in the shareowner processing business.  The balance
of these accounts were absorbed by DST or its competitors.  A further review
of competitive factors for DST's principal product lines follows:

  Mutual Fund Shareowners Accounting System:  Certain competitors provide
  remote processing services or engage in software sales.  DST also considers
  
[Page 16]
  in-house systems as a competitive alternative.  DST does not ordinarily 
  offer its software for sale; therefore, when customers purchase software,
  they do so as an alternative to DST's remote processing or full-service
  product offerings.  The Shareholder Services Group ("TSSG"), a unit of
  First Data Resources, Sungard Data Systems Inc., Oppenheimer Industries,
  Provident National Bank and U.S. Trust are the primary competitors for
  full-service and remote processing.  Oppenheimer Industries is the primary
  competitor for systems sales.  DST currently processes approximately one-
  third of all United States mutual fund shareowner accounts.

  DST and its affiliates also provide a full-service product by acting in the
  capacity of a transfer agent either through direct appointment or
  subcontract.  DST's primary full service competitor is TSSG.  

  Securities Transfer and Portfolio Accounting Systems:  DST's Securities
  Transfer System competes with in-house systems and independent vendors,
  some of whom supply clerical support in connection with their software sys-
  tems.  The Portfolio Accounting System competes primarily with in-house
  systems and systems offered by certain banks in conjunction with their
  custodial services.  Banks and thrift institutions in competition with DST
  may have an advantage by considering the value of their client's funds on
  deposit when pricing their services.  Moreover, such banks or thrift
  institutions generally have much greater financial resources available to
  them than DST.  DST's 1993 acquisitions of Belvedere Financial Systems,
  Inc. ("Belvedere") and Clarke & Tilley, both of which develop and market
  portfolio accounting and investment management systems, expands DST's
  portfolio accounting opportunities.  Belvedere's system will provide a
  common platform for DST future portfolio growth in both domestic and
  international markets.

  Building on its strength as a technology company, DST has developed and
  marketed an advanced work management system, called Automated Work
  Distributor TM ("AWD "), since 1990.  AWD  converts paper based and
  electronic transactions to work items that are automatically routed
  throughout an enterprise.  The complete complement of AWD  products offers
  a comprehensive solution to customer service problems in organizations with
  large clerical operations.  It is installed in mutual fund, insurance,
  banking, and health care organizations and has proven its scallability and
  adaptability.  In 1993, DST entered into an agreement with Continuum
  allowing Continuum to market AWD  to its clients in the insurance industry.

  International Market Expansion:  In 1991, DST began evaluating the
  feasibility of marketing its products outside the United States and also
  products that would serve foreign markets in DST's product lines.  In 1992,
  DST, together with State Street Bank and Clarke and Tilley, Ltd. (a United
  Kingdom software firm), formed Clarke and Tilley Data Services ("CTDS"). 
  CTDS is developing a unit trust accounting system for the U.K. and
  Luxembourg markets, incorporating DST workflow management, image technology
  and unit trust software.  During 1993, DST completed the acquisition of
  Clarke & Tilley Ltd., (100% owned), which markets investment management
  software primarily for use in Europe and the Pacific Rim and Corfax Benefit
  Systems, Ltd., (100% owned), a Canadian company, which processes shareowner
  transactions for mutual funds and pension accounts in Canada.

  This international expansion provides DST with a base of products which are
  multi-currency, as well as multi-platform, and creates avenues for greater
  market penetration of DST's U.S. products into international channels. 
  Through these subsidiaries, sales and development offices currently reside
  in the United Kingdom, Switzerland, Netherlands, Belgium, Luxembourg,
  Canada, Australia and South Africa.  DST foresees opportunities for further
  growth and expansion in international markets.

  The financial institutions served by DST, both mutual fund and insurance,
  will continue to evaluate whether to internalize or outsource their
  technology needs.  This process will have both positive and negative
  effects on DST's results; however, on an overall basis, DST's customer base
  is expected to grow.
          
[Page 17]
DST's mutual fund shareowner accounts serviced rose in 1994 to end the year at
an all time high of 32.1 million accounts.  In 1993, Kemper Financial Services
("Kemper"), a DST customer, began conversion of its mutual fund shareowner
processing from the DST system.  In early July 1993, 500,000 Kemper accounts
were converted from the DST system.  The loss of 500,000 Kemper accounts in
1993 was offset by account growth from other mutual fund customers and,
accordingly, did not have a material financial impact.  As a result of the
Kemper transactions, discussed earlier, DST expects to continue to process the
Kemper accounts.  Mutual fund shareowner accounts had also risen in 1992 even
through weighted average monthly billable accounts lagged 1991 averages.  

Financial Asset Management

General Description of the Business, Product Base, and 
Competitive Influences

Janus Capital Corporation.  Janus Capital Corporation, headquartered in
Denver, Colorado and 83% owned by the Registrant, provides investment advisory
and management services to the Janus and IDEX equity mutual fund groups,
investment management services for individuals and institutions including
large pension and profit sharing plans.  Janus experienced  moderate growth
during 1994 in terms of assets under management.  Assets under management
increased from $22.2 billion at December 31, 1993 to $22.9 billion at December
31, 1994 while total shareholder accounts remained stable at 2 million in
1994.  This growth is largely attributable to successful marketing programs,
favorable performance of selected Janus no-load and IDEX load funds compared
to the market as a whole, and general growth in the mutual fund marketplace,
especially during the first half of 1994.

Janus experiences competition in the form of alternative investment vehicles,
which may offer competitive investment returns and similar or different
investment objectives when compared to Janus.  These alternatives have
typically been other mutual funds, certificates of deposit, money market
accounts and individual stocks and bonds.  Janus management continues to offer
a variety of investment products.  While Janus has historically been a
primarily equity based fund group, management has sought to build a base of
fixed income products.  In 1994, Janus introduced two new products, Janus
Overseas, a new international equity mutual fund, and Janus International, an
expansion of the Aspen series.  During 1993, Janus introduced three new fund
products; Janus Mercury Fund, an equity fund; Janus Federal Tax Exempt Fund, a
federal tax exempt income fund; and the Janus Aspen Series, which are variable
annuity products.  During 1992, Janus introduced three new mutual funds, Janus
Enterprise Fund, an equity fund; Janus Balanced Fund, a combination
equity/fixed income fund and Janus Short-Term Bond Fund, a fixed income fund. 


Berger Associates, Inc.  Berger Associates, Inc., headquartered in Denver,
Colorado, and 80% owned by the Registrant, provides investment advisory and
management services to the Berger Funds and to private and other accounts.  As
disclosed earlier, the Registrant increased its ownership percentage from
approximately 18% to over 80% on October 14, 1994.  During 1994, Berger
introduced a new equity fund, the Berger Small Company Growth Fund.  Berger
had substantial growth in 1994 in both assets under management and shareholder
accounts.  Assets under management increased 56% ($1.1 billion) to $3 billion
at December 31, 1994, from $1.9 billion at December 31, 1993.  Shareholders
increased from 202,000 at December 31, 1993 to 380,000 at December 31, 1994. 
Assets under management increased from $.9 billion at December 31, 1992 to
$1.9 billion at December 31, 1993.  Shareholders increased from 90,000 at
December 31, 1992 to 202,000 at December 31, 1993.  This growth is largely
attributable to successful marketing programs, a favorable performance of
Berger funds compared to the overall market, the introduction of the Small
Company Growth fund, and general growth in the mutual fund marketplace.

Berger has competition primarily in the form of alternative investment
vehicles, including other mutual funds, individual stocks and bonds,
certificates of deposit, and money market accounts.

[Page 18]
Financial Asset Management revenues and operating income increases are a
direct result of increases in assets under management.  Assets under
management have grown in recent years from a combination of new money
investments or fund sales and market appreciation.  Fund sales have risen in
response to marketing efforts, favorable fund performance and the current
popularity of no-load mutual funds.  Market appreciation has resulted from
increases in stock investment values.  However, a decline in stock and bond
markets and/or an increase in the rate of return of alternative investments
could negatively impact Financial Asset Management revenues and operating
income.  In addition, mutual funds, in general, face increasing competition as
the number of mutual funds continues to increase, marketing and distribution
channels become more creative and complex, and investors place greater
emphasis on published fund recommendations and investment category rankings. 
These factors could also affect Financial Asset Management and negatively
impact revenues and operating income.  Operating expenses are expected to
increase as assets and service requirements grow.


Regulatory Influence.  Financial Asset Management businesses are subject to a
variety of regulatory requirements including, but not limited to, the
Securities and Exchange Commission, individual state Blue Sky laws, the
National Association of Securities Dealers and various other state regulatory
agencies.   Management does not foresee that compliance with these various
requirements will have a material impact upon operations.

Eliminations, Corporate & Other

This industry segment is comprised of passive investments, and the general
administrative and corporate operations of the Registrant.  









































[Page 19]
Item 2. Properties

Transportation Services

KCSR owns and operates approximately 2,706 miles of main and branch lines and
approximately 1,137 miles of other tracks.  In addition, approximately 174
miles of main and branch lines and 87 miles of other tracks are operated by
KCSR under trackage rights and leases.  

Kansas City Terminal Railway Company, of which KCSR is a one-twelfth owner,
with other railroads, owns and operates approximately 80 miles of track, and
operates an additional 8 miles of track under trackage rights in greater
Kansas City, Missouri.  KCSR also leases for operating purposes certain short
sections of trackage owned by various other railroad companies and jointly
owns certain other facilities with such railroads.

KCSR also owns and operates repair shops, depots and office buildings along
its right-of-way in support of its transportation operations.  A major
facility, Deramus Yard, is located in Shreveport, Louisiana and includes a
general office building, locomotive repair shop, car repair shops, customer
service center, material warehouses and fueling facilities totalling
approximately  227,000 square feet.  KCSR owns a major diesel locomotive
repair facility in Pittsburg, Kansas, of approximately 108,000 square feet. 
KCSR and Registrant executive offices are located in an eight story office
building in Kansas City, Missouri and are leased from a subsidiary of the
Registrant.

At December 31, 1994, KCSR's fleet of rolling stock consisted of 382 diesel
locomotives, of which 16 were leased from non-affiliates; 15,698 freight cars,
of which 9,496 were leased from non-affiliates; and 3,901 tractors, trucks and
trailers, of which 3,890 were leased from non-affiliates.  Some of this
equipment is subject to liens created under conditional sales agreements,
equipment trust certificates and capitalized leases in connection with the
original purchase or lease of such equipment.

Maintenance expenses for Way and Structure and Equipment (pursuant to ICC
accounting rules, which include depreciation) for the three years ended
December 31, 1994 and as a percent of KCSR revenues are as follows (dollars in
millions):


                      KCSR Maintenance            
            Way and Structure      Equipment
                    Percent of           Percent of
             Amount   Revenue      Amount  Revenue

                                 
   1994      $75.8     16.0%        $88.1    18.6%
   1993*      64.4     18.6          54.5    15.8
   1992*      62.6     18.7          59.8    17.8


*Excludes MidSouth information


Trans-Serve, Inc. operates a railroad wood tie treating plant in Vivian,
Louisiana under an industrial revenue bond lease arrangement with an option to
purchase.  This facility contains buildings totaling approximately 12,000
square feet.  Carland, Inc. leases approximately 1,400 square feet of office
facilities in downtown Kansas City, Missouri from DST Realty, Inc. a wholly-
owned subsidiary of DST.  Pabtex, Inc. owns a 70 acre coal and petroleum coke 
bulk handling facility at Port Arthur, Texas.  Southern Leasing leases 2,800
square feet of office space in downtown Kansas City, Missouri, from DST
Realty, Inc., a wholly-owned subsidiary of DST.

Mid-South Microwave, Inc. owns and operates a microwave system, which extends
essentially along the right-of-way of KCSR from Kansas City, Missouri to
Dallas, Beaumont-Port Arthur, Texas and New Orleans, Louisiana.  This system
is leased to KCSR.

                                
[Page 20]
Other subsidiaries of the Registrant own approximately 8,000 acres of land at
various points adjacent to the KCSR right-of-way.  Other properties also
include a 354,000 square foot warehouse at Shreveport, Louisiana, a bulk
handling facility at Port Arthur, Texas, and several former railway buildings
now being rented to non-affiliated companies, primarily as warehouse space.

At December 31, 1994, the Registrant owns 1,025 acres of property located on
the waterfront in the Port Arthur, Texas area, which includes 22,000 linear
feet of deep water frontage and three docks.  Port Arthur is an uncongested
port with direct access to the Gulf of Mexico.  Approximately 75% of this
property is available for development.

Information & Transaction Processing

DST Systems, Inc.  DST owns an 82,000 square foot Data Center, located in
Kansas City, commonly known as its Winchester Data Center, which commenced
operations in 1985.  This facility is located on 13 acres of land within an
overall 25 acre tract of land owned by DST.  In 1994, DST has undertaken an
expansion of the Winchester Data Center which, when completed in 1995, will
provide an additional 83,000 square feet.

DST master-leases three downtown Kansas City office buildings consisting of
approximately 353,000 square feet in which DST or its affiliates occupy
approximately 312,000 square feet and the balance is leased to non-affiliated
tenants.  This space is utilized by DST for its shareholder operations,
systems development and other support functions.

DST's wholly-owned subsidiary, DST Realty, Inc., owns five buildings in Kansas
City, Missouri, with approximately 284,000 square feet.  DST utilizes 203,000
square feet in these buildings for its mutual fund full service processing,
portfolio, laser printing and mailing operations, and 81,000 square feet are
leased to Midland Data Systems and Midland Loan Services.  In 1994 DST began
an expansion to one of these buildings to provide an additional 51,000 square
feet.  In early 1995, DST Realty acquired a sixth office building in downtown
Kansas City, Missouri, comprising 210,000 square feet.  It is anticipated that
substantially all of this building will be used by DST for its operations.

Output Technologies, Inc. ("OTI" a 100% owned DST subsidiary) and its wholly-
owned subsidiaries operate in various owned or leased facilities:

Output Technologies Central Region leases 93,000 square feet in several office
buildings representing its primary operating facilities in Kansas City,  St.
Louis and Joplin, Missouri; Austin, Texas; Lincoln, Nebraska; Wichita, Kansas;
and Fayetteville, Arkansas.  

Output Technologies Eastern Region leases 156,000 square feet of production,
warehouse and office space facilities in East Hartford, Connecticut and
Braintree, Massachusetts.  Additionally, a 24,000 square foot facility in New
York, New York is leased.
  
Output Technologies of Illinois leases approximately 129,000 square feet of
office and warehouse space in Chicago, Illinois.
  
Output Technologies Western Region leases 31,000 square feet of office and
production facilities in Denver, Colorado.
  
Other Output Technologies entities lease an aggregate of 78,000 square feet of
office and production facilities in the Kansas City, Missouri area.

In addition to the previously discussed office space, DST Realty, Inc. also
owns six parking facilities in downtown Kansas City, Missouri having 1,670
parking spaces which are rented by the Registrant's and affiliates' employees,
and the public.  A 100% owned subsidiary of DST, Winchester Business Center, 
Inc., owns and operates an underground storage and office facility
encompassing a total of 550,000 square feet.   299,000 square feet of this
facility is leased to another DST subsidiary with the remaining space occupied
by unaffiliated tenants or comprising as yet unfinished space.

 
                                
[Page 21]
At December 31, 1994, DST owned or leased mainframe computers which are
capable of processing approximately 1.6 billion instructions per second.  DST
presently uses a substantial portion of the capacity of these mainframes.  In
addition, DST owns significant amounts of auxiliary computer support equipment
such as disk and tape drives, CRT terminals, etc., all of which are necessary
for its computer and communications operations.

Financial Asset Management

Janus Capital Corporation.  Janus leases 227,000 square feet of office space
in three facilities from non-affiliated companies for its administrative,
investment, and shareowner processing departments.  In addition, Janus leases
approximately 34,000 square feet from a non-affiliated entity for its mail
processing and storage requirements.  Its corporate offices and mail
processing facilities are located in Denver, Colorado with a retail customer
service and telephone center in Kansas City, Missouri.  In August of 1994,
Janus leased 2,500 square feet of office space in London, England for use as a
securities research and trading center, primarily for international
investments.

Berger Associates, Inc.  Berger leases 20,000 square feet of office space in
Denver, Colorado, from a non-affiliated entity for its administrative and
corporate functions.

Corporate & Other.

The Registrant and DST are a combined 80% owner of Wyandotte Garage
Corporation, a parking facility in downtown Kansas City, Missouri.  The
facility is located adjacent to the Registrant's and KCSR's headquarters
building, and consists of 1,147 parking spaces which are utilized by the
Registrant's and affiliates' employees and the public.

Unconsolidated Affiliates, primarily DST related.

DST's 50% joint venture, Boston Financial Data Services, Inc., leases and
occupies a 186,000 square foot office building in Quincy, Massachusetts. 
Additionally, DST's 50% joint venture, Investors Fiduciary Trust Co. leases
and occupies a total of 86,000 square feet in a downtown Kansas City office
building.

In 1994, Argus Health Systems, an affiliated entity 50% owned by DST,
purchased a 51,000 square foot building from DST which it uses for systems
development, administrative, and other support operations.  In fourth quarter
1994, Argus began an expansion of 15,000 square feet to this building.

DST formed Winchester Ventures II, for the purpose of acquiring land and
subsurface areas near DST's Data Center.  To date, twelve acres adjacent to
the Data Center have been purchased for resale or development.  Additionally,
DST is a 50% joint venture partner of a 260,000 square foot downtown Kansas
City, Missouri office building which is both leased by DST, affiliates and
non-affiliates, and houses DST's corporate headquarters.

The Continuum Company, approximately 29% owned by DST, occupies and owns a
building of 186,000 square feet located in Austin, Texas, which is used for
product development and administration.  Continuum leases an additional 35,000
square feet of office in Austin, approximately 100,000 at several locations in
Australia, and another approximately 100,000 square feet for various
administrative premises in Europe.  The Continuum Company also leases 35,000
and 53,000 square feet of office space in Weatherfield, Connecticut and Kansas
City, Missouri, respectively.









                                [Page 22]

Item 3. Legal Proceedings

SWEPCO Litigation.  As was previously disclosed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, KCSR was a defendant
in a lawsuit filed in the District Court of Bowie County, Texas by
Southwestern Electric Power Company ("SWEPCO").  In that case, SWEPCO alleged
that KCSR was required to reduce SWEPCO's coal transportation rate due to
changed circumstances allegedly creating a "gross inequity" under the
provisions of the coal transportation contract existing among SWEPCO, KCSR and
the Burlington Northern Railroad.  SWEPCO is KCSR's largest single customer. 
KCSR and SWEPCO have settled this litigation and the case against KCSR has
been dismissed.  This matter was concluded without material adverse effect on
the financial condition or results of operations of the Registrant.

Environmental Matters.  KCSR is a participant in certain federal and state
environmental matters as follows:

In the Ilada Superfund Site East Cape Girardeau, Ill., KCSR was cited for
furnishing one carload of used oil to this petroleum recycling facility. 
Counsel advises that KCSR's liability, if any, should fall within the "de
minimus" provisions of the Superfund law, representing minimal exposure.

Louisiana Department of Environmental Quality, Docket No. IE-0-91-0001, is a
proceeding involving the alleged contamination of Capitol Lake, Baton Rouge,
Louisiana.  This proceeding also names KCSR as a party due to its ownership of
part of the lake bottom.  During 1994, the list of Potentially Responsible
Parties (PRP's) was significantly expanded to include the State of Louisiana,
the City and Parish of Baton Rouge and the U.S. Army Reserve Center, among
others.  Studies commissioned by KCSR indicate that contaminants contained in
the lake were not generated by KCSR.  Management and counsel do not believe
this proceeding will have a material effect on the Registrant. 

Louisiana Department of Environmental Quality, Docket No. IAS 88-0001-A, The
Louisiana Department of Environmental Quality named KCSR in a state
environmental proceeding involving contaminated land near Bossier City,
Louisiana, which was the site of a wood preservative treatment plant (Lincoln
Creosoting).  KCSR is a former owner of part of the land in question.  This
matter was the subject of a trial in the United States District Court in
Shreveport, Louisiana which was concluded in July of 1993.  The Court found
that Joslyn Manufacturing Company, an operator of the plant, was and is
required to indemnify KCSR for damages arising out of plant operations. 
(KCSR's potential liability is as a property owner rather than as a generator
or transporter of contaminants.)  The case was appealed to the United States
Court of Appeals for the Fifth Circuit, which court affirmed the District
Court's ruling in favor of KCSR.

In early 1994, the Environmental Protection Agency ("EPA") added the Lincoln
Creosoting site to its Federal Comprehensive Environmental Response,
Compensation & Liability Act ("CERCLA", also known as the superfund law)
national priority list.  Since major remedial work has been performed at this
site by Joslyn and KCSR has been held by the Federal District and Appeals
Courts to be entitled to indemnity for such costs, it would appear that KCSR
should not incur significant remedial liability.  At this time, it is not
possible to evaluate the potential consequences of remediation at the site.

Litigation Reserves.  In the opinion of the Registrant, claims or lawsuits
incidental to the business of the Registrant and its subsidiaries have been
adequately provided for in the consolidated financial statements.











                                [Page 23]
Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the three month
period ended December 31, 1994.

Executive Officers of the Registrant

Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in KCSI's Definitive Proxy Statement which will be filed no later
than 120 days after December 31, 1994.
                           
   Name                 Age         Position(s)
L.H. Rowland            57       President and Chief Executive Officer,
                                 Director
T.A. McDonnell          49       Executive Vice President, Director
G.W. Edwards, Jr.       55       Executive Vice President, Director
R.H. Bornemann          39       Vice President-Governmental Affairs
P.S. Brown              58       Vice President and Associate General 
                                 Counsel and Assistant Secretary
R.L. Brown II           50       Vice President and Assistant 
                                 Comptroller
R.P. Bruening           56       Vice President and General Counsel
D.R. Carpenter          48       Vice President and Tax Counsel
R.W. Comstock           64       Vice President - Administration
J.B. Dehner             49       Vice President
A.P. McCarthy           48       Treasurer
A.P. Mauro              65       Vice President and Corporate Secretary
J.D. Monello            50       Vice President and Chief Financial 
                                 Officer
H.H. Salisbury          69       Vice President - Public Affairs
L.G. Van Horn           36       Comptroller



Mr. Rowland, has continuously served as President and Chief Executive Officer
since January 1987.  He has been employed by the Registrant since 1980,
serving in numerous management positions and has served as a director of the
Registrant continuously since 1983.

Mr. McDonnell, has continuously served as Executive Vice President since
February 1987.  He has served as a director of the Registrant continuously
since 1983 and has been Chief Executive Officer of DST since 1984.

Mr. Edwards, has continuously served as Executive Vice President since April
1991.  He has served as a director of the Registrant continuously since May
1991.  He has also served as President and Chief Executive Officer of KCSR
since April 1991.  Prior to this, he served as Chairman of the Board and Chief
Executive Officer of the United Illuminating Company, New Haven, Connecticut
from 1985 to 1991.

Mr. Bornemann, has continuously served as Vice President - Governmental
Affairs since July 1992.  From 1987 to July 1992 he was employed by United
Illuminating Company, New Haven, Connecticut, serving most recently as Vice
President - Corporate Affairs.

Mr. Brown, has continuously served as Vice President and Associate General
Counsel and Assistant Secretary since July 1992.  From 1981 to July 1992, he
served as Vice President - Governmental Affairs.  

Mr. Brown II, has continuously served as Vice President and Assistant
Comptroller since January 1992.  From October 1986 to January 1992, he served
as Vice President and Comptroller.  He also serves as Senior Vice President -
Finance of KCSR.

Mr. Bruening, has continuously served as Vice President and General Counsel
since May 1982.  He also serves as Senior Vice President and General Counsel
of KCSR.


[Page 24]
Mr. Carpenter, has continuously served as Vice President - Tax Counsel since
June 1993.  From 1978 to June 1993, he was a member in the law firm of Watson
& Marshall, Kansas City, Missouri.

Mr. Comstock, has continuously served as Vice President - Administration since
April 1992.  From 1986 to April 1992, he served as Senior Vice President -
Corporate Affairs with United Illuminating Company, New Haven, Connecticut. 
He also serves as Senior Vice President - Administration of KCSR.

Mr. Dehner, has continuously served as Vice President since December 1989. 
From November 1987 to December 1989, he served as Assistant to the President. 
Prior to November 1987, he was Executive Vice President of Southern Group,
Inc. and a principal officer of several other KCSI subsidiaries.  He also
serves as Executive Vice President and Chief Operating Officer of KCSR.

Mr. McCarthy, has continuously served as Treasurer since December 1989.  From
1984 to December 1989, he served as Assistant Treasurer. 

Mr. Mauro, has continuously served as Vice President and Corporate Secretary
since August 1985.  

Mr. Monello, has continuously served as Vice President and Chief Financial
Officer since March 1994.  From October 1992 to March 1994 he served as Vice
President - Finance.  From January 1992 to October 1992, he served as Vice
President - Finance and Comptroller.  From May 1989 to January 1992 he served
as Vice President and Assistant Comptroller.  From October 1986 to May 1989,
he served as Assistant Comptroller.  

Mr. Salisbury, has continuously served as Vice President - Public Affairs
since May, 1986.  

Mr. Van Horn, has continuously served as Comptroller since October 1992.  From
January 1992 to October 1992 he served as Assistant Comptroller.  From January
1989 to January 1992 he served as Manager - Financial Reporting.  From April
1988 to January 1989 he served as Supervisor - Internal Audit.  

None of the above officers are related to one another by family.































[Page 25]
                   

Part II
                    
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters

See information on pages i and ii of this Form 10-K.  Also, pages 72 and 73 of
KCSI's 1994 Annual Report to Stockholders (Exhibit 13.1 hereto) are hereby
incorporated herein by reference.*

The Registrant's Board of Directors authorized an 11% increase in its Common
stock dividend in January 1992.  The dividend will be reviewed annually and
adjustments considered that are consistent with growth in real earnings and
prevailing business conditions.  Unrestricted retained earnings of the
Registrant at December 31, 1994 were $96.9 million.

At December 31, 1994, there were 5,611 holders of the Registrant's Common
stock based upon an accumulation of the registered stockholder listing.

Item 6.  Selected Financial Data  
(In millions, except per share and ratio data)


                     1994         1993      1992     1991     1990   
                                                 
Operating Revenue    $1,097.9     $961.1    $741.4   $610.2   $528.0

Income from continuing
  operations           $104.9      $97.0     $63.8    $45.7    $41.4

Income from continuing
  operations per
  Common share          $2.32      $2.16     $1.43    $1.08     $.99

Total assets         $2,230.8   $1,917.0  $1,248.4 $1,091.9 $1,034.0

Long-term obligations  $928.8     $776.2    $387.0   $317.1   $344.9

Cash dividends per 
  Common share           $.30       $.30      $.30     $.27     $.27

Ratio of earnings to fixed charges (Exhibit 12.1 hereto)
Excluding interest on 
  deposits of IFTC       3.28       3.68      3.40     2.88     2.58
Including interest on 
  deposits of IFTC       3.14       3.43      2.98     2.44     2.23


Above amounts reflect the 2-for-1 Common stock split to shareholders of record
on February 19, 1993, paid March 17, 1993 and the 2-for-1 Common stock split
to shareholders of record on February 14, 1992, paid March 17, 1992.

See information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 28 through 46 of
KCSI's  1994 Annual Report to Stockholders (Exhibit 13.1 hereto) which are
hereby incorporated herein by reference.*












                                    ____________________________
*  Incorporated by reference pursuant to Rule 12b-23 and General Instruction
G(2) to Form 10-K
                                [Page 26]
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

See information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 28 through 46 of
KCSI's 1994 Annual Report to Stockholders (Exhibit 13.1 hereto) which is
hereby incorporated herein by reference.*

A listing of explanations of graphics used in the Managements' Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1994, (Exhibit 99.1 hereto), which is hereby incorporated herein
by reference.*


Item 8. Financial Statements and Supplementary Data

The report of the independent accountants, the audited consolidated financial
statements and the unaudited quarterly financial data appear on pages 47
through 73 of KCSI's 1994 Annual Report to Stockholders (Exhibit 13.1 hereto)
and are hereby incorporated herein by reference.*


Item 9. Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure

None






































                      ____________________________

*  Incorporated by reference pursuant to Rule 12b-23 and General
     Instruction G(2) to Form 10-K
                                    
                                    
                                [Page 27]
                                Part III
                                    
Item 10.  Directors and Executive Officers of the Registrant

(a) Directors of the Registrant

See "Election of Directors" in the Registrant's Definitive Proxy Statement,
incorporated herein by reference.**

(b) Executive Officers of the Registrant

Included under Part I pages 24 and 25.


Item 11.  Executive Compensation

See "Management Compensation" in the Registrant's Definitive Proxy Statement,
incorporated herein by reference.**


Item 12.  Security Ownership of Certain Beneficial Owners and Management

(a) See "Principal Stockholders" in the Registrant's Definitive Proxy
    Statement, incorporated herein by reference.**

(b) See "Election of Directors"  in the Registrant's Definitive Proxy
    Statement, incorporated herein by reference.**


Item 13.  Certain Relationships and Related Transactions

See "Certain Transactions" in the Registrant's Definitive Proxy Statement,
incorporated herein by reference.**






























                      ____________________________

**Incorporated by reference pursuant to Rule 12b-23 and General Instruction
G(3) to Form 10-K.  KCSI's Definitive  1994 Proxy Statement will be filed no
later than 120 days after December 31, 1994

[Page 28]                           

                                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) Financial Statements

The financial statements and related notes, together with the report of Price
Waterhouse LLP dated February 23, 1995, which appear on pages 47 through 73 of
the accompanying 1994 Annual Report to Stockholders (Exhibit 13.1), are hereby
incorporated herein by reference*.  With the exception of the information
explicitly incorporated by reference in this Form 10-K, the 1994 Annual Report
to Stockholders is not to be deemed filed as a part of this Form 10-K.




(2) Financial Statement Schedules

Schedules and exhibits for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission not included
herein have been omitted because they are not applicable, insignificant or the
required information is shown in the financial statements or notes thereto.

Supplementary Financial Information
                                                       
                                                              Page
Consent of independent accountants                             F-1 
 































____________________________
                   

* Incorporated by reference pursuant to Rule 12b-23 and General Instruction
  G(2) to Form 10-K

[Page 29]
  
(3)       List of Exhibits

  (3)     Articles of Incorporation and Bylaws

  Articles of Incorporation

    - Exhibit 3.1 to this Form 10-K

    - Exhibit 4*** to Registrant's Registration Statement on Form S-8,
      Commission File No. 33-8880


    - Certificate of Designation Establishing the New Series Preferred
      Stock, Series A, of Registrant, dated May 16, 1986 which is detailed
      as Exhibit A*** to Registrant's Report on Form 10-Q for the quarter
      ended June 30, 1986, Commission File No. 1-4717

    - Exhibit 4.1*** to Registrant's Current Report on Form 8-K dated
      October 1, 1993 (Commission File No. 1-4717), Certificate of
      Designation of Series B Convertible Preferred Stock

Bylaws

    - Exhibit 3.1***, Registrant's By-Laws, as amended and restated
      November 7, 1991, to Registrant's Form 10-K for the fiscal year ended
      December 31, 1991, Commission File No. 1-4717

(4) Instruments Defining the Right of Security Holders, Including Indentures

    - Exhibits incorporated by reference under Part IV Item 14 (a)(3)(3) of
      this Form 10-K

    - Item 5*** to Registrant's Current Report on Form 8-K dated December
      8, 1992 (Commission File No. 1-4717), which is a brief description of
      the $250 million Revolving Credit Agreement, dated December 8, 1992.

(9) Voting Trust Agreement
    (Inapplicable)

(10)  Material Contracts

    - The Director Indemnification Agreement attached as Exhibit I*** to
      Registrant's Form 10-K, for the fiscal year ended December 31, 1987,
      Commission File No. 1-4717 and Exhibit B*** to Registrant's Proxy
      Statement for 1987 Annual Stockholder Meeting, dated April 6, 1987

    - The Deferred Directors Fee Plan attached as Exhibit 10*** to DST's
      Form 10-K, for the fiscal year ended December 31, 1986, Commission
      File No. 2-81678

    - The Kansas City Southern Railway 1987 Restricted Stock Plan, attached
      as Exhibit C*** to Registrant's Form 10-K, for the fiscal year ended
      December 31, 1987, Commission File No. 1-4717

    - The Indenture, dated July 1, 1992, to (i) a $300 million Shelf
      Registration of Debt Securities attached as Exhibit 4*** to
      Registrant's Form S-3 Commission File No. 33-47198, filed June 19,
      1992 (ii) a $200 million Medium Term Notes Registration of Debt         
      Securities, attached as Exhibit 4(a)*** to Registrant's Form S-3
      Commission File No. 33-60192, filed March 29, 1993

    - The 1978 Employee Stock Option Plan as amended attached as Exhibit
      D*** to Registrant's Form 10-K, for the fiscal year ended December
      31, 1987, Commission File No. 1-4717
   
                                    
                      ____________________________

***Incorporated by reference pursuant to Rule 12b-32
                                    
                                [Page 30]
    - The 1983 Employee Stock Option Plan as amended attached as Exhibit
      E*** to Registrant's Form 10-K, for the fiscal year ended December
      31, 1987, Commission File No. 1-4717

    - The 1987 Employee Stock Option Plan as amended attached as Exhibit
      F*** to Registrant's Form 10-K, for the fiscal year ended December
      31, 1987, Commission File No. 1-4717

    - The Employment Continuation Agreements - KCSI and subsidiaries
      attached as Exhibit G*** to Registrant's Form 10-K, for the fiscal
      year ended December 31, 1987, Commission File No. 1-4717 extended to
      February 19, 1993

    - The Officer Indemnification Agreement attached as Exhibit H*** to
      Registrant's Form 10-K, for the fiscal year ended December 31, 1987,
      Commission File No. 1-4717

    - The KCSI ESOP Loan Agreement, dated February 3, 1988, attached as
      Exhibit L*** to Registrant's Form 10-K, for the fiscal year ended
      December 31, 1987, Commission File No. 1-4717

    - The KCSI Guarantee Agreement, dated February 3, 1988, attached as
      Exhibit M*** to Registrant's Form 10-K, for the fiscal year ended
      December 31, 1987, Commission File No. 1-4717

    - The KCSI Directors' Deferred Fee Plan and Amendment to KCSI
      Directors' Fee Plan attached as Exhibit N*** to Registrant's Form 10-
      K,  for the fiscal year ended December 31, 1987, Commission File No.
      1-4717

    - The Kansas City Southern Railway Company Directors' Deferred Fee Plan
      and Amendment to Kansas City Southern Railway Company Directors'
      Deferred Fee Plan attached as Exhibit O*** to Registrant's Form 10-K,
      for the fiscal year ended December 31, 1987, Commission File No. 1-
      4717

    - Exhibit 10.1*** Employee Stock Ownership Plan and Trust Note
      Agreement dated December 1, 1989 to Registrant's Form 10-K, for the
      fiscal year ended December 31, 1989, Commission File No. 1-4717

    - Exhibit 10.4*** Description of the Registrant's 1991 incentive
      compensation plan to Registrant's Form 10-K, for the fiscal year
      ended December 31, 1990, Commission File No. 1-4717

    - Exhibit 10.1*** The Registrant's 1991 Stock Option and Performance
      Award Plan to Registrant's Form 10-K, for fiscal year ended December
      31, 1991, Commission File No. 1-4717

    - Exhibit 10.2*** The Registrant's Directors Deferred Fee Plan, adopted
      August 20, 1982, amended and restated September 13, 1991, to
      Registrant's Form 10-K, for fiscal year ended December 31, 1991,
      Commission File No. 1-4717

    - Exhibit 10.1*** Employment Agreement, dated January 1, 1992, as
      amended and restated March 18, 1993, by and between Kansas City
      Southern Industries, Inc., and Landon H. Rowland to the Registrant's
      Form 10-K, for fiscal year ended December 31, 1992, Commission File
      No. 1-4717.

    - Exhibit 10.2*** Employment Agreement, dated January 1, 1992, as
      amended and restated March 18, 1993, by and between Kansas City
      Southern Industries, Inc., The Kansas City Southern Railway Company
      and George W. Edwards, Jr. to the Registrant's Form 10-K, for fiscal
      year ended December 31, 1992, Commission File No. 1-4717.


                      _____________________________

*** Incorporated by reference pursuant to Rule 12b-32

[Page 31]
    - Exhibit 10.3*** Employment Agreement, dated January 1, 1992, as
      amended and restated March 18, 1993, by and between Kansas City
      Southern Industries, DST Systems, Inc. and Thomas A. McDonnell to the
      Registrant's Form 10-K, for fiscal year ended December 31, 1992,
      Commission File No. 1-4717.

    - Exhibit 10.1 attached to this Form 10-K.

(11)Statement Re Computation of Per Share Earnings
(Inapplicable)

(12)Statements Re Computation of Ratios
- -Exhibit 12.1 attached to this Form 10-K

(13)Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders
- -Exhibit 13.1 attached to this Form 10-K

(16)Letter Re Change in Certifying Accountant
(Inapplicable)

(18)Letter Re Change in Accounting Principles
(Inapplicable)

(21)Subsidiaries of the Registrant
- -Exhibit 21.1 attached to this Form 10-K

(22)Published Report Regarding Matters Submitted to Vote of Security Holders
(Inapplicable)

(23)Consents of Experts and Counsel
Page F-1 to this Form 10-K

(24)Power of Attorney
(Inapplicable)

(27)Financial Data Schedule 
- -Exhibit 27.1 attached to this Form 10-K

(28)Information from Reports Furnished to State Insurance Regulatory
Authorities
(Inapplicable)

(99)Additional Exhibits
- -A listing of explanations of graphics used in the Management's Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1994, attached hereto as Exhibit 99.1

(b)  Reports on Form 8-K

The Registrant filed a Form 8-K dated October 14, 1994 under items 5 and 7,
reporting (a) the closing of the acquisition of a controlling interest in
Berger Associates, Inc., increasing KCSI's ownership from approximately 18% to
over 80%, and (b) the joint announcement by the Registrant and the Illinois
Central Corporation of the termination of their Letter of Intent for the
merger of the Registrant, after a spin-off of the Registrant's non-
transportation operations, with the ICC.

The Registrant filed a Form 8-K dated January 31, 1995 under items 2 and 7,
reporting the Registrant's wholly-owned subsidiary, DST Systems, Inc., along
with Kemper Financial Services, completed of the sale of IFTC Holdings, Inc.
to State Street Boston Corporation.




                     ____________________________

*** Incorporated by reference pursuant to Rule 12b-32                    

[Page 32]
                                         SIGNATURES
     
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

          Kansas City Southern Industries, Inc.
                                    


March 21, 1995                          By:    /s/ L.H. Rowland 
                                             L.H. Rowland, President,
                                             Chief Executive Officer
                                                 and Director























































                                [Page 33]

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
Registrant and in the capacities indicated on March 21, 1995.

         Signature                                  Capacity


       /s/ P.H. Henson         Chairman and Director
         P.H. Henson


      /s/ L.H. Rowland         President, Chief Executive
        L.H. Rowland           Officer and Director


    /s/ G.W. Edwards Jr.       Executive Vice President
      G.W. Edwards Jr.         and Director


     /s/ T.A. McDonnell        Executive Vice President
       T.A. McDonnell               and Director


      /s/ J.D. Monello         Vice President & Chief Financial Officer
        J.D. Monello                (Principal Financial Officer)


      /s/ L.G. Van Horn        Comptroller
        L.G. Van Horn               (Principal Accounting Officer)


      /s/ A.E. Allinson        Director
        A.E. Allinson


       /s/ P.F. Balser         Director
         P.F. Balser


       /s/ J.E. Barnes         Director
         J.E. Barnes


       /s/ T.S. Carter         Director
         T.S. Carter


        /s/ M.G. Fitt          Director
          M.G. Fitt


      /s/ M.I. Sosland         Director
        M.I. Sosland

                                               















                               [Page 34]
                                    
                                    
                                    
                   CONSENT OF INDEPENDENT ACCOUNTANTS



We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-69060, 33-50517, 33-50519), and in the
Prospectuses constituting part of the Registration Statements on Form S-3 (No.
33-60192, 33-69648) of Kansas City Southern Industries, Inc. of our report
dated February 23, 1995, appearing on page 47 of the 1994 Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K.  


/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP

Kansas City, Missouri
March 21, 1995

















































                                   F-1

                  KANSAS CITY SOUTHERN INDUSTRIES, INC.
                       1994 FORM 10-K ANNUAL REPORT
                            INDEX TO EXHIBITS


                                                          Regulation SK
Exhibit                                                   Item 14(a)(3)
  No.                       Document                       Exhibit No.


 
 3.1         Amendment to Registrant's Certificate of             3
             Incorporation to set a par value for Common
             stock and increase the number of authorized
             Common shares, dated May 6, 1994                 

 10.1        Employment Agreement, dated April 1, 1992, by       10
             and between Kansas City Southern Industries,
             Kansas City Southern Railway Company, and
             James B. Dehner                                  
             
 12.1        Ratio of Earnings to Fixed Charges                  12

 13.1        1994 Annual Report to Stockholders                  13

 21.1        Subsidiaries of the Registrant                      21

 27.1        Financial Data Schedule                             27

 99.1        Listing of explanations of graphics used in         99
             Management's Discussion and Analysis of Financial
             Condition and Results of Operations

EX-3

                                     
                              CERTIFICATE OF
                 AMENDMENT OF CERTIFICATE OF INCORPORATION
                                    OF
                   KANSAS CITY SOUTHERN INDUSTRIES, INC.
                                     
                                May 6, 1994
                  ______________________________________
                                     
    Kansas City Southern Industries, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:

    FIRST,  that at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth proposed amendments  of  the 
Corporation's  Certificate  of  Incorporation, declaring the amendments to be
advisable and directing that the proposed  amendments  be  considered  at  the
annual  meeting of stockholders of the Corporation.  Said amendments amend the
first paragraph of paragraph "FOURTH" of the Corporation's Certificate of
Incorporation so that as amended that paragraph reads as follows:

          FOURTH.  The total number of shares of stock which the
     Corporation shall have authority to issue is FOUR HUNDRED  TWO 
     MILLION  EIGHT  HUNDRED  FORTY  THOUSAND (402,840,000)  shares,  of 
     which  Eight  Hundred  Forty Thousand (840,000) shares having a par
     value of $25 each shall be Preferred Stock, Two Million (2,000,000)
     shares having a par value of  $1  each shall be New Series Preferred
     Stock, and Four Hundred Million (400,000,000) shares having a par
     value of $0.01 each shall be Common Stock.
                                                
    SECOND,  that  thereafter,  pursuant  to  resolution  of  the
Corporation's Board of Directors, the regular annual meeting of the
stockholders of the Corporation was duly called and held, upon notice, such
notice describing such amendments, in accordance with Section 222  of  the 
General  Corporation  Law of  the  State  of Delaware, at which meeting in
excess of the necessary number of shares as required by statute and the
Certificate of Incorporation (including the necessary number of shares of each
class of stock, where class votes were required)  were voted in favor of  the
amendments.

    THIRD, that said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

    FOURTH,  that the capital of the Corporation shall not be reduced by
reason of said amendments.


                                Page 1 of 2
                                     

Kansas City Southern Industries, Inc.
Certificate of Amendment
May 6, 1994


    IN WITNESS WHEREOF, Kansas City Southern Industries, Inc. has caused  its 
corporate  seal  to  be  hereunto  affixed  and  this certificate  to be
signed by Richard P.  Bruening,  Senior Vice President and General Counsel, 
and Sherry Cooper its Assistant Secretary as of the date first written above.



                            /s/ Richard P. Bruening               
                         Richard P. Bruening
                         Senior Vice President and General Counsel

ATTEST:
                            /s/ Sherry K. Cooper                  
[CORPORATE SEAL]         Sherry K. Cooper
                         Assistant Secretary






























                                Page 2 of 2

EX-10

                           EMPLOYMENT AGREEMENT


     THIS AGREEMENT, made and entered into as of this 1st day of April, 1992,
by and between The Kansas City Southern Railway Company, a Missouri
corporation ("Railway"), Kansas City Southern Industries, Inc., a Delaware
corporation ("KCSI") and James B. Dehner, an individual ("Executive").
     WHEREAS, Executive is now employed by Railway, which is a wholly-owned
subsidiary of KCSI, and Railway, KCSI and Executive desire for Railway to
continue to employ Executive on the terms and conditions set forth in this
Agreement and to provide an incentive to Executive to remain in the employ of
Railway hereafter, particularly in the event of any Change in Control of KCSI
(as herein defined), thereby establishing and preserving continuity of
management of Railway;
     WHEREAS, simultaneously herewith KCSI has granted Executive stock options
to acquire shares of KCSI common stock, and KCSI desires to encourage
significant long-term ownership of KCSI common stock by Executive through the
grant of such options and the award of Restricted Stock as provided herein;
and
     WHEREAS, Executive intends to retain ownership of a substantial portion
of the shares of KCSI common stock acquired as Restricted Stock or through
exercise of stock options granted on or after the date hereof, and KCSI
intends to make future awards under its equity participation programs to
executives who have retained ownership of a substantial portion of their
shares of KCSI common stock.
     NOW, THEREFORE, in consideration of the grant of stock options to
Executive, the award of Restricted Stock as provided herein and the mutual
covenants and agreements herein contained, it is agreed by and between
Railway, KCSI and Executive as follows:
     1.   Employment.   Railway hereby continues the employment of Executive
as its Senior Vice President to serve at the pleasure of the Board of
Directors of Railway (the "Railway Board") and to have such duties, powers and
responsibilities as may be prescribed or delegated from time to time by the
President or other officer to whom Executive reports, subject to the powers
vested in the Railway Board and in the stockholder of Railway.  Executive
shall faithfully perform his duties under this Agreement to the best of his
ability and shall devote substantially all of his working time and efforts to
the business and affairs of Railway and its affiliates.
     2.   Compensation.
          (a)  Base Compensation.  Railway shall pay Executive as compensation
for his services hereunder an annual base salary at the rate in effect at the
time of execution of this Agreement, subject to adjustment from time to time
as agreed by the parties.
          (b)  Incentive Compensation.  During the time that Railway continues
to be a wholly-owned subsidiary of KCSI, Railway shall include Executive as a
participant in the KCSI Incentive Compensation Plan under such terms as are
determined from time to time by the Board of Directors of KCSI (the "KCSI
Board") or the Compensation Committee or other appropriate committee of the
KCSI Board (the "Compensation Committee") and for such time as such plan shall
continue in existence.  KCSI reserves the right to change, revoke or terminate
such plan at any time.
          (c)  Restricted Stock.  As additional compensation for his services
hereunder, Executive has been awarded, as of the date hereof, three thousand
(3,000) shares of common stock (the "Restricted Stock") of KCSI, without the
payment of any further consideration therefor by Executive.  Commencing on the
date hereof, Executive shall have all of the rights of a stockholder with
respect to the Restricted Stock, including without limitation rights to vote
and to receive dividends and other distributions and adjustments on such
shares, and such shares shall be deemed to be outstanding, fully paid and
non-assessable shares subject to the following restrictions:
          (i)  In the event Executive's employment hereunder is terminated for
     cause by Railway (as defined in Paragraph 4(c) below), or terminated
     voluntarily by Executive (other than upon material breach by Railway
     pursuant to Paragraph 4 (a)) prior to the end of any period set forth
     below, all rights of Executive in and to the number of shares of
     Restricted Stock set forth below corresponding to the first end of
     period following such termination shall be thereupon forfeited and
     Executive shall immediately upon such termination transfer all such
     shares (or an equivalent number of other shares of KCSI common stock) to
     KCSI without any payment or other consideration to Executive:
                 
          End of Period       Number of Shares Forfeited
          March 31, 1993                3,000
          March 31, 1994                2,400
          March 31, 1995                1,800
          March 31, 1996                1,200
          March 31, 1997                  600

         

The termination of Executive's employment by reason of retirement with the
consent of the Railway Board, death or disability shall not be considered a
voluntary termination of employment by Executive.
          (ii) Executive shall not transfer any of the shares of Restricted
     Stock which remain subject to forfeiture hereunder, other than to KCSI,
     except with the prior approval of the KCSI Board or Compensation
     Committee.  In the event of termination of Executive's employment by
     Railway other than for cause or by reason of retirement with the consent
     of the Railway Board, death or disability, the Restricted Stock shall no
     longer be subject to forfeiture hereunder.
          (iii) The issuance of the Restricted Stock to Executive hereunder is
     subject to any required federal, state and local withholding taxes,
     which shall be paid in cash by Executive, and has not been registered
     under federal or state securities laws.  Executive represents that he is
     acquiring the Restricted Stock for investment and not with a view to
     distribution thereof.
          (iv) Until they are no longer subject to forfeiture hereunder, each
     certificate for shares of Restricted Stock issued to Executive hereunder
     shall bear a legend, to the following effect:
               "The shares represented hereby are subject to transfer
          restrictions and forfeiture provisions under an Agreement dated
          April 1, 1992 on file at the offices of the Company.  These shares
          may not be offered, sold, pledged or otherwise transferred other
          than to the Company, except in compliance with the provisions of
          such Agreement."


     If any shares of Restricted Stock are transferred to KCSI to acquire
other shares of KCSI common stock, the foregoing legend shall apply to the
number of shares acquired as is equal to the number of shares of Restricted
Stock transferred to KCSI and shall be affixed to the appropriate stock
certificate or certificates.  KCSI shall remove the foregoing legend at the
Executive's request with respect to certificates for any shares of Restricted
Stock which shall no longer be subject to forfeiture hereunder.
          (v) Unless the shares of Restricted Stock are registered under the
     Securities Act of 1933 and applicable state securities laws (which
     registration may be performed by KCSI at its option), each certificate
     for shares of Restricted Stock issued to Executive hereunder shall bear
     a legend as follows:
               "The shares represented by this certificate have not been
          registered under the Securities Act of 1933 or under any state
          securities law.  These shares may not be offered, sold, pledged or
          otherwise transferred, other than to the Company, in the absence
          of said registration or the availability of an exemption
          therefrom. No offer, sale, pledge or other transfer shall take
          place without submitting to the Company evidence satisfactory to
          counsel for the Company to the effect that such transaction does
          not violate the restrictions set forth herein."


     3.   Benefits.  During the period of his employment hereunder, Railway
shall provide Executive with coverage under such benefit plans and programs as
are made generally available to executives serving in the Office
of the Chief Executive of Railway, provided (a) railway shall have no
obligation with respect to any plan or program if Executive is not eligible
for coverage thereunder, and (b) Executive acknowledges that stock options
and other stock and equity participation awards are granted in the discretion
of the KCSI Board or Compensation Committee and that Executive has no right to
receive stock options or other equity participation awards or any
particular number or level of stock options or other awards. Executive
acknowledges that all rights and benefits under benefit plans and programs
shall be governed by the official text of each such plan or program and not
by any summary or description thereof or any provision of this Agreement and
that Railway is under no obligation to continue in effect or to fund any such
plan or program, except as provided in Paragraph 7 hereof.  Railway also shall
continue to reimburse Executive for ordinary and necessary travel and other
business expenses in accordance with policies and procedures established by
Railway.
     4.   Termination.
          (a)  Termination by Executive.  Executive may terminate this
Agreement and his employment hereunder by at least thirty (30) days advance
written notice to Railway, except that in the event of any material breach of
this Agreement by Railway, Executive may terminate this Agreement and his
employment hereunder immediately upon notice to Railway.
          (b)  Death or Disability.  This Agreement and Executive's employment
hereunder shall terminate automatically on the death or disability of
Executive.  For purposes of this Agreement, Executive shall be deemed to be
disabled if he is unable to engage in a significant portion of his normal
duties for Railway by reason of any physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for
a continuous period of not less than six (6) months.
          (c)  Termination by Railway For Cause.  Railway may terminate this
Agreement and Executive's employment "for cause" immediately upon notice to
Executive.  For purposes of this Agreement, termination "for cause" shall mean
termination based upon any one or more of the following:
               (i)  Any material breach of this Agreement by Executive;
               (ii) Executive's dishonesty involving Railway, KCSI or any
subsidiary of Railway or KCSI;
               (iii) Gross negligence or willful misconduct in the performance
of Executive's duties as determined in good faith by the Railway Board;
               (iv) Willful failure by Executive to follow reasonable
instructions of the President or other officer to whom Executive reports
concerning the operations or business of Railway or any subsidiary of Railway;
               (v)  Executive's fraud or criminal activity; or 
               (vi) Embezzlement or misappropriation by Executive.
          (d)  Termination by Railway Other Than For Cause.
               (i)  Railway may terminate this Agreement and Executive's
employment other than for cause immediately upon notice to Executive, and in
such event, Railway shall provide severance benefits to Executive in
accordance with Paragraph 4 (d) (ii) below.
               (ii) In the event of termination of Executive's employment
under Paragraph 4 (d)(i), Railway shall continue, for a period of twelve (12)
months following such termination, (A) to pay to Executive as severance pay a
monthly amount equal to one-twelfth (1/12th) of the annual base salary
referenced in Paragraph 2(a) above at the rate in effect immediately prior to
termination, and, (B) to reimburse Executive for the cost (including state and
federal income taxes payable with respect to this reimbursement) of obtaining
coverage comparable to the health and life insurance provided pursuant to this
Agreement, unless Executive is provided comparable coverage in connection with
other employment.  The foregoing obligations of Railway shall continue until
the end of the said twelve (12) month period notwithstanding the death or
disability of Executive during said period (except, in the event of death, the
obligation to reimburse Executive for the cost of life insurance shall not
continue).  After termination of employment, Executive shall not be entitled
to accrue or receive benefits under the KCSI Executive Plan or the KCSI
Incentive Compensation Plan with respect to the severance pay provided herein,
notwithstanding that benefits under such plans then are still generally
available to executive employees of Railway; contributions and benefits under
such plans with respect to the year of termination shall be based solely upon
compensation paid to Executive for periods prior to termination.  In the year
of termination, Executive shall be entitled to participate in the KCSI Profit
Sharing Plan and the KCSI Employee Stock Ownership Plan (if Railway employees
then still participate in such plans) only if the Executive meets all
requirements of such plans for participation in such year.
     5.   Non-Disclosure.  During the term of this Agreement and at all times
after any termination of this Agreement, Executive shall not, either directly
or indirectly, use or disclose any Railway trade secret, except to the extent
necessary for Executive to perform his duties for Railway while an employee. 
For purposes of this Agreement, the term "Railway trade secret" shall mean any
information regarding the business or activities of Railway or any subsidiary
or affiliate, including any formula, pattern, compilation, program, device,
method, technique, process, customer list, technical information or other
confidential or proprietary  information, that (a) derives independent
economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use, and (b) is the subject
of efforts of Railway or its subsidiary or affiliate that are reasonable
under the circumstance to maintain its secrecy.  In the event of any breach of
this Paragraph 5 by Executive, Railway shall be entitled to terminate any and
all remaining severance benefits under Paragraph 4(d)(ii) above and
shall be entitled to pursue such other legal and equitable remedies as may be
available.
     6.   Duties Upon Termination: Survival.
          (a)  Duties.  Upon termination of this Agreement by Railway or
Executive for any reason, Executive shall immediately return to Railway all
Railway trade secrets which exist in tangible form and shall sign such written
resignations from all positions as an officer, director or member of any
committee or board of Railway and all direct and indirect subsidiaries and
affiliates of Railway as may be requested by Railway and shall sign such other
documents and papers relating to Executive's employment, benefits and benefit
plans as Railway may reasonably request.
          (b)  Survival.  The provisions of Paragraphs 5 and 6(a) of this
Agreement shall survive any termination of this Agreement by Railway or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Railway under Paragraph 4(d)(i).

     7.   Continuation of Employment Upon Change in Control.
          (a)  Continuation of Employment.  Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control of KCSI
(as defined in Paragraph 7(d)) at any time during the term of this
Agreement, Executive will remain in the employ of Railway for a period of an
additional three years from the date of such Change in Control of KCSI (the
"Control Change Date").  In the event of a Change in Control of KCSI, subject
to the terms and conditions of this Paragraph 7, Railway shall, for the three
year period (the "Three-Year Period") immediately following the Control Change
Date, continue to employ Executive at not less than the executive capacity
Executive held immediately prior to the Change in Control of KCSI.  During the
Three-Year Period, Railway shall continue to pay Executive salary on the same
basis, at the same intervals, and at a rate not less than that, paid to
Executive at the Control Change Date.  Notwithstanding any other provision
of this Agreement to the contrary, the provisions of this Paragraph 7 shall
apply only if at least eighty percent (80%) of the issued and outstanding
stock of all classes of Railway is owned by KCSI on the Control Change
Date.
          (b)  Benefits.  During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in each of
the following plans (together, the "Specified Benefits") in existence,
and in accordance with the terms thereof, at the Control Change Date:
               (i)  any incentive compensation plan;
               (ii) any benefit plan, and trust fund associated therewith,
related to (A) life, health, dental, disability, or accidental death and
dismemberment insurance, (B) profit sharing, thrift or deferred savings
(including deferred compensation, such as under Sec. 401(k) plans), (C)
retirement or pension benefits, (D) ERISA excess benefits and (E) tax favored
employee stock ownership (such as under ESOP, TRASOP, TCESO or PAYSOP
programs); and
               (iii)     any other benefit plans hereafter made generally
available to executives of Executive's level or to the employees of Railway
generally.

In addition, all outstanding options held by Executive under any stock option
plan of KCSI or its affiliates shall become immediately exercisable, and all
shares of Restricted Stock shall no longer be subject to forfeiture under
Paragraph 2(c) (i) above, on the Control Change Date.
          (c)  Payment.  With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive Specified
Benefits as a general obligation of Railway which has not been separately
funded (including specifically, but not limited to, those referred to under
Paragraphs 7 (b) (i) and 7(b) (ii) (D) above), Executive shall receive within
five (5) days after such date full payment in cash (discounted to then present
value on the basis of a rate of 7.5 percent per annum) of all amounts to which
he is then entitled thereunder.
          (d)  Change in Control of KCSI.  For purposes of this Agreement, a
"Change in Control of KCSI" shall be deemed to have occurred if (a) for any
reason at any time less than seventy-five percent (75%) of the members of the
KCSI Board shall be individuals who were members of the KCSI Board on the date
of this Agreement or individuals whose election, or nomination for election by
KCSI's stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the KCSI Board then still in office who were
members of the KCSI Board on the date of this Agreement, or (b) any "person"
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act")) shall have become, according to
a public announcement or filing, without the prior approval of the KCSI Board,
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of KCSI representing thirty
percent (30%) (forty percent (40%) with respect to Paragraph 7(c) hereof) or
more (calculated in accordance with Rule 13d-3) of the combined voting power
of KCSI's then outstanding voting securities (such "person" hereafter
referred to as a "Major Stockholder"); or (c) the stockholders of KCSI shall
have approved a merger, consolidation or dissolution of KCSI or a sale, lease,
exchange or disposition of all or substantially all of KCSI's assets, or a
Major Stockholder shall have proposed any such transaction, unless any such
merger, consolidation, dissolution, sale, lease, exchange or disposition shall
have been approved by a least seventy-five percent (75%) of the members
of the KCSI Board who were either (i) members of the KCSI Board on the date of
this Agreement or (ii) elected or nominated by at least seventy-five percent
(75%) of the members of the KCSI Board then still in office who were members
of the KCSI Board on the date of this Agreement.
          (e)  Termination After Control Change Date.  Notwithstanding any
other provision of this Paragraph 7, at any time after the Control Change
Date, Railway may, through its Board, terminate the employment of Executive
(the "Termination"), but within five (5) days of the Termination it shall pay
to Executive his full base salary through the Termination, to the extent not
theretofore paid, plus a lump sum amount (the "Special Severance Payment")
equal to the product (discounted to then present value on the basis of a rate
of 7.5% per annum) of his annual base salary specified in Paragraph 7(a)
hereof multiplied by the number of years and any portion thereof remaining in
the Three-Year Period (or if the balance of the Three-Year Period after
Termination is less than one year, for one year, [hereinafter called the
"Extended Period"]).  Specified Benefits to which Executive was entitled
immediately prior to Termination shall continue until the end of the
Three-Year Period (or the Extended Period, if applicable); provided that: (a)
if any plan pursuant to which Specified Benefits are provided immediately
prior to Termination would not permit continued participation by Executive
after Termination, then Railway shall pay to Executive within five (5) days
after Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received if Executive had been fully vested and a
continuing participant in such plan to the end of the Three-Year Period or the
Extended Period, if applicable; and (b) if Executive obtains new employment
following Termination, then following any waiting period applicable to
participation in any plan of the new employer, Executive shall continue to be
entitled to receive benefits pursuant to this sentence only to the extent such
benefits would exceed those available to Executive under comparable plans of
the Executive's new employer (but Executive shall not be required to repay
any amounts then already received by him).
          (f)  Resignation After Control Change Date.  In the event of a
Change in Control of KCSI, thereafter, upon good reason (as defined below),
Executive may, at any time during the Three-Year Period or the Extended
Period, in his sole discretion, on not less than thirty (30) days' written
notice to the Secretary of Railway and effective at the end of such notice
period, resign his employment with Railway (the "Resignation").  Within five
(5) days of such a Resignation, Railway shall pay to Executive his full base
salary through the effective date of such Resignation, to the extent not
theretofore paid, plus a lump sum amount equal to the Special Severance
Payment (computed as provided in the first sentence of Paragraph 7(e), except
that for purposes of such computation all references to "Termination" shall be
deemed to be references to "Resignation").  Upon Resignation of Executive,
Specified Benefits to which Executive was entitled immediately prior to
Resignation shall continue on the same terms and conditions as provided in
Paragraph 7(e) in the case of Termination (including equivalent payments
provided for therein).  For purposes of this Agreement, Executive shall have
"good reason" if there occurs without his consent (a) a reduction in the
character of the duties assigned to Executive or in Executive's level of work
responsibility or conditions; (b) a reduction in Executive's base salary
as in effect immediately prior to the Control Change Date or as the same may
have been increased thereafter; (c) a failure by Railway or its successor to
(i) continue any of the plans of the type referred to in Paragraph 7(b)
which shall have been in effect at the Control Change Date including those
providing for Specified Benefits) or to continue Executive as a participant in
any of such plans on at least the basis in effect immediately prior to the
Control Change Date; or (ii) provide other plans under which at least
equivalent compensation and benefits are available and in which Executive
continues to participate on a basis at least equivalent to his participation
in the Railway plans in effect immediately prior to the Control Change Date;
or (iii) to make the payment required under Paragraph 7(c); (d) the relocation
of the principal executive offices of Railway or its successor to a location
outside the metropolitan area of Kansas City, Missouri or requiring Executive
to be based anywhere other than Railway's principal executive office, except
for required travel on Railway's business to an extent substantially
consistent with Executive's obligations immediately prior to the Control
Change Date; or (e) any breach by Railway of this Agreement to the extent not
previously specified.
          (g)  Termination for Cause After Control Change Date. 
Notwithstanding any other provision of this Paragraph 7, at any time after the
Control Change Date, Executive may be terminated by Railway "for cause"
without notice and without any payment hereunder only if such termination is
for an act of dishonesty by Executive constituting a felony under the laws of
the State of Missouri which resulted or was intended to result in gain or
personal enrichment of Executive at Railway's expense.
          (h)  Gross-Up Provision.  If any Portion of any payments received by
Executive from Railway on or after the Control Change Date (whether payable
pursuant to the terms of this Agreement or any other plan, agreement or
arrangement with Railway, its successors or any person whose actions result in
a Change of Control of KCSI), shall be subject to the tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, or any successor
statutory provision ("Parachute Payments"), Railway shall pay to Executive,
within five (5) days of Executive's Termination or Resignation such additional
amounts as are necessary so that, after taking into account any tax imposed by
such Section 4999 or any successor statutory provision on any such
Parachute Payments (as well as any income tax or Section 4999 tax on payments
made pursuant to this sentence), Executive is in the same after-tax position
that Executive would have been in if such Section 4999 or any successor
statutory provision did not apply and no payments were made pursuant to this
sentence.

          (i)  Mitigation and Expenses.
               (i)  Other Employment.  After the Control Change Date,
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise and except as
expressly set forth herein no such other employment, if obtained, or
compensation or benefits payable in connection therewith shall reduce any
amounts or benefits to which Executive is entitled hereunder.
               (ii) Expenses.  If any dispute should arise under this
Agreement after the Control Change Date involving an effort by Executive to
protect, enforce or secure rights or benefits claimed by Executive hereunder,
Railway shall pay (promptly upon demand by Executive accompanied by reasonable
evidence of incurrence) all reasonable expenses (including attorneys' fees)
incurred by Executive in connection with such dispute, without regard to
whether Executive prevails in such dispute except that Executive shall repay
Railway any amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted frivolously or in bad
faith by such dispute.  To assure Executive that adequate funds will be made
available to discharge Railway's obligations set forth in the preceding
sentence, Railway has established a trust and upon the occurrence of a Change
in Control of KCSI shall promptly deliver to the trustee of such trust to hold
in accordance with the terms and conditions thereof that sum which the Board
shall have determined is reasonably sufficient for such purpose.
          (j)  Successors in Interest.  The rights and obligations of
Executive and Railway under this Paragraph 7 shall inure to the benefit of and
be binding in each and every respect upon the direct and indirect successors
and assigns of Railway and Executive, regardless of the manner in which such
successors or assigns shall succeed to the interest of Railway or Executive
hereunder, and this Paragraph 7 shall not be terminated by the voluntary or
involuntary dissolution of Railway or by any merger or consolidation or
acquisition involving Railway, or upon any transfer of all or substantially
all of Railway's assets, or terminated otherwise than in accordance with its
terms.  In the event of any such merger or consolidation or transfer of
assets, the provisions of this Paragraph 7 shall be binding upon and shall
inure to the benefit of the surviving corporation or the
corporation or other person to which such assets shall be transferred.
          (k)  Prevailing Provisions.  On and after the Control Change Date,
the provisions of this Paragraph 7 shall control and take precedence over any
other provisions of this Agreement which are in conflict with or address the
same or a similar subject matter as the provisions of this Paragraph 7.
     8.   Notice.  Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have
been given when personally delivered, delivered by telecopy or deposited in
the United States mail by certified or registered mail, postage prepaid,
addressed, in the case of Railway, to Railway, 114 West 11th Street, Kansas
City, Missouri 64105, Attention: Secretary, or, in the case of
the Executive, to him at 10120 Mackey, Overland Park, Kansas 66212, or to such
other address as a party shall designate by notice to the other party.
     9.   Amendment.  No provision of this Agreement may be amended, modified,
waived or discharged unless such amendment, waiver, modification or discharge
is agreed to in a writing signed by Executive and the President of Railway. 
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or subsequent
time.
     10.  Successors and Assigns; Assignment by Executive Prohibited.  The
rights and obligations of Railway under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of Railway. 
Except as provided in Paragraph 7(j), neither this Agreement nor any of the
payments or benefits hereunder may be pledged, assigned or transferred by
Executive either in whole or in part in any manner, without the prior written
consent of Railway.
     11.  Severability.  The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
     12.  Controlling Law and Jurisdiction.  The validity, interpretation and
performance of this Agreement shall be subject to and construed under the laws
of the State of Missouri, without regard to principles of conflicts of law.
     13.  Entire Agreement.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof, except this Agreement
does not supersede any Officer Indemnification Agreement between Railway and
Executive.
     IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
                    THE KANSAS CITY SOUTHERN RAILWAY COMPANY
                    
                    
                    By /s/ George W. Edwards, Jr., President     
                       George W. Edwards, Jr., President
                    
                    
                    KANSAS CITY SOUTHERN INDUSTRIES, INC
                    
                    
                    By /s/ Landon H. Rowland, President          
                       Landon H. Rowland, President
                    
                    
                    
                      /s/ James B. Dehner                        
                      James B. Dehner
                    
                    
                    
2:\bks\kcsi-emp.agr

EX-12

                                                                  
      
                                                             
Page 1 of 2
                                    

                                    
                  KANSAS CITY SOUTHERN INDUSTRIES, INC.
                        AND SUBSIDIARY COMPANIES
                                    
           COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES-
                 EXCLUDING INTEREST ON DEPOSITS OF IFTC
                          (Dollars in Millions)


                                    Years Ended December 31,      
 
                                  1994     1993   1992   1991   1990
                                                 
Pretax Income, excluding
 equity in earnings of
 unconsolidated affiliates       $148.9   $160.9 $ 92.8  $ 66.2 $ 56.3

Interest expense on 
 Indebtedness                      53.6     51.2   33.1    32.1   31.4

Portion of Rents Representative
 of an Appropriate 
 Interest Factor                   17.7     11.0    8.3     5.7    5.3

Equity in Undistributed Earnings
 of 50% Owned Affiliates           15.6      9.0    8.2     7.0    3.9

Distributed Earnings of Less Than
 50% Owned Affiliates               0.1      0.5    0.6     0.2    0.3

Fixed Charges of 
 50% Owned Affiliates               0.9      1.4    1.0     1.3    1.6

 Income as Adjusted              $236.8   $234.0 $144.0  $112.5 $ 98.8

Fixed Charges:

Interest Expense 
 on Indebtedness                 $ 53.6   $ 51.2 $ 33.1  $ 32.1 $ 31.4

Portion of Rents 
 Representative of an 
 Appropriate Interest Factor       17.7     11.0    8.3     5.7    5.3

Fixed Charges of 
 50% Owned Affiliates               0.9      1.4    1.0     1.3    1.6

 Total Fixed Charges             $ 72.2   $ 63.6 $ 42.4  $ 39.1 $ 38.3

Ratio of Earnings to 
 Fixed Charges Excluding
 Interest on Deposits of IFTC      3.28     3.68   3.40    2.88   2.58


                                                                  
      
                                                             
Page 2 of 2


                                    
                  KANSAS CITY SOUTHERN INDUSTRIES, INC.
                        AND SUBSIDIARY COMPANIES
                                    
           COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES-
                 INCLUDING INTEREST ON DEPOSITS OF IFTC
                          (Dollars in Millions)
                                    

                                    Years Ended December 31,      
 
                                  1994     1993    1992   1991  1990
                                                 
Pretax Income, excluding
 equity in earnings of
 unconsolidated affiliates       $148.9  $160.9  $ 92.8  $ 66.2 $ 56.3

Interest expense 
 on Indebtedness                   53.6    51.2    33.1    32.1   31.4

Portion of Rents 
 Representative of an 
 Appropriate Interest Factor       17.7    11.0     8.3     5.7    5.3

Equity in Undistributed Earnings
 of 50% Owned Affiliates           15.6     9.0     8.2     7.0    3.9

Distributed Earnings of Less Than
 50% Owned Affiliates               0.1     0.5     0.6     0.2    0.3

Fixed Charges of 
 50% Owned Affiliates               5.5     7.8     9.8    13.0   12.3

 Income as Adjusted              $241.4  $240.4  $152.8  $124.2 $109.5

Fixed Charges:

Interest Expense 
 on Indebtedness                 $ 53.6  $ 51.2  $ 33.1  $ 32.1 $ 31.4

Portion of Rents 
 Representative of an 
 Appropriate Interest Factor       17.7    11.0     8.3     5.7    5.3

Fixed Charges of 
 50% Owned Affiliates               5.5     7.8     9.8    13.0   12.3

 Total Fixed Charges             $ 76.8  $ 70.0  $ 51.2  $ 50.8 $ 49.0

Ratio of Earnings to 
 Fixed Charges Including
 Interest on Deposits of IFTC      3.14    3.43    2.98    2.44   2.23

EX-21

                    Subsidiaries of the Registrant

Kansas City Southern Industries, Inc., a Delaware Corporation, has no parent. 
All subsidiaries of the Registrant listed below are included in the
consolidated financial statements unless otherwise indicated

                                                             State or 
                                           Percentage   other Jurisdiction 
                                                of       of Incorporation
                                            Ownership     or Organization

1026459 Ontario Inc.                           100%           Canada
The Kansas City Southern Railway Company       100            Missouri
Animal Resources, Inc. (4)*                     49            Missouri
Argus Health Systems, Inc.(3)*                  50            Delaware
Belvedere Financial Systems, Inc. (3)          100            Delaware
Berger Associates, Inc.                         80            Delaware
Boston Financial Data Services, Inc. (3)*       50            Massachusetts
Broadway Square Partners (3)*                   50            Missouri
Carland, Inc. (7)                              100            Delaware
Clarke & Tilley Ltd. (3)                       100            England
Clarke & Tilley Data Services Ltd. (3)          50            England
Corfax Benefit Systems Ltd. (3)                100            Canada
Corfax Information Systems, Ltd. (3)           100            Canada
DBS Systems Corporation (3)                     60            North Carolina
DST Realty, Inc. (3)                           100            Missouri
DST Securities, Inc. (3)                       100            Missouri
DST Technologies, Inc. (3)                     100            Missouri
DST Systems, Inc.                              100            Missouri
DST Systems International B.V. (3)             100            Netherlands
First of Michigan Capital Corp. (3)*            21            Delaware
First President Corporation                    100            Missouri
Janus Service Corp. (9)                        100            Colorado
Janus Capital Corporation                       83            Colorado
KCS Transport Co., Inc. (1)                    100            Louisiana
Landa Motor Lines (1)                          100            Texas
Louisiana, Arkansas & Texas Trans. Co. (1)     100            Delaware
Martec Pharmaceutical, Inc. (4)*                49            Delaware
MGI Output Technologies  Inc. (3)              100            New York
Mid-South Microwave, Inc.                      100            Delaware
Midcon Labs, Inc. (4)                          100            Missouri
Midland Data Systems, Inc. (3)*                 45            Missouri
Midland Loan Services L.P. (3)*                 45            Missouri
Midland Commercial Properties, Inc. (3)*        35            Missouri
National Financial Data Services, Inc. (6)*     50            Massachusetts
National Realty Partners Group, Inc.(3)        100            Delaware
NRS Palmetto, Inc. (3)                         100            Delaware
Output Technologies Phoenix 
 Litho Group, Inc. (3)                         100            Missouri
Output Technologies SRI Group, Inc. (3)        100            Missouri
Output Technologies of California, Inc. (3)    100            Missouri
Output Technologies Eastern Region, Inc. (3)   100            Delaware
Output Technologies Vital Records 
 Storage Group, Inc. (3)                       100            Missouri
Output Technologies, Inc. (3)                  100            Missouri
Output Technologies Central Region, Inc. (3)   100            Missouri

                                                              Exhibit 21.1
                                                              (continued)

Output Technologies Western Region, Inc. (3)   100            Missouri
Output Technologies of Illinois, Inc. (3)      100            Illinois
Pabtex, Inc. (5)                               100            Delaware
PVI, Inc.                                      100            Delaware
Rice-Carden Corporation                        100            Missouri
Southern Leasing Corporation (7)               100            Delaware
Southern Development Company                   100            Missouri
Southern Group, Inc.                           100            Delaware
Southern Industrial Services, Inc.             100            Delaware
Southern Credit Corporation, Inc. (2)          100            Delaware
Talisman Services International B.V. (3)*       50            Netherlands
The Continuum Company, Inc. (3)*                29            Delaware
Tolmak, Inc.                                   100            Delaware
Trans-Serve, Inc. (5) (8)                      100            Delaware
Veals, Inc.                                    100            Delaware
Wyandotte Garage Corporation                    80            Missouri

 *    Unconsolidated Affiliate, Accounted for Using the Equity Method

 (1)  Subsidiary of The Kansas City Southern Railway Company
 (2)  Subsidiary of Southern Group, Inc.
 (3)  Subsidiary of DST Systems, Inc.
 (4)  Subsidiary of PVI, Inc.
 (5)  Subsidiary of Southern Industrial Services, Inc.
 (6)  Subsidiary of Boston Financial Data Services, Inc.
 (7)  Subsidiary of Southern Credit Corporation, Inc.
 (8)  Doing business as Superior Tie & Timber
 (9)  Subsidiary of Janus Capital Corporation





Subsidiaries and Affiliates not shown, if taken in the aggregate,  would
not constitute a significant subsidiary of the Registrant.

EX-27

 

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-K, CONTAINS
SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AND STATEMENT OF INCOME OF KANSAS CITY SOUTHERN INDUSTRIES, INC., 
COMMISSION FILE NUMBER 1-4717, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.

       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1994
<PERIOD-END>                               DEC-31-1994
<CASH>                                      12,700,000
<SECURITIES>                                         0
<RECEIVABLES>                              245,400,000
<ALLOWANCES>                                         0
<INVENTORY>                                 46,600,000
<CURRENT-ASSETS>                           380,100,000
<PP&E>                                   2,101,300,000
<DEPRECIATION>                             686,000,000
<TOTAL-ASSETS>                           2,230,800,000
<CURRENT-LIABILITIES>                      339,600,000
<BONDS>                                              0
<COMMON>                                       400,000
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                  7,100,000
<OTHER-SE>                                 659,700,000
<TOTAL-LIABILITY-AND-EQUITY>             2,230,800,000
<SALES>                                              0
<TOTAL-REVENUES>                         1,097,900,000
<CGS>                                                0
<TOTAL-COSTS>                              895,400,000
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                          53,600,000
<INCOME-PRETAX>                            173,700,000
<INCOME-TAX>                                63,500,000
<INCOME-CONTINUING>                        104,900,000
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               104,900,000
<EPS-PRIMARY>                                     2.32
<EPS-DILUTED>                                        0
        

 

EX-99

                         KANSAS CITY SOUTHERN INDUSTRIES, INC.
                               AND SUBSIDIARY COMPANIES
 
                                    
         EXPLANATION OF GRAPHICS USED IN THE MANAGEMENT'S DISCUSSION AND
            ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                
  MD&A 
  Graph
Reference               Description (Years ended December 31,)           
                                                             
1       KCSR Net Ton Miles - thousands of net ton miles is displayed along with
        average revenue per thousand net ton mile.

                                      1990     1991     1992      1993   1994   
        Net Ton Miles, in millions    12.1     12.2     13.3      13.8   17.5
        Average Revenue per 
          Net Ton Miles             $24.93   $24.94   $23.88    $23.74 $25.82

2       KCSR Revenues - graph displays the components of KCSR revenue 
        summarized in three categories; general commodity, coal and other. (in
        millions)
   
                                      1990     1991     1992      1993     1994
        General Commodities         $196.3   $198.6   $212.8    $222.2   $350.0
        Coal                         105.9    106.5    105.5     106.2    101.7
        Other                         17.7     17.1     17.3      17.1     20.8

3       KCSR Carloadings - carloadings are displayed in two major categories,
        general commodity and unit coal.
 
                                      1990     1991     1992      1993      1994
        General Commodity          323,796  320,286  336,007   370,703   596,281
        Unit Coal                  160,802  158,217  165,832   178,085   163,062

4       DST Revenues - DST revenue components are displayed and summarized into
        four categories; transaction processing and computer services, output
        services, insurance software sales and processing and other. (in 
        millions)

                                      1990     1991     1992      1993      1994
        Transaction Processing & 
          Computer Services         $108.2   $149.9   $178.4    $216.8    $267.8
        Output Services               33.9     54.2     86.9     116.4     127.1
        Other                          7.4      7.0      5.2       9.0       9.4

5       DST Mutual Fund Shareowner Accounts - this graph shows the total number
        of DST mutual fund Shareowner accounts serviced.
   
                                      1990     1991     1992      1993     1994
        Mutual Fund Shareowner Accounts
         Serviced, in millions        20.4     18.7     22.4      28.0     32.1
           

6       OTI Laser Clicks - the total number of output pages printed by DST's
        wholly-owned subsidiary, Output Technologies, Inc., is displayed.
   
                                      1990     1991     1992      1993      1994
           
        Total Number of Pages Printed,
          in millions                  239      322      460       669       802

7       Assets Under Management - growth in total assets under management along
        with revenue growth of the Registrant's Financial Asset Management
        business is displayed.

                                      1990     1991     1992      1993      1994
           
        Janus Revenues, in millions  $19.1    $41.7    $97.5    $162.7    $180.5
        Janus Assets Under Management,
          in billions                 $3.1     $8.7    $15.5     $22.2     $22.9

        Berger Revenues, in millions
          (since acquisition)                                               $7.8
        Berger Assets Under Management
          in billions                                                       $3.0

8       DST Equity in Earnings of Unconsolidated Affiliates - total equity in
        the earnings of DST unconsolidated affiliates is presented.
   
                                      1990     1991     1992      1993      1994
           
        Equity in Earnings,
         in millions                  $6.5     $8.2    $11.6     $12.0     $24.5

9       Net Cash Flow from Operations as Compared to Net Income - operating
        cash flows are contrasted with net income. (in millions)

                                      1990     1991     1992      1993      1994
        Net Income                   $41.4    $41.9    $63.8     $90.5    $104.9
        Operating Cash Flows          77.6    111.4    122.9     189.2     235.3

10      Debt as a Percent of Total Debt + Equity - the debt ratio is displayed
        in this graph.

                                     1990     1991     1992      1993      1994
        Debt to Debt+Equity Ratio   50.9%    46.7%    49.2%     59.9%     59.6% 

EX-13

  KANSAS CITY SOUTHERN INDUSTRIES, INC.
  
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
  Three Years Ended December 31, 1994
  
  Introduction. Kansas City Southern Industries, Inc. ("KCSI" or
  "Company") is a diversified holding company with principal operations in
  Transportation Services, Information & Transaction Processing and
  Financial Asset Management. This presentation is intended to clarify and
  focus on results of operations, liquidity and capital structure of the
  Company and should be read in conjunction with the Consolidated
  Financial Statements and Notes.
  
  RECENT ANNOUNCEMENTS
  
  DST Public Offering. In January 1995, the Company announced that the
  KCSI Board of Directors have authorized development of a plan for a
  public offering by DST Systems, Inc. ("DST," a wholly-owned subsidiary)
  of approximately 51% of DST's common equity.
  
  The purpose of the offering would be to obtain better market recognition
  of DST's performance and to obtain proceeds for the retirement of debt
  including debt owed KCSI and general corporate purposes. Payments
  received by KCSI from DST for debt retirement may be used by KCSI to
  reduce its debt, to repurchase KCSI common stock and for general
  corporate purposes. Any such offering would be made only pursuant to a
  prospectus filed as part of a DST registration statement with the
  Securities and Exchange Commission ("SEC").  Any repurchases of KCSI
  common stock would occur only after public announcement and in
  compliance with SEC regulations.
  
  Sale of Investors Fiduciary Trust Company. On July 19, 1994, the Company
  announced that DST and Kemper Financial Services, Inc. ("Kemper") had
  entered into a letter of intent for acquisition of their jointly owned
  affiliate Investors Fiduciary Trust Company ("IFTC") by State Street
  Boston Corporation ("State Street").  On September 27, 1994, the Company
  announced that DST and Kemper entered into a definitive agreement with
  State Street for the sale to State Street of IFTC Holdings, Inc., which
  wholly-owns IFTC.
  
  On January 31, 1995, DST completed the sale of its 50% interest in IFTC
  Holdings to State Street. At closing, DST received 2,986,111 shares of
  State Street common stock in a tax free exchange (representing an
  approximate 4% ownership interest in State Street).  As a result of this
  transaction, DST recognized a net gain of $4.7 million in first quarter
  1995. With the closing of the transaction, IFTC ceases to be an
  unconsolidated affiliate of DST and no further equity in earnings of
  IFTC will be recorded by DST. DST recognized equity in earnings from
  IFTC of $6.5, $4.8 and $4.8 million in 1994, 1993 and 1992,
  respectively. If State Street continues its prior history with respect
  to the payment of dividends, DST will record dividend income on any
  dividends from State Street.
  
  Kemper Transactions. In early March 1995, DST signed a definitive
  agreement to purchase substantially all of the assets and business
  operations of Supervised Service Company, Inc., ("SSC"), a subsidiary of
  Kemper. SSC, headquartered in Kansas City, Missouri, provides mutual
  fund transfer agency services to non-Kemper mutual fund companies
  (approximately 250,000 accounts), financial institutions and financial
  services firms. In conjunction with and subject to the SSC transaction,
  DST also agreed to enter into long-term contracts with Kemper to provide
  mutual fund shareholder system services and portfolio accounting system
  services for the Kemper Mutual Funds. Kemper is the investment advisor
  to the Kemper Mutual Fund Group. As a result of these transactions, DST
  expects to continue to process approximately 2 million Kemper accounts,
  which had been anticipated to be converted from the DST system in 1995.
  The SSC transaction is subject to regulatory approval.
  
  RESULTS OF OPERATIONS
  
  Significant Developments. Consolidated operating results during
  1992-1994 were affected by the following significant developments:
  
  Proposed Transportation Transaction. On July 19, 1994, the Company
  announced that it had entered into a letter of intent with Illinois
  Central Corporation ("IC") for merger of the Company's Transportation
  Services operations with IC. On October 24, 1994, however, the Company
  and IC jointly announced that they mutually agreed to terminate the
  letter of intent. The Company and IC were not able to reach a definitive
  agreement on a number of issues.
  
  As a result of the mutual termination of the letter of intent and
  negotiations with IC, the Company will continue to operate its core
  Transportation business as it is currently structured. In
  [Page 28]
  
  addition, the Company recognized expenses related to this proposed
  transaction, which reduced 1994 net income by $.04 per share. Pursuant
  to the letter of intent with IC, the Company is unable to enter into
  certain types of business combinations, prior to October 1995, without
  payment of a fee to IC of $25 million.
  
  Berger Acquisition. On October 14, 1994, the Company completed the
  acquisition of a controlling interest in Berger Associates, Inc.
  ("Berger").  Berger is the investment advisor to The Berger One Hundred
  Fund, The Berger One Hundred and One Fund and The Berger Small Company
  Growth Fund, as well as to private and other accounts, (collectively,
  "Berger Funds").  Berger had a total of approximately $3 billion in
  assets under management at December 31, 1994. The Company made payments
  of $47.5 million, in cash, pursuant to a Stock Purchase Agreement, (the
  "Agreement").  The Agreement also provides for additional purchase price
  payments, totalling approximately $62.4 million, contingent upon Berger
  attaining certain levels (up to $10 billion) of assets under management,
  as defined in the Agreement, over a five year period.
  
  The acquisition, which was accounted for as a purchase, increased the
  Company's ownership in Berger from approximately 18% (acquired in 1992)
  to over 80%.  Adjustments to appropriate asset and liability balances
  have been recorded based upon estimated fair values of such assets and
  liabilities. The transaction resulted in the recording of intangibles as
  the purchase price exceeded the fair value of underlying tangible
  assets. The intangible amounts will be amortized over their estimated
  economic life of 15 years, subject to completion of an economic life
  analysis. The financial statements of Berger were consolidated into the
  Company effective with the closing of the transaction. Assuming the
  transaction had been completed on January 1, 1994, the addition of
  Berger's revenues and net income, including adjustments to reflect the
  effects of the acquisition, on a pro forma basis, as of and for the year
  ended December 31, 1994, would have had an immaterial effect on the
  consolidated results of the Company.
  
  Janus Compensation Arrangements Termination/Berger Stock Bonus. In
  fourth quarter 1994, the Company recorded certain one time charges to
  earnings from its Financial Asset Management business unit.
  
  These one time items resulted from the early termination of employment
  and earnings related compensation arrangements for certain Janus Capital
  Corporation ("Janus") key employees, in late 1994 and early 1995, and
  for establishment of additional minority stock ownership of Berger for
  key Berger employees. 
  
  The Janus compensation arrangements, which began in 1991, permitted
  individuals to earn units which vested over time, based upon Janus
  earnings. These arrangements were scheduled to be fully vested at the
  end of 1996. The Company negotiated the early termination of the
  arrangements, which resulted in payments, by Janus, of $48 million in
  cash, of which approximately $21 million had been previously accrued.
  Termination of the arrangements resulted in a net reduction in Janus'
  1994 contribution to KCSI's consolidated earnings of $13.6 million or
  $.30 per share. By terminating this program, future years will benefit
  from a decline in Janus operating expenses, amounting to approximately
  $8 million pretax annually, based upon 1994 earnings. 
  
  The Berger stock transaction established minority stock ownership for
  certain key employees and resulted in a one time pretax increase in
  Berger's operating expenses of $1.8 million. The additional minority
  stock provides ownership incentive to key employees for future growth of
  Berger and had been anticipated in the acquisition discussed earlier.
  Combined, the Janus and Berger transactions reduced KCSI's consolidated
  1994 earnings by $.32 per share.
  
  Completion of the Kansas City Southern Railway Track and Structure
  Rebuilding Program/Acceleration of MidSouth Corporation Rebuilding
  Program. During 1994, The Kansas City Southern Railway Company ("KCSR,"
  a wholly-owned subsidiary) reached conclusion of the major portions of a
  rail track and structure program which first began in 1986. In addition,
  as part of the MidSouth Corporation ("MidSouth") acquisition, a planned
  upgrade of the existing MidSouth roadbed was added to the program.
  Increased traffic levels on both the original KCSR route and the newly
  acquired MidSouth, however, accentuated the need to accelerate the
  MidSouth portion of the program. By the end of 1994, KCSR had
  essentially completed the MidSouth upgrade program thereby improving the
  capacity, efficiency and safety of the East/West MidSouth route, now
  called the KCSR Eastern Division. Accordingly, Transportation Services
  capital expenditures for 1994 were $208 million versus $109 in 1993.
  Acceleration of the MidSouth program and completion of the KCSR program,
  as scheduled, will result in a reduction of railway capital expenditures
  over the next several years. Additional cash flow available due to the
  reduction of capital expenditures is expected to be used for repayment
  of debt and general corporate purposes beginning in 1995.
  
  DST Business Developments. DST's core business operations continued to
  experience improvements in both revenue growth and profitability in
  1994. DST's mutual fund shareowner accounts serviced continued to grow
  in 1994 rising 15% from 1993, even in a difficult year for many mutual
  funds. This
  [Page 29]
  
  growth in shareowner accounts also lead to an increase of 20% in the
  volume of pages printed by DST's output processing businesses. While
  improved core business volumes resulted in revenue and profitability
  growth, these improvements were, however, unfavorably impacted by
  combined operating and net losses from DST's developmental and
  international business units described in greater detail as follows.
  
  During 1993, DST began an expansion of certain of its product offerings
  and geographic presence. It increased its Portfolio Accounting product
  offerings with the acquisitions of Clarke & Tilley, Ltd. ("Clarke &
  Tilley," a United Kingdom entity) and Belvedere Financial Systems,
  ("Belvedere").  Clarke & Tilley develops and distributes investment
  accounting software, primarily in Europe, South Africa and Australia.
  Belvedere develops and markets an investment accounting product (the
  Global Portfolio System) that has potential applicability worldwide. 
  DST also expanded its mutual fund product offerings with the 1993
  acquisition of Corfax Benefit Systems, Ltd. ("Corfax," a Canadian
  Company), and the formation of Clarke & Tilley Data Services, Ltd.
  ("CTDS," a 50% owned United Kingdom entity; State Street owns the other
  50%).  Corfax develops and distributes mutual fund shareowner accounting
  software and provides pension administration processing services. CTDS
  is developing a unit trust accounting system for the U.K. and Luxembourg
  markets incorporating DST work management technology.
  
  Additionally, DST has expanded marketing and product support activities
  for its image-based work management product (Automated Work
  DistributorTM, "AWD(R)") internationally, using direct marketing and The
  Continuum Company, which distributes AWD(R) to the insurance industry.
  DST also acquired DBS Systems Inc., a 60% owned subsidiary, which has
  developed software to provide billing services for DirecTVTM, a
  commercial direct broadcast satellite system.
  
  These business units invested in expanded product development and
  marketing expenditures during 1994, which reduced DST profitability for
  1994 as compared to 1993. In addition, when compared with DST core
  businesses a higher percentage of revenues from these developmental
  businesses (except DBS and CTDS) is currently derived from software
  licensing activities. Therefore,  operating results will be more
  affected by the timing of software license activities.
  
  These acquisitions provide DST with additions to its product base and
  future opportunities for further expansion of its product lines into
  international markets but may require additional investment.
  
  Even considering the operating and net losses of these developmental
  businesses, however, DST recorded the highest earnings in its history in
  1994.  
  
  KCSR Equipment Trust Certificates. In late 1994, KCSR completed the
  private placement of financing for locomotives and rolling stock using
  Equipment Trust Certificates ("ETC's").  The ETC's were placed for an
  aggregate of $54.7 million representing 31 locomotives, 625 boxcars and
  300 covered hoppers, which had been placed in service during 1993 and
  1994. The financing represents 85% of equipment value, bears interest at
  a rate of 8.56% and matures in 2006.
  
  MidSouth Acquisition. The Company completed the acquisition of MidSouth,
  a regional railroad holding company headquartered in Jackson,
  Mississippi, on June 10, 1993.  The purchase price for the acquisition
  of the MidSouth common stock aggregated approximately $213.5 million,
  paid in cash.  The MidSouth acquisition was accounted for as a purchase.
  Results of operations of the Company for the year ended December 31,
  1993 include the operations of MidSouth as a consolidated subsidiary
  effective with the closing of the transaction. Excluding the effect of
  additional tax expense for federal tax rate increases related to
  deferred accruals applicable to 1993, the transaction did not result in
  any dilution in the Company's 1993 or 1994 earnings. As a result of this
  acquisition the Company acquired operating loss carryforwards of which
  $57 million remained at December 31, 1994. Annual utilization of these
  loss carryforwards may be limited by the Internal Revenue Code as a
  result of a change in ownership. Anticipated future tax benefits
  associated with the loss carryforwards were recorded as a reduction of
  recorded intangibles.
  
  The Company financed the MidSouth acquisition with the $250 million
  credit agreement, discussed below, and other available financing
  resources. In addition, as part of the merger transaction, the Company
  refinanced substantially all of MidSouth's indebtedness at more
  favorable interest rates.
  
  The MidSouth acquisition provides an important East/West rail line, as a
  complement to KCSR's predominantly North/South route. This East/West
  line, running from Dallas, Texas, to Meridian, Mississippi, will allow
  the Company to be more competitive in the transcontinental intermodal
  transportation market, among others. In mid-November 1994, KCSR began
  dedicated through train service between Dallas, Texas and Atlanta,
  Georgia for intermodal traffic. This new dedicated service was initiated
  in conjunction with Norfolk Southern Railway Company ("NS") which
  interchanges with KCSR at Meridian, Mississippi for transport of
  intermodal traffic to destinations on the NS in the Southeastern and
  Eastern United States. This intermodal route competes directly with
  truck carriers along the Interstate 20 corridor and offers service times
  which are competitive with both truck and other rail carriers. 
  [Page 30]
  
  Acquisition of the MidSouth also adds customers in the South Central
  U.S. to KCSR's already strong traffic base and presents opportunities
  for the rerouting of certain commodity movements over less circuitous
  routes. Effective January 1, 1994, MidSouth was operationally and
  administratively merged into KCSR.
  
  Vantage Computer Systems, Inc./The Continuum Company, Inc. Effective
  September 30, 1993, DST Systems, Inc. ("DST," a wholly-owned subsidiary)
  completed the merger of its 90.5% owned subsidiary, Vantage Computer
  Systems, Inc. ("Vantage"), into a subsidiary of The Continuum Company,
  Inc. ("Continuum").  Vantage and its wholly-owned subsidiary, Vantage
  P&C Systems, Inc. provide policyholder record keeping data processing
  and software for the life and property/casualty insurance industries. In
  the transaction, DST received approximately 3.6 million shares of
  Continuum stock.  As a result of this transaction and additional
  Continuum stock purchases, DST owned approximately 24% of the
  outstanding common stock of Continuum at December 31, 1993. In 1994, DST
  purchased additional Continuum shares through privately negotiated
  transactions. At December 31, 1994, DST owned approximately 29% of
  Continuum's outstanding common stock (5.5 million shares). In the
  initial exchange, DST exchanged Vantage stock with a book value of
  approximately $17 million for Continuum stock with a then current market
  value of approximately $62 million. DST accounted for the initial
  exchange as a non-cash, non-taxable exchange in investment basis of
  Vantage for an investment in Continuum. Accordingly, no gain recognition
  was associated with the transaction. Vantage revenues for the nine
  months ended September 30, 1993, were $32.6 million and $38.7 million
  for the year ended December 31, 1992. Effective October 1, 1993, Vantage
  results were no longer consolidated with DST and Continuum earnings were
  included in DST results on the equity basis.
  
  Continuum is a publicly traded international consulting and computer
  services firm based in Austin, Texas, which primarily serves the needs
  of life and property and casualty insurance companies for computer
  software and services. 
  
  The Vantage/Continuum transaction allows DST to expand its presence in
  the information processing market for the insurance industry and combine
  the strengths of both Vantage and Continuum. Prior to the merger,
  Vantage's business was primarily centered in the U.S. domestic market
  while Continuum has a significant international and domestic presence.
  Subsequent to this transaction, DST assumed all of the North American
  operations data processing functions for Continuum. DST and Continuum
  reached agreement whereby Continuum uses the capabilities of DST's
  Winchester Data Center for its processing requirements. In addition,
  Continuum obtained the rights to license DST's "Automated Work
  DistributorTM" ("AWD(R)") product to insurance companies worldwide. 
  
  1993 Tax Legislation. On August 10, 1993, President Clinton signed into
  law the Omnibus Budget Reconciliation Act of 1993 ("the 1993 Tax Act"). 
  This new tax legislation changed numerous provisions to the then
  existing tax law. The most significant of these changes affect the
  Company's Transportation Services operations.
  
  The new tax law increased the corporate tax rate from 34% to 35%. 
  Accordingly, the Company's 1993 earnings include additional income tax
  expense attributable to the tax rate increase retroactive to January 1,
  1993. These charges, which are included in the provision for taxes on
  income, represent $3.4 million ($.08 per share) related to deferred tax
  accruals and $900,000 ($.02 per share) related to 1993 earnings. In
  addition, the new tax law included provisions for higher fuel tax rates,
  which resulted in an additional expense to Transportation operations
  during 1993 of approximately $400,000.
  
  Accounting Change Postretirement Benefits. The Company adopted Statement
  of Financial Accounting Standards No. 106 "Employers' Accounting for
  Postretirement Benefits Other Than Pensions," ("SFAS 106"), effective
  January 1, 1993. SFAS 106 required the Company to accrue, currently,
  postretirement benefits provided to retirees by the Company and its
  Transportation subsidiaries. These benefits relate primarily to
  postretirement medical, life and other benefits available to employees
  not covered under collective bargaining agreements.
  
  The adoption of SFAS 106 resulted in a charge to earnings in first
  quarter 1993 in the amount of $5.5 million, net of applicable income
  taxes. The adoption of SFAS 106 is not expected to have a material
  effect on future annual expenses of the Company.
  
  Accounting Change Income Taxes. The Company also adopted Statement of
  Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
  ("SFAS 109"), effective January 1, 1993. SFAS 109 was issued as an
  amendment to Statement of Financial Accounting Standards No. 96,
  "Accounting for Income Taxes," ("SFAS 96").  The adoption of SFAS 109
  resulted in a charge to earnings in first quarter 1993 of $970,000. 
  
  As a result of the Company's previous adoption of SFAS 96, the adoption
  of SFAS 109 did not have a material impact on the components of income
  tax expense or the effective income tax rates applicable to continuing
  operations versus the U.S. federal income tax statutory rate.
  [Page 31]
  
  Stock Splits. In both 1992 and 1993, the Company's Board of Directors
  authorized 2-for-1 splits effected in the form of stock dividends in the
  Company's Common stock. The Company's Board of Directors also authorized
  an 11% dividend increase in January 1992, with respect to the Company's
  outstanding Common stock. The annual Common dividend was increased to
  $.30 per share from the then current $.27 per share, on an after 1993
  split basis.
  
  Appropriate data in this report and the accompanying Consolidated
  Financial Statements and Notes were restated to reflect the effect of
  both of these 2-for-1 stock splits.
  
  Debt Securities Registration and Offerings   1993 and 1992. On June 24,
  1993,  the Company issued $100 million of debt securities comprised of
  Notes bearing interest at a rate of 5.75% and maturing in 1998. The net
  proceeds of this transaction, along with certain proceeds from the
  Company's $250 million credit agreement, were used to refinance certain
  MidSouth debt in July 1993.
  
  On September 29, 1993, the Company filed a Registration Statement,
  registering $500 million in securities. The securities may be offered in
  the form of Common Stock, New Series Preferred Stock $1 par value,
  Convertible Debt Securities, or other Debt Securities (collectively,
  "the Securities").  Net proceeds from the sale of the Securities are
  expected to be added to the general funds of the Company and used
  principally for general corporate purposes, including working capital,
  capital expenditures and acquisitions of or investments in businesses
  and assets. The Company has not yet sought to have the Registration
  Statement declared effective by the SEC and no securities have been
  issued.
  
  On July 1, 1992, the Company issued $100 million 7.875% Notes due 2002
  and $100 million 8.8% Debentures due 2022. The 7.875% Notes are not
  redeemable prior to their maturity in 2002, and the 8.8% Debentures are
  redeemable on or after July 1, 2002, at a premium of 104.04%, which
  declines to par on or after July 1, 2012. Proceeds from the debt offer
  were used to repay borrowings under then existing revolving credit
  agreements. The Company used the remaining net proceeds for general
  corporate purposes, including debt repayments, working capital, capital
  expenditures, acquisition of and/or investments in businesses and assets
  and acquisition of the Company's capital stock.
  
  On March 3, 1993, the Company issued  $100 million of debt securities as
  6.625% Notes due 2005. The Company used the net proceeds for general
  corporate purposes, including subsidiary debt repayments, working
  capital, capital expenditures, acquisitions of or investments in
  businesses and assets, and acquisitions of the Company's capital stock. 
  
  Series B Convertible Preferred Stock. On October 1, 1993, KCSI
  transferred one million shares of KCSI Series B Convertible Preferred
  Stock (the "Series B Preferred Stock") to the Kansas City Southern
  Industries, Inc. Employee Plan Funding Trust ("the Trust"), a grantor
  trust established by KCSI. The purchase price of the stock, based upon
  an independent valuation, was $200 million, which the Trust financed
  through KCSI. The indebtedness of the Trust to KCSI is repayable over 27
  years with interest at 6% per year, with no principal payments in the
  first three years. The Trust, which is administered by an independent
  bank trustee, and is consolidated into the Company's financial
  statements, will repay the indebtedness to KCSI utilizing dividends and
  other income as well as other cash obtained from KCSI. As the debt is
  reduced, shares of the Series B Preferred Stock, or shares of Common
  stock acquired on conversion, will be released and available for
  distribution to various KCSI employee benefit plans, including its ESOP,
  Stock Option Plan and Stock Purchase Plans.  
  
  The Series B Preferred Stock, which has a $10 per share (5%) annual
  dividend and a $200 per share liquidation preference, is convertible
  into Common stock at an initial ratio of four shares of Common stock for
  each share of Series B Preferred Stock. The Series B Preferred Stock is
  redeemable after 18 months at a specified premium and under certain
  other circumstances.
  
  The Series B Preferred Stock can be held only by the Trust or its
  beneficiaries, the employee benefit plans of KCSI. The full terms of the
  Series B Convertible Preferred Stock are set forth in a Certificate of
  Designations approved by the Board of Directors and filed in Delaware.
  
  KCSI Credit Agreements. During 1994, the Company established or
  increased credit agreements with several lending institutions. These new
  or expanded credit lines increased the Company's borrowing ability by
  $150 million to $450 million. These agreements bear interest rates below
  prime. In 1994, these agreements were utilized to finance the Berger
  acquisition and subsidiary working capital requirements. Remaining
  credit capacity under these agreements is intended for general corporate
  purposes. At December 31, 1994, the Company had an aggregate of $115
  million of indebtedness outstanding on these agreements.
  
  On December 8, 1992, the Company established a credit agreement in the
  amount of $250 million. This agreement replaced the Company's then
  existing $100 million credit agreement, which had been in place since
  1989. During 1993, proceeds were used to fund the acquisition of
  MidSouth and refinance certain MidSouth indebtedness. Remaining credit
  capacity under the facility is intended for general corporate
  [Page 32]
  
  purposes. At December 31, 1994, the Company had $200 million of
  indebtedness outstanding on this agreement.
  
  Employee Stock Purchase Plan. In the fourth quarter 1993, the Company
  initiated the eighth offering under the Employee Stock Purchase Plan.
  Approximately 221,000 shares of Company Common stock were subscribed to
  under this offering, which will be funded through employee payroll
  deductions, over a two year period, at a price of $38.20 per share. In
  the fourth quarter 1992, the Company initiated the seventh offering
  under the Employee Stock Purchase Plan. Approximately 248,000 shares of
  Company Common stock were subscribed to under this offering, which were
  funded through employee payroll deductions at a price of $18.75 per
  share. In January 1994, a total of approximately 234,000 shares of
  Common stock were issued from treasury to employees under the seventh
  offering.
  
  Union Labor Negotiations. Collective bargaining agreements with KCSR
  union employees, representing approximately 85% of KCSR's workforce were
  executed in 1992. These agreements allowed for implementation of
  productivity improvements and cost sharing arrangements with contract
  employees. Productivity improvements have been realized by modifications
  in the operation of trains with reduced crew sizes. These productivity
  improvements were necessary to enable the railroad industry to remain
  competitive with other modes of transportation. These labor agreements
  reopened for negotiation at the end of 1994 for most bargaining unions
  while others reopen for negotiation in varying periods beginning in
  1995. KCSR management is currently in the process of meeting with unions
  representing its employees through the National Railway Labor
  Conference, along with other Class I railroads, seeking to negotiate
  issues on a national level. Discussions with these unions are in the
  very early stages.
  
  As a result of the labor agreements executed in 1992, management
  believes the Company is better positioned to compete effectively with
  railroads contiguous to its lines as well as other forms of
  transportation. However, railroads remain restricted by antiquated
  operating rules and are thus prevented from achieving optimum
  productivity.
  
  KCSR and other railroads continue to be affected by labor regulations
  which are more burdensome than those governing non-rail industries
  including its principal trucking competitors. The Railroad Retirement
  Act requires up to a 23.75% contribution by railroads on eligible wages,
  while the Social Security and Medicare Acts only require a 7.65%
  employer contribution on similar wage bases. Other programs, such as The
  Federal Employees Liability Act (FELA), when compared to worker's
  compensation laws vividly illustrate the competitive disadvantage placed
  upon the rail industry by federal labor regulations.  
  
  Principal Stockholders Transaction. The following activity occurred
  among the Company's principal stockholders:
  
  *    In early 1994, Warburg, Pincus Capital Company, L.P. an affiliate
       of E.M. Warburg Pincus & Co., ("Warburg") a New York based venture
       banking and investment management firm, distributed 4 million
       shares of the Company's Common stock, held by Warburg, to its
       limited partners, including institutional holders and pension
       funds. 
  
  Safety and Quality Programs. KCSR continued implementation and emphasis
  of important safety and quality programs during 1994. Related benefits
  are expected to be recurring in nature and realizable over future years.
  In 1994, however, the Company experienced a doubling of Federal Railroad
  Administration reportable employee injuries compared to 1993. This
  significant increase in injuries is primarily attributable to the merger
  of the MidSouth into KCSR, (MidSouth statistics are not included prior
  to 1994).  While overall employee injuries increased in 1994, associated
  operating expenses did not rise in the same proportion as the number of
  injuries. This is primarily a result of KCSR's active safety programs
  coupled with the lesser severity of 1994 injuries. In 1993, the Company
  experienced a 31% reduction in employee injuries, as compared to 1992
  and a 28%  reduction in 1992 compared to 1991. "Safety" and "Quality"
  programs comprise two important ongoing goals of railroad management and
  accordingly, 1995 employee injuries are anticipated to decline from 1994
  levels and associated expenses are not anticipated to have a material
  impact on operating results for 1995. 
  
  Output Technologies, Inc. DST's output processing businesses, Output
  Technologies, Inc. ("OTI") continued to experience growth trends in
  1994. OTI printed 802 million pages of output in 1994, up 20% from the
  669 million pages in 1993, resulting in improved earnings. During 1993,
  OTI completed the internal reorganization of its subsidiaries which
  included renaming of certain subsidiaries and merging of certain
  operations. The overall objective of the 1993 reorganization was a
  consolidation of output related activities, identification of businesses
  with the OTI name and alignment into geographic operating regions. 
  [Page 33]
  
  INDUSTRY SEGMENT RESULTS 
  
  
  The Company's major business activities are classified as follows (in
  millions):
  
  
                             1994            1993          1992
                                                
  Revenues
    Transportation 
      Services              $   508.5      $  451.1      $ 369.2    
    Information & 
      Transaction 
      Processing                404.3         342.2        270.5
    Financial Asset
      Management                188.3         162.7         97.5
    Eliminations,
      Corporate & Other          (3.2)          5.1          4.2
                              
       Total                $ 1,097.9      $  961.1      $ 741.4
  
  % Change 
  from Prior Year                14.2%         29.6%        21.5%
  
  Operating Income
    Transportation 
      Services              $   124.9      $  116.7      $  75.3
    Information & 
      Transaction 
      Processing                 34.7          31.2         17.8
    Financial Asset
      Management                 53.1          80.0         45.7
    Eliminations,
      Corporate & Other         (10.2)         (15.8)      (12.9)
                              
      Total                  $  202.5       $  212.1     $ 125.9
  
  % Change 
  from Prior Year                (4.5%)         68.5%       28.1%    
  
  
  
  Transportation Services. Transportation Services operations are
  comprised principally of KCSR  (a wholly-owned subsidiary), which
  accounts for more than 90% of Transportation Services revenues.
  
  KCSR revenues have increased modestly each year in the 1990-1993 period
  principally from volume increases in both general commodity and coal
  trains despite downward pressure on rates. In 1994, however, KCSR
  revenues rose significantly. Higher 1994 revenues resulted from
  additional revenues of the MidSouth acquisition and operating synergies
  created by the combination. As domestic economic conditions improved in
  1994, KCSR carloading volumes also increased. 
  
  (MDA Graph #1)
  
  In general, competition, most directly from over the road truck
  transportation, is the primary cause of downward pressure on rates as
  trucks have eroded the railroad industry's share of transportation
  dollars. Changing regulations, subsidized highway improvement programs
  and favorable labor regulations have improved the competitive position
  of trucks as an alternative mode of surface transportation for many
  commodities. In recent years, railroad industry management has sought
  avenues for improving its competitive positions and forged alliances
  with truck companies in order to provide faster, safer and more
  efficient service to its customers. KCSR has joined this industry trend
  in entering into agreements with several truck companies and initiation
  of through train intermodal service between Dallas, Texas and Atlanta,
  Georgia in conjunction with Norfolk Southern Railway Company. This new
  intermodal service began in mid-November 1994. 
  
  Assuming no major economic deterioration occurs in the region serviced
  by the Transportation businesses, management expects moderate growth
  during 1995.
  
  KCSR 1994 revenues, including full year MidSouth for comparative
  purposes, rose 3% from 1993. General commodity carloadings rose 6% for
  1994 from increased intermodal traffic (which experienced a 69% and 46%
  improvement in fourth quarter and year to date, respectively), but were
  somewhat offset by lower unit coal carloadings discussed below.
  Carloadings of chemicals, petroleum and food products were also higher
  in 1994 but were somewhat offset by a decline in export grain traffic,
  which was weak for much of 1994. Reduced pulp/paper carloadings were
  attributable to the Soo Line strike, which had a disproportionate effect
  on KCSR. The increased intermodal traffic is the result of improved
  volumes in the Kansas City/Dallas route and initiation of through train
  service over the Dallas/Atlanta route in conjunction with Norfolk
  Southern in late 1994. Unit coal revenues declined 4%
  [Page 34]
  
  in 1994 compared to prior year. Coal revenues and carloadings declined
  in large part as a result of the absence of shipments to a Texas
  (Monticello) utilities electric generating plant served by KCSR. This
  plant accounted for 2.2 million net tons and 247 unit coal trains in
  1993, which were temporarily lost to KCSR because of a smoke stack
  collapse at the plant. The Monticello plant is expected to be back on
  line in late 1995. 
  
  (MDA Graph #2)
  
  Improved traffic levels also translated into increased operating
  expenses in 1994. Increased expenses were experienced in salaries &
  wages (train & enginemen), car hire (intermodal equipment usage and
  system congestion), maintenance of equipment (intermodal traffic) and
  interest expense (related to the MidSouth acquisition).  Even though
  operating expenses were higher in 1994, KCSR was able to reduce its
  Interstate Commerce Commission ("ICC") operating ratio from 77% in 1993
  to 76.2% in 1994. The ICC operating ratio is a common efficiency
  measurement among Class I railroads.
  
  KCSR 1993 revenues rose 3% compared to 1992. General commodity revenues,
  excluding intermodal traffic, rose 5.5% on generally higher traffic
  volumes. The higher traffic volumes resulted, in part, from a
  strengthening of U.S. economic conditions, which continued to rise
  slowly from a recessionary period in 1990-1992. Higher traffic levels
  were experienced in carloadings of farm products, particularly corn &
  wheat, non-metallic ores, lumber/wood   pulp/paper, chemical and
  petroleum shipments. Intermodal carloadings declined 8% in 1993 as KCSR
  was in the process of upgrading its "on-off ramp" loading facilities in
  anticipation of greater intermodal traffic, which was experienced in
  1994. Unit coal revenues rose modestly in 1993 on overall increased
  tonnage but were adversely affected by variances in length of haul and
  rates. While 1993 revenues rose, operating expenses declined in 1993
  compared to 1992. Favorable expense variances were caused by cost
  containment efforts, lower fuel costs and lower expenses from KCSR's
  continuing emphasis on safety, but somewhat offset by increased costs on
  higher traffic levels. The combination of higher KCSR revenues and lower
  expenses helped effect a 55% increase in Transportation Services
  operating income in 1993 compared to 1992. These cost containment
  initiatives also helped effect a decline in KCSR's ICC operating ratio
  from 82.3% in 1992 to 77% in 1993.  
  
  Transportation Services results also benefitted in 1993 from revenue and
  net income additions of MidSouth and favorable operations at Pabtex,
  Inc., which experienced increased  volumes in 1993. MidSouth contributed
  $67.8 million in  revenues to 1993 Transportation Services results,
  which  surpassed comparative prior year revenues on increased
  carloadings. MidSouth's 1993 earnings, net of all acquisition related
  expenses, were positive after excluding the effect of the federal income
  tax rate increase.
  
  The flooding in the Midwest region of the United States during 1993 did
  not materially affect the Company's rail transportation operations.
  KCSR's trackage, facilities and physical properties were not directly
  hampered by the rising flood waters. However, many of KCSR's interchange
  partners in the Kansas City gateway were affected, which resulted in
  congestion, rerouting of certain traffic, and delays of commodity
  movements, particularly for grain and coal shipments. KCSR experienced
  revenue declines, during third quarter 1993, in certain commodities due
  to the inability to interchange shipments with other railroads. Overall,
  the financial impact was immaterial.
  
  (MDA Graph #3)
  
  KCSR general commodities revenues increased 7.2% during 1992 from 1991.
  Revenue gains were experienced in the transportation of farm products,
  particularly soybeans and wheat, pulp/paper products, lumber/wood
  products and non-metallic mineral shipments, but were somewhat offset by
  a decline in carloadings of chemical and petroleum products and lower
  intermodal traffic.
  
  The following summarizes components of KCSR's revenues (in millions per
  ICC Form R-1):
  
  
  
                          1994      1993*     1992*
                                    
  General Commodities    $350.0    $222.2    $212.8
  Coal                    101.7     106.2     105.5
  Other                    20.8      17.1      17.3
    Total                $472.5    $345.5    $335.6
  
  *Excludes MidSouth information
  
  [Page 35]
  
  
  Railroad Transportation operations are constantly faced with substantial
  costs related to fuel, labor and maintenance of equipment and of its
  roadbed.
  
  KCSR locomotive fuel usage represented 7% of railroad operating costs in
  1994. Fuel costs are affected by traffic levels, efficiency of
  operations and equipment, and petroleum market conditions. Although
  diesel fuel prices have stabilized in recent years, control of fuel
  expenses is a constant concern of management and fuel savings is a top
  priority.
  
  A roadway improvement program was begun by KCSR in 1986. This program
  was implemented to upgrade the roadway in order to reduce operating
  costs, improve safety, increase the capabilities of KCSR and increase
  quality of service to customers. In 1990, KCSR completed bridge and
  related modifications to support unrestricted transportation of double
  stack containers. Removal of restrictions to the double stack operation
  along with the addition of an East/West MidSouth rail line have
  permitted KCSR to compete more effectively with other carriers in the
  transcontinental intermodal markets. In 1994, KCSR accelerated the
  remaining portions of its program on the original KCSR route and also
  those related to the upgrade and expansion of the MidSouth track and
  roadbed. Acceleration of this program resulted in increased capital
  spending. By the end of 1994, both the KCSR and MidSouth track had been
  essentially rebuilt and MidSouth traffic capability was expanded by the
  additions of new track sidings. Acceleration of the program became
  necessary to handle the increased business volumes at faster train
  speeds, which became evident in the East/West traffic corridor, while
  still improving safety. The roadway program has been and will continue
  to be funded with internally generated cash flows. While certain
  portions of the program will continue into 1995, future years capital
  expenditures are anticipated to decline significantly from prior year
  levels. Cash flow made available by the reduction in capital spending is
  anticipated to be used for debt repayment and other general corporate
  purposes.
  
  Portions of roadway maintenance costs are capitalized and other portions
  expensed, as appropriate. Expenses aggregated $43, $40, and $40 million
  for 1994, 1993 and 1992, respectively. Maintenance and capital
  improvement programs are in conformity with the Federal Railroad
  Administration's track standards and are accounted for in accordance
  with the Interstate Commerce Commission's accounting rules.
  
  Information & Transaction Processing. 
  DST Systems, Inc. ("DST," a wholly-owned subsidiary). DST revenues have
  been increasing because of customer base growth, new lines of business
  and expanded products. A significant amount of DST's net income is
  derived from the operations of its various joint ventures discussed in
  "Unconsolidated Affiliates."
  
  (MDA Graph #4)
  
  DST's contribution to KCSI's consolidated results rose 40% to $32
  million in 1994 compared to prior year, while 1994 revenues rose 18%
  from 1993. These improved results are reflective of the growth trends
  experienced by DST throughout 1994 as mutual fund shareowner accounts
  serviced reached a record 32.1 million. Output Technologies, Inc.
  business volumes increased and earnings from DST's unconsolidated
  affiliates rose significantly over 1993. Increased earnings from
  unconsolidated affiliates are due to a full year of earnings from
  Continuum along with improved earnings from DST's other affiliates. DST
  also continued to process approximately 2 million accounts from Kemper
  Financial Services, Inc. ("Kemper," a DST customer), which were
  anticipated to be converted from the DST system in 1994. As a result of
  the Kemper transactions, discussed earlier, DST expects to continue to
  process the Kemper accounts. These earnings increases in 1994 were,
  however, hampered by operating and net losses of its developmental
  businesses, discussed earlier. During 1994, these developmental
  businesses, reported revenues and net losses of $39.3 million and $5.3
  million, respectively, versus revenues and net losses of $11 million and
  $2.3 million, respectively, in 1993. Management expects losses with
  respect to these developmental businesses to continue into 1995.
  
  During 1993, DST consolidated revenues rose 27% from 1992, while DST's
  contribution to KCSI earnings improved 50% to $22.9 million from $15.3
  million in 1992. This revenue and income increase resulted from an
  increase in mutual fund accounts serviced and the absence of one-time
  expenses which reduced 1992 results (discussed below).  Total mutual
  fund shareowner accounts serviced rose to 28 million at December 31,
  1993 from 22.4 million at December 31, 1992, resulting in higher mutual
  fund processing and output services volume. During 1993, 500,000 Kemper
  accounts were converted from the DST system. The loss of 500,000
  accounts in 1993 was offset by account growth from other mutual fund
  customers and accordingly, did not have a material financial impact.
  [Page 36]
   
  During 1992, DST experienced a 28% increase in revenues; however,
  operating income declined from 1991. Revenue growth was generated by
  increased overall business volumes and the expanded contribution of OTI
  and Vantage. The operating income decline resulted from several items
  which negatively impacted 1992 earnings: (i) lower weighted average
  billable monthly balance of mutual fund shareowner accounts serviced in
  1992 as a result of the loss of 2.7 million Vanguard accounts in late
  1991, even though DST ended 1992 at 22.4 million shareowner accounts;
  (ii) higher ESOP component of employee benefit costs (1992-$12.7
  million; 1991-$4.2 million) from expanded headcount and additional ESOP
  expense which resulted in lower ESOP costs in 1993; (iii) start up and
  development costs for DST's TRAC-2000TM system for 401(K) plans and
  Vantage's software for the property and casualty insurance industry; and
  (iv) certain building renovation costs. The number of mutual fund
  accounts serviced by DST increased to 22.4 million at December 31, 1992,
  versus 18.7 million at December 31, 1991. 
  
  The financial institutions served by DST, both mutual fund and
  insurance, will continue to evaluate whether to internalize or outsource
  their servicing and technology needs. This process will have both
  positive and negative effects on DST's results; however, on an overall
  basis, DST's customer base is expected to grow.
  
  (MDA Graph #5)
  
  Beginning in 1991 and continuing through 1994, DST continued its focus
  on internal and external expansion of its service presence in the mutual
  fund, insurance and financial services industries. DST made a commitment
  to the life and property/casualty insurance industry business lines in
  1990, and the structure of DST's involvement in the insurance industry
  changed during 1993 with the exchange of Vantage and the resulting
  equity ownership in Continuum. However, DST's total service to the
  insurance industry increased as DST continues to process the Vantage
  policyholder accounts, has added processing of all Continuum
  policyholder accounts and other services as well as gaining access to
  Continuum's market for DST's AWD(R) imaging product.
  
  During 1993, DST continued marketing of Automated Work DistributorTM, an
  image-based clerical work management system. The AWD(R) System's image
  technology can also be combined with principles of an intelligent
  workstation. AWD(R) was initially implemented in several mutual fund
  transfer agencies, but through expansion resided on more than 4,200 work
  stations in companies throughout the world at December 31, 1993 (a 75%
  increase since December 31, 1992) and was used to service approximately
  53% of the mutual fund shareowner accounts on DST's system. AWD(R) is
  also used in industries such as insurance, banking and health care.
  Concurrent with the Continuum transaction, Continuum and DST signed a
  licensing agreement whereby Continuum will market the AWD(R) product for
  use in insurance industry applications. The Continuum agreement provides
  DST access to additional international markets for its AWD(R) products.
  
  (MDA Graph #6)
  
  In 1994, DST sought greater market penetration of its AWD(R) product in
  the insurance marketplace through its licensing agreement with Continuum
  and directly into non-insurance markets through DST's international
  subsidiaries. By the end of 1994, DST had international locations in the
  United Kingdom, Netherlands and South Africa, with more than 8,000
  AWD(R) workstations in use worldwide (a 90% increase over 1993), of
  which approximately 27% are installed in insurance company operations.
  DST's printed output processing businesses, Output Technologies, Inc.
  ("OTI") also continued to grow in 1994. In 1994, OTI revenues rose 9%
  primarily from increased print processing as laser click volumes rose
  20% to 802 million pages. Revenues rose 34% for the OTI group of
  companies in 1993 from increased output processing volumes and
  contributions from new and expanded business lines. These new and
  expanded business lines have contributed to DST's growth during the last
  three years and expanded its product lines available to customers. OTI's
  1993 laser click volume was 669 million pages of printed output, an
  increase of 45% over the 460 million pages in 1992. OTI growth has been
  achieved through acquisitions and location expansion. 
  [Page 37]
  
  Financial Asset Management
  Janus Capital Corporation.  ("Janus," an 83% owned subsidiary). Janus
  operations experienced significant growth in 1993 and 1992 with
  operating income comprising 38% and 36%, respectively, of the Company's
  consolidated operating income. In 1994, however, operating income
  declined compared to 1993 while revenues rose 11%.  This decline in
  operating income is primarily attributable to the one-time net charge to
  KCSI's consolidated earnings of $13.6 million, ($27.1 pretax increase in
  Janus operating expenses) from the early termination of employment and
  earnings related compensation arrangements, discussed earlier. Excluding
  this charge, operating income would have risen compared to 1993 but not
  at levels experienced in prior years. 1994 was a difficult year for
  equity money managers as rising interest rates affected market
  conditions in general and, when coupled with increased expenses for
  advanced customer services capabilities and marketing and promotional
  efforts, Janus' earnings were negatively affected. Growth in assets
  under management began a pattern of slower growth in the second half of
  1993 and continued into 1994 rising to $22.9 billion at December 31,
  1994 from $22.2 billion at December 31, 1993. While overall assets under
  management remained relatively stable, fund sales continued strong in
  1994 at $6.5 billion. Total Janus assets under management increased  $.7
  billion in 1994, $6.7 billion in 1993, $6.8 billion in 1992, $5.6
  billion in 1991 and $1.3 billion in 1990. 
  
  (MDA Graph #7)
  
  While Janus experienced significant growth during 1993, much of that
  growth occurred in the first half of 1993. During the third and fourth
  quarters of 1993, growth in assets under management slowed. Total fund
  sales were $3.3 billion during the second half of 1993 versus $5.5
  billion during the first six months of 1993, while fund redemptions
  increased to $2.2 billion versus $1.6 billion, respectively. Janus has
  increased expenditures to provide quality service to its shareholders
  through the use of advanced technology and extensive personnel training
  programs. 
  
  Janus continued to reap significant benefits from ongoing marketing
  efforts in terms of fund sales and market appreciation during 1993 and
  1992.  
  
  The following table highlights assets under management and revenues:
  
  
                          1994      1993      1992
                                    
  Assets Under Management 
  (in billions):
  Janus No-Load 
    Funds                $ 17.3    $ 17.0    $ 11.7
  IDEX Load Funds            .9       1.2       1.0
  WRL Insurance
    Products Funds          1.2       1.2        .8
  Institutional and Separately
    Managed  Accounts       2.7       2.1       1.3
  Cash Equivalent Fund       .8        .7        .7
                              
  Total Janus            $ 22.9    $ 22.2    $ 15.5
  Berger Funds              3.0      ----      ----
  Total                  $ 25.9    $ 22.2    $ 15.5
  
  Revenues (in millions):
  Janus                  $180.5    $162.7    $ 97.5
  Berger                    7.8*     ----      ----
  
  *since acquisition, October 1994.
  
  
  In 1994, Janus introduced the Janus Overseas Fund, an international
  equity fund and expanded its product offerings for the Janus Aspen
  Series, initiated in 1993. As overall fund sales growth slowed in 1994,
  Janus focused its efforts on increased marketing and promotional
  activities in an effort to increase recognition of the Janus brand name
  and reach a class of potential investors who have not typically used
  mutual funds as an investment alternative. This initiative led to the
  launching of a major print, radio and television marketing campaign
  begun in late 1994, which is continuing into 1995.
  
  During 1993, Janus continued to expand the distribution channels of the
  Janus funds by participating in Schwab's Mutual Fund "OneSource" service
  of Charles Schwab as well as a similar program offered by Fidelity
  Investments, both of which began in 1992. At December 31, 1994,
  approximately 10% of Janus' total assets under management were generated
  through the Schwab relationship, the largest of such programs. In
  addition, Janus introduced two new Janus fund portfolios; Janus Mercury
  Fund, an equity fund; Janus Federal Tax Exempt Fund, a tax exempt income
  fund; and the Janus Aspen Series, which consists of portfolios funded
  through variable annuity contracts, such as the Janus Retirement
  Advantage. During 1992, Janus introduced three new mutual funds; Janus
  Enterprise Fund, an equity fund; Janus Balanced Fund, a combination
  equity/fixed income fund and Janus Short-Term Bond Fund, a short-term
  income fund. 
  [Page 38]
  
  Janus has expanded its assets under management by marketing advisory
  services directly to pension plan sponsors, insurance, banking and
  brokerage firms for their proprietary investment products. These
  relationships generated approximately $948, $920 and $340 million in new
  assets in 1994, 1993 and 1992, respectively.
  
  Berger Associates, Inc. ("Berger") is the investment advisor of The
  Berger One Hundred Fund, The Berger One Hundred and One Fund and The
  Berger Small Company Growth Fund as well as private and other accounts,
  (collectively "Berger Funds").  The Company made its first investment in
  Berger in 1992 when it acquired an 18% interest. In October 1994, the
  Company acquired a controlling interest in Berger, increasing its
  ownership to over 80%.  At the date of closing of the transaction,
  Berger became a consolidated subsidiary of KCSI. For the period since
  acquisition of a controlling interest, Berger contributed essentially
  breakeven results to KCSI consolidated earnings. These earnings include
  all acquisition related costs and were it not for the one-time charge to
  earnings, discussed earlier, Berger would have contributed positively to
  KCSI's results. Berger assets under management grew rapidly in 1994
  beginning the year at $1.9 billion and ending on December 31, 1994 at $3
  billion. Management believes Berger has good name recognition in the
  industry, has historically had favorable fund performance and through
  the use of marketing and promotional efforts has attracted increasing
  fund sales and investors.
  
  Financial Asset Management revenues and operating income increases are a
  direct result of increases in assets under management and processing
  services. Assets under management and shareholder accounts have grown in
  recent years from a combination of new money investments or fund sales
  and market appreciation. Fund sales have risen in response to marketing
  efforts, favorable fund performance and the current popularity of
  no-load mutual funds. Market appreciation has resulted from increases in
  stock investment values. However, a decline in the stock and bond
  markets and/or an increase in the rate of return of alternative
  investments could negatively impact Financial Asset Management revenues
  and operating income. In addition, the mutual fund market, in general,
  faces increasing competition as the number of mutual funds continues to
  increase, marketing and distribution channels become more creative and
  complex, and investors place greater emphasis on published fund
  recommendations and investment category rankings. These factors could
  also affect the Company's Financial Asset Management businesses and
  negatively impact revenues and operating income. 
  
  Eliminations, Corporate & Other. The "Eliminations, Corporate and Other"
  consists of unallocated KCSI Holding Company operating expenses,
  intercompany eliminations, and miscellaneous other investment
  activities.  Modest fluctuations in this reporting category occurred
  during 1993 and 1992. In 1994, however, net operating losses declined
  from a combination of lower unallocated holding company expenses and a
  shift in net interest income/expense as intercompany debt amounts and
  costs were fully allocated to subsidiary operations as opposed to being
  borne at the holding company level. In addition, lower expenses in 1994
  resulted from the reversal of certain employment related tax and
  interest accruals (amounting to approximately $.06 per share), on the
  favorable outcome of long-standing tax issues regarding the status of
  KCSI Holding Company employees under the Railroad Retirement Tax Act.
  
  Unconsolidated Affiliates. Earnings from Unconsolidated Affiliates
  consist principally of DST's equity in the earnings of Investors
  Fiduciary Trust Company ("IFTC," a 50% owned affiliate prior to the sale
  of IFTC discussed earlier), Boston Financial Data Services, Inc.
  ("BFDS," a 50% owned affiliate), The Continuum Company, Inc.
  ("Continuum," a 29% owned affiliate), Midland Data Systems, Inc., and
  Midland Loan Services L.P. (collectively "Midland," 45% owned
  affiliates) and Argus Health Systems, Inc., ("Argus," a 50% owned
  affiliate). 
  
  (MDA Graph #8)
  
  IFTC experienced substantial growth in assets under custody 
  ($126 billion - 1994 from $106 billion - 1992). DST's equity in IFTC
  earnings were  $6.5, $4.8 and $4.8 million in 1994, 1993 and 
  1992, respectively. IFTC earnings are influenced by mutual fund industry
  growth and interest rate fluctuations. IFTC's 1994 earnings rose
  significantly from 1993. These improved earnings resulted from the
  increasing interest rate environment in 1994 along with improved mutual
  fund industry growth. 1993 net income was essentially unchanged when
  compared to 1992. While IFTC assets under custody grew, results were
  reduced by a change in the fiduciary fee arrangement between IFTC and
  its parent companies and lower investment earnings. Excluding the change
  in fiduciary fees, IFTC results were improved over 1992. In 1992, IFTC
  earnings declined from 1991 even though assets under custody continued
  to grow. The 1992 earnings decline resulted from interest rate
  fluctuations and losses on certain foreign currency investments. At
  December 31, 1992, IFTC had liquidated its portfolio regarding the
  foreign currency investments.
  [Page 39]
  
  In early 1995, DST exchanged its 50% interest in IFTC for 2,986,111
  common shares of State Street Boston Corporation ("State Street"),
  representing an approximate 4% interest in State Street, discussed
  earlier. As a result of this transaction DST recognized a gain on the
  sale of its IFTC equity investment and after consideration of
  appropriate tax effects recognized a net gain of $4.7 million in first
  quarter 1995. DST's equity in earnings of unconsolidated affiliates are
  expected to decline in 1995 as a result of the loss of the IFTC
  earnings. This decline will be partially offset with State Street
  dividends, currently $.16 per common share quarterly (assuming State
  Street continues its recent trend regarding payment of dividends to
  stockholders), and anticipated improvements in earnings of remaining
  unconsolidated DST affiliates.
  
  BFDS provides full service transfer agency functions for open and closed
  end mutual funds and corporations utilizing DST's proprietary systems.
  In addition, it performs remittance processing functions. In 1994, 1993
  and 1992, BFDS contributed  $5.1, $2.1 and $.5 million, respectively, in
  equity earnings to DST through increases in mutual fund and corporate
  shareowner accounts processed, efficient operating practices and
  expanded services.
  
  As discussed earlier, Continuum became a DST equity affiliate when DST
  exchanged its interest in Vantage for an equity interest in Continuum in
  late 1993. Accordingly, Continuum was an unconsolidated affiliate for
  all of 1994 and contributed $7.2 million in equity earnings to DST and
  $.7 million in 1993. Assuming Continuum continues revenue and earnings
  growth trends exhibited in 1994, management expects that Continuum will
  provide significant equity earnings to DST during 1995. 
  
  Argus, which provides insurance processing services to the health care
  industry through a pharmaceutical claims processing system, also
  experienced volume and income growth in 1994. Argus revenues and
  earnings are a direct result of pharmacy claims volume. Pharmacy claims
  processed have grown steadily (106 million claims in 1994 from 49
  million claims in 1992). Increased claims volume led to income growth;
  DST's equity in Argus earnings were $3.7, $2.3 and $1.7 million in 1994,
  1993 and 1992, respectively.
  
  Midland had been awarded contracts with the Resolution Trust Corporation
  ("RTC") for operation of an Asset Management System and a Control Totals
  Module System for use by the RTC. In 1994, however, the RTC converted
  off of the Midland system. Midland also provides commercial loan
  processing services. Midland's earnings contribution to DST improved in
  1994 compared to 1993. Improved commercial loan conversion volumes
  resulted in increased earnings but were somewhat offset by a decline in
  Midland's RTC loan processing work as the RTC converted off of the
  Midland system. Midland earnings declined significantly in 1993 from
  1992. This decline in earnings stemmed from a 1993 trend of lower
  margins on loan securitizations and delays on the receipt of certain
  loan processing work for the RTC. DST's combined equity in Midland
  earnings were $1.7, $.9 and $4.3 million in 1994, 1993 and 1992,
  respectively. Management believes opportunities exist in Midland's
  business lines and is focusing attention on the expansion of Midland's
  loan services capabilities in the private sector.
  
  Interest Expense.  Consolidated interest expense rose 5% in 1994 to
  $53.6 million from $51.2 million in 1993. This rise in interest expense
  is primarily attributable to an increase in debt balances in 1994,
  principally associated with borrowings to finance the acquisition of
  Berger Associates, Inc., additional Continuum stock purchases by DST,
  KCSR equipment requirements and subsidiary working capital, and higher
  interest rates. During 1994, the Federal Reserve Board ("Fed") increased
  short-term borrowing rates significantly. This Fed action increased the
  Company's short-term floating debt cost of funds, however, a significant
  portion of the Company's debt structure, approximately 62%, represents
  fixed rate debt instruments, most of which were in place prior to 1994.
  Accordingly, the rising interest rates did not affect interest expense
  related to this fixed rate debt. Interest expense in 1994 was also
  affected by the reversal of interest accruals ($3 million) related to
  KCSI Railroad Retirement Tax issues discussed earlier, which reduced
  consolidated interest expense. Interest expense in 1993 rose
  dramatically from 1992 and 1991 levels, ($33.1 million in 1992 and $32.1
  in 1991). This rise in interest expense is primarily attributable to
  borrowings required to finance the MidSouth acquisition, but somewhat
  offset by the refinancing of debt at subsidiary levels, including
  MidSouth, with more favorable borrowing rates. Additional borrowings in
  1993 were primarily $200 million in public debt offerings and $230
  million from the Company's revolving credit agreement. Interest expense
  in 1992 increased from proceeds of the Company's $200 million Note and
  Debenture offer somewhat offset by a decline in short-term interest
  rates, redemption of the 12% Debentures in 1991 and repayment of working
  capital credit lines. 
  [Page 40]
  
  
  LIQUIDITY
  
  Operating Cash Flow. The Company's cash flow from operations has
  historically been positive, and traditionally sufficient to fund
  operations, KCSR roadway capital improvements, DST systems development
  and operating capacity costs, and debt service. External sources of
  cash, principally negotiated bank debt, public debt and sale of
  investments, have historically been used to fund acquisitions, new
  ventures, investments, equipment additions and Company stock purchases.
  Operating cash flows have risen steadily in each year from 1992 to 1994.
  
  The following table summarizes operating cash flow information (in
  millions):
  
  
  
                          1994      1993      1992        
                                    
  Net income             $104.9    $ 90.5    $ 63.8
  Depreciation and 
    amortization          119.1      97.2      74.2
  Change in working 
    capital items          14.4     (37.7)    (34.8)
  Deferred income taxes    20.0      29.6       2.6
  Other                   (23.1)      9.6      17.1                           

               
  Net operating 
   cash flow             $235.3    $189.2    $122.9
  
  
  (MDA Graph #9)
  
  Operating cash flows in 1994 rose 24% over 1993 to $235.3 million. The
  improved operating cash flow resulted from higher net income, increased
  non-cash depreciation and amortization (MidSouth, Berger and DST related
  acquisitions and property additions along with increased road and
  equipment property additions at KCSR), and changes in working capital
  items. 1993 operating cash flows increased 54% from 1992 to $189.2
  million. This increase primarily related to higher net income, increased
  non-cash depreciation and amortization, (MidSouth and DST acquisitions
  along with KCSR road property additions), and increased deferred income
  taxes. 1992 operating cash flows of $122.9 million increased 10% over
  1991 from increased net income, higher depreciation and amortization
  primarily related to DST equipment acquisitions, increases in non-cash
  expense accruals but offset by changes in working capital items,
  primarily increased accounts receivable on higher revenues.  
  
  Summary cash flow data is as follows (in millions):
  
  
  
                               1994      1993      1992
                                         
  Cash flows provided by 
    (used for):     
    Operating activities      $235.3    $189.2    $122.9
    Investing activities      (333.6)   (394.7)   (178.0)
    Financing activities       104.4     196.7      26.5
  Net increase (decrease) in
    cash and equivalents         6.1      (8.8)    (28.6)
  Cash and equivalents 
    at beginning of year         6.6      15.4      44.0         
  Cash and equivalents at                              
    end of year               $ 12.7    $  6.6    $ 15.4
  
  
  
  Financing and Investing Cash Flows. These cash flows include: (i) new
  financings of  $201, $447 and $283 million in 1994, 1993 and 1992,
  respectively; (ii) repayment of indebtedness in the amounts of  $66,
  $231 and $215 million in 1994, 1993 and 1992, respectively, and (iii)
  cash dividends of  $13 million each in 1994-1992.
  
  Proceeds from the issuance of debt in 1994 were used for KCSR equipment
  purchases ($64 million), DST Continuum stock purchases ($18 million),
  the Berger acquisition ($48 million), ESOP contributions ($12 million)
  and DST property additions ($59 million).
  
  Proceeds from issuance of debt in 1993 were used for the MidSouth
  acquisition ($214 million), Continuum stock purchases ($20 million),
  refinancing of MidSouth indebtedness ($129 million) and subsidiary
  refinancing and working capital ($84 million).
  
  Proceeds from issuance of debt in 1992 were used for operating cash
  requirements ($42 million), repayment of bank credit lines ($90
  million), repurchase of KCSI capital stock ($31 million), MidSouth
  Common stock investment ($26 million), subsidiary indebtedness financing
  ($65 million), operating growth and business expansion at DST ($29
  million).
  
  Repayment of indebtedness includes scheduled maturities and
  refinancings.
  [Page 41]
  
  CAPITAL STRUCTURE
  
  Capital Requirements. The Company has traditionally funded capital
  expenditures in Transportation Services using Equipment Trust
  Certificates for major purchases of Railway locomotive and rolling
  stock, and negotiated term financing for other equipment, and DST and
  Janus operations. Conversely, capital improvements for roadway track
  structure have historically been funded with cash flow from operations.
  The MidSouth acquisition required completion of a capital improvement
  program for MidSouth roadbed, locomotives and facilities. This program
  contemplated a multi-year time frame to upgrade and expand MidSouth's
  track to handle greater traffic levels at higher train speeds. During
  1994, the Company accelerated its time table with respect to major
  upgrades of the MidSouth program, which included welded rail replacement
  and construction of new track sidings. Acceleration of the program was
  necessary to handle increased traffic especially with respect to
  intermodal business. By the end of 1994 the major portions of the
  MidSouth program were complete.  Subsequent to completion of the
  MidSouth acquisition and debt refinancing, the Company funded MidSouth
  capital requirements with historical funding sources. These same sources
  were used in funding 1994 Transportation Services capital programs and
  are expected to be used in funding 1995 capital programs, currently
  estimated at $130 million, a significant decline from the $208 million
  expended in 1994.
  
  Funding requirements for the KCSR long-term roadway improvement program,
  which began in the mid-1980's, has used significant portions of KCSR's
  operating cash flow. This program, initially scheduled for completion in
  1995, was essentially completed in 1994. While certain portions of this
  program will be ongoing in 1995, KCSR's capital expenditures will be
  reduced over the next several years. Reduction of capital expenditures
  will provide cash flow, which is anticipated to be used for repayment of
  debt and other general corporate purposes. In addition, KCSR acquired
  locomotives and rolling stock equipment during 1994 through the issuance
  of $55 million in privately placed Equipment Trust Certificates.
  Southern Leasing Corporation ("SLC"), included in the Transportation
  Services business segment, funds growth in its lease portfolio through
  SLC credit lines and Company financing arrangements and intends to
  continue to do so in the future. 
  
  DST capital requirements typically consist of mainframe, peripheral and
  other data processing computer equipment.  In order to accommodate
  continuing customer growth demands, DST began a physical expansion of
  its Winchester Data Center during 1994. The Data Center expansion,
  currently under construction, is expected to require approximately $24
  million, will be ultimately financed with mortgage loan indebtedness and
  is anticipated to be completed in the latter half of 1995. When
  completed, the Data Center expansion will effectively double the size of
  the facility and allow for increased DST processing capacity. DST
  management continually monitors its computer capacity needs to
  accommodate customer growth. During 1994, DST entered into transactions
  for the termination of certain mainframe computer equipment leases and
  purchase of other mainframe equipment in the amount of $11 million,
  which was funded through vendor arranged financing. In 1993 and 1992,
  DST purchased data processing equipment in the amount of $26 and $27
  million, respectively, through bank term financing. Additionally, in
  1993, DST entered into a sale/leaseback transaction of certain mainframe
  computer equipment in the amount of $16.6 million. In the last several
  years, Janus has upgraded its customer service capabilities, through new
  equipment and technology enhancements. Janus' capital requirements are
  typically funded with existing cash flows and negotiated indebtedness
  when necessary.
  
  (MDA Graph #10)
  
  Capital.  Debt as a percent of total debt plus equity ("debt ratio")
  increased from 49.3% at December 31, 1992 to 59.9% at December 31, 1993.
  The debt ratio declined slightly during 1994 closing at 59.6% on
  December 31, 1994. The Company's total debt increased to $985.2 million
  at December 31, 1994 from $839.7 million at December 31, 1993. This
  increase in debt was, however, accompanied by increases in stockholders'
  equity from earnings and decreases in ESOP deferred compensation in
  keeping the debt ratio at approximately 60%. The MidSouth acquisition,
  completed in 1993, added significant amounts of new indebtedness to the
  Company's balance sheet. These higher debt amounts were expected as the
  Company fully absorbed MidSouth operations. During 1992, debt increased
  ($200 million Note and Debenture offer), but was partially offset by
  [Page 42]
  
  stockholders' equity increases. The current debt ratio at 59.6% is above
  management's established goals, but was expected in consideration of the
  MidSouth acquisition in 1993 and acceleration of the railway capital
  improvement program in 1994. Management intends to reduce relative debt
  ratios in future years through profitable operations, a reduction of
  railway capital expenditures, both of which generate positive cash flow
  for debt retirement, and increases in net worth. In addition, completion
  of a plan for a public offering of DST common stock, discussed earlier,
  would significantly change the Company's capital and asset structure.
  The offering of 51% of DST, if it occurs, would result in the assets and
  liabilities of DST being removed from the consolidated financial
  position of the Company. At December 31, 1994, DST had assets totalling
  $531.7 million. Furthermore, it is anticipated that funds raised by such
  an offering, if completed, would be used by DST for debt retirement to
  KCSI and in turn used for repayment of debt by KCSI or repurchase of the
  Company's Common stock. Completion of these transactions could
  significantly reduce the Company's debt ratio and strengthen its capital
  structure and financial position.
  
  Components of capital are shown as follows 
  (in millions):
  
  
  
                                 1994      1993     1992
                                         
  Current debt                $   56.4  $   63.5  $  62.0
  Long-term debt                 928.8     776.2    387.0
                              
  Total debt                     985.2     839.7    449.0
     
  Stockholders' equity           667.2     562.7    462.4
  
  Total debt plus equity      $1,652.4  $1,402.4  $ 911.4
  
  Debt as a percent of 
    total debt plus equity        59.6%     59.9%    49.3%
  
  
  In 1994, 1993 and 1992, the Company repurchased $10.3, $9.5 and $30.9
  million, respectively, of its Capital stock in accordance with the stock
  repurchase and stock option plans approved by the Company's Board of
  Directors.
  
  Minority Purchase Agreements. Agreements between KCSI and certain Janus
  minority owners contain, among other provisions, mandatory stock
  purchase provisions whereby under certain circumstances, KCSI would be
  required to purchase the minority interest of Janus at a purchase price
  based upon a multiple of Janus earnings. In late 1994, the Company was
  notified that certain Janus minority owners made effective the mandatory
  purchase provisions for a certain percentage of their ownership. In the
  aggregate, the shares made effective for mandatory purchase totalled $59
  million. Concurrent with the early termination of the Janus compensation
  arrangements, discussed earlier, recipients of the amounts paid to
  terminate the arrangements used their after tax net proceeds to purchase
  certain portions of the shares made effective for mandatory purchase, in
  early January 1995. In addition, the Janus minority group was
  restructured to allow for minority ownership by other key Janus
  employees. These employees purchased other portions of the minority
  shares made effective for mandatory purchase through payment of cash and
  creation of recourse loans financed by KCSI in the amount of $10.5
  million. The remaining minority shares made effective for mandatory
  purchase were purchased by Janus for treasury, $6.1 million, and by KCSI
  for $12.7 million. As a result of the combination of KCSI acquiring
  additional Janus shares and the reduction of outstanding shares with
  Janus' treasury purchase, KCSI increased its ownership in Janus from
  approximately 81% to 83%, upon closing of the transaction in January
  1995. The KCSI share purchase resulted in the recording of intangibles
  as the purchase price exceeded the value of underlying tangible assets
  and will be amortized over its estimated economic life. A restructuring
  of the Janus minority ownership group provides for greater stock
  ownership in establishing greater emphasis on the growth of Janus.
  
  The new minority owners of Janus also have stock purchase provisions
  which under certain circumstances require KCSI to purchase the minority
  interest at fair market value. If all of the provisions of the Janus
  minority owner agreements became effective, KCSI would be required to
  purchase the respective minority interests, currently estimated at
  approximately $138 million.
  
  The purchase price for the mandatory provisions is based upon a multiple
  of earnings and/or fair market value determinations depending upon
  specific agreement terms. In the event such provisions became effective,
  KCSI would be required to meet such commitments.
  
  Overall Liquidity. During the 1994-1992 period, the Company continued to
  grow and strengthen its relative position in the Transportation
  Services, Information & Transaction Processing and Financial Asset
  Management businesses. The Company believes it has adequate liquid
  resources, which include sufficient lines of credit and businesses which
  are positive cash flow generators to meet future operating, capital and
  debt service requirements.
  [Page 43]
  
  OTHER
  
  Inflation. Inflation has not had a significant impact on the Company's
  operations in the past three years. Generally accepted accounting
  principles require the use of historical costs. Replacement cost and
  related depreciation expense, on a replacement cost basis, of the
  Company's property would be substantially higher than the historical
  costs reported. The increase in expenses from these fixed costs, coupled
  with variable cost increases due to significant inflation, would be
  difficult to recover through price increases given the competitive
  environments of the Company's two principal subsidiaries, KCSR and DST.
  
  SWEPCO Litigation. As previously disclosed, KCSR was a defendant in a
  lawsuit filed in the District Court of Bowie County, Texas by
  Southwestern Electric Power Company ("SWEPCO").  In that case, SWEPCO
  alleged that KCSR was required to reduce SWEPCO's coal transportation
  rate due to changed circumstances allegedly creating a "gross inequity"
  under the provisions of the coal transportation contract existing among
  SWEPCO, KCSR and the Burlington Northern Railroad. SWEPCO is KCSR's
  largest single customer. During 1994, KCSR and SWEPCO settled this
  litigation and the case against KCSR has been dismissed. This matter was
  concluded without material adverse effect on the financial condition or
  future results of operations of the Company.
  
  Environmental Matters. Also as previously reported, KCSR has been named
  as a "potentially responsible party" by the Louisiana Department of
  Environmental Quality in a state environmental proceeding involving a
  location near Bossier City, Louisiana, which was the site of a wood
  preservative treatment plant (Lincoln Creosoting). KCSR is a former
  owner of part of the land in question. This matter was the subject of a
  trial in the United States District Court in Shreveport, Louisiana which
  was concluded in July of 1993. The court found that Joslyn Manufacturing
  Company, an operator of the plant, was and is required to indemnify KCSR
  for damages arising out of plant operations. (KCSR's potential liability
  is as a property owner rather than as a generator or transporter of
  contaminants.) The case was appealed to the United States Court of
  Appeals for the Fifth Circuit, which Court affirmed the U.S. District
  Court ruling in favor of KCSR.
  
  In early, 1994, the Environmental Protection Agency ("EPA")  added the
  Lincoln Creosoting site to its Federal Comprehensive Environmental
  Response, Compensation & Liability Act, ("CERCLA," also known as the
  superfund law), national priority list. Since major remedial work has
  been performed at this site by Joslyn and KCSR has been held by the
  Federal District and Appeals Courts to be entitled to indemnity for such
  costs, it would appear that KCSR should not incur significant remedial
  liability. At this time, it is not possible to evaluate the potential
  consequences of remediation at the site.
  
  Management's Review of Strategic Alternatives. In late 1993, the Company
  began the process of a comprehensive study, with the assistance of
  outside consultants, of the strategic options available to further
  increase value to the Company's stockholders. This study included
  evaluation of a wide range of alternatives with the objective of
  identifying opportunities for reinvestment of earnings, alternatives for
  financing of capital requirements, methods of increasing the return on
  the Company's investment in its various business segments and the
  strategic positions of its primary subsidiaries within the industries in
  which they operate. The alternatives studied ranged from operational
  improvements to asset redeployments. The Company recently announced
  authorization for the development of a plan for a public offering by DST
  of approximately 51% of DST's common equity. The financial impact of
  such a decision will produce, the Company believes, substantial
  advantages to KCSI and its owners.
  
  Consideration of strategic alternatives is not a new process for the
  Company. Many such studies have been performed during KCSI's history to
  assist the Company in determining the most effective use of its assets.
  KCSI, as a holding company, is responsible for the management of its
  primary assets; investments in its subsidiaries. Accordingly, KCSI
  management continually evaluates its position as to the most effective
  utilization of these assets.  As early as the 1970's and 1980's, KCSI
  was using investment assets in other companies as dividends to
  shareholders (Kemper Corporation and MAPCO) as a way of redeploying
  assets to increase shareholder value. This strategic review is intended
  to utilize the strength of the Company's business lines and
  capabilities, provide for future growth opportunities and achieve the
  Company's strategic financial objectives. 1992 through 1994 and future
  years have been and will be affected by these strategic decisions.
  
  *  In the period 1992-1994 KCSI management has followed these
     strategies:    
     -    Drive our strongest businesses.
     -    Capitalize on advantages of location and technology
          leadership.
     -    Leverage earnings with productivity 
          gains for itself and its customers.
  [Page 44]

     -    Link new directions to present market 
          and technical strengths.
  
  *  KCSI management has applied its cash flows primarily as follows: 
  
     -    Strategic and operating needs of Transportation Services,
          Information & Transaction Processing and Financial Asset
          Management businesses to the enhancement of KCSI market
          leadership positions.
     -    Reduction of debt.
     -    Repurchase of KCSI Common stock to the 
          extent possible.
     -    Improvement of the cash return to KCSI 
          stockholders.
  
  The Company's dividend to stockholders will be reviewed annually and
  adjustments considered that are consistent with growth in real earnings
  and prevailing business conditions.
  
  *    During 1994, as part of the strategic planning process, the
       Company sought to link its rail transportation operations with a
       rail partner to improve its position within the railroad industry
       while creating a stand alone financial services entity through tax
       advantaged transactions with minimal regulating risk. This process
       lead to a proposed transaction with Illinois Central Corporation
       ("IC") and spin off of the Company's financial services
       businesses. After much discussion and analysis, however, the
       Company and IC were unable to reach a definitive agreement on a
       number of issues and determined that the transaction would not
       meet the objectives previously established. Accordingly, the
       Company and IC mutually terminated negotiations on the proposed
       transaction. The Company will continue to operate its core
       Transportation operations, which management believes occupies a
       strong strategic position within the railroad industry and the
       geographic area it serves.
  
  *    In early 1995, the KCSI Board of Directors authorized development
       of a plan for a public offering by DST of approximately 51% of
       DST's common equity.
  
       In accordance with the Company's strategic focus, the purpose of
       the offering would be to obtain better market recognition of DST's
       performance and to obtain proceeds for the retirement of debt
       including debt owed KCSI and general corporate purposes. Such an
       offering, if completed, would significantly change the financial
       structure of the Company. Capital raised by the offering may be
       used for DST debt retirement to KCSI for reduction of KCSI debt,
       repurchase of KCSI Common stock and general corporate purposes. 
  
  *    The Transportation Services management team is committed to growth
       in its service area and intends to expand through short-line rail
       acquisitions and strategic joint ventures. This commitment is
       evidenced by the following activity:
  
     -    In February 1995, KCSR filed a petition with the Interstate
       Commerce Commission ("ICC") seeking approval for construction of
       an approximate nine mile rail line from KCSR's main line into the
       Geismar, Louisiana industrial area. The Geismar area is a large
       industrial corridor, which includes companies engaged in the
       petro-chemical industry, and is currently served by only one rail
       carrier. The rail line would expect to be completed in
       approximately 12 to 18 months after ICC approval. The Geismar
       project extends KCSR's rail line and could be a significant source
       of traffic and revenues thereby complementing its business in the
       petro-chemical industry. The KCSR Geismar line extension has
       received the support of certain shippers in the Geismar industrial
       area and would provide those shippers with additional rail storage
       facilities, production efficiencies and competitive transportation
       service.
  
     -    In June 1993, KCSI completed the acquisition of MidSouth
       Corporation, as previously discussed. The Company has historically
       been a North/South railroad. This acquisition provides the Company
       an East/West rail line, which presents the opportunity to be a
       significant competitor in the intermodal transportation market. In
       mid-November 1994, KCSR began dedicated through train service for
       intermodal traffic between Dallas, Texas and Atlanta, Georgia in
       conjunction with the Norfolk Southern Railway Company. This
       acquisition also increased and diversified KCSR's market share in
       its trade territory.
  
     -    In May 1992, the KCSR signed an agreement with the Santa Fe
       Railway to purchase portions of its rail line in the Dallas, Texas
       area. The sale consists of approximately 90 miles of track and an
       80 acre intermodal facility. The agreement is being implemented in
       phases over several years. Phase I of this agreement was completed
       in late 1993. The final portion of Phase II is anticipated to be
       completed in 1995. As a result of the agreement, KCSR has direct
       access to the Dallas market for the first time in the Company's
       history. 
  
     -    In 1992, the Company purchased 530 acres of land adjacent to
       the Company's Pabtex, Inc., coal and
   
  [Page 45]    
  
  
       petroleum coke storage, barge and ship loading facility in Port
       Arthur, Texas. The 530 acres includes 4,000 linear feet of deep
       water frontage on the Sabine-Neches Waterway, which has direct
       access to the Gulf of Mexico via the Intercoastal Waterway. This
       acquisition increases the Transportation Service's deep water
       access in the Port Arthur, Texas area and will permit a doubling
       of capacity of the Pabtex coal and coke facility for future
       expansion of the petroleum coke and coal import/export business
       and development of additional port operations in KCSR's service
       area.
  
  The Company owns 1,025 acres of property located on the waterfront in
  the Port Arthur, Texas area, which includes 22,000 linear feet of deep
  water frontage and three docks. Port Arthur is an uncongested port with
  direct access to the Gulf of Mexico. Approximately 75% of this property
  is available for development.
  
     -    In April 1992, KCSR signed a letter of intent for the
       purchase of all of the capital stock of the Graysonia, Nashville &
       Ashdown Railway ("GNA"). The GNA connects with KCSR at Ashdown,
       Arkansas and extends 32 miles east. The purchase price also
       included industrial real estate. Acquisition of the GNA received
       ICC approval and was merged into KCSR in June 1993.
   
  These transactions fit within the strategic business plan for extension
  of KCSR rail property and increase of the Company's traffic and industry
  base.
  
  *    DST's growth in recent years has come not only from growth in its
       core mutual fund processing business but also by product expansion
       and acquisitions designed to strengthen market and strategic
       positions.
  
     -    DST's strategic merger of Vantage with Continuum and
       additional Continuum investments in 1994, as discussed earlier, 
       have increased the opportunities in the insurance industry in both
       domestic and international markets. Continuum has been a good
       partner with DST in the expansion of DST's AWD(R) product within
       the insurance industry. 
  
     -    In 1991, DST began evaluating the feasibility of marketing
       its products outside the United States and also products that
       would serve foreign markets in DST's product lines. In 1992, DST,
       together with State Street Bank and Clarke and Tilley, Ltd. (a
       United Kingdom software firm), formed Clarke and Tilley Data
       Services ("CTDS"). CTDS is developing a unit trust accounting
       system for the U.K. and Luxembourg markets, incorporating DST
       workflow management and image technology.
  
     -    During 1993, DST completed the acquisition of Clarke &
       Tilley, Ltd., (100% owned), which markets investment management
       software primarily for use in Europe and the Pacific Rim, and
       Corfax Benefit Systems, Ltd., (100% owned), a Canadian company,
       which processes shareowner transactions for mutual funds and
       pension accounts in Canada. These strategic acquisitions provide
       DST with future growth opportunities for expansion of its products
       into international markets, especially Europe and Canada.
  
     -    The formation, expansion, and internal reorganization of OTI
       provides a greater variety and number of products which DST
       businesses can offer to its existing customer base.
  
  *    KCSI has been committed to the mutual fund industry since 1962 and
       intends to continue and expand that commitment in seeking strong
       mutual fund growth and increase in its mutual fund servicing
       businesses. 
  
     -    In 1994, Janus introduced the Janus Overseas Fund, an
       international equity fund and expanded product offerings for the
       Janus Aspen Series, initiated in 1993. During 1993, Janus
       introduced three new fund products: Janus Mercury Fund, an equity
       fund; Janus Federal Tax Exempt Fund, a tax exempt income fund; and
       the Janus Aspen Series, which are annuity products. During 1992,
       Janus introduced three new mutual funds: Janus Enterprise Fund, an
       equity fund; Janus Balanced Fund, a combination equity/fixed
       income fund and Janus Short-Term Bond Fund, a short-term income
       fund.
  
     -    In 1994, KCSI acquired a controlling interest in Berger
       Associates, Inc. ("Berger") by increasing its ownership to over
       80% from the 18% interest purchased in 1992. Berger is the
       investment advisor to the Berger One Hundred Fund, Berger One
       Hundred and One Fund, Berger Small Company Growth Fund as well as
       private and other accounts.
  
  *    In 1992 and 1993, the Company's Board of Directors authorized
       2-for-1 Common stock splits effected in the form of stock
       dividends.  
  
  Consideration of the Company's strategic alternatives, including the
  items mentioned above, are expected to continue and to present growth
  opportunities in future years.
    [Page 46]
  KCSI
  
  Management Report on Responsibility for Financial Reporting
  
  
  The accompanying financial statements and related notes of Kansas City
  Southern Industries, Inc. and its consolidated subsidiaries were
  prepared by management in conformity with generally accepted accounting
  principles appropriate in the circumstances. In preparing the financial
  statements, management has made judgments and estimates based on
  currently available information. Management is responsible for not only
  the financial information but also all other information in this Annual
  Report. Representations contained elsewhere in this Annual Report are
  consistent with the financial statements and supplementary financial
  information contained in the Financial Section.
  
  The Company has a formalized system of internal accounting controls
  designed to provide reasonable assurance that 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. In addition,
  as part of their audit of the consolidated financial statements, the
  Company's independent accountants, who are selected by the stockholders,
  review and test the internal accounting controls on a selective basis to
  establish the extent of their reliance thereon in determining the
  nature, extent and timing of audit tests to be applied.
  
  The Board of Directors pursues its oversight role in the area of
  financial reporting and internal accounting control through its Audit
  Committee. This committee, composed solely of non-management directors,
  meets regularly with the independent accountants, management and
  internal auditors to monitor the proper discharge of responsibilities
  relative to internal accounting controls and to evaluate the quality of
  external financial reporting.
  
  Price Waterhouse LLP
  
  Report of Independent Accountants
  
  To the Board of Directors and Stockholders of
  Kansas City Southern Industries, Inc.
  
  In our opinion, the accompanying consolidated balance sheets 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 Kansas City Southern Industries, Inc. and its
  subsidiaries at December 31, 1994, 1993 and 1992, and the results of
  their operations and their cash flows for the years then ended in
  conformity with generally accepted accounting principles. 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 generally accepted auditing standards
  which require that we plan and perform the audit to obtain reasonable
  assurance about whether the financial statements are free of material
  misstatement. An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements,
  assessing the accounting principles used and significant estimates made
  by management, and evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for
  the opinion expressed above.
  
  As discussed in Notes 7 and 10 to the financial statements, the Company
  changed its method of accounting for income taxes and other
  postretirement benefits in 1993 to conform with Statements of Financial
  Accounting Standards Nos. 109 and 106.
  
  /s/ Price Waterhouse LLP
  
  Kansas City, Missouri
  February 23, 1995
  [Page 47]
    
    CONSOLIDATED STATEMENTS OF INCOME
  Dollars in Millions, Except per Share Amounts
  Years Ended December 31
  
  
  
                                     1994      1993     1992
                                                                  

               
  Operations   Revenues                 $1,097.9  $ 961.1   $741.4
          Costs and expenses               776.3    651.8    541.3
          Depreciation and amortization    119.1     97.2     74.2 
                                   
          Operating income                 202.5    212.1    125.9
          Equity in net earnings of
           unconsolidated affiliates 
           (Notes 4, 13)                    24.8     14.1     11.1
          Interest expense                 (53.6)   (51.2)   (33.1)
                                   
  Pretax  Pretax income                    173.7    175.0    103.9
          Income tax provision (Note 7)     63.5     69.0     35.2
                                   
          Income before minority interest  110.2    106.0     68.7
  
  Minority     Minority interest in 
           consolidated earnings (Note 9)    5.3      9.0      4.9
                                   
          Income before cumulative effect 
           of accounting changes           104.9     97.0     63.8
  
  Accounting   Cumulative effect of changes in accounting for         
  Changes  income taxes and postretirement benefits,
           net of taxes (Notes 7, 10)                (6.5)
                                   
  
  
          Net income                    $  104.9  $  90.5   $ 63.8
  
  Per          
  Share   Primary earnings per share (Note 1)     
  Data     Before cumulative effect of 
       accounting changes               $   2.32  $  2.16   $ 1.43         
     Cumulative effect of accounting changes         (.14)                 
                                   
       Total                            $   2.32  $  2.02   $ 1.43
     Weighted average primary Common
      shares outstanding (in thousands)   45,061   44,728   44,318
                                   
     Dividends per share
      Preferred                         $   1.00  $  1.00   $ 1.00    
                                   
      Common                            $    .30  $   .30   $  .30
  
  
  See accompanying notes to consolidated financial statements.
  
  [Page 48]                                  
    
CONSOLIDATED BALANCE SHEETS
  Dollars in Millions at December 31
  
  
  
                                    1994       1993      1992
                                                                  

               
     ASSETS
  Current      Cash and equivalents     $    12.7 $     6.6 $    15.4
  Assets       Accounts receivable, 
                net (Note 5)                232.3     194.7     147.4
               Inventories                   46.6      48.3      26.7
               Other current 
                assets (Note 5)              88.5      86.1      56.9
                                   
               Total                        380.1     335.7     246.4
                                   
  Investments  Held for operating 
                purposes (Note 4)           214.6     174.5     155.8
                                   
  Properties   Cost                       2,101.3   1,792.0   1,312.0
               Accumulated depreciation 
                and amortization           (686.0)   (599.4)   (543.8)
                Net (Note 5)              1,415.3   1,192.6     768.2
                                   
  Other        Intangibles and other 
                assets (Notes 2, 5)         220.8     214.2      78.0
                                   
               Total assets             $ 2,230.8 $ 1,917.0 $ 1,248.4
     
          LIABILITIES & STOCKHOLDERS' EQUITY
  
  Current      Debt due within 
  Liabilities    one year (Note 6)      $    56.4 $    63.5 $    62.0
               Accounts and wages payable   140.8      70.9      55.3
               Accrued liabilities 
                (Note 5)                    142.4     154.0     101.3
                                   
                Total                       339.6     288.4     218.6
                                   
  Other        Long-term debt (Note 6)      928.8     776.2     387.0
  Liabilities  Deferred income taxes 
                (Note 7)                    204.2     184.7     101.4
               Other deferred credits        80.5      99.1      77.9
               Contingencies (Notes 6, 7, 9, 11, 12)
                                   
               Total                      1,213.5   1,060.0     566.3
                                   
  Minority     Consolidated 
  Interest      subsidiaries (Note 9)        10.5       5.9       1.1
                                   
  
  Stockholders'$25 par, 4% noncumulative, 
  Equity         Preferred stock              6.1       6.1       6.3
               $1 par, Series B convertible, 
                Preferred stock (Note 8)      1.0       1.0
               $.01 par, Common stock 
                (Note 8)                       .4      30.9      30.0
               Capital surplus              338.0     303.9      89.5
               Retained earnings            530.1     439.0     361.4
               Shares held in 
                trust (Note 8)             (200.0)   (200.0)
               ESOP deferred compensation    (8.4)    (18.2)    (24.8)
                                   
  Net Worth    Stockholders' equity  
                (Notes 6, 8)                667.2     562.7     462.4      
                                   
               Total liabilities 
                and stockholders' 
                equity                  $ 2,230.8 $ 1,917.0 $ 1,248.4
  
  
  See accompanying notes to consolidated financial statements.
  
    [Page 49]
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Dollars in Millions 
  Years Ended December 31
  
  
  
                                       1994        1993      1992
                                   
          CASH FLOWS PROVIDED BY (USED FOR):
                                                   
  Operating Net income                 $104.9     $ 90.5    $63.8
  Activities   Adjustments to net income:
              Depreciation and 
                amortization            119.1       97.2     74.2
              Deferred income taxes      20.0       29.6      2.6
              Equity in undistributed 
                earnings                (23.9)     (12.6)    (8.6)
              Employee benefit expenses not 
                requiring operating cash  4.3       10.1     19.5
            Changes in working capital items:
              Accounts receivable       (35.8)     (29.1)   (40.6)
              Inventories                 1.6      (14.5)     3.0
              Accounts payable           69.8       20.3     17.3
              Accrued liabilities       (20.6)      12.1    (16.2)
              Other working capital 
                items, net                (.6)     (26.5)     1.7
            Other, net                   (3.5)      12.1      6.2
                                           
              Net                       235.3      189.2    122.9   
                                           
  Investing Property acquisitions      (287.7)    (159.2)  (154.9)
  Activities   Proceeds from disposal 
              of property                19.2       14.6     12.6
            Investments in affiliates   (24.6)     (31.8)   (16.6)
            Purchase of companies, net of 
             cash acquired              (42.6)    (197.8)   (28.5)
            Proceeds from disposal of 
             other investments            4.5        3.9     16.4
            Other, net                   (2.4)     (24.4)    (7.0)            

        
               Net                     (333.6)    (394.7)  (178.0)
                                           
  Financing Proceeds from issuance 
  Activities     of long-term debt      200.6      446.5    283.2
            Repayment of long-term debt (66.3)    (231.4)  (214.6)
            Proceeds from stock plans     4.9        7.3      7.0
            Stock repurchased           (10.3)      (9.5)   (30.9)
            Cash dividends paid         (13.3)     (12.9)   (13.0)
            Other, net                  (11.2)      (3.3)    (5.2)  
                                           
               Net                      104.4      196.7     26.5   
                                           
  Cash and  Net increase (decrease)       6.1      (8.8)    (28.6)
  EquivalentsAt beginning of year         6.6      15.4      44.0   
                                           
            At end of year (Note 3)   $  12.7    $  6.6   $  15.4
  
  
  See accompanying notes to consolidated financial statements.
  
    [Page 50]
CONSOLIDATED STATEMENTS OF 
  CHANGES IN STOCKHOLDERS' EQUITY
  Dollars in Millions 
  
  
  
                               $1 Par                            
                     $25 Par   Series B$.01 Par               Shares    ESOP
                    Preferred PreferredCommonCapital Retained  Held   
Deferred   
                       Stock    Stock Stock Surplus Earnings   In      
Compen-
                                                              Trust     sation 
  Total
                                                 
Balance at
December 31, 1991      $ 6.9 $ -   $30.3 $106.4   $ 310.6   $  - ($42.4) $411.8
  
Net income                                           63.8                  63.8
Dividends                                           (13.0)                (13.0)
Stock repurchased       (0.6)       (1.1) (26.3)                          (28.0)
Options exercised and          
  stock subscribed                   0.8    9.4                            10.2
Contribution accruals                                              17.6    17.6
  
Balance at 
December 31, 1992        6.3   -    30.0   89.5     361.4      -  (24.8)  462.4
  
Net income                                           90.5                  90.5
Dividends                                           (12.9)                (12.9)
Stock repurchased       (0.2)              (9.3)                           (9.5)
Issuance of Series B       
  Preferred stock            1.0          199.0            (200.0)          0.0
Options exercised and         
  stock subscribed                   0.9   22.4                            23.3
Contribution accruals                                              6.6      6.6
Other                                       2.3                             2.3
                                   
Balance at 
December 31, 1993        6.1   1.0  30.9  303.9    439.0   (200.0)(18.2)  562.7
  
Net income                                         104.9                  104.9
Dividends                                          (13.3)                 (13.3)
Options exercised and         
  stock subscribed                   0.3   13.1                            13.4
Stock repurchased                         (10.3)                          (10.3)
Stock plan shares issued         
  from treasury                      0.2    4.4                             4.6
Establishment of a  
  par value of        
  Common stock                     (31.0)  31.0                             0.0
Redemption of Common                
    stock rights                                   (0.5)                   (0.5)
Contribution accruals                                              9.8      9.8
Other                                      (4.1)                           (4.1)
                                   
Balance at 
December 31, 1994       $ 6.1 $1.0  $0.4 $338.0   $530.1  ($200.0)($8.4) $667.2
  
  
  See accompanying notes to consolidated financial statements.
  
  [Page 51]
      
  NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS 
  
  Note 1. Significant Accounting Policies
  
  
  Kansas City Southern Industries, Inc. ("Company" or "KCSI") is a
  diversified holding company, which comprises businesses engaged in
  Transportation Services, Information & Transaction Processing and
  Financial Asset Management. Note 13 further describes the 
  operations of the Company.
  
  The accounting and financial reporting policies of the Company conform
  with generally accepted accounting principles. Use of the term "Company"
  as described in this financial section means Kansas City Southern
  Industries, Inc. as a holding company and all of its consolidated
  subsidiary companies. Significant accounting and reporting policies are
  described below.
  
  Principles of Consolidation. The consolidated financial statements
  include all majority owned subsidiaries. All significant intercompany
  accounts and transactions have been eliminated.
  
  The equity method of accounting is used for all entities in which the
  Company or its subsidiaries have significant influence but not more than
  50% voting control interest; the cost method of accounting is generally
  used for investments of less than 20% voting control interest.
  
  Cash Equivalents. Short-term liquid investments with a maturity of
  generally three months or less are considered cash equivalents. Carrying
  value approximates market value due to the short-term nature of these
  investments.
  
  Inventories. Inventories held for resale are valued at the lower of
  average cost or market; materials and supplies inventories for
  transportation operations are valued at average cost.
  
  Properties and Depreciation. Properties are stated at cost. Additions
  and renewals constituting a unit of property are capitalized and all
  properties are depreciated over the estimated remaining life of such
  assets. Ordinary maintenance and repairs are charged to expense as
  incurred.
  
  The cost of transportation equipment and road property normally retired,
  less salvage, is charged to accumulated depreciation. Conversely, the
  cost of industrial and rental property retired, and the cost of
  transportation property abnormally retired, together with accumulated
  depreciation thereon, are eliminated from the property accounts and the
  related gains or losses are reflected in earnings.
  
  Depreciation for transportation operations is computed using composite
  straight-line rates for financial statement purposes. The Interstate
  Commerce Commission ("ICC") approves the depreciation rates used by The
  Kansas City Southern Railway Company ("KCSR"). KCSR evaluates
  depreciation rates for properties and equipment and implements ICC
  approved rates. Periodic revision of rates have not had a material
  effect on operating results. Unit depreciation methods, employing both
  accelerated and straight-line rates, are employed in other business
  segments. Accelerated depreciation is used for income tax purposes. The
  ranges of annual depreciation rates for financial statement purposes
  are:
                                     
  Transportation
    Road and structures            1%  -   19%
    Rolling stock & equipment      1%  -   24%
  Other equipment                  2%  -    6%
  Industrial and rental property   2%  -   25%
  Capitalized leases               5%  -   17%
  
  
  
  The Company periodically evaluates the recoverability of its operating
  properties. If it is determined that the carrying value of properties
  exceeds the discounted value of future estimated cash flows over the
  remaining productive lives of the assets, such excess is charged to
  earnings.
  
  Software Development. The Company's Information & Transaction Processing
  subsidiary, DST Systems, Inc. ("DST"), expenses as incurred development
  and maintenance expenditures for its proprietary software.
  
  Advertising. The Company expenses all advertising as incurred. Direct
  response advertising for which future economic benefits are probable and
  specifically attributable to the advertising is not material.
  
  Intangibles. Intangibles principally represent the excess of cost over
  the fair value of net underlying assets of acquired companies using
  purchase accounting and are amortized using the straight-line method
  over periods ranging from 7 to 40 years.
  
  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 the deferred income tax items and
  immediately recognizes changes in income tax laws upon enactment. The
  income statement effect is derived from changes in deferred income taxes
  on the balance sheet.
  
  Prior to January 1, 1993, provision was generally not made for possible
  deferred tax liabilities for unremitted earnings of
  [Page 52]
  
  corporate unconsolidated affiliates for which the Company's interest is
  accounted for under the equity method, as those earnings were expected
  to be reinvested.
  
  Beginning in 1993, on a prospective basis, deferred tax liabilities are
  provided on the portion of unremitted earnings from such affiliates
  which would not qualify for dividend exclusion had the earnings been
  distributed. The cumulative amount of unremitted earnings through
  December 31, 1994 was $81 million, which includes $48.4 million related
  to Investors Fiduciary Trust Company, a DST affiliate. Tax expense,
  should these earnings be remitted to the Company in the form of
  dividends, would amount to $5.7 million at currently enacted tax rates.
  Deferred taxes actually provided through December 31, 1994 were $2.7
  million.
     
  Treasury Stock. The excess of par over cost of the Preferred shares held
  in Treasury is credited to capital surplus. Common shares held in
  Treasury are accounted for as if they were retired and the excess of
  cost over par value of such shares is charged to capital surplus.
  
  Stock Plans. Proceeds received from the exercise of stock options or
  subscriptions are credited to the appropriate capital accounts in the
  year they are exercised.
  
  The Leveraged Employee Stock Ownership Plans' ("ESOP") loan principal
  payments are accounted for as employee benefit expense, interest
  payments are recorded as interest expense, and quarterly dividends paid
  from retained earnings on the ESOP stock are used to partially service
  the ESOP loan. Because the ESOP loan is guaranteed by KCSI, the
  borrowings are reported as long-term debt and corresponding amounts,
  representing "ESOP deferred compensation," are reduced as the 
  related compensation expense is recognized by the Company.
  
  Earnings per Share. On January 28, 1993, the Company authorized a
  2-for-1 stock split effected in the form of a stock dividend paid March
  17, 1993.
  
  On January 31, 1992, the Company authorized a 2-for-1 stock split
  effected in the form of a stock dividend paid March 17, 1992.
  Appropriate share and per share data have been restated to reflect both
  of these stock splits.
  
  The Company uses the Primary method for computing earnings per share.
  The difference between the Primary and Fully-Diluted methods is not
  material.
  
  Stockholders' Equity. Information regarding the Company's capital stock
  at December 31, 1994 follows:
  
  
     
                                Shares              Shares
                              Authorized            Issued
                                           
  $25 Par, 4% noncumulative, 
    Preferred stock               840,000            649,736
  $1 Par, 
    Preferred stock             2,000,000               None
  $1 Par, Series A, 
    Preferred stock               150,000               None
  $1 Par, Series B, 
    Preferred stock             1,000,000          1,000,000
  $.01 Par, 
    Common stock              400,000,000         48,402,192
  
  
  The Company's Series B Preferred stock, issued in 
  1993, has a $200 per share liquidation preference and 
  is convertible to Common at a ratio of 4 to 1.
  
  Shares outstanding are as follows, at December 31, 
  (in thousands):
  
  
  
                                      
                          1994      1993      1992
  $25 Par, 
    Preferred stock         243       243       252
  $.01 Par, 
    Common stock         43,518    42,798    41,616
  
  
  Retained earnings include equity in unconsolidated affiliates of $78.3,
  $53.2 and $42.9 million at December 31, 1994, 1993 and 1992,
  respectively.
  [Page 53]
  
  Note 2. Mergers and Acquisitions
  
  
  On October 14, 1994, the Company completed the acquisition of a
  controlling interest in Berger Associates, Inc. ("Berger"). The Company
  made payments of $47.5 million, in cash, pursuant to a Stock Purchase
  Agreement, (the "Agreement"). The Agreement also provides for additional
  purchase price payments, totalling approximately $62.4 million,
  contingent upon attaining certain levels (up to $10 billion) of assets
  under management, as defined in the Agreement, over a five year period.
  The acquisition, which was accounted for as a purchase, increased the
  Company's ownership in Berger from approximately 18% to over 80%.
  Adjustments to appropriate asset and liability balances have been
  recorded based upon estimated fair values of such assets and 
  liabilities. The transaction resulted in the recording of intangibles as
  the purchase price exceeded the fair value of underlying tangible
  assets. The intangible amounts will be amortized over their estimated
  economic life of 15 years, subject to completion of an economic life
  analysis. The financial statements of Berger were consolidated into the
  Company effective with the closing of the transaction. Assuming the
  transaction had been completed on January 1, 1994, the addition of
  Berger's revenues and net income, including adjustments to reflect the
  effects of the acquisition, on a pro forma basis, as of and for the year
  ended December 31, 1994, would have had an immaterial effect on the
  consolidated results of the Company.
  
  On January 31, 1995, DST completed the sale of its 50% interest in IFTC
  Holdings, Inc., which wholly-owns Investors Fiduciary Trust Company, to
  State Street Boston Corporation ("State Street"). At closing, DST
  received 2,986,111 shares of State Street common stock in a tax free
  exchange (representing an approximate 4% ownership interest in State
  Street). As a result of this transaction, DST recognized a gain on the
  sale of an equity investment and after consideration of appropriate tax
  effects recognized a net gain of $4.7 million in first quarter 1995.
  With the closing of the transaction, IFTC ceases to be an unconsolidated
  affiliate of DST and no further equity in earnings of IFTC will be
  recorded by DST. DST recognized equity in earnings from IFTC of $6.5,
  $4.8 and $4.8 million in 1994, 1993 and 1992, respectively. 
  
  The Company completed the acquisition of MidSouth Corporation
  ("MidSouth") on June 10, 1993. The purchase price for the acquisition of
  the MidSouth common stock aggregated approximately $213.5 million paid
  in cash by KCSI to holders of MidSouth's common stock and in connection
  with the exercise of certain options held by MidSouth employees and
  others. Liabilities were assumed in the amount of $306.9 million.
  
  The MidSouth transaction, which was accounted for as a purchase,
  represented a significant transaction for the Company. Results of
  operations of the Company for the years ended December 31, 1993 and 1994
  include the operations of MidSouth as a consolidated subsidiary
  effective with the closing of the transaction.
  
  Adjustments were recorded to appropriate asset and liability balances
  based upon the fair value of such assets and liabilities. Based upon
  these adjustments, the total purchase price exceeded the fair value of
  the underlying net assets by a total of approximately $98 million and is
  being amortized over a period of 40 years. Additional assets are being
  depreciated over lives ranging from 5 to 35 years.
  
  Certain unaudited pro forma financial information, regarding results of
  operations assuming the MidSouth transaction had been completed on
  January 1, 1993 and 1992, respectively, follows (in millions, except per
  share amounts):
  
  
  
  Years Ended December 31
          
                                1993     1992
                                                   
  Revenues                    $1,010.2  $ 856.1
  Income before cumulative 
   effect of accounting changes   98.5     67.9
  Net income                      93.4     67.9
  
  Primary earnings per share:
  Before cumulative effect of
   accounting changes         $   2.19  $  1.53
  After cumulative effect of
   accounting changes             2.08     1.53
  
  
  During second quarter 1993, DST completed the acquisitions of Clarke &
  Tilley Ltd., (100% owned), a United Kingdom company, which markets
  investment management software primarily for use in Europe and the
  Pacific Rim; Corfax Benefit Systems, Ltd., (100% owned), a Canadian
  company, which processes shareowner transactions for mutual funds and
  pension accounts in Canada; and DBS Systems Corporation, (60% owned), a
  United States company, which has developed a software billing system for
  the direct broadcast satellite industry. During the third quarter 1993,
  DST acquired Belvedere Financial Systems, Inc., (100% owned), which
  develops and markets portfolio accounting and investment man-
  [Page 54]
  
  agement systems. Each of these transactions was accounted for as a
  purchase. The total purchase price exceeded the fair value of the
  underlying net assets, and is being amortized over a period of 7 to 20
  years. Cash paid for these transactions was approximately $15.3 million
  and liabilities assumed were $10.3 million.
  
  Effective September 30, 1993, DST completed the merger of its 90.5%
  owned subsidiary, Vantage Computer Systems, Inc. ("Vantage"), into a
  subsidiary of The Continuum Company, Inc. ("Continuum"). DST received
  approximately 3.6 million shares of Continuum stock. As a result of this
  transaction and through additional purchases of Continuum stock, DST
  owned approximately 24% of the outstanding common stock of Continuum at
  December 31, 1993. In 1994, DST purchased additional Continuum shares
  through privately negotiated transactions. Accordingly, at December 31,
  1994, DST owned approximately 29% (5.5 million shares) of Continuum's
  outstanding common stock. In the initial exchange, DST exchanged Vantage
  stock with a book value of approximately $17 million for Continuum stock
  with a then current market value of approximately $62 million. DST
  accounted for the initial exchange as a non-cash, non-taxable exchange
  in investment basis of Vantage for an investment in Continuum.
  Accordingly, no gain recognition was associated with the transaction.
  
  Continuum is a publicly traded international consulting and computer
  services firm based in Austin, Texas, which primarily serves the needs
  of life, and property and casualty insurance companies for computer
  software and services.
  
  Note 3. Supplemental Cash Flow Disclosures
  
  Supplemental Disclosures of Cash Flow Information. (in millions):
  
  
  
                     1994       1993     1992
                                                          
  Cash payments:
    Interest (net of 
      capitalized)  $ 67.5    $ 47.4    $ 34.4
    Income taxes      15.5      24.1      27.1
  
  
  
  Supplemental Schedule of Noncash Investing and Financing Activities. DST
  acquired $29.7, $21 and $17 million in 1994, 1993 and 1992,
  respectively, in computer mainframe equipment and software for the
  Winchester Data Center. These purchases were financed through bank term
  loans, with equipment manufacturers and/or software vendors, and
  accordingly, required no direct outlay of cash. 
  
  In first quarter of 1994, KCSI issued approximately 234,000 shares of
  Common stock under the Seventh Offering of the Employee Stock Purchase
  Plan. These shares, totalling a purchase price of approximately $4.4
  million, were subscribed and paid for through employee payroll
  deductions, in 1993. 
  
  As described in greater detail in Note 6, the Company issued $200
  million in Notes and Debentures in 1992, and $200 million in Notes in
  1993. As part of these transactions, the Company incurred $3.2 million
  and $2.5 million, respectively, in discount and underwriting fees which
  were transferred directly to the underwriter. The discount and
  underwriting fees represent non-cash amounts, which are being amortized
  over the respective terms of the Notes and Debentures.
  
  In 1993, DST entered into a sale/leaseback of certain mainframe computer
  equipment. As part of this transaction, the buyer assumed certain debt
  obligations related to the computer equipment in the amount of $16.6
  million, which provided no cash flow to DST.
  
  Property acquired under capital leases was $3.4, $1.3 and $1.4 million
  for 1994, 1993 and 1992, respectively. Such acquisitions require no
  direct outlay of cash.
  [Page 55]
  
  Note 4. Investments
  
  Investments held for operating purposes include investments in
  unconsolidated affiliates as follows (in millions):
  
  
  
                              Percentage Ownership     Carrying Value       
     Company Name              December 31, 1994   1994     1993     1992
                                                       
  The Continuum Company, Inc. (i),(vii)      29%  $ 62.5  $ 37.1   $   -
  Investors Fiduciary Trust Co.(i),(vi),(ix) 50%    52.9    50.2     47.6   
  Boston Financial Data Services, Inc. (i)   50%    15.5    11.4      8.7
  Argus Health Systems, Inc. (i)             50%     9.8     6.1      3.3
  Midland (i),(iii)                          45%     4.8     3.2      3.4
  First of Michigan Capital Corp. (i)        21%     7.6     7.6      7.2
  MidSouth Corporation (iv)                                          26.2   
  Berger Associates, Inc. (v)                                1.2      1.2
  Partnerships                                       1.4     1.5      2.3
  Equipment Finance Receivables (ii)                40.0    42.8     33.1
  Other                                             23.0    20.5     29.6
  Market Valuation Allowances                       (2.9)   (7.1)    (6.8)
                                                      
     Total (viii)                                 $214.6  $174.5   $155.8
  
  
  (i)     owned by DST Systems, Inc. (wholly-owned subsidiary) or a
  subsidiary of DST
  (ii)    fair market value based upon rates currently offered was
  approximately $40.5 million at December 31, 1994
  (iii)   Midland is comprised of Midland Data Systems, Inc. and Midland
  Loan Services, L.P. (both 45% owned)
  (iv)    in 1993, the Company completed its purchase of MidSouth which is
  now consolidated
  (v)     in 1994, the Company acquired a controlling interest in Berger, by
  increasing its ownership percentage from approximately 18% to over 80%, 
  which is now consolidated
  (vi)    includes $1.6 million of unrealized depreciation on "available for
  sale" securities
  (vii) fair market value based upon a quoted share price was
  approximately $169 million at December 31, 1994 
  (viii) fair market value is not readily determinable for investments
  other than noted above, and in the opinion of management, market value 
  approximates carrying value
  (ix)    effective January 31, 1995, IFTC ceased to be an unconsolidated
  affiliate of DST as a result of the sale of DST's interest (see Note 2).
  Additionally, as a result of the 1993 adoption of Statement of Financial
  Accounting Standards No. 115, "Accounting for Certain Investments in
  Debt and Equity Securities," the Company will be required to "mark to
  market" its investment in State Street Boston Corporation.
  
  Transactions Between Unconsolidated Affiliates. Boston Financial Data
  Services, Inc. ("BFDS") is a corporate joint venture of DST and State
  Street Boston Corporation, the parent of State Street Bank and Trust
  Company. BFDS performs shareholder accounting services for companies
  using State Street Bank and Trust Company as their transfer agent and
  DST's data processing services, mutual fund recordkeeping and
  shareholder accounting systems, and securities transfer system. 
  
  Prior to the sale of DST's interest in Investors Fiduciary Trust Company
  ("IFTC"), discussed in Note 2, IFTC was a corporate joint venture of DST
  and Kemper Financial Services, Inc. IFTC provides transfer agent and
  custodial services primarily to the mutual fund industry and utilizes
  DST's portfolio accounting, securities transfer, and mutual fund
  systems. DST received advance payments from IFTC for services to be
  provided in the subsequent fiscal year. At December 31, 1993 and 1992,
  these advance payments amounted to $4 and $3 million, respectively; none
  at December 31, 1994.
  
  Argus Health Systems, Inc. ("Argus") is a corporate joint venture of DST
  which provides pharmaceutical claims processing services for the health
  care industry. Argus uses DST's data processing services. DST received
  cash advances from Argus totalling $5 million as of December 31, 1993.
  
  Midland Data Systems, Inc. ("MDS") is a corporate joint venture of DST,
  which was awarded contracts with the Resolution Trust Corporation
  ("RTC") for the operation (using DST's Winchester Data Center) of an
  Asset Management System and a Control Totals Module System for use by
  the RTC. In 1994, the RTC converted off the Midland system; however,
  Midland continues to perform programming work for the RTC related to the
  system. In 1992, Midland Loan Services L.P. ("MLS") was formed to
  provide comprehensive commercial loan servicing for assets, performing
  and non-performing loans, and related asset management services for
  governmental and institutional clients. MDS is the Corporate General
  Partner of MLS.
  
  The Continuum Company, Inc. ("Continuum") became an equity affiliate of
  DST during 1993 when DST exchanged its interest in Vantage, as discussed
  in Note 2. Subsequent to this transaction, DST and Continuum
  [Page 56]
  
  reached an agreement whereby DST will provide all of Continuum's North
  American operations data processing requirements through use of DST's
  Winchester Data Center. 
  
  DST revenues associated with the above unconsolidated affiliates were
  $76, $74 and $50 million for 1994, 1993 and 1992, respectively. Accounts
  receivable include amounts due from unconsolidated affiliates of $14,
  $16 and $13 million for 1994, 1993 and 1992, respectively, for services
  provided by DST in the ordinary course of business and payable at usual
  trade terms.
  
  Financial Information. Combined financial information of all
  unconsolidated affiliates, principally DST related, which the Company
  and its subsidiaries account for on the equity method is as follows (in
  millions):
  
  
  
                                     1994      1993      1992   
                                                                  

     
  Investment in unconsolidated 
    affiliates                     $  166.5  $  126.3  $   77.9
  Equity in net assets of 
    unconsolidated affiliates         159.1     117.3      69.8
  Dividends and distributions received 
    from unconsolidated affiliates      1.0       1.5       2.5
  
  Financial condition:
   Current assets                  $1,129.7  $1,047.7  $  826.4
   Non-current assets                 143.6     150.1      69.6
                                                        
    Assets                         $1,273.3  $1,197.8  $  896.0
   Current liabilities             $  933.9  $  856.8  $  693.6
   Non-current liabilities             73.2     122.9      56.1
   Equity of stockholders and 
     partners                         266.2     218.1     146.3               

           
    Liabilities and equity         $1,273.3  $1,197.8  $  896.0
  Operating results:
   Revenues                        $  652.1  $  383.8  $  272.6
   Costs & expenses                   597.3     354.1     246.8
                                                        
    Net income                     $   54.8  $   29.7  $   25.8
  
  
  Financial information with respect to IFTC Holdings, Inc. and its
  wholly-owned subsidiary Investors Fiduciary Trust Company, which are
  included in the amounts shown above, is as follows (in millions):
  Financial condition:
  
  
                                              
   Current assets                  $  814.0  $  835.5  $  722.9
   Non-current assets                   4.5       1.4       2.3
                                                        
    Assets                         $  818.5  $  836.9  $  725.2
   Current liabilities             $  712.6  $  711.2  $  627.9
   Non-current liabilities                       25.2      10.7
   Equity of stockholders             105.9     100.5      86.6
                                                        
    Liabilities and equity         $  818.5  $  836.9  $  725.2
  Operating results:
   Revenues                        $   63.6  $   51.2  $   64.1
   Costs & expenses                    50.7      41.6      54.4
                                                        
    Net income                     $   12.9  $    9.6  $    9.7
  
  
  Other. Interest income on cash and equivalents was $1.6, $1.8 and $4.6
  million in 1994, 1993 and 1992, respectively.
  
  Berger Associates, Inc. At December 31, 1993, the Company had acquired
  an approximate 18% interest in Berger.  During 1994, the Company
  acquired a controlling interest (over 80%) of Berger (see Note 2.)
  
  MidSouth Corporation. At December 31, 1992, the Company had acquired
  approximately 16% of MidSouth's Common stock.  In 1993, the Company
  completed its acquisition of MidSouth (see Note 2.)
  [Page 57]
  
  Note 5. Other Balance Sheet Captions
  
  Accounts Receivable. Accounts receivable include the following
  allowances (in millions):
  
  
  
                                    1994      1993      1992    
                                                                  

     
  Accounts receivable              $   237.6 $   199.0 $  152.4
  Allowance for doubtful accounts       (5.3)     (4.3)    (5.0)
                              
  Accounts receivable, net         $   232.3 $   194.7 $  147.4
  Doubtful account expense         $     3.3 $     2.1 $    1.6
  
  
  Other Current Assets. Other current assets include the following items
  (in millions):
  
  
  
                                    1994       1993      1992   
                                                                  

     
  Maturities of equipment finance receivables 
   (Southern Leasing Corp.)        $    25.4 $    25.6 $   22.9
  Deferred taxes                        17.9      23.8      9.8
  Marketable investments 
   (cost approximates market)           17.6      19.0      8.8
  Other                                 27.6      17.7     15.4
                              
   Total                           $    88.5 $    86.1 $   56.9
  
  
  Properties. Properties and related accumulated depreciation and
  amortization are summarized below (in millions):
  
  
  
                                     1994      1993     1992    
                                                                  

     
  Properties, at cost
  Transportation
   Road properties                 $ 1,198.4 $ 1,075.3 $  684.0
   Equipment, including 
    $15.5, $12.9 and $12.6 
    financed under capital leases      444.9     355.6    338.4
   Land and Facilities                  67.8      67.2     59.0
  Information & Transaction Processing, 
    including $5.9, $5.6 and $3.9 equipment
    financed under capital leases      351.0     262.8    208.1
  Financial Asset Management, including 
    $1.6, $1.6 and $1.5 equipment
    financed under capital leases       30.1      21.7     12.8
  Corporate and Other                    9.1       9.4      9.7
                              
   Total                           $ 2,101.3 $ 1,792.0 $1,312.0
   
  
  
   
                                         1994      1993      1992   
                                                                  

          
  Accumulated depreciation and amortization
  Transportation
   Road properties                      $   295.2 $   264.2 $  251.6
   Equipment, including $8.9, 
     $8.6 and $8.1 for capital leases       179.7     174.8    168.0
   Facilities                                22.1      20.2     18.4
  Information & Transaction Processing, 
    including $4.4, $3.7 and $1.7 for 
    equipment capital leases                169.6     128.5     98.9
  Financial Asset Management, 
    including $.8, $.5 and $.2 
    for equipment capital leases             14.5      7.2       3.0
  Corporate and Other                         4.9      4.5       3.9
   Total                                $   686.0 $   599.4 $  543.8
    Net Properties                      $ 1,415.3 $ 1,192.6 $  768.2
  
  [Page 58]
  
  Intangibles and Other Assets. Intangibles and other assets include the
  following items (in millions):
  
  
  
                                      1994      1993     1992    
                                                                  

     
  Intangibles                      $   244.9 $   194.6 $   74.8
  Accumulated amortization             (39.8)    (31.3)   (16.6)
   Net                                 205.1     163.3     58.2
  Other assets                          15.7      50.9     19.8               

     
   Total                           $   220.8 $   214.2 $   78.0
  
  
  Accrued Liabilities. Accrued liabilities include the following items (in
  millions):
  
  
  
                                     1994      1993     1992    
                                                                  

     
  Prepaid freight charges due other 
    railroads                      $    35.1 $    32.2 $   27.4
  Current interest payable on 
    indebtedness                        25.4      18.9     11.9
  Other                                 81.9     102.9     62.0               

          
   Total                           $   142.4 $   154.0 $  101.3
  
  
  Note 6. Long-Term Debt
  
  Indebtedness Outstanding. Long-term debt and pertinent provisions follow
  (in millions):
  
  
                                      1994      1993           1992     
                                                                  

          
  KCSI
  Competitive Advance & Revolving Credit
   Facilities, with reducing commitments 
   through December 8, 1997          $319.0       $231.0    $   -
   Rate: Below Prime
  Notes and Debentures, due July 8, 
   1998 to July 1, 2022               400.0        400.0     200.0
   Unamortized discount                (2.3)        (2.6)     (1.6)
   Rate: 5.75% to 8.8%
  ESOP secured term loan, due 
   serially to February 28, 1997       13.2         22.8      26.5
   Rate: 7.6%  
  Transportation Services
  Equipment trust indebtedness, due 
  serially to December 15, 2006       115.4         67.8      80.8
   Rate: 7.15% to 15.0%
  Short-term renewable lease 
   financing working capital lines     46.0         32.6      29.0
   Rate: Below prime
  Subordinated and senior notes, 
   and industrial revenue bonds, due
   April 1, 1995 to May 1, 2004        12.3         15.3      20.4
   Rate: 7.13% to 12.95% 
  DST
  ESOP secured term loan, 
   repaid in 1993                                              3.9
  Secured and unsecured term loans, 
   promissory and mortgage notes, 
   various maturities to January 2007  59.2         58.2      68.7
   Rate: 5.5% to 10.5%
  Other
  Miscellaneous subsidiary obligations, 
   due April 1995 to September 1998     
   Rate: Below Prime to 27.9%          22.4         14.6      21.3    
                              
  Total                               985.2        839.7     449.0
  Less   debt due within one year      56.4         63.5      62.0
                              
  Long-term debt                     $928.8       $776.2    $387.0
  
  [Page 59]
  
  New KCSI Credit Agreements. During 1994, the Company established or
  increased credit agreements with several lending institutions. These new
  or expanded credit lines increased the Company's borrowing ability by
  $150 million. These agreements bear interest rates below prime. Proceeds
  from these agreements have been used to finance the Berger acquisition
  and subsidiary working capital requirements. Remaining credit capacity
  under these agreements is intended for general corporate purposes. These
  agreements require commitment or facility fees ranging from .10-.125%
  per annum and have provisions similar to those included in the Company's
  $250 million credit agreement, discussed below. At December 31, 1994,
  the Company had an aggregate of $115 million of indebtedness outstanding
  on these agreements.
  
  KCSI $250 Million Credit Agreement. On December 8, 1992, the Company
  established a credit agreement in the amount of $250 million. A
  commitment fee of .25% per annum is required on the unused portion. This
  agreement replaced the Company's then existing $100 million credit
  agreement, which had been in place since 1989. The revolving credit
  commitment reduces to $188 million on June 8, 1996; $125 million on
  December 8, 1996; $63 million on June 8, 1997 and final maturity is due
  December 8, 1997. Proceeds have been used, in part, to fund acquisition
  of MidSouth Corporation and refinance certain MidSouth indebtedness and
  for general corporate purposes. 
  
  Among other provisions, the agreement limits subsidiary indebtedness,
  sale of assets, coverage ratios and requires minimum consolidated net
  worth of $375 million plus 50% of net income after December 31, 1992.
  
  Public Debt Transactions. On July 1, 1992, the Company issued $100
  million 7.875% Notes due 2002 and $100 million 8.8% Debentures due 2022
  under a $300 million debt securities registration with the Securities
  and Exchange Commission. The 7.875% Notes are not redeemable prior to
  their maturity in 2002, the 8.8% Debentures are redeemable on or after
  July 1, 2002 at a premium of 104.04%, which declines to par on or after
  July 1, 2012. Proceeds from the debt offer have been used to repay
  borrowings under then existing revolving credit agreements. The Company
  used the remaining net proceeds for general corporate purposes including
  debt repayments, working capital, capital expenditures, acquisition of
  or investments in businesses and assets and acquisition of the Company's
  capital stock.
  
  On March 3, 1993, the Company issued $100 million of 6.625% Notes due
  2005 under the remaining 1992 registration with the Securities and
  Exchange Commission. The notes are not redeemable prior to maturity.
  Proceeds were used for debt repayment by DST and Southern Credit
  Corporation, working capital, capital expenditures, acquisition of or
  investments in businesses, and assets and acquisition of the Company's
  capital stock.
  
  On June 24, 1993, the Company issued $100 million of 5.75% Notes due in
  1998 under a $200 million 1993 debt securities registration with the
  Securities and Exchange Commission. The Notes are not redeemable prior
  to maturity. The net proceeds were used to refinance certain MidSouth
  debt.
  
  This debt was issued at a total discount of $2.8 million which is being
  amortized over the respective debt maturities on a straight-line basis,
  which is not materially different from the interest method.
  
  KCSI ESOP. In 1988, the Company established a $39 million leveraged ESOP
  (see Stockholders' Equity Note 8). Related indebtedness is repayable
  over ten years, and guaranteed by the Company. 
  
  Among other provisions, the KCSI ESOP loan agreement requires minimum
  consolidated tangible net worth (stockholders' equity plus deferred
  income taxes less intangibles) of $250 million.
  
  In 1994, the Company made contributions to the ESOP plan sufficient to
  retire $5.6 million of indebtedness in advance of its scheduled
  maturity.
  
  Railway Indebtedness. KCSR has purchased rolling stock under conditional
  sales agreements, equipment trust certificates and capitalized lease
  obligations, which equipment has been pledged as collateral for the
  related indebtedness.
  
  
  
  Credit Lines. Unused lines of credit at December 31, 1994 follow (in
  millions):
                  Commitment
                      or
                   Facility           Lines of Credit                      
                      Fee             Total     Unused
                                                                  
  KCSI                   .10-.25%     $450.0    $131.0
  DST Systems, Inc.        None         28.9      22.2
  Southern Credit  
   Corporation           .375%          65.0      19.0
  KCSR                   .1875%          5.0                                  
    Total                             $548.9    $172.2
  
  [Page 60]
  
  Other Agreements, Provisions and Restrictions. 
  As previously noted, the Company and several of its consolidated
  subsidiaries have debt agreements containing restrictions on dividends,
  loans, advances and transfers of assets to the parent company, limits on
  guarantees and leasing commitments, and maintenance of minimum levels of
  working capital. At December 31, 1994, the Company was in compliance
  with provisions and restrictions of these agreements. Unrestricted
  retained earnings at December 31, 1994 were $96.9 million.
  
  Guarantees. The Company and its subsidiaries are guarantors of $1.8
  million principal indebtedness of partnerships and other entities
  involving the Company or its subsidiaries. These guarantees represent
  "off balance sheet" contingent liabilities.
  
  Leases and Debt Maturities. The Company and its subsidiaries lease
  transportation equipment, and office and other operating facilities
  under various capital and operating leases. Rental expenses under
  operating leases were $53, $33 and $25 million for the years 1994, 1993
  and 1992, respectively.
  
  Minimum annual payments and present value thereof, under existing
  capital leases, other debt maturities and minimum annual rental
  commitments under noncancellable operating leases are as follows (in
  millions):
  
  
  
                      Capital Leases
                         
               Minimum                 Net
               Lease        Less     Present Other        Operating
              Payments    Interest    Value   Debt     Total     Leases 
                                                         

                                                    
  1995              $  3.1  $  1.0   $ 2.1   $ 54.3    $ 56.4   $ 50.3
  1996                 2.3      .7     1.6     28.0      29.6     46.3
  1997                 1.6      .5     1.1     26.1      27.2     34.5
  1998                 1.0      .4      .6    111.2     111.8     27.0
  1999                  .8      .3      .5     11.1      11.6     21.8
  Later years          5.4     1.4     4.0    744.6     748.6     52.0
                                                                 
   Total            $ 14.2  $  4.3   $ 9.9   $975.3    $985.2   $231.9
  
  
  Fair Value of Long-Term Debt. Based upon the borrowing rates currently
  available to the Company and its subsidiaries for indebtedness with
  similar terms and average maturities, the fair value of long-term debt
  was approximately $959, $903 and $463 million at December 31, 1994, 1993
  and 1992, respectively.
  
  Note 7. Income Taxes
  
  The Company adopted, effective January 1, 1993, Statement of Financial
  Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
  Taxes." SFAS 109 was issued in February 1992 as an amendment to
  Statement of Financial Accounting Standards No. 96, "Accounting for
  Income Taxes," ("SFAS 96"). The Company had previously adopted SFAS 96
  effective January 1, 1988. The adoption of SFAS 109 resulted in a
  $970,000 charge to earnings in the first quarter of 1993. 
  
  Under the liability method specified by SFAS 109, the deferred tax
  liability is determined based on the difference between the financial
  statement and tax basis of assets and liabilities as measured by the
  enacted tax rates which will be in effect when these differences
  reverse. Deferred tax expense is the result of changes in the liability
  for deferred taxes. The principal difference between the Company's
  assets and liabilities recorded for financial statement and tax return
  purposes is accumulated depreciation.
  [Page 61]
  
  
  
  
  Tax Expense. Income tax expense attributable to continuing operations,
  consists of the following components (in millions):
  
                               1994        1993    1992 
                                                                  

          
  Current
   Federal                    $40.2     $31.7     $25.4
   State and local              3.3       3.2       1.8                       

               
    Total current              43.5      34.9      27.2
                                        
  Deferred
   Federal                     16.0      24.5       6.9
   Federal enacted rate change            3.4                    
    State and local             4.0       6.2       1.1
    Total deferred             20.0      34.1       8.0
                                        
  Total income tax expense    $63.5     $69.0     $35.2
  
  
  Deferred Taxes. Deferred taxes are recorded based upon differences
  between the financial statement and tax basis of assets and liabilities
  and available tax credit carryovers. Temporary differences which give
  rise to a significant portion of federal deferred tax expense (benefit)
  applicable to continuing operations are as follows (in millions):
  
  
  
                                    1994      1993     1992 
                                                                  

                    
  Depreciation                     $16.7     $19.5     $ 9.0
  Deferred revenue                   (.3)     (1.6)      (.4)
  Deferred gain on asset dispositions          1.2        .3
  AMT credit and NOL carryovers     (5.9)      (.3)      1.4
  Other expenses for financial 
   reporting purposes not currently 
   deductible for tax purposes       4.3       9.0      (2.7)
  Other, net                         1.2        .1       (.7)
                                        
    Total                          $16.0     $27.9     $ 6.9
  
  
  
  The federal and state deferred tax liabilities and deferred tax (assets)
  recorded on the Consolidated Balance Sheets at December 31, 1994 and
  1993, respectively, follow (in millions):
  
  
  
                                              1994      1993
                    
                                                 
  Liabilities:
   Depreciation                              $259.2    $242.5
   Equity, unconsolidated affiliates            5.1       1.3                 


    Gross deferred tax liabilities            264.3     243.8
  Assets:
    NOL and AMT credit carryovers             (31.7)    (23.2)   
   Book reserves not currently deductible 
     for tax                                  (20.0)    (23.2)
   Deferred compensation and other 
     employee benefits                        (13.1)    (14.4)
   Deferred revenue                            (5.0)     (4.7)
   Vacation accrual                            (3.5)     (2.8)
    Foreign NOL carryforwards                  (1.9)      (.7)
   Other, net                                  (5.8)     (5.9)
  Gross deferred tax assets                   (81.0)    (74.9)
    Deferred tax asset valuation allowance      1.9        .7                 


   Net deferred tax liability                $185.2    $169.6
  
  [Page 62]
  
  Management has determined, based upon the Company's history of prior
  operating earnings and its expectations for the future, that except for
  the deferred tax valuation allowance provided for foreign NOL
  carryforwards, operating income of the Company will, more likely than
  not, be sufficient to recognize fully the above gross deferred tax
  assets.
  
  Tax Rates. Differences between the Company's effective income tax rates
  applicable to continuing operations and the U.S. federal income tax
  statutory rates of 35% in 1994 and 1993 and 34% in 1992, are as follows
  (in millions):
  
  
  
  
                               1994      1993         1992 
                                                                  

             
  Income tax expense using the 
   statutory rate in effect   $60.8     $61.2        $35.4
  Tax effect of:
  Unremitted earnings of 
   equity investees            (6.3)     (3.7)        (3.0)
  Cumulative effect of enacted 
   1% federal tax rate increase           3.4                    
  Other, net                    1.7      (1.3)         (.1)
                                        
  Federal income tax expense   56.2      59.6         32.3
  State and local income 
   tax expense                  7.3       9.4          2.9
                                        
    Total                     $63.5     $69.0        $35.2
  
  Effective tax rate           36.6%     39.4%        33.9%
  
  
  Tax Carryovers. At December 31, 1994, the Company had $11.7 million of
  alternative minimum tax credit carryover. This credit can be carried
  forward indefinitely and is available on a "tax return basis" to reduce 
  future federal income taxes payable. The MidSouth Corporation generated
  $3.4 million of the above alternative minimum tax credit prior to its
  acquisition by the Company.
  
  The amount of federal net operating loss carryover generated by the
  MidSouth Corporation prior to its acquisition was $57.1 million with
  expiration dates beginning in the year 2001. The use of preacquisition
  net operating losses and tax credit carryovers is subject to limitations
  imposed by the Internal Revenue Code. The Company does not anticipate
  that these limitations will affect utilization of the carryovers prior
  to their expiration.
  
  Tax Examinations. Examinations of the consolidated federal income tax
  returns by the Internal Revenue Service ("IRS") have been completed for
  the years 1984-1989 and the IRS has proposed $14.6 million in tax
  assessments for these years. In addition, other taxing authorities have
  also completed examinations principally through 1992, and have proposed
  additional tax assessments aggregating $2.4 million, before benefit for
  federal income tax deductions related thereto.
  
  Since most of these asserted tax deficiencies represent temporary
  differences, subsequent payments of taxes will not require additional
  charges to income tax expense. In addition, accruals have been made for
  interest (net of tax benefit) for estimated settlement of the proposed
  tax assessments. Thus, management believes that final settlement of
  these matters will not have a material effect on the accompanying
  financial statements.
  [Page 63]
  
  Note 8. Stockholders' Equity
  
  Establishment of Par Value for Common Stock. On May 6, 1994, the Company
  amended its certificate of incorporation to set a par value for the
  Common stock and increase its authorized shares. The amendment
  established a par value of $.01 per Common share, which had previously
  been no par, and had the effect of reallocating amounts between
  categories within stockholders' equity but had no overall effect upon
  the total amount of stockholders' equity. In addition, the number 
  of authorized Common shares was increased from 100 million to 400
  million.
  
  Stock Option Plans. Employee Stock Option Plans established in 1978,
  1983 and 1987 provide for the granting of options to purchase up to
  2,800,000 (pre-splits) shares of the Company's Common stock by officers
  and other designated employees. In addition, the Company established a
  1991 plan which authorized 2% of the outstanding shares available for
  grant; the Board of Directors amended the 1991 plan in November 1991, to
  provide for the granting of two million shares in lieu of the 2% of
  outstanding shares. The amendment was approved by KCSI stockholders in
  May 1992. In addition, the Company established a 1993 Directors' Stock
  Option Plan with a maximum of 120,000 shares for grant. Shares
  authorized for the 1991 Plan were adjusted for the stock split to
  4,000,000 and the Plan was amended to increase the number of shares
  authorized by 3,400,000 shares for a total of 7.4 million shares. 
  Such options have been granted at 100% of the average market price of
  the Company's stock on the date of grant and may not be exercised sooner
  than one year, nor longer than ten years following the date of the
  grant, except that options outstanding for six months or more, with
  limited rights, become immediately exercisable upon certain defined
  circumstances constituting a change in control of the Company.
  
  The Plans include provisions for stock appreciation rights ("SARs") and
  limited rights ("LRs"), but, in 1987, substantially all outstanding SARs
  and related options were exchanged for "bonus" options and LRs. In
  addition, special stock options, SARs and LRs, exercisable only upon
  certain defined circumstances constituting a change in control of the
  Company, were granted to certain officers and directors of the Company.
  All outstanding options include LRs. Relevant information is summarized
  below:
  
  
  
                                 1994           1993          1992    
                                                                  

         
  Stock Options:
   Outstanding at January 1     3,935,800      5,527,648    2,341,934
   Exercised                     (904,235)    (1,987,848)    (796,360)
   Cancelled/Expired              (30,000)        (4,000)     (18,500)
   Granted                        278,950        400,000    1,236,750
   Effect of Stock Splits                                   2,763,824
                              
   Outstanding at December 31   3,280,515      3,935,800    5,527,648
  Exercisable at December 31    2,488,665      2,851,400    3,567,248
  Exercise Price, December 31: 
   for all outstanding            $8.7969        $8.7969        $8.50
   options                      to $49.00    to $41.5625    to $22.66
   for exercisable                $8.7969        $8.7969        $8.50 
   options                    to $41.5625    to $22.6563    to $13.06
  
  
  
  Shares available for future grants at December 31, 1994 aggregated
  4,650,146.
  
  Employee Stock Ownership Plan ("ESOP"). In 1987 and 1988, KCSI and DST
  established leveraged ESOP plans for its employees not covered by
  collective bargaining agreements, which collectively purchased $69
  million of KCSI Common stock from Treasury at a then current market
  price of $49 per share. The indebtedness, which was guaranteed by KCSI
  and DST, is repayable over ten years.
  
  During 1990, the KCSI and DST ESOP plans were merged into one plan known
  as the KCSI ESOP. This merger did not change any substantial terms,
  repayment provisions or guarantees of the individual components 
  of indebtedness.
  
  Employee benefit expense aggregated $15.5, $8.1 and $18.1 million in
  1994, 1993 and 1992, respectively, for the ESOP. Interest incurred on
  the indebtedness was $1.2, $1.8 and $2.8 million in 1994, 1993 and 1992,
  [Page 64]
  
  respectively. Dividends used to service the ESOP indebtedness were $1.3,
  $.8 and $1.0 million in 1994, 1993 and 1992, respectively.
  
  In December 1993, the American Institute of Certified Public Accountants
  issued Statement of Position No. 93-6 ("SOP 93-6") "Employers Accounting
  for Employee Stock Ownership Plans," which became effective for fiscal
  years beginning after December 15, 1993. Certain of the Company's ESOP
  shares are grandfathered under the provisions of SOP 93-6. In 1994, the
  Company contributed $11.5 million to the ESOP which was used by the plan
  administrator to purchase 352,000 shares of KCSI Common stock in the
  open market for future allocation to plan participants. These new ESOP
  shares are not grandfathered under the provisions of SOP 93-6. 
  Disclosures regarding the Company's ESOP plan follow, (in millions at
  December 31, 1994):
                                     
  Number of Common shares
    allocated to plan participants        4.6          
  
  Cost of unallocated grandfathered
    ESOP shares                         $11.1
  
  Fair value of committed to be
    allocated not grandfathered 
    ESOP shares                         $10.9
  
  
  
  Employee Plan Funding Trust. On October 1, 1993, KCSI transferred one
  million shares of KCSI Series B Convertible Preferred Stock (the "Series
  B Preferred Stock") to the Kansas City Southern Industries, Inc.
  Employee Plan Funding Trust ("the Trust"), a grantor trust established
  by KCSI. The purchase price of the stock, based upon an independent
  valuation, was $200 million, which the Trust financed through KCSI. The
  indebtedness of the Trust to KCSI is repayable over 27 years with
  interest at 6% per year, with no principal payments in the first three
  years. The Trust, which is administered by an independent bank trustee
  and consolidated into the Company's financial statements, will repay the
  indebtedness to KCSI utilizing dividends and other investment income as
  well as other cash obtained from KCSI. As the debt is reduced, shares of
  the Series B Preferred Stock, or shares of Common stock acquired on
  conversion, will be released and available for distribution to various
  KCSI employee benefit plans, including its ESOP, Stock Option Plan and
  Stock Purchase Plans. No principal payments have been made and
  accordingly, no shares have been released or are available for
  distribution to these plans.
  
  The Series B Preferred Stock, which has a $10 per share (5%) annual
  dividend and a $200 per share liquidation preference, is convertible
  into Common stock at an initial ratio of four shares of Common stock for
  each share of Series B Preferred Stock. The Series B Preferred Stock is
  redeemable after 18 months at a specified premium and under certain
  other circumstances.
  
  The Series B Preferred Stock can be held only by the Trust or its
  beneficiaries, the employee benefit plans of KCSI. The full terms of the
  Series B Convertible Preferred Stock are set forth in a Certificate of
  Designations approved by the Board of Directors and filed in Delaware.
  
  Treasury Stock. The Company issued 721,431; 1,187,224 and 1,020,514
  shares of Common stock from Treasury, in 1994, 1993 and 1992,
  respectively, to fund the exercise of options and subscriptions under
  various employee stock option and purchase plans. Treasury stock
  previously acquired had been accounted for as if retired. The Company
  purchased 1,376; 5,443 and 1,575,410 shares in 1994, 1993 and 1992,
  respectively. 
  
  Stock Purchase Plan. The Plan, established in 1977, provides to
  substantially all full-time employees of the Company, certain
  subsidiaries and certain other affiliated entities, the right to
  subscribe to an aggregate of 7.6 million shares of Common stock. The
  purchase price for shares under any stock offering is to be 85% of the
  average market price on either the exercise date or the offering date,
  whichever is lower, but in no event less than $.98 per share. 
  
  In December 1992, the Company initiated the seventh offering under the
  stock purchase plan. The purchase price under this offering at 85% of
  the average market price on the offering date was $18.75. Employees of
  the Company subscribed to 247,254 shares under this offering, of which,
  233,926 shares were issued in January 1994. 
  
  The Company initiated the eighth offering under the stock purchase plan
  in December, 1993. The purchase price under this offering at 85% of the
  average market price on the offering date was $38.20. Employees of the
  Company subscribed to 220,576 shares under this offering. At December
  31, 1994, there were 4,051,255 shares available for future offerings.
  
  Restricted Stock. The Company issued 7,300 and 144,500 shares of
  restricted stock, in 1993 and 1992, respectively, to senior management
  executives of KCSI and certain subsidiaries at then current market
  prices ranging between $14.86   $41.5625 per share. These shares vest
  ratably over a five year period.
  [Page 65]
  
  Note 9. Minority Interest
  
  Purchase Agreements. Agreements between KCSI and Janus minority owners,
  contain among other provisions, mandatory stock purchase provisions
  whereby under certain circumstances, KCSI would be required to purchase
  the minority interest at a purchase price based upon a multiple of Janus
  earnings. 
  
  In late 1994, the Company was notified that certain Janus minority
  owners made effective the mandatory purchase provisions for a certain
  percentage of their ownership. In the aggregate, the shares made
  effective for mandatory purchase totalled $59 million. Concurrent with
  the notification of these mandatory purchase provisions, the Company
  negotiated the early termination of certain Janus compensation
  arrangements, which began in 1991. The compensation arrangements 
  permitted individuals to earn units which vested over time, based upon
  Janus earnings. These arrangements were scheduled to be fully vested at
  the end of 1996. The negotiated termination resulted in payments of $48
  million in cash, by Janus, of which approximately $21 million had been
  accrued, upon vesting, in 1994 and previous years. Recipients of amounts
  paid to terminate the arrangements used their after tax net proceeds to
  purchase certain portions of the shares made effective for mandatory
  purchase, in early 1995. In addition, the Janus minority group was
  restructured to allow for minority ownership by other key Janus
  employees. These employees purchased other portions of the minority
  shares made effective for mandatory purchase through payment of cash and
  creation of recourse loans financed by KCSI in the amount of $10.5
  million. The remaining minority shares made effective for mandatory
  purchase were purchased by Janus for treasury, $6.1 million, and by KCSI
  for $12.7 million. As a result of the combination of KCSI acquiring
  additional Janus shares and the reduction of outstanding shares with
  Janus' treasury purchase, KCSI increased its ownership in Janus from
  approximately 81% to 83%, upon closing of the transaction in January
  1995. The KCSI share purchase resulted in the recording of intangibles
  as the purchase price exceeded the value of underlying tangible assets
  and will be amortized over its estimated economic life.
  
  The new minority owners of Janus also have mandatory stock purchase
  provisions which under certain circumstances require KCSI to purchase
  the minority interest at fair market value. If all of the provisions of
  the Janus minority owner agreements became effective, KCSI would be
  required to purchase the respective minority interests, currently
  estimated at approximately $138 million. The purchase price for the
  mandatory provisions is based upon a multiple of earnings and/or fair
  market value determinations depending upon specific agreement terms.
  
  Note 10. Profit Sharing and Other Postretirement Benefits
  
  Profit Sharing. Qualified profit sharing plans are maintained for most
  employees not included in collective bargaining agreements.Contributions 
  for the Company and its subsidiaries are made at the discretion of the 
  Boards of Directors in amounts not to exceed the maximum allowable for 
  federal income tax purposes. Profit sharing expense was $.8, $4.6 and $3.8
  million in the years 1994, 1993 and 1992, respectively.
  
  Other Postretirement Benefits. The Company adopted Statement of
  Financial Accounting Standards No. 106 "Employers' Accounting for
  Postretirement Benefits Other Than Pensions," ("SFAS 106"), effective
  January 1, 1993. The Company and its Transportation subsidiaries provide
  certain medical, life and other post-retirement benefits other than
  pensions to its retirees. The medical and life plans are available to
  employees
  [Page 66]
  
  not covered under collective bargaining arrangements, who have attained
  age 60 and rendered ten years of service. Individuals employed as of
  December 31, 1992 were excluded from a specific service requirement. The
  medical plan is contributory and provides benefits for retirees, their
  covered dependents and beneficiaries. Benefit expense begins to accrue
  at age 40. The medical plan was amended effective January 1, 1993 to
  provide for annual adjustment of retiree contributions and also
  contains, depending on the plan coverage selected, certain deductibles,
  copayments, coinsurance and coordination with Medicare. The life
  insurance plan is non-contributory and covers retirees only. The
  Company's policy, in most cases, is to fund benefits payable under these
  plans as the obligations become due. However, certain plan assets do
  exist with respect to life insurance benefits.
  
  The following table displays a reconciliation of the plans' obligations
  and assets at December 31, 1994, December 31 and January 1, 1993, (in
  millions):
  
  
  
                         Dec. 31,        Dec. 31,   Jan.1,
                           1994           1993       1993
                                          
  Accumulated 
   postretirement
   benefit obligation:
  Retirees                 $ 7.9        $  8.0     $  7.7
  Fully eligible 
   active plan 
   participants              1.1            .9         .7
  Other active 
   plan participants         1.4           2.0        1.6
  Plan assets               (1.3)         (1.3)      (1.3)
  Accrued 
   postretirement 
   benefit obligation      $ 9.1        $  9.6     $  8.7
  
  
  Net periodic postretirement benefit cost included the 
  following components (in millions):
  
  
                           1994       1993
                               
  Service cost           $     .4    $   .2
  Interest cost                .8        .6
  Return on plan assets       (.1)      (.1)
                    
  Net periodic postretirement         
   benefit cost          $    1.1    $   .7
  
  
  The entire accumulated postretirement benefit obligation was charged to
  earnings in first quarter 1993 in the amount of $5.5 million, net of
  applicable income taxes. The Companys' health care costs are limited to
  the increase in the Consumer Price Index ("CPI") with a maximum annual
  increase of 5%. Accordingly, health care costs in excess of the CPI
  limit will be borne by the plan participants, and therefore assumptions
  regarding health care cost trend rates are not applicable. 
  
  The assumed annual increase in the CPI is 4%, 3% and 4% at December 31,
  1994, December 31, 1993 and January 1, 1993, respectively. Life
  insurance plan assets represent bank funds on deposit, with an expected
  rate of return of 6.5%. The discount rate assumed in determining the
  accumulated postretirement benefit obligation was, 8.5%, 7% and 8% at
  December 31, 1994, December 31, 1993 and January 1, 1993 respectively,
  and the assumed salary increase was 5%. The adoption of SFAS 106 is not
  expected to have a material effect on future annual expenses of the
  Company.
  
  Prior to January 1, 1993, the Company recognized the cost of these
  benefits on a "pay as you go" basis. For 1992, the cost of these
  benefits totalled $722,000.
  
  Note 11. Litigation
  
  Litigation Reserves. In the opinion of management, claims or lawsuits
  incidental to the business of the Company and its subsidiaries have been
  adequately provided for in the consolidated financial statements.
  [Page 67]
  
  
  Note 12. Control
  
  Subsidiaries. The Company and certain of its subsidiaries have entered
  into agreements with joint venture partners whereby, upon defined
  circumstances constituting a change in control of the Company, such
  joint venture partners have the right to either purchase from the
  Company or sell to the Company their entire equity interest in such
  joint ventures.
  
  DST and certain of its joint venture affiliates, are parties to certain
  processing and agency agreements that provide for optional termination
  of such agreements by their clients and or purchase at net book value by
  the other joint venture partner in the event of a change in control of
  DST or the respective other joint venture partners.
  
  In connection with its acquisition of an interest in Janus, the Company
  entered into an agreement, which provides for preservation of a measure
  of management autonomy at the subsidiary level and for rights of first
  refusal on the part of minority stockholders, Janus and the Company with
  respect to certain sales of Janus stock by the minority stockholders.
  The agreement also requires the Company to purchase the shares of
  minority stockholders in certain circumstances. In addition, in the
  event of a "change of ownership" of the Company, as defined in the
  agreement, the Company may be required to sell its stock of Janus to the
  minority stockholders or to purchase such holders' Janus stock. Purchase
  and sales transactions under the agreements are to be made based upon a
  multiple of the net earnings of Janus and/or fair market value
  determinations, as defined therein. See Note 9 for further details.
  
  Under the Investment Company Act of 1940, certain changes in ownership
  of Janus or Berger may result in termination of its investment advisory
  agreements with the mutual funds and other accounts it manages,
  requiring approval of fund shareholders and other account holders to
  obtain new agreements.
  
  Employees. The Company and certain of its subsidiaries have entered into
  agreements with employees whereby, upon defined circumstances
  constituting a change in control of the Company or subsidiary, certain
  stock options become exercisable, certain benefit entitlements are
  automatically funded and such employees are entitled to specified cash
  payments upon termination of employment.
  
  Assets. The Company and certain of its subsidiaries have established
  trusts to provide for the funding of corporate commitments and
  entitlements of officers, directors, employees and others in the event
  of a specified change in control of the Company or subsidiary. Assets
  held in such trusts at December 31, 1994 were immaterial. Depending upon
  the circumstances at the time of any such change in control, the most
  significant factor of which would be the highest price paid for KCSI
  Common stock by a party seeking to control the Company, funding of the
  Company's trusts could be very substantial.
  
  Debt. Certain loan agreements and debt instruments entered into or
  guaranteed by the Company and its subsidiaries provide for default in
  the event of a specified change in control of the Company or particular
  subsidiaries of the Company.
  
  
  Note 13. Industry Segments
  
  The Company's three major business activities are classified as follows:
  
  Transportation Services. The Company operates a Class I Common Carrier
  railroad system through its wholly-owned subsidiary, The Kansas City
  Southern Railway Company. As a common carrier, the Railway's customer
  base is comprised of utilities and a wide range of companies in the
  petro-chemical, agricultural and paper processing industries. The
  railroad system operates primarily from the Midwest part of the United
  States to the Gulf of Mexico and, with the addition of the MidSouth
  Corporation, on an East-West axis from Dallas, Texas to Meridian,
  Mississippi. Also included in this industry segment are transportation
  related real estate, leasing and support services subsidiaries. 
  
  Information & Transaction Processing. DST, (a wholly-owned subsidiary)
  its subsidiaries and affiliates, design, produce, distribute and operate
  proprietary software systems for the mutual fund, securities transfer,
  portfolio accounting, loan processing, asset management and
  [Page 68]
  
  insurance industries, among others, and provides administrative and
  transfer agent services using DST's proprietary systems. In addition to
  data processing, subsidiaries of DST also provide various output
  processing products and services including computer output
  microfilm/microfiche, laser printing and mailing. DST operates
  throughout the United States with its base of operations in the Midwest
  and, through certain of its subsidiaries and affiliates, internationally
  in Canada, Europe, Africa and the Pacific Rim.
  
  Financial Asset Management. Janus (an 83% owned subsidiary) and Berger
  (an 80% owned subsidiary acquired in October, 1994) manage investments
  for mutual funds and private accounts. Both companies operate throughout
  the United States with headquarters in Denver, Colorado. Janus assets
  under management at December 31, 1994, 1993 and 1992 were $22.9, $22.2
  and $15.5 billion, respectively. Berger assets under management at
  December 31, 1994 and 1993 were $3.0 and $1.9 billion, respectively.  
  
  Eliminations, Corporate & Other. Unallocated holding company expenses,
  intercompany eliminations, and miscellaneous investment activities are
  reported in the "Eliminations, Corporate and Other" industry segment. 
  
  Segment Financial Information. Sales between segments are not material
  and therefore not disclosed. Industry segment financial information
  follows (in millions): 
  [Page 69]
  
  Segment Financial Information, dollars in millions, years ended December
  31,
  
  
  
                            Information &  Financial Eliminations,
              Transportation Transaction     Asset    Corporate &
                Services     Processing    Management    Other    Consolidated
                                                            

                                      
  1994
  Revenues          $508.5      $ 404.3      $188.3      $ (3.2)    $1,097.9
  Costs & expenses   332.8        312.3       126.2         5.0        776.3
  Depreciation & 
   amortization       50.8         57.3         9.0         2.0        119.1
                                                     
  Operating income   124.9         34.7        53.1       (10.2)       202.5
  Equity in net 
   earnings of uncon-
   solidated affiliates .1         24.5                      .2         24.8
  Interest expense   (41.4)       (14.0)       (2.1)        3.9        (53.6)
                                                     
  Pretax income       83.6         45.2        51.0        (6.1)       173.7
  Income taxes        33.4         14.3        20.1        (4.3)        63.5
                                                     
  Income before 
   minority interest  50.2         30.9        30.9        (1.8)       110.2
  Minority interest                (1.1)        6.4                      5.3
                                                     
  Net income        $ 50.2      $  32.0      $ 24.5      $ (1.8)    $  104.9
  Capital 
   expenditures     $207.9      $ 102.0*     $  7.8*     $   .2     $  317.9
  
  1993
  Revenues          $451.1      $ 342.2      $162.7      $  5.1     $  961.1
  Costs & expenses   288.0        267.6        77.2        19.0        651.8
  Depreciation & 
   amortization       46.4         43.4         5.5         1.9         97.2
                                                     
  Operating income   116.7         31.2        80.0       (15.8)       212.1
  Equity in net 
   earnings of uncon-
   solidated affiliates1.9         12.0                      .2        14.1
  Interest expense   (32.2)       (10.9)        (.7)       (7.4)      (51.2)
                                                     
  Pretax income       86.4         32.3        79.3       (23.0)      175.0
  Income taxes        38.5         10.0        30.7       (10.2)       69.0
                                                     
  Income before 
   minority interest  47.9         22.3        48.6       (12.8)      106.0
  Minority interest                 (.6)        9.6                     9.0
                                                     
  Income before 
  accounting changes $47.9      $  22.9      $ 39.0       (12.8)       97.0
  Cumulative effect of 
   accounting changes                                      (6.5)       (6.5)
                                                       
  Net income                                             $(19.3)     $ 90.5
  
  Capital 
   expenditures     $108.9*     $  63.9*     $  9.2       $   .1     $182.1
  
  1992
  Revenues          $369.2      $ 270.5      $ 97.5      $  4.2      $741.4
  Costs & expenses   258.0        218.3        48.4        16.6       541.3
  Depreciation & 
   amortization       35.9         34.4         3.4          .5        74.2
                                                     
  Operating income    75.3         17.8        45.7       (12.9)      125.9
  Equity in net 
   earnings of uncon-
   solidated affiliates(.1)        11.6                     (.4)       11.1
  Interest expense   (12.3)        (9.1)        (.3)      (11.4)      (33.1)
                                                     
  Pretax income       62.9         20.3        45.4       (24.7)      103.9
  Income taxes        23.0          5.0        21.2       (14.0)       35.2
                                                     
  Income before 
   minority interest  39.9         15.3        24.2       (10.7)       68.7
  Minority interest                             4.9                     4.9
                                                       
  Net income        $ 39.9      $  15.3      $ 19.3      $(10.7)     $ 63.8
  Capital 
   expenditures     $107.5      $  56.5      $ 10.0      $   .1      $174.1
  *Exclusive of property additions from acquisitions
  
  [Page 70]
    
  Segment Financial Information, dollars in millions, as of December 31,
  
  
  
                              Information &    Financial  Eliminations,
                Transportation Transaction       Asset    Corporate &
                Services     Processing     Management    Other     
Consolidated
                                                            

                           
  1994
  ASSETS
  Current assets    $  189.5 $ 131.6  $   70.4  $(11.4)  $  380.1
  Investments held 
   for operating 
   purposes             43.8   167.0        .7     3.1      214.6
  Properties, net 
   of depreciation   1,214.1   181.4      15.6     4.2    1,415.3
  Intangible and 
   other assets        107.4    51.7      57.3     4.4      220.8
                                                        
  Total assets      $1,554.8 $ 531.7   $ 144.0  $   .3   $2,230.8
  
  LIABILITIES & STOCKHOLDERS' EQUITY
  Current 
   liabilities      $  212.0 $ 129.4   $  32.5  $(34.3)  $  339.6
  Long-term debt       659.5   175.8      48.2    45.3      928.8
  Deferred income 
   taxes               206.1                      (1.9)     204.2
  Other                 32.6    19.8      11.1    27.5       91.0
  Net worth            444.6   206.7      52.2   (36.3)     667.2
                                                        
  Total liabilities &
   stockholders' 
   equity           $1,554.8 $ 531.7   $ 144.0  $   .3   $2,230.8
  
  1993
  ASSETS
  Current assets    $  174.3 $ 115.0   $ 39.9 $   6.5    $  335.7
  Investments held 
   for operating 
   purposes             46.3   125.6       .2     2.4       174.5
  Properties, net 
   of depreciation   1,039.3   134.3     14.4     4.6     1,192.6
  Intangible and 
  other assets         139.0    53.9     17.7     3.6       214.2
                                                        
  Total assets      $1,398.9 $ 428.8   $ 72.2 $  17.1    $1,917.0
  
  LIABILITIES & STOCKHOLDERS' EQUITY
  Current 
   liabilities      $  176.6 $  88.8   $ 14.0 $   9.0    $  288.4
  Long-term debt       577.9   146.0       .9    51.4       776.2
  Deferred income 
   taxes               196.8                     (12.1)     184.7
  Other                 41.1     9.3     26.0     28.6      105.0
  Net worth            406.5   184.7     31.3    (59.8)     562.7
                                                        
  Total liabilities & 
   stockholders' 
   equity           $1,398.9 $ 428.8   $ 72.2 $   17.1   $1,917.0
  
  1992
  ASSETS
  Current assets    $  109.4 $  91.6   $ 24.3 $   21.1   $  246.4
  Investments held 
   for operating
   purposes             40.8    78.3       .2     36.5      155.8
  Properties, net 
   of depreciation     643.5   109.2      9.8      5.7      768.2
  Intangible and 
   other assets          5.4    57.0      8.9      6.7       78.0
                                                        
  Total assets       $ 799.1 $ 336.1   $ 43.2 $   70.0   $1,248.4
  
  LIABILITIES & STOCKHOLDERS' EQUITY
  Current 
   liabilities       $ 115.2 $  83.0   $  9.0 $   11.4   $  218.6
  Long-term debt       157.9    72.6      1.1    155.4      387.0
  Deferred income 
   taxes               108.7                      (7.3)     101.4
  Other                 38.6    12.6     19.5      8.3       79.0
  Net worth            378.7   167.9     13.6    (97.8)     462.4
                                                        
  Total liabilities & 
   stockholders' 
   equity            $ 799.1 $ 336.1   $ 43.2 $   70.0   $1,248.4
  
  [Page 71]
    
Note 14. Quarterly Financial Data (Unaudited)
  
  Quarterly financial data follows (in millions, except per share
  amounts):
  
  
  
                                                 1994
                                
                                     Fourth    Third   Second    First
                                     Quarter  Quarter  Quarter  Quarter
                                                               

                                       
  Operations       Revenues          $ 292.2  $ 273.4  $ 267.2   $ 265.1
  
          Costs and expenses           228.8    185.6    181.2     180.7
          Depreciation and 
            amortization                32.8     30.7     27.4      28.2
                                                    
  
          Operating income              30.6     57.1     58.6      56.2
  
          Equity in net earnings of
           unconsolidated affiliates     6.9      6.8      5.1       6.0
  
          Interest expense             (13.9)   (15.2)    (9.5)    (15.0)
                                                    
  
  
  
  Pretax  Pretax income                 23.6     48.7     54.2      47.2
  
          Income taxes                   7.4     18.4     20.1      17.6
                                                    
  
          Income before 
            minority interest           16.2     30.3     34.1      29.6
  
  
  
  Minority  Minority interest            (.7)     1.7      2.3       2.0
                                                    
  
          Net income                 $  16.9  $  28.6  $  31.8   $  27.6
  
  
  
  
  Per Share Primary earnings per share:
  Data      Income from continuing 
              operations             $   .37  $   .64  $   .70   $   .61
                                                    
  
          Dividends per share:
            Preferred               $    .25  $   .25  $   .25   $   .25
            Common                  $   .075  $  .075  $  .075   $  .075
  
  Stock Price  Preferred - High     $     20  $18 3/4  $    20   $16 1/2
  Ranges                 - Low            15       16       14    14 5/8
               Common    - High       36 1/4   44 1/2   52 1/8    52 5/8
                         - Low        29 7/8   33 5/8       37    42 3/8
  
    
  [Page 72]
    


  
     
                                                    1993
                                   Fourth     Third     Second   First
                                   Quarter   Quarter   Quarter  Quarter
                                                               

           
                          
  Operations       Revenues          $ 261.5  $ 253.3  $ 231.7  $ 214.6
          Costs and expenses           171.5    167.5    164.0    148.8
          Depreciation and 
            amortization                27.7     27.4     21.3     20.8
                                                    
          Operating income              62.3     58.4     46.4     45.0
          Equity in net earnings of
           unconsolidated affiliates     4.9      2.3      4.0      2.9
          Interest expense             (14.9)   (13.8)   (11.8)   (10.7)
                                                    
  Pretax  Pretax income                 52.3     46.9     38.6     37.2
          Income taxes                  19.7     21.1     14.9     13.3
                                                    
          Income before minority 
            interest                    32.6     25.8     23.7     23.9
  Minority  Minority interest            2.5      2.5      2.2      1.8
                                                    
          Income before cumulative effect
           of accounting changes        30.1     23.3     21.5     22.1
   
  Accounting       Cumulative effect of changes in
  Change   accounting for income taxes and
           postretirement benefits                                 (6.5)
                                                    
          Net income                 $  30.1  $  23.3  $  21.5  $  15.6
  
  Per Share Primary earnings per share:
  Data      Income before cumulative effect
             of accounting changes   $  .67   $   .52  $  .48   $   .49
            Cumulative effect of accounting changes                (.14)
                                                    
                   Total             $  .67   $   .52  $  .48   $   .35
          Dividends per share:
            Preferred                $  .25   $   .25  $  .25   $   .25
            Common                   $ .075   $  .075  $ .075   $  .075
  
  Stock Price   Preferred - High     $   16   $   16   $   16   $15 1/4
  Ranges                  - Low      14 3/4       15       14    13 1/2
                Common    - High     51 1/2   42 3/4       42    33 1/4
                          - Low      41 7/8       37   30 1/2   23 7/16
   
  
  [Page 73]