<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(MARK ONE)
   /X/          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Quarterly period ended June 30, 2000

                                       or

   / /          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Transition period from _____ to _____

                         Commission File Number 0-26996

                       INVESTORS FINANCIAL SERVICES CORP.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                       04-3279817
(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)

           200 CLARENDON STREET, P.O. BOX 9130, BOSTON, MA 02117-9130
          (Address of principal executive offices, including Zip Code)

                                 (617) 330-6700
              (Registrant's telephone number, including area code)

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

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


         As of July 31, 2000, there were 29,800,539 shares of Common Stock
outstanding.

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


<PAGE>

                       INVESTORS FINANCIAL SERVICES CORP.

                                      INDEX

PART I            FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                                                                                                    PAGE
<S>                                                                                                  <C>
         ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  Condensed Consolidated Balance Sheets
                    June 30, 2000 (unaudited) and December 31, 1999 (audited)                         3

                  Condensed Consolidated Statements of Income and Comprehensive
                  Income  (unaudited)
                    Six months ended June 30, 2000 and 1999                                           4

                  Condensed Consolidated Statements of Income and Comprehensive
                  Income  (unaudited)
                    Three months ended June 30, 2000 and 1999                                         5

                  Condensed Consolidated Statement of Stockholder's Equity (unaudited)
                    Six months ended June 30, 2000                                                    6

                  Condensed Consolidated Statements of Cash Flows (unaudited)
                    Six months ended June 30, 2000 and 1999                                           7

                  Notes to Condensed Consolidated Financial Statements                                8


         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                        18
                  AND RESULTS OF OPERATIONS

         ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                           35


PART II           OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS                                                                  35

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                35

         ITEM 5.  OTHER INFORMATION                                                                  36

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                   36

SIGNATURES                                                                                           37

</TABLE>


                                       2
<PAGE>

PART I: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   INVESTORS FINANCIAL SERVICES CORP.
   CONDENSED CONSOLIDATED BALANCE SHEETS
   JUNE 30, 2000 AND  DECEMBER 31, 1999
--------------------------------------------------------------------------------
   (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                           JUNE 30,           DECEMBER 31,
                                                                                             2000                1999
ASSETS                                                                                   (unaudited)
<S>                                                                                      <C>                 <C>
Cash and due from banks                                                                  $    12,943         $    37,624
Federal funds sold                                                                               -               150,000
Securities held to maturity (approximate fair value of $1,971,951 and
  $1,730,745 at June 30, 2000 and December 31, 1999, respectively)                         2,014,058           1,763,355
Securities available for sale                                                                552,886             375,610
Non-marketable equity securities                                                              15,000              15,000
Loans, less allowance for loan losses of $100 at June 30, 2000 and
   December 31, 1999                                                                         112,904             109,292
Accrued interest and fees receivable                                                          42,443              40,332
Equipment and leasehold improvements, less accumulated depreciation of $9,203 and
   $8,615 at June 30, 2000 and December 31, 1999, respectively                                12,264              10,337
Goodwill, net                                                                                 34,843              39,776
Other assets                                                                                  14,320              11,754
                                                                                         -----------         -----------
TOTAL ASSETS                                                                             $ 2,811,661         $ 2,553,080
                                                                                         ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits:
    Demand                                                                               $   173,773         $   240,303
    Savings                                                                                1,144,486           1,237,104
    Time                                                                                      89,688              75,000
                                                                                         -----------         -----------
        Total deposits                                                                     1,407,947           1,552,407

Securities sold under repurchase agreements                                                  861,854             819,034
Short-term borrowings                                                                        316,001               1,000
Other liabilities                                                                             45,549              19,583
                                                                                         -----------         -----------
        Total liabilities                                                                  2,631,351           2,392,024
                                                                                         -----------         -----------
Commitments and contingencies                                                                    -                   -
Company-obligated, mandatorily redeemable, preferred securities of subsidiary
  trust holding solely junior subordinated deferrable interest debentures of the
  Company                                                                                     24,232              24,218
                                                                                         -----------         -----------

STOCKHOLDERS' EQUITY:
  Preferred stock, par value $0.01 (shares authorized: 1,000,000; issued and
     outstanding: 0 at June 30, 2000 and December 31, 1999)                                      -                   -
  Common stock, par value $0.01 (shares authorized: 40,000,000 at June 30, 2000
     and 20,000,000 at December 31, 1999; issued and outstanding: 29,759,258 at
     June 30, 2000 and 14,610,154 at December 31, 1999)                                          298                 146
  Surplus                                                                                     91,875              87,320
  Deferred compensation                                                                         (434)               (689)
  Retained earnings                                                                           67,893              53,542
  Accumulated other comprehensive loss, net                                                   (3,554)             (3,481)
  Treasury stock, par value $0.01 (10,814 shares at June 30, 2000 and December
  31, 1999)                                                                                      -                   -
                                                                                         -----------         -----------
        Total stockholders' equity                                                           156,078             136,838
                                                                                         -----------         -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                               $ 2,811,661         $ 2,553,080
                                                                                         ===========         ===========

</TABLE>

         See notes to condensed consolidated financial statements.


                                       3
<PAGE>

  INVESTORS FINANCIAL SERVICES CORP.

  CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
  (UNAUDITED)
  SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                              JUNE 30,          JUNE 30,
                                                                                2000              1999
<S>                                                                          <C>               <C>
OPERATING REVENUE:
Interest income:
   Federal funds sold and securities purchased
      under resale agreements                                                $   1,262         $   1,119
   Investment securities held to maturity and available for sale                75,687            42,605
   Loans                                                                         2,812             1,506
                                                                             ---------         ---------
      Total interest income                                                     79,761            45,230

Interest expense:
   Deposits                                                                     25,356            18,727
   Short-term borrowings                                                        28,418            10,722
                                                                             ---------         ---------
      Total interest expense                                                    53,774            29,449
                                                                             ---------         ---------
      Net interest income                                                       25,987            15,781

Non-interest income:
    Asset administration fees                                                   79,155            63,471
    Computer service fees                                                          239               246
    Other operating income                                                         564               268
                                                                             ---------         ---------
      Net operating revenue                                                    105,945            79,766

OPERATING EXPENSES:
    Compensation and benefits                                                   50,411            38,853
    Technology and telecommunications                                           10,155             7,426
    Occupancy                                                                    5,107             4,039
    Transaction processing services                                              5,013             4,293
    Depreciation and amortization                                                2,190             1,850
    Professional fees                                                            1,566             1,691
    Travel and sales promotion                                                   1,520             1,084
    Amortization of goodwill                                                       826               887
    Insurance                                                                      395               382
    Other operating expenses                                                     4,913             3,253
                                                                             ---------         ---------
      Total operating expenses                                                  82,096            63,758
                                                                             ---------         ---------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                                23,849            16,008

Provision for income taxes                                                       7,668             5,283
Minority interest expense, net of income taxes                                     794               818
                                                                             ---------         ---------
NET INCOME                                                                      15,387             9,907
                                                                             ---------         ---------
Other comprehensive income, net of tax of ($34) and $77 respectively:
    Unrealized (loss)/gain on securities:
        Unrealized holding (losses)/gains arising during the period                (73)              137
                                                                             ---------         ---------
    Other comprehensive (loss)/income                                              (73)              137
                                                                             ---------         ---------
COMPREHENSIVE INCOME                                                         $  15,314         $  10,044
                                                                             =========         =========
BASIC EARNINGS PER SHARE                                                     $    0.52         $    0.35
                                                                             =========         =========
DILUTED EARNINGS PER SHARE                                                   $    0.50         $    0.34
                                                                             =========         =========

</TABLE>

  See notes to condensed consolidated financial statements.


                                       4
<PAGE>

  INVESTORS FINANCIAL SERVICES CORP.

  CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
  (UNAUDITED)
  THREE MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                   JUNE 30,        JUNE 30,
                                                                                     2000            1999
<S>                                                                               <C>              <C>
OPERATING REVENUE:
Interest income:
   Federal funds sold and securities purchased
      under resale agreements                                                     $    364         $    446
   Investment securities held to maturity and available for sale                    40,207           23,857
   Loans                                                                             1,396              717
                                                                                  --------         --------
      Total interest income                                                         41,967           25,020

Interest expense:
   Deposits                                                                         12,846            9,390
   Short-term borrowings                                                            16,091            6,999
                                                                                  --------         --------
      Total interest expense                                                        28,937           16,389
                                                                                  --------         --------
      Net interest income                                                           13,030            8,631

Non-interest income:
    Asset administration fees                                                       39,439           32,091
    Computer service fees                                                              118              123
    Other operating income                                                             289              138
                                                                                  --------         --------
      Net operating revenue                                                         52,876           40,983

OPERATING EXPENSES:
    Compensation and benefits                                                       23,884           19,956
    Technology and telecommunications                                                5,560            3,806
    Occupancy                                                                        3,035            2,078
    Transaction processing services                                                  2,494            2,113
    Depreciation and amortization                                                    1,147              971
    Professional fees                                                                  492            1,046
    Travel and sales promotion                                                         851              577
    Amortization of goodwill                                                           405              443
    Insurance                                                                          200              193
    Other operating expenses                                                         2,254            1,648
                                                                                  --------         --------
      Total operating expenses                                                      40,322           32,831
                                                                                  --------         --------
INCOME BEFORE  INCOME TAXES AND MINORITY INTEREST                                   12,554            8,152

Provision for income taxes                                                           4,036            2,455
Minority interest expense, net of income taxes                                         397              427
                                                                                  --------         --------
NET INCOME                                                                           8,121            5,270
                                                                                  --------         --------
Other comprehensive income, net of tax of ($457) and ($348), respectively:
    Unrealized loss on securities:
        Unrealized holding losses arising during the period                           (971)            (619)
                                                                                  --------         --------
    Other comprehensive loss                                                          (971)            (619)
                                                                                  --------         --------
COMPREHENSIVE INCOME                                                              $  7,150         $  4,651
                                                                                  ========         ========
BASIC EARNINGS PER SHARE                                                          $   0.27         $   0.18
                                                                                  ========         ========
DILUTED EARNINGS PER SHARE                                                        $   0.26         $   0.18
                                                                                  ========         ========

</TABLE>

  See notes to condensed consolidated financial statements.


                                       5
<PAGE>

INVESTORS FINANCIAL SERVICES CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>

                                                  COMMON            TREASURY         COMMON                               DEFERRED
                                                  SHARES             SHARES          STOCK              SURPLUS         COMPENSATION

<S>                                             <C>                   <C>           <C>               <C>               <C>
BALANCE, DECEMBER 31, 1999                      14,610,154            10,814        $      146        $   87,320        $     (689)
Amortization of
  deferred                                             -                 -                 -                 -                 255
  compensation
Exercise of stock options                          290,958               -                   3             2,320               -
Tax benefit from exercise
  of options                                           -                 -                 -               2,235               -
Net income                                             -                 -                 -                 -                 -
Stock dividend, two-for-one split               14,858,146               -                 149               -                 -
Cash dividend, $0.015 per share                        -                 -                 -                 -                 -
Change in accumulated
  other comprehensive income/(loss), net               -                 -                 -                 -                 -
                                                ----------        ----------        ----------        ----------        ----------
BALANCE, JUNE 30, 2000                          29,759,258            10,814        $      298        $   91,875        $     (434)
                                                ==========        ==========        ==========        ==========        ==========

</TABLE>

<TABLE>
<CAPTION>

                                                                   ACCUMULATED
                                                                      OTHER
                                                 RETAINED         COMPREHENSIVE       TREASURY
                                                 EARNINGS              LOSS             STOCK             TOTAL
<S>                                             <C>                <C>              <C>                <C>
BALANCE, DECEMBER 31, 1999
Amortization of                                 $   53,542         $   (3,481)      $       -          $  136,838
  deferred
  compensation                                         -                  -                 -                 255
Exercise of stock options
Tax benefit from exercise                              -                  -                 -               2,323
  of options
Net income                                             -                  -                 -               2,235
Stock dividend, two-for-one split                   15,387                -                 -              15,387
Cash dividend, $0.015 per share                       (149)               -                 -                 -
Change in accumulated                                 (887)               -                 -                (887)
  other comprehensive income/(loss), net
                                                       -                  (73)              -                 (73)
BALANCE, JUNE 30, 2000                          ----------         ----------       -----------        ----------
                                                $   67,893         $   (3,554)      $       -          $  156,078
                                                ==========         ==========       ===========        ==========

</TABLE>

See notes to condensed consolidated financial statements.


                                       6
<PAGE>

INVESTORS FINANCIAL SERVICES CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                   JUNE 30,          JUNE 30,
                                                                                    2000              1999
<S>                                                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                       $  15,387         $   9,907
                                                                                 ---------         ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
    Depreciation and amortization                                                    3,016             2,737
    Amortization of deferred compensation                                              255               255
    Amortization of premiums on securities, net of accretion of discounts            1,935             3,288
    Deferred income taxes                                                              -                 (77)
    Changes in assets and liabilities:
       Accrued interest and fees receivable                                         (2,111)           (6,253)
       Other assets                                                                  3,808            (2,329)
       Other liabilities                                                            25,966             4,120
                                                                                 ---------         ---------
          Total adjustments                                                         32,869             1,741
                                                                                 ---------         ---------
       Net cash provided by operating activities                                    48,256            11,648
                                                                                 ---------         ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale                           31,031            50,849
Proceeds from maturities of securities held to maturity                            106,547           191,814
Purchases of securities available for sale                                        (209,257)          (81,539)
Purchases of securities held to maturity                                          (358,341)         (685,729)
Net decrease/(increase) in federal funds sold and securities
    purchased under resale agreements                                              150,000           (87,000)
Net increase in loans                                                               (3,612)          (69,175)
Purchases of equipment and leasehold improvements                                   (4,102)           (2,437)
                                                                                 ---------         ---------
       Net cash used for investing activities                                     (287,734)         (683,217)
                                                                                 ---------         ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease)/increase in demand deposits                                         (66,530)          110,470
Net (decrease)/increase in time and savings deposits                               (77,930)          321,853
Net increase in short-term borrowings                                              357,821           219,677
Proceeds from exercise of stock options                                              2,323             1,623
Proceeds from issuance of common stock                                                 -              26,000
Cash dividends to IFSC shareholders                                                   (887)             (560)
                                                                                 ---------         ---------
          Net cash provided by financing activities                                214,797           679,063
                                                                                 ---------         ---------
NET (DECREASE) / INCREASE IN CASH AND DUE FROM BANKS                               (24,681)            7,494
                                                                                 ---------         ---------
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD                                        37,624            18,775
                                                                                 ---------         ---------
CASH AND DUE FROM BANKS, END OF PERIOD                                           $  12,943         $  26,269
                                                                                 =========         =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    Cash paid for interest                                                       $  52,211         $  28,839
                                                                                 =========         =========
    Cash paid for income taxes                                                   $   5,863         $   5,886
                                                                                 =========         =========

</TABLE>

See notes to condensed consolidated financial statements


                                       7
<PAGE>

INVESTORS FINANCIAL SERVICES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS AND THE THREE MONTHS ENDED JUNE 30,
2000 AND 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

1.    DESCRIPTION OF BUSINESS

      Investors Financial Services Corp. ('IFSC') provides asset administration
      services for the financial services industry through its wholly owned
      subsidiary, Investors Bank & Trust Company (the 'Bank'). IFSC provides
      global custody, multicurrency accounting, institutional transfer agency,
      performance measurement, foreign exchange, securities lending, mutual fund
      administration and investment advisory services to a variety of financial
      asset managers, including mutual fund complexes, investment advisors,
      banks and insurance companies. IFSC and the Bank are subject to regulation
      by the Federal Reserve Board of Governors, the Office of the Commissioner
      of Banks of the Commonwealth of Massachusetts and the Federal Deposit
      Insurance Corporation.

      As used herein, the defined term 'the Company' shall mean IFSC together
      with Investors Capital Services, Inc, and the Bank and its domestic and
      foreign subsidiaries.

      On October 1, 1998, the Bank acquired the domestic institutional trust and
      custody business ('the Business') of BankBoston, N.A. Under the terms of
      the purchase agreement, the Bank paid approximately $48 million to
      BankBoston as of the closing and subsequently paid an additional $4.9
      million based upon client retention and business performance. The Business
      provides master trust and custody services to endowments, pension funds,
      municipalities, mutual funds and other financial institutions, primarily
      in New England. The acquisition was accounted for using the purchase
      method of accounting. In connection with the acquisition, the Bank and
      BankBoston also entered into an outsourcing agreement. Pursuant to the
      outsourcing agreement, the Bank acted as custodian and provided certain
      other services for three BankBoston asset management related businesses:
      domestic private banking, institutional asset management and international
      private banking. In September 1999, the Bank received notification of
      BankBoston's intent to terminate the outsourcing agreement. The
      termination, effective February 2000, had no impact on the remaining
      business purchased from BankBoston. Pursuant to the terms of the
      outsourcing agreement, the Bank received a termination fee of $7 million.
      In addition, in May 2000, the Bank received notification from the
      BankBoston sponsored 1784 Funds that the 1784 Funds intended to terminate
      their custody agreement with the Bank. Pursuant to the terms of the
      purchase agreement with BankBoston, the Bank received a termination fee of
      $4.3 million in connection with termination of the 1784 Funds custody
      agreement. Therefore, a net adjustment was made to decrease the purchase
      price by $6.4 million resulting from the above mentioned items. The Bank
      does not anticipate a material impact on net income due to the termination
      of the outsourcing agreement or the termination of the 1784 funds custody
      agreement. The Bank was informed by BankBoston that its decision to
      terminate both the outsourcing and the 1784 Funds custody agreement was
      not related in any way to the Company's quality of service but was made as
      part of the integration process undertaken in connection with the
      BankBoston/Fleet merger.

      On October 29, 1999, the Bank entered into an agreement with Sanwa Bank
      California, pursuant to which the Bank agreed to purchase the right to
      provide institutional custody and related services to accounts managed by
      the Trust Company of the West. The Bank completed the purchase on March
      10, 2000. The accounts subject to the agreement totaled approximately $4.6
      billion in assets at March 10, 2000.

      On March 26, 1999, the Company completed the issuance and sale of
      1,800,000 shares of Common Stock at $14.50 per share in a private
      placement to one investor. The net capital raised in the private placement
      was used to support the Company's balance sheet growth.

      On May 15, 2000, the Board of Directors of the Company declared a
      two-for-one stock split in the form of a 100% stock dividend payable June
      15, 2000 to stockholders of record on May 31, 2000.


                                       8
<PAGE>

2.    INTERIM FINANCIAL STATEMENTS

      The condensed consolidated interim financial statements of the Company as
      of June 30, 2000 and 1999 and for the six-month periods and three-month
      periods ended June 30, 2000 and 1999 have been prepared by the Company,
      without audit, pursuant to the rules and regulations of the Securities and
      Exchange Commission. Certain information and footnote disclosures normally
      included in annual financial statements prepared in accordance with
      generally accepted accounting principles have been condensed or omitted as
      permitted by such rules and regulations. All adjustments, consisting of
      normal recurring adjustments, have been included. Management believes that
      the disclosures are adequate to present fairly the financial position,
      results of operations and cash flows at the dates and for the periods
      presented. It is suggested that these interim financial statements be read
      in conjunction with the financial statements and the notes thereto
      included in the Company's latest annual report on Form 10-K. Results for
      interim periods are not necessarily indicative of those to be expected for
      the full fiscal year.

      All share numbers in this report have been restated, where applicable, to
      reflect the two-for-one stock split paid June 15, 2000.

      Certain amounts in the prior periods' financial statements have been
      reclassified to conform to the current periods' presentation.

3.    LOANS

      Loans consist of demand loans to custody clients of the Company, including
      individuals, not-for-profit institutions located in the greater Boston,
      Massachusetts metropolitan area and loans to mutual fund clients. The
      loans to mutual funds include lines of credit and advances pursuant to the
      terms of the custody agreements between the Company and those mutual fund
      clients to facilitate securities transactions and redemptions. Generally,
      the loans are, or may be, in the event of default, collateralized with
      marketable securities held by the Company as custodian. In addition, there
      have been no loan charge-offs or recoveries during the six months ended
      June 30, 2000 and 1999. Loans are summarized as follows:

<TABLE>
<CAPTION>

                                            JUNE 30,       DECEMBER 31,
                                             2000             1999
                                             (Dollars in thousands)
<S>                                         <C>             <C>
Loans to individuals                        $ 33,786        $ 65,010
Loans to not-for-profit institutions              13              13
Loans to mutual funds                         79,205          44,369
                                            --------        --------
                                             113,004         109,392
Less allowance for loan losses                   100             100
                                            --------        --------
Total                                       $112,904        $109,292
                                            ========        ========

</TABLE>

      The Company had commitments to lend of approximately $186 million and $160
      million at June 30, 2000 and December 31, 1999, respectively. The terms of
      these commitments are similar to the terms of outstanding loans.


                                       9
<PAGE>

4.       GOODWILL


      Goodwill related to the Company's acquisition of the BankBoston Business
      pursuant to a purchase and sale agreement dated July 17, 1998 is
      summarized as follows:

<TABLE>
<CAPTION>

                                      FOR THE SIX   FOR THE TWELVE
                                     MONTHS ENDED    MONTHS ENDED
                                       JUNE 30,      DECEMBER 31,
                                        2000            1999
                                       (Dollars in thousands)
<S>                                  <C>              <C>
Goodwill, beginning of period        $ 39,776         $ 43,860
Purchase price adjustment              (4,107)          (2,328)
Less amortization for period             (826)          (1,756)
                                     --------         --------
Goodwill, end of period              $ 34,843         $ 39,776
                                     ========         ========

</TABLE>

      Under the terms of the purchase agreement with BankBoston, N.A., the Bank
      paid approximately $44 million, attributable to goodwill, to BankBoston as
      of the closing of the transaction on October 1, 1998 and paid an
      additional amount of approximately $4.9 million in February 2000 based
      upon client retention and business performance. In September 1999, the
      Bank received notification from BankBoston of its intent to terminate an
      outsourcing agreement, under which the Bank provided custody services to
      certain BankBoston asset management related businesses. In May 2000, the
      Bank received notification from the 1784 Funds that they intended to
      terminate the custody agreement between the Bank and the 1784 Funds. In
      connection with the termination of these agreements, the Bank received
      termination fees of $11.3 million. Therefore, the net effect of the
      additional payment and the termination fees was a decrease in the purchase
      price of $6.4 million.

5.    DEPOSITS

      Time deposits at June 30, 2000 and December 31, 1999 include non-interest
      bearing amounts of approximately $65 million at both dates.

      All time deposits had a minimum balance of $100,000 and a maturity of less
      than six months at June 30, 2000 and December 31, 1999.

6.    SHORT-TERM BORROWINGS

      The components of short-term borrowings are as follows:

<TABLE>
<CAPTION>

                                                  JUNE 30,      DECEMBER 31,
                                                   2000            1999
                                                  (Dollars in thousands)
<S>                                              <C>             <C>
Federal Home Loan Bank of Boston advances        $200,000        $    -
Federal funds purchased                           115,000             -
Treasury, tax and loan account                      1,001           1,000
                                                 --------        --------
Total                                            $316,001        $  1,000
                                                 ========        ========

</TABLE>

      The Company has a borrowing arrangement with the Federal Home Loan Bank of
      Boston, which is utilized on an overnight and short-term basis to satisfy
      temporary funding requirements. The interest rate on the outstanding
      balance at June 30, 2000 was 6.44%.

      The rate on the outstanding balance of federal funds purchased from other
      banks at June 30, 2000 was 7.07%.


                                       10
<PAGE>

6.    SHORT-TERM BORROWINGS (CONCLUDED)

      The Company receives federal tax deposits from clients as agent for the
      Federal Reserve Bank ('FRB') and accumulates these deposits in the
      Treasury, tax and loan account. The FRB charges the Company interest at
      the Federal funds rate on such deposits. The interest rate on the
      outstanding balance at June 30, 2000 was 6.66%.

7.    STOCKHOLDERS' EQUITY

      As of June 30, 2000, the Company has authorized 1,000,000 shares of
      Preferred Stock and 40,000,000 shares of Common Stock, all with a par
      value of $0.01 per share.

      At the Annual Meeting of Shareholders of the Company held on April 18,
      2000, the Shareholders approved an increase in the number of authorized
      shares of Common Stock from 20,000,000 to 40,000,000. On May 2, 2000 the
      Company filed an amendment to its Certificate of Incorporation increasing
      the number of authorized shares of Common Stock to 40,000,000. Such shares
      are available for general corporate purposes as determined by the
      Company's Board of Directors.

      On May 15, 2000, the Board of Directors approved a two-for-one stock split
      in the form of a 100% stock dividend to shareholders of record on May 31,
      2000. The dividend was paid on June 15, 2000. A total of 14,858,146 shares
      of common stock were issued in connection with the stock split. On
      February 16, 1999, the Board of Directors approved a two-for-one stock
      split in the form of a 100% stock dividend to shareholders of record on
      March 1, 1999. The dividend was paid on March 17, 1999. A total of
      6,797,973 shares of common stock were issued in connection with the stock
      split. The par value of these additional shares was capitalized by a
      transfer from retained earnings to common stock. The stock splits did not
      cause any change in the $0.01 par value per share of the common stock or
      in total stockholders' equity.

      The Company has three stock option plans: the Amended and Restated 1995
      Stock Plan, the Amended and Restated 1995 Non-Employee Director Stock
      Option Plan, and the 1997 Employee Stock Purchase Plan.

      Under the terms of the Amended and Restated 1995 Stock Plan, the Company
      may grant options to purchase up to a maximum of 4,640,000 shares of
      Common Stock to certain employees, consultants, directors and officers.
      The options may be awarded as incentive stock options (employees only),
      non-qualified stock options, stock awards or opportunities to make direct
      purchases of stock. No options were granted to consultants or directors
      during the six months ended June 30, 2000 and 1999. Of the 4,640,000
      shares of Common Stock authorized for issuance under the plan, 869,826
      were available for grant at June 30, 2000.

      Under the terms of the Amended and Restated 1995 Non-Employee Director
      Stock Option Plan, the Company may grant options to non-employee directors
      to purchase up to a maximum of 400,000 shares of Common Stock. Options to
      purchase 10,000 shares of Common Stock were awarded on November 8, 1995 to
      each director. Subsequently, any director elected or appointed after such
      date will receive an automatic initial grant of options to purchase 2,500
      shares upon becoming a director. Thereafter, each director will receive an
      automatic grant of options to purchase 2,500 shares effective upon each
      one-year anniversary of the date of such director's original grant.
      Additionally, non-employee directors may elect to receive options to
      acquire shares of the Company's Common Stock in lieu of such director's
      cash retainer. Any election is subject to certain restrictions under the
      Amended and Restated 1995 Non-Employee Director Stock Option Plan. The
      number of shares of stock underlying the option is equal to the quotient
      obtained by dividing the cash retainer by the value of an option on the
      date of grant as determined using the Black-Scholes model.

      The exercise price of options under the Amended and Restated 1995
      Non-Employee Director Stock Option Plan and the incentive stock options
      under the Amended and Restated 1995 Stock Plan may not be less than the
      fair market value at the date of the grant. The exercise price of the
      non-qualified options from the Amended and Restated 1995 Stock Plan is
      determined by the compensation committee of the Board of Directors. All
      options become exercisable as specified by the Compensation Committee at
      the date of the grant.


                                       11
<PAGE>

7.    STOCKHOLDERS' EQUITY (CONTINUED)

      In November 1995, the Company granted 448,000 shares of Common Stock to
      certain officers of the Company under the 1995 Stock Plan. Of these
      grants, 420,000 shares vest in sixty equal monthly installments, and the
      remainder vests in five equal annual installments. Upon termination of
      employment, the Company has the right to repurchase all unvested shares at
      a price equal to the fair market value at the date of the grant. On March
      31, 1998, the Company repurchased 4,000 unvested shares for $77,000 under
      the terms of the Amended and Restated 1995 Stock Plan. On May 29, 1998,
      the Company granted 40,000 shares of Common Stock to an officer of
      Investors Capital Services, Inc.

      The Company has recorded deferred compensation of $434,000 and $689,000 at
      June 30, 2000 and December 31, 1999 respectively, related to these grants.


      Under the terms of the 1997 Employee Stock Purchase Plan, the Company may
      issue up to 560,000 shares of Common Stock pursuant to the exercise of
      nontransferable options granted to participating employees. The 1997
      Employee Stock Purchase Plan permits eligible employees to purchase up to
      1,000 shares of Common Stock per payment period, subject to limitations
      provided by Section 423(b) of the Internal Revenue Code, through
      accumulated payroll deductions. The purchases are made twice a year at a
      price equal to the lesser of (i) 90% of the average market value of the
      Common Stock on the first business day of the payment period, or (ii) 90%
      of the average market value of the Common Stock on the last business day
      of the payment period. The payment periods consist of two six-month
      periods, January 1 through June 30 and July 1 through December 31.


      A summary of option activity under the Amended and Restated 1995
      Non-Employee Director Stock Option Plan and the Amended and Restated 1995
      Stock Plans is as follows:

<TABLE>
<CAPTION>

                                                                      NUMBER OF          WEIGHTED-AVERAGE
                                                                       SHARES             EXERCISE PRICE
<S>                                                                   <C>              <C>
      Outstanding at December 31, 1999                                2,960,334        $         13
      Granted                                                           203,608                  22
      Exercised                                                       (692,704)                   8
      Canceled                                                         (44,950)                  15
                                                                  --------------
      Outstanding at June 30, 2000                                    2,426,288        $         15
                                                                  ==============
      Outstanding and exercisable at June 30, 2000                    1,076,619
                                                                  ==============

</TABLE>

<TABLE>
<CAPTION>

                                                                    NUMBER OF             WEIGHTED-AVERAGE
                                                                     SHARES                EXERCISE PRICE
<S>                                                                   <C>              <C>
      Outstanding at December 31, 1998                                2,811,244        $          9
      Granted                                                           213,010                  15
      Exercised                                                       (566,568)                   6
      Canceled                                                         (24,552)                  10
                                                                  --------------
      Outstanding at June 30, 1999                                    2,433,134        $         10
                                                                  ==============
      Outstanding and exercisable at June 30, 1999                    1,215,794
                                                                  ==============

</TABLE>


                                       12
<PAGE>

7.    STOCKHOLDERS' EQUITY (CONCLUDED)

      A summary of activity under the 1997 Employee Stock Purchase Plan is as
follows:

<TABLE>
<CAPTION>

                                                                 FOR THE SIX   FOR THE TWELVE
                                                                 MONTHS ENDED   MONTHS ENDED
                                                                    JUNE 30,     DECEMBER 31,
                                                                     2000           1999
                                                                 ------------- -------------
                                                                      (NUMBER OF SHARES)
<S>                                                                <C>              <C>
Total shares available under the Plan, beginning of period         357,354          433,604

   Issued at June 30                                               (34,466)         (42,494)
   Issued at December 31                                               -            (33,756)
                                                                  ========         ========
Total shares available under the Plan, end of period               322,888          357,354
                                                                  ========         ========

</TABLE>

      During the six months ended June 30, 2000, the purchase price of the stock
      was $21.00 or 90% of the average market value of the Common Stock on the
      first business day of the payment period ending June 30, 2000.


      During the year ended December 31, 1999, the purchase price of the stock
      was $13.75 and $17.50, or 90% of the average market value of the Common
      Stock on the first business day of the payment period ending June 30,
      1999, and December 31, 1999, respectively.


      EARNINGS PER SHARE - Reconciliation from Basic EPS to Diluted EPS for the
      periods ended June 30, 2000 and 1999 follows:

<TABLE>
<CAPTION>

                                                                                                        PER-SHARE
                                                                        INCOME          SHARES           AMOUNT
                                                                      (Dollars in thousands, except share data)
JUNE 30, 2000
BASIC EPS
<S>                                                                 <C>               <C>               <C>
Income available to common stockholders                             $   15,387        29,578,721        $   0.52
                                                                                                        ========
Dilutive effect of common equivalent shares of stock options                           1,335,847
                                                                                      ----------
DILUTED EPS
Income available to common stockholders                             $   15,387        30,914,568        $   0.50
                                                                    ==========        ==========        ========
JUNE 30, 1999
BASIC EPS
Income available to common stockholders                             $    9,907        28,197,182        $   0.35
                                                                                                        ========
Dilutive effect of common equivalent shares of stock options                             917,390
                                                                                      ----------
DILUTED EPS
Income available to common stockholders                             $    9,907        29,114,572        $   0.34
                                                                    ==========        ==========        ========

</TABLE>


                                       13
<PAGE>

8.    OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

      LINES OF CREDIT - At June 30, 2000, the Company had commitments to
      individuals and mutual funds under collateralized open lines of credit
      totaling $240 million, against which $51 million in loans were drawn. The
      credit risk involved in issuing lines of credit is essentially the same as
      that involved in extending loan facilities. The Company does not
      anticipate any loss as a result of these lines of credit.

      INTEREST-RATE CONTRACTS - The contractual or notional amounts of swap
      agreements, which are derivative financial instruments, held by the
      Company at June 30, 2000 and 1999 were $650 million and $490 million,
      respectively. Interest rate contracts involve an agreement with a
      counterparty to exchange cash flows based on an underlying interest rate
      index. A swap agreement involves the exchange of a series of interest
      payments, either at a fixed or variable rate, based upon the notional
      amount without the exchange of the underlying principal amount. The
      Company's exposure from these interest rate contracts results from the
      possibility that one party may default on its contractual obligation. The
      Company has never experienced terminations by counterparties of interest
      rate swaps. Credit risk is limited to the positive fair value of the
      derivative financial instrument, which is significantly less than the
      notional value. During the first six months of 2000, the Company entered
      into agreements to assume fixed-rate interest payments in exchange for
      variable market-indexed interest payments. The original terms range from
      12 to 36 months. The weighted-average fixed-payment rates were 6.02% at
      June 30, 2000. Variable-interest payments received are indexed to the
      one-month London Interbank Offering Rate and the Overnight Federal Funds
      Rate. At June 30, 2000, the weighted-average rate of variable
      market-indexed interest payment obligations to the Company was 6.61%. The
      effect of these agreements was to lengthen short-term variable rate
      liabilities into longer-term fixed rate liabilities. These contracts had
      no carrying value and the fair value was approximately $4.5 million at
      June 30, 2000.

9.    COMMITMENTS AND CONTINGENCIES

      RESTRICTIONS ON CASH BALANCES - The Company is required to maintain
      certain average cash reserve balances. The reserve balance requirement
      with the FRB as of June 30, 2000 was $17 million. In addition, another
      cash balance in the amount of $2 million was pledged to secure clearings
      with a depository institution, Depository Trust Company, as of June 30,
      2000.

      LEASE COMMITMENTS - Minimum future commitments on non-cancelable operating
      leases at June 30, 2000 were as follows:

<TABLE>
<CAPTION>

      FISCAL YEAR ENDING    BANK PREMISES   EQUIPMENT
                              (Dollars in thousands)
      <S>                    <C>            <C>
      2000                   $ 4,772        $ 1,097
      2001                     9,449          1,831
      2002                     8,694          1,257
      2003                     8,668            380
      2004 and beyond         32,764            -

</TABLE>

      Total rent expense was $6.8 million and $5.5 million for the six months
      ended June 30, 2000 and 1999, respectively.

      On September 20, 1995, the Company entered into a five-year service
      agreement with Electronic Data Systems ('EDS') expiring on December 31,
      2005. Under the terms of the agreement, the Company agreed to pay certain
      monthly service fees based on usage. Service expense under this contract
      was $1.7 million for both the six months ended June 30, 2000 and 1999.

      CONTINGENCIES - The Company provides global custody, multicurrency
      accounting, institutional transfer agency, performance measurement,
      foreign exchange, securities lending, mutual fund administration and
      investment advisory services to a variety of financial asset managers,
      including mutual fund complexes, investment advisors, banks and insurance
      companies. Assets under custody and management, held by the Company in a
      fiduciary capacity, are not included in the consolidated balance sheets
      since such items are not assets of the Company. Management conducts
      regular reviews of its fiduciary responsibilities and considers the
      results in preparing its consolidated financial statements. In the opinion
      of management, there are no contingent liabilities at June 30, 2000 that
      are material to the consolidated financial position or results of
      operations of the Company.


                                       14
<PAGE>

10.   REGULATORY MATTERS

      The Company and the Bank are subject to various regulatory capital
      requirements administered by the federal banking agencies. Failure to meet
      minimum capital requirements can initiate certain mandatory and possibly
      additional discretionary actions by regulators that, if undertaken, could
      have a direct material adverse effect on the Company's and the Bank's
      results of operations and financial conditions. Under capital adequacy
      guidelines and the regulatory framework for prompt corrective action, the
      Bank must meet specific capital guidelines that involve quantitative
      measures of the Bank's assets, liabilities, and certain off-balance sheet
      items as calculated under regulatory accounting practices. The Company's
      and the Bank's capital amounts and classification are also subject to
      qualitative judgments by the regulators about components, risk weightings,
      and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
      require the Company and the Bank to maintain minimum amounts and ratios
      (set forth in the table below) of total and Tier I capital (as defined in
      the regulations) to risk-weighted assets (as defined), and of Tier I
      capital (as defined) to average assets (as defined). Management believes,
      as of June 30, 2000, that the Company and the Bank meet all capital
      adequacy requirements to which they are subject.


                                       15
<PAGE>

10.   REGULATORY MATTERS (CONCLUDED)

      As of June 30, 2000, the most recent notification from the Federal Deposit
      Insurance Corporation categorized the Company and the Bank as well
      capitalized under the regulatory framework for prompt corrective action.
      To be categorized as well capitalized, the Company and the Bank must
      maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
      ratios as set forth in the following table. There are no conditions or
      events since that notification that management believes have changed the
      Company's or the Bank's category. The following table presents the capital
      ratios for the Company and the Bank for the quarter ended June 30, 2000
      and the year ended December 31, 1999.

<TABLE>
<CAPTION>

                                                                                                TO BE WELL CAPITALIZED
                                                                        FOR CAPITAL                   UNDER PROMPT
                                               ACTUAL                ADEQUACY PURPOSES:       CORRECTIVE ACTION PROVISIONS:
                                               ------                ------------------       -----------------------------
                                     AMOUNT            RATIO       AMOUNT            RATIO       AMOUNT            RATIO
                                     ------            -----       ------            -----       ------            -----
<S>                                 <C>                <C>        <C>                <C>       <C>                <C>
AS OF JUNE 30, 2000:
  Total Capital
    (to Risk Weighted Assets
     - the Company)                 $149,121           16.37%     $ 72,882           8.00%          N/A              N/A
  Total Capital
    (to Risk Weighted Assets
     -the Bank)                     $145,716           16.03%     $ 72,723           8.00%     $ 90,904           10.00%
  Tier I Capital
    (to Risk Weighted Assets
    - the Company)                  $149,021           16.36%     $ 36,441           4.00%          N/A              N/A
  Tier I Capital
    (to Risk Weighted Assets
     -the Bank)                     $145,616           16.02%     $ 36,362           4.00%     $ 54,542            6.00%
  Tier I Capital
    (to Average Assets
     - the Company)                 $149,021            5.53%     $107,773           4.00%          N/A              N/A
  Tier I Capital
   (to Average Assets
   -the Bank)                       $145,616            5.41%     $107,759           4.00%     $134,699            5.00%

AS OF DECEMBER  31, 1999:
  Total Capital
    (to Risk Weighted Assets
     - the Company)                 $124,861           14.97%     $ 66,726           8.00%          N/A              N/A
  Total Capital
    (to Risk Weighted Assets
     - the Bank)                    $121,947           14.66%     $ 66,567           8.00%     $ 83,209           10.00%
  Tier I Capital
    (to Risk Weighted Assets
     - the Company)                 $124,761           14.96%     $ 33,363           4.00%          N/A              N/A
  Tier I Capital
    (to Risk Weighted Assets
     - the Bank)                    $121,847           14.64%     $ 33,283           4.00%     $ 49,925            6.00%
  Tier I Capital
    (to Average Assets
     - the Company)                 $124,761            5.46%     $ 91,382           4.00%          N/A              N/A
  Tier I Capital
    (to Average Assets
     - the Bank)                    $121,847            5.34%     $ 91,310           4.00%     $114,138            5.00%

</TABLE>

      Under Massachusetts law, trust companies such as the Bank, like national
      banks, may pay dividends no more often than quarterly, and only out of
      'net profits' and to the extent that such payments will not impair the
      Bank's capital stock and surplus account. Moreover, prior approval of the
      Commissioner of Banks and the Commonwealth of Massachusetts is required if
      the total dividends for a calendar year would exceed net profits for that
      year combined with retained net profits for the previous two years. These
      restrictions on the ability of the Bank to pay dividends to the Company
      may restrict the ability of the Company to pay dividends to its
      stockholders.


                                       16
<PAGE>

11.     SEGMENT REPORTING

      The Company does not utilize segment information for internal reporting as
      management views the Company as one segment. The following represents net
      operating revenue by geographic area for the six months ended June 30,
      2000 and 1999, and long-lived assets by geographic area as of June 30,
      2000 and 1999:

<TABLE>
<CAPTION>

                    NET OPERATING   NET OPERATING    LONG-LIVED      LONG-LIVED
GEOGRAPHIC             REVENUE         REVENUE         ASSETS          ASSETS
INFORMATION:            2000            1999            2000            1999
------------            ----            ----            ----            ----
                                       (Dollars in thousands)
<S>                   <C>             <C>             <C>             <C>
United States         $102,194        $ 76,261        $ 46,720        $ 10,854

Ireland                  2,606           2,208             288             372

Canada                   1,106           1,233              99             207

Cayman Islands              39              64             -               -
                      ========        ========        ========        ========
Total                 $105,945        $ 79,766        $ 47,107        $ 11,433
                      ========        ========        ========        ========

</TABLE>

      The following represents the Company's operating revenue by service line
      for the six months ended June 30, 2000 and 1999:

<TABLE>
<CAPTION>

                                                  OPERATING REVENUE        OPERATING REVENUE
      SERVICE LINES:                                    2000                     1999
      ---------------------------------------     ------------------      --------------------
                                                            (Dollars in thousands)
<S>                                                     <C>                      <C>
      Custody, accounting, transfer agency,
      and administration                                $    62,021              $     50,832

      Cash Management                                         5,785                     6,042

      Securities lending                                      5,392                     3,440

      Foreign exchange                                        5,160                     2,408

      Investment advisory                                       797                       749
                                                  ==================      ====================
      Total                                             $    79,155              $     63,471
                                                  ==================      ====================

</TABLE>

      No one customer accounted for 10% of the Company's consolidated net
      operating revenues for the six months ended June 30, 2000 and 1999.


                                       17
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

         The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and related notes, which
are included elsewhere in this Report. The Company, through its wholly owned
subsidiary, Investors Bank & Trust Company, provides global custody,
multicurrency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending, mutual fund administration
and investment advisory services to a variety of financial asset managers,
including 85 mutual fund complexes, investment advisors, banks and insurance
companies. The Company provides financial asset administration services for net
assets that totaled approximately $276 billion at June 30, 2000, including
approximately $18 billion of foreign assets. The Company also engages in private
banking transactions, including secured lending and deposit accounts.

         On October 1, 1998, the Bank acquired the domestic institutional trust
and custody business ('the Business') of BankBoston, N.A. Under the terms of the
purchase agreement, the Bank paid approximately $48 million to BankBoston as of
the closing and subsequently paid an additional $4.9 million based upon client
retention and business performance. The Business provides master trust and
custody services to endowments, pension funds, municipalities, mutual funds and
other financial institutions, primarily in New England. The acquisition was
accounted for using the purchase method of accounting. In connection with the
acquisition, the Bank and BankBoston also entered into an outsourcing agreement.
Pursuant to the outsourcing agreement, the Bank acted as custodian and provided
certain other services for three BankBoston asset management related businesses:
domestic private banking, institutional asset management and international
private banking. In September 1999, the Bank received notification of
BankBoston's intent to terminate the outsourcing agreement. The termination,
effective February 2000, had no impact on the remaining business purchased from
BankBoston. Pursuant to the terms of the outsourcing agreement, the Bank
received a termination fee of $7 million. In addition, in May 2000, the Bank
received notification from the BankBoston sponsored 1784 Funds that the 1784
Funds intended to terminate their custody agreement with the Bank. Pursuant to
the terms of the purchase agreement with BankBoston, the Bank received a
termination fee of $4.3 million in connection with termination of the 1784 Funds
custody agreement. Therefore, a net adjustment was made to decrease the purchase
price by $6.4 million, resulting from the above-mentioned items. The Bank does
not anticipate a material impact on net income due to the termination of the
outsourcing agreement or the termination of the 1784 funds custody agreement.
The Bank was informed by BankBoston that its decision to terminate both the
outsourcing and the 1784 Funds custody agreement was not related in any way to
the Company's quality of service but was made as part of the integration process
undertaken in connection with the BankBoston/Fleet merger.

         On October 29, 1999, the Bank entered into an agreement with Sanwa Bank
California, pursuant to which the Bank agreed to purchase the right to provide
institutional custody and related services to accounts managed by the Trust
Company of the West. The Bank completed the purchase on March 10, 2000. The
accounts subject to the agreement totaled approximately $4.6 billion in assets
at March 10, 2000.

         On March 26, 1999, the Company completed the issuance and sale of
1,800,000 shares of Common Stock at $14.50 per share in a private placement to
one investor. The net capital raised in the private placement was used to
support the Company's balance sheet growth.

         On May 15, 2000, the Board of Directors of the Company declared a
two-for-one stock split in the form of a 100% stock dividend payable on or about
June 15, 2000 to stockholders of record on May 31, 2000. All share numbers in
this report have been restated to reflect the two-for-one stock split paid June
15, 2000, where applicable.


                                       18
<PAGE>

REVENUE AND INCOME OVERVIEW

         The Company derives its revenues from financial asset administration
services and private banking transactions. Although interest income and
non-interest income are reported separately for financial statement presentation
purposes, the Company's clients view the pricing of the Company's asset
administration and banking service offerings on a bundled basis. In establishing
a fee structure for a specific client, management analyzes all expected revenue
and related expenses, as opposed to separately analyzing fee income and interest
income and related expenses for each from such relationship. Accordingly,
management believes net operating revenue (net interest income plus non-interest
income) and net income are the most meaningful measures of financial results.
Net operating revenue increased 33% to $105.9 million in the first six months of
2000 from $79.8 million in the first six months of 1999.

         Non-interest income consists primarily of fees for financial asset
administration and is principally derived from custody, multicurrency
accounting, transfer agency and administration services for financial asset
managers and the assets they control. The Company's clients pay fees based on
the volume of assets under custody, portfolio transactions, income collected and
whether other value-added services such as foreign exchange, securities lending
and performance measurement are needed. Asset-based fees are usually charged on
a sliding scale and are subject to minimum fees. As such, when the assets in a
portfolio under custody grow as a result of changes in market values or cash
inflows, the Company's fees may be a smaller percentage of those assets. Fees
for individually managed accounts, such as custodial, trust and portfolio
accounting services for individuals, investment advisors, private trustees,
financial planners, other banks and fiduciaries, and other institutions are also
included in non-interest income.

         Net interest income represents the difference between income generated
from interest-earning assets and expense on interest-bearing liabilities.
Interest-bearing liabilities are generated by the Company's clients who, in the
course of their financial asset management, generate cash balances, which they
deposit on a short-term basis with the Company. The Company invests these cash
balances and remits a portion of the earnings on these investments to its
clients. The Company's share of earnings from these investments is viewed as
part of the total package of compensation paid to the Company from its clients
for performing asset administration services.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

         From time to time, information provided by the Company, statements made
by its employees or information included in its filings with the SEC (including
this Form 10-Q) may contain statements which are not historical facts, so-called
'forward-looking statements,' which involve risks and uncertainties. Forward
looking statements in this 10-Q include certain statements regarding liquidity,
the effect of the termination of the BankBoston outsourcing agreement and the
1784 Funds custody agreement, and the effect of certain pending litigation
against the Company's Dublin subsidiaries. The Company's actual future results
may differ significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
factors discussed below. Each of these factors, and others, are discussed from
time to time in the Company's filings with the SEC.

         The Company's future results are subject to substantial risks and
uncertainties. The Company's liquidity is dependent, in part, upon the continued
availability of current borrowing facilities, the loss of which may impair the
Company's access to liquid funds. Because certain fees charged by the Company
for its services are based on the market values of assets processed, such fees
and the Company's quarterly and annual operating results are sensitive to
changes in interest rates, declines in stock market values, and investors
seeking alternatives to the investment offerings of the Company's clients. Also,
the Company's interest-related services, along with the market value of the
Company's investments, may be adversely affected by rapid changes in interest
rates or changes in the relationship between certain index rates. In addition,
many of the Company's client engagements are, and in the future are likely to
continue to be, terminable upon 60 days notice. Also, the outcome of any legal
claims against the Company cannot be predicted with certainty. Defense and
settlement of any claims may be costly and require management's attention. Even
if the Company is successful in defending or settling any claims, the existence
of the claims may harm the Company's reputation or ability to add new clients.

         The Company has been experiencing a period of rapid growth, which
places a strain on all of its resources, including management. In addition, the
Company must successfully integrate future acquisitions, if any, into the
Company's business. Also, the Company must continue to attract and retain
skilled personnel in a tight labor market. If the Company fails to manage growth
effectively, integrate acquisitions successfully or attract and retain skilled
employees, it could reduce the quality of the Company's services, lead to loss
of key employees and clients, and have a material adverse effect on the
Company's operations.


                                       19
<PAGE>

         The Company relies on certain intellectual property protections to
preserve its intellectual property rights. Any invalidation of the Company's
intellectual property rights or lengthy and expensive defense of those rights
could have a material adverse effect on the Company. The segment of the
financial services industry in which the Company is engaged is extremely
competitive. Certain current and potential competitors of the Company are more
established and benefit from greater market recognition and have substantially
greater financial, development and marketing resources than the Company.

         The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially adversely affect revenues and
profitability, including: the timing of the commencement or termination of
client engagements, the rate of net inflows and outflows of investor funds in
the debt and equity-based investment vehicles offered by the Company's clients,
the introduction and market acceptance of new services by the Company and its
competitors and changes or anticipated changes in economic conditions. Because
the Company's operating expenses are relatively fixed, any unanticipated
shortfall in revenues in a specified period may have an adverse impact on the
Company's results of operations for that period. As a result of the foregoing
and other factors, the Company may experience material fluctuations in future
operating results on a quarterly or annual basis which could materially and
adversely affect its business, financial condition, operating results and stock
price.

STATEMENT OF OPERATIONS

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Non-interest Income

         Non-interest income increased $16 million to $80 million for the six
months ended June 30, 2000 from $64 million for the six months ended June 30,
1999. Non-interest income consists of the following items:

<TABLE>
<CAPTION>

                                For the Six Months Ended
                                        June 30,
                                -------------------------
                                   2000           1999         Change
                                   ----           ----         ------
                                 (Dollars in thousands)
<S>                              <C>            <C>            <C>
Asset administration fees        $79,155        $63,471        25 %
Computer service fees                239            246        (3) %
Other operating income               564            268        110 %
                                 -------        -------
Total non-interest income        $79,958        $63,985        25 %
                                 =======        =======

</TABLE>

         Asset administration fees increased $15.7 million to $79.2 million for
the six months ended June 30, 2000 compared to $63.5 million for the six months
ended June 30, 1999. The Company earns such fees on assets processed by the
Company on behalf of a variety of financial asset managers. Assets processed is
the total dollar value of financial assets on the reported date for which the
Company provides one or more of the following services: global custody,
multi-currency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending, mutual fund administration
and investment advisory services. The largest component of asset administration
fees is asset-based fees, which increased between periods due to an increase in
assets processed. Total net assets processed increased 3% to $276 billion at
June 30, 2000 from $268 billion at June 30, 1999. The change in assets processed
reflects a $49 billion increase in assets processed for new and existing
clients, offset by the loss of $41 billion in assets processed related to the
previously disclosed termination of the outsourcing agreement between the
Company and BankBoston and the custody agreement between the Company and the
BankBoston sponsored 1784 Funds. Of the $49 billion increase, approximately $11
billion reflects assets processed for new clients and $38 billion reflects
growth of assets processed for existing clients. Also contributing to the
increase in asset administration fees was the Company's success in marketing
ancillary services such as foreign exchange and securities lending.

         Computer service fees consist of amounts charged by the Company for
data processing services related to client accounts. Other operating income
consists of dividends received relating to the Federal Home Loan Bank of Boston
('FHLBB') stock investment and miscellaneous transaction-oriented private
banking fees. The increase in other operating income resulted from an increase
in FHLBB stock dividend income due to an increase in the Company's average
investment in FHLBB stock during the period ended June 30, 2000, compared to the
period ended June 30, 1999.


                                       20
<PAGE>

Operating Expenses

         Total operating expenses increased by $18.3 million to $82.1 million
for the six months ended June 30, 2000 compared to $63.8 million for the six
months ended June 30, 1999. The components of operating expenses were as
follows:

<TABLE>
<CAPTION>

                                    For the Six Months Ended June 30
                                    --------------------------------
                                           2000           1999            Change
                                           ----           ----            ------
                                         (Dollars in thousands)
<S>                                      <C>            <C>                 <C>
Compensation and benefits                $50,411        $38,853             30%
Technology and telecommunications         10,155          7,426             37
Occupancy                                  5,107          4,039             26
Transaction processing services            5,013          4,293             17
Depreciation and amortization              2,190          1,850             18
Professional fees                          1,566          1,691             (7)
Travel and sales promotion                 1,520          1,084             40
Amortization of goodwill                     826            887             (7)
Insurance                                    395            382              3
Other operating expenses                   4,913          3,253             51
                                         -------        -------
Total Operating Expenses                 $82,096        $63,758             29%
                                         =======        =======

</TABLE>

         Compensation and benefits expense increased by $11.6 million or 30%
from period to period due to several factors. The average number of employees
increased 15% to 1,545 during the six months ended June 30, 2000 from 1,341
during the same period in 1999. This increase in number of employees relates to
the increase in client relationships and the expansion of existing client
relationships during the period. In addition, compensation expense related to
the Company's management incentive plans increased $3.3 million between periods
because of the increase in earnings subject to incentive payments in the first
quarter of 2000. Benefits, including payroll taxes, group insurance plans,
retirement plan contributions and tuition reimbursement, increased by $753,000
for the six months ended June 30, 2000 from the same period in 1999.

         Technology and telecommunications expense consists of operating lease
payments for microcomputers, fees charged by Electronic Data Systems ('EDS') for
mainframe data processing, telephone expense, software maintenance fees and
licenses, optical imaging and contracting programming fees. Technology and
telecommunications expense increased $2.7 million from period to period. The
Company's use of contract programmers to perform information systems development
projects accounted for $1.3 million of the increase. Increased hardware,
software and telecommunication expenses needed to support the growth in assets
processed accounted for the remainder of the increase.

         Occupancy expense increased $1.1 million to $5.1 million for the six
months ended June 30, 2000 from $4 million for the six months ended June 30,
1999. The majority of the increase was rent expense, which resulted from leasing
additional office space in Boston at the current higher rental rates during the
first six months of 2000. Also, additional property taxes were paid due to a
reassessment of existing leased properties.

         Transaction processing services consists of volume related expenses
including subcustodian fees and external contract services. The increase of
$720,000 from period to period was primarily due to an increase in subcustodian
and pricing fees driven by the growth in assets processed.

         Depreciation and amortization expense increased $340,000 to $2.2
million for the six months ended June 30, 2000 from $1.9 million for the six
months ended June 30, 1999. The increase resulted from capitalized software and
capitalized expenditures associated with the expansion into additional office
space.

         Travel and sales promotion expense consists of expenses incurred by the
sales force, client management staff and other employees in connection with
making sales calls on potential clients, traveling to existing client sites and
the Company's foreign subsidiaries, and attending industry conferences. Travel
and sales promotion expense increased $436,000 to $1.5 million from $1.1 million
for the same period in 1999, due primarily to increased travel to foreign
subsidiaries.


                                       21
<PAGE>

         Other operating expenses include fees for office supplies, recruiting
costs, temporary help, postage and delivery charges and various fees assessed by
the Massachusetts Banking Commission. These expenses increased $1.7 million to
$4.9 million for the six months ended June 30, 2000 from $3.2 million for the
six months ended June 30, 1999. Recruiting costs and temporary help accounted
for $476,000 of the increase, resulting from the growth in the Company's
staffing needs. The growth in assets processed has resulted in an overall
increase in operating expenses.

Net Interest Income

         Net interest income is the amount of interest received on interest
earning assets less the interest paid on interest bearing liabilities. Net
interest income is affected by the volume and mix of assets and liabilities, and
the movement and level of interest rates. The table below presents the changes
in net interest income resulting from changes in the volume of interest-earning
assets or interest-bearing liabilities or changes in interest rates for the six
months ended June 30, 2000 compared to the same period in 1999. Changes
attributed to both volume and rate have been allocated based on the proportion
of change in each category.

<TABLE>
<CAPTION>

                                              Change        Change
                                              Due to        Due to
                                              Volume         Rate             Net
                                            ------------ -------------   ------------
                                              (Dollars in thousands)
<S>                                        <C>              <C>             <C>
INTEREST-EARNING ASSETS
 Federal funds sold and other              $    (82)        $    225        $    143
 Investment securities                       26,815            6,267          33,082
 Loans                                        1,285               21           1,306
                                           --------         --------        --------
 Total interest-earning assets             $ 28,018         $  6,513        $ 34,531
                                           --------         --------        --------
INTEREST-BEARING LIABILITIES
 Deposits                                  $  6,041         $    588        $  6,629
 Borrowings                                  14,108            3,588          17,696
                                           --------         --------        --------
 Total interest-bearing liabilities        $ 20,149         $  4,176        $ 24,325
                                           --------         --------        --------

Change in net interest income              $  7,869         $  2,337        $ 10,206
                                           ========         ========        ========

</TABLE>

         Net interest income increased $10.2 million or 65% to $26 million for
the six months ended June 30, 2000 from $15.8 million for the same period in
1999. The increase was reflective of balance sheet growth over the same period
last year combined with the positive effect of increased client deposits and
improvement in the yield on the investment securities portfolio. The net
interest margin increased 11 basis points from 1.97% to 2.08%.

         Average interest-earning assets, primarily investment securities,
increased $900 million or 56% to $2.5 billion compared with the same period in
1999. Funding for the asset growth was provided by an increase in average client
deposits of $305 million or 28% and an increase in average short-term
borrowings, primarily repurchased agreements and FHLBB borrowings of $551
million. The effect on net interest income from changes in volume of
interest-earning assets and interest-bearing liabilities was an increase of
approximately $7.9 million for the six months ended June 30, 2000 compared with
the same period last year.

         Average yield on interest-earning assets increased 74 basis points to
6.38% this quarter from 5.64% for the same period last year. The average rate
paid by the Company on interest-bearing liabilities increased 70 basis points
from 4.27% to 4.97%. The increase in rates reflects the current higher interest
rate environment compared with a year ago. The effect on net interest income due
to changes in rates was an increase of approximately $2.3 million period to
period.

Income Taxes

         Taxes for the six months ended June 30, 2000 were $7.7 million, up from
$5.3 million a year ago. The effective tax rate for the period was 32%, which
compares to 33% for the same period in the prior year. The period-over-period
decrease resulted from the restructuring of corporate entities for state tax
planning purposes.


                                       22
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED JUNE 30, 2000 AND 1999

Non-interest Income

         Non-interest income increased $7.4 million to $39.8 million for the
quarter ended June 30, 2000 from $32.4 million for the quarter ended June 30,
1999. Non-interest income consists of the following items:

<TABLE>
<CAPTION>

                                  For the Quarter Ended
                                        June 30,
                                  ---------------------
                                   2000          1999         Change
                                   ----          ----         ------
                                 (Dollars in thousands)
<S>                              <C>            <C>            <C>
Asset administration fees        $39,439        $32,091        23 %
Computer service fees                118            123        (4) %
Other operating income               289            138        109 %
                                 -------        -------
Total non-interest Income        $39,846        $32,352        23 %
                                 =======        =======

</TABLE>

         Asset administration fees increased $7.3 million to $39.4 million for
the quarter ended June 30, 2000 compared to $32.1 million for the quarter ended
June 30, 1999. The largest component of asset administration fees is asset-based
fees, which increased between periods due to an increase in assets processed.
Total net assets processed increased 3% to $276 billion at June 30, 2000 from
$268 billion at June 30, 1999. The change in assets processed reflects a $49
billion increase in assets processed for new and existing clients, offset by the
loss of $41 billion in assets processed related to the previously disclosed
termination of the outsourcing agreement between the Company and BankBoston and
the custody agreement between the Company and the BankBoston sponsored 1784
Funds. Of the $49 billion increase, approximately $11 billion reflects assets
processed for new clients and $38 billion reflects growth of assets processed
for existing clients. Also contributing to the increase in asset administration
fees was the Company's success in marketing ancillary services such as foreign
exchange and securities lending.


         The increase in other operating income resulted from an increase in
FHLBB stock dividend income due to an increase in the Company's average
investment in FHLBB stock during the period ended June 30, 2000, compared to the
period ended June 30, 1999.

Operating Expenses

         Total operating expenses increased by $7.5 million to $40.3 million for
the quarter ended June 30, 2000 compared to $32.8 million for the quarter ended
June 30, 1999. The components of operating expenses were as follows:

<TABLE>
<CAPTION>

                                      For the Quarter Ended June 30,
                                      ------------------------------
                                           2000           1999            Change
                                           ----           ----            ------
                                         (Dollars in thousands)
<S>                                      <C>            <C>                <C>
Compensation and benefits                $23,884        $19,956             20%
Technology and telecommunications          5,560          3,806             46
Occupancy                                  3,035          2,078             46
Transaction processing services            2,494          2,113             18
Depreciation and amortization              1,147            971             18
Professional fees                            492          1,046            (53)
Travel and sales promotion                   851            577             47
Amortization of goodwill                     405            443             (9)
Insurance                                    200            193              4
Other operating expenses                   2,254          1,648             37
                                         -------        -------
Total Operating Expenses                 $40,322        $32,831             23%
                                         =======        =======

</TABLE>


                                       23
<PAGE>

         Compensation and benefits expense increased by $3.9 million or 20% from
period to period due to several factors. The average number of employees
increased 14% to 1,568 during the quarter ended June 30, 2000 from 1,374 during
the same period in 1999. This increase in number of employees relates to the
increase in client relationships and the expansion of existing client
relationships during the period. Benefits, including payroll taxes, group
insurance plans, retirement plan contributions and tuition reimbursement,
increased by $912,000 for the quarter ended June 30, 2000 from the same period
in 1999.

         Technology and telecommunications expense increased $1.8 million from
period to period. The Company's use of contract programmers to perform
information systems development projects accounted for $831,000 of the increase.
Increased hardware and software expenses needed to support the growth in assets
processed comprised the remainder of the increase.

         Occupancy expense increased $957,000 to $3 million for the quarter
ended June 30, 2000 from $2.1 million for the quarter ended June 30, 1999. The
increase resulted from leasing additional office space in Boston at the current
higher rental rates and additional property taxes paid due to a reassessment of
existing leased properties.

         The increase of $382,000 in transaction processing services from period
to period was primarily due to an increase in subcustodian and pricing fees
driven by the growth in assets processed.

         Depreciation and amortization expense increased $175,000 to $1.1
million for the quarter ended June 30, 2000 from $971,000 for the quarter ended
June 30, 1999. The increase related primarily to capitalized software and
capitalized expenditures associated with the expansion into additional office
space.

         Professional fees decreased $553,000 to $492,000 for the quarter ended
June 30, 2000 from $1 million for the quarter ended June 30, 1999. The decrease
in professional fees was mainly attributable to consulting services related to
the integration of the BankBoston business and tax planning paid during the same
period in 1999.

         Travel and sales promotion expense increased $274,000 to $851,000 for
the quarter ended June 30, 2000 from $577,000 for the same period in 1999 due to
increased travel to foreign subsidiaries.

           Other operating expenses increased $606,000 to $2.2 million for the
quarter ended June 30, 1999 from $1.6 million for the quarter ended June 30,
1999. Recruiting costs and temporary help accounted for $298,000 of the
increase, resulting from the growth in the Company's staffing needs. The growth
in assets processed has resulted in an overall increase in operating expenses.


                                       24
<PAGE>

Net Interest Income

         Net interest income is the amount of interest received on interest
earning assets less the interest paid on interest bearing liabilities. The
volume and mix of assets and liabilities, and the movement and level of interest
rates affect net interest income. The table below presents the changes in net
interest income resulting from changes in the volume of interest-earning assets
or interest-bearing liabilities or changes in interest rates for the quarter
ended June 30, 2000 compared to the same period in 1999. Changes attributed to
both volume and rate have been allocated based on the proportion change in each
category.

<TABLE>
<CAPTION>

                                           Change            Change
                                           Due to            Due to
                                           Volume             Rate             Net
                                           ------             ----             ---
                                             (Dollars in thousands)
<S>                                        <C>              <C>             <C>
INTEREST-EARNING ASSETS
 Federal funds sold and other              $   (486)        $    405        $    (81)
 Investment securities                       12,600            3,749          16,349
 Loans                                          565              114             679
                                           --------         --------        --------
 Total interest-earning assets             $ 12,679         $  4,268        $ 16,947
                                           --------         --------        --------
INTEREST-BEARING LIABILITIES
 Deposits                                  $  2,622         $    834        $  3,456
 Borrowings                                   6,371            2,721           9,092
                                           --------         --------        --------
 Total interest-bearing liabilities        $  8,993         $  3,555        $ 12,548
                                           --------         --------        --------
Change in net interest income              $  3,686         $    713        $  4,399
                                           ========         ========        ========

</TABLE>

         Net interest income increased $4.4 million or 51% to $13 million for
the quarter ended June 30, 2000 from $8.6 million for the same period in 1999.
The increase was reflective of balance sheet growth over the same period last
year combined with the positive effect of increased client deposits and
improvement in the yield on the investment securities portfolio.

         Average interest-earning assets, primarily investment securities,
increased $825 million or 47% to $2.6 billion compared with the same period in
1999. Funding for the asset growth was provided by an increase in average client
deposits of $306 million or 29% and an increase in average short-term
borrowings, primarily repurchased agreements and FHLBB borrowings of $490
million. The effect on net interest income from changes in volume of
interest-earning assets and interest-bearing liabilities was an increase of
approximately $3.7 million for the quarter ended June 30, 2000 compared with the
same period last year.

         Average yield on interest-earning assets increased 81 basis points to
6.48% this quarter from 5.67% for the same period last year. The average rate
paid by the Company on interest-bearing liabilities increased 87 basis points
from 4.31% to 5.18%. The increase in rates reflects the current higher interest
rate environment compared with a year ago. The effect on net interest income due
to changes in rates was an increase of approximately $713,000 period to period.

Income Taxes

         Taxes for the quarter ended June 30, 2000 were $4 million, up from $2.5
million a year ago. The effective tax rate for the period was 32%, which
compares to 30% for the same period in the prior year. The period-over-period
increase reflects a year-to-date adjustment recorded in the second quarter of
1999 related to the restructuring of corporate entities for state tax planning
purposes.


                                       25
<PAGE>

FINANCIAL CONDITION

INVESTMENT PORTFOLIO

The following table summarizes the Company's investment portfolio for the dates
indicated:

<TABLE>
<CAPTION>

                                                                  June 30,            December 31,
                                                                    2000                  1999
                                                              ------------------    ------------------
                                                                       (Dollars in thousands)
              SECURITIES HELD TO MATURITY:
<S>                                                         <C>                   <C>
              Mortgage-backed securities                    $         1,677,003   $         1,464,816
              Federal agency securities                                 260,298               227,030
              State and political subdivisions                           69,154                63,871
              Foreign government securities                               7,603                 7,638
                                                           ---------------------  --------------------

              Total securities held to maturity             $         2,014,058   $         1,763,355
                                                           =====================  ====================
              SECURITIES AVAILABLE FOR SALE:

              Mortgage-backed securities                    $           415,827   $           239,132
              Federal agency securities                                  52,314                52,310
              Corporate debt                                             46,605                47,875
              State and political subdivisions                           38,140                36,293
                                                           ---------------------  --------------------
              Total securities available for sale           $           552,886   $           375,610
                                                           =====================  ====================

</TABLE>

         The investment portfolio is used to invest depositors' funds and
provide a secondary source of earnings for the Company. In addition, the Company
uses the investment portfolio to secure open positions at securities clearing
institutions in connection with its custody services. The portfolio is comprised
of securities of state and political subdivisions, mortgage-backed securities
issued by the Federal National Mortgage Association ('FNMA' or 'Fannie Mae') and
the Federal Home Loan Mortgage Corporation ('FHLMC' or 'Freddie Mac'), and
Federal Agency callable bonds issued by FHLMC and the FHLBB, municipal
securities, corporate debt securities, and foreign government bonds issued by
the Canadian provinces of Ontario and Manitoba.

         The Company invests in mortgage-backed securities, Federal Agency
callable bonds and corporate debt to increase the total return of the investment
portfolio. Mortgage-backed securities generally have a higher yield than U.S.
Treasury securities due to credit and prepayment risk. Credit risk results from
the possibility that a loss may occur if a counterparty is unable to meet the
terms of the contract. Prepayment risk results from the possibility that changes
in interest rates may cause mortgage securities to be paid off prior to their
maturity dates. Federal Agency callable bonds generally have a higher yield than
U.S. Treasury securities due to credit and call risk. Credit risk results from
the possibility that the Federal Agency issuing the bonds may be unable to meet
the terms of the bond. Call risk results from the possibility that fluctuating
interest rates and other factors may result in the exercise of the call option
by the Federal Agency. Credit risk related to mortgage-backed securities and
Federal Agency callable bonds is substantially reduced by payment guarantees and
credit enhancements.

         The Company invests in municipal securities to generate stable, tax
advantaged income. Municipal securities generally have lower stated yields than
Federal Agency and U.S. Treasury securities, but the after-tax yields are
comparable. Municipal securities are subject to credit risk.

         The Company invests in foreign government bonds in order to generate
foreign source income to maximize the use of the foreign tax credit. The foreign
government bonds are denominated in U.S. dollars to avoid foreign currency risk.
These bonds are subject to credit risk.


                                       26
<PAGE>

         The book value and weighted average yield of the Company's securities
held to maturity at June 30, 2000, by effective maturity, are reflected in the
following table:

<TABLE>
<CAPTION>

                                                                                 Years
                                          ---------------------------------------------------------------------------------------
                                                  Under 1                       1 to 5                        5 to 10
                                          Amount           Yield       Amount             Yield       Amount           Yield
                                          ------           -----       ------             -----       ------           -----
                                                                        (Dollars in thousands)
<S>                                      <C>                <C>       <C>                 <C>       <C>                <C>
Mortgage-backed securities               $ 15,330           6.01%     $847,677            6.60%     $567,062           7.04%
Federal agency securities                     -             -           84,198            6.86       176,100           7.17
State and political subdivisions              -             -              -              -            2,105           5.04
Foreign government securities                 -             -            7,603            6.84           -             -
                                         --------                     --------                      --------
Total securities held to maturity        $ 15,330           6.01%     $939,478            6.62%     $745,267           7.07%
                                         ========                     ========                      ========

</TABLE>

<TABLE>
<CAPTION>
                                                   Years
                                        ------------------------
                                                 Over 10
                                         Amount            Yield
                                         ------            -----
                                          (Dollars in thousands)
<S>                                     <C>                <C>
Mortgage-backed securities              $246,934           7.26%
Federal agency securities                    -               -
State and political subdivisions          67,049           5.40
Foreign government securities                -               -
                                        --------
Total securities held to maturity       $313,983           6.86%
                                        =========

</TABLE>




         The book value and weighted average yield of the Company's securities
available for sale at June 30, 2000 by effective maturity, are reflected in the
following table:

<TABLE>
<CAPTION>

                                                                                Years
                                      -----------------------------------------------------------------------------------------
                                                 Under 1                      1 to 5                        5 to 10
                                        Amount             Yield      Amount            Yield      Amount            Yield
                                        ------             -----      ------            -----      ------            -----
                                                                       (Dollars in thousands)
<S>                                   <C>                  <C>         <C>              <C>       <C>                <C>
Mortgage-backed securities            $      -             -         $403,288           6.81%     $ 12,539           6.68%
Federal agency securities                    -             -           52,314           5.96           -             -
Corporate debt                               -             -              -             -              -             -
State and political subdivisions           3,362           4.13%       22,615           4.29        11,656           4.50
                                      ----------                     --------                     --------
Total securities available
for                                   $    3,362           4.13%     $478,217           6.60%     $ 24,195           5.63%
                                      ==========                     ========                     ========

</TABLE>

<TABLE>
<CAPTION>

                                                Years
                                      ------------------------
                                               Over 10
                                        Amount           Yield
                                        ------           -----
                                        (Dollars in thousands)

<S>                                   <C>                <C>
Mortgage-backed securities            $    -             -
Federal agency securities                  -             -
Corporate debt                          46,605           5.60%
State and political subdivisions           507           6.07
                                       -------
Total securities available
for                                   $ 47,112           5.61%
                                      ========

</TABLE>

LOAN PORTFOLIO

         The following table summarizes the Company's loan portfolio for the
dates indicated:

<TABLE>
<CAPTION>

                                            June 30,   December 31,
                                              2000         1999
                                            --------   ------------
                                             (Dollars in thousands)
<S>                                         <C>        <C>
Loans to individuals                        $ 33,786   $     65,010
Loans to not-for-profit organizations             13             13
Loans to mutual funds                         79,205         44,369
                                            --------   ------------
                                             113,004        109,392

Less: allowance for loan losses                 (100)          (100)
                                            --------   ------------
Net loans                                   $112,904   $    109,292
                                            ========   ============

Floating Rate                               $112,891   $    109,279
Fixed Rate                                        13             13
                                            --------   ------------
                                            $112,904   $    109,292
                                            ========   ============
</TABLE>
         Virtually all loans to individually managed account customers are
written on a demand basis, bear variable interest rates tied to the prime rate
and are fully secured by liquid collateral, primarily freely tradable securities
held in custody by the Company for the borrower. The unsecured lines of credit
may, in the event of a default, be collateralized at the Company's option by
securities held in custody by the Company for those mutual funds. Loans to
mutual funds also include advances by the Company to certain mutual fund clients
pursuant to the terms of the custody agreements between the Company and those
clients.


                                       27
<PAGE>

         At June 30, 2000, the Company's only lending concentrations which
exceeded 10% of total loans were the revolving lines of credit to mutual fund
clients discussed above. These loans were made in the ordinary course of
business on the same terms and conditions prevailing at the time for comparable
transactions.

         The Company's credit loss experience has been excellent. There have
been no loan charge-offs or adverse credit actions in the history of the
Company. It is the Company's policy to place a loan on non-accrual status when
either principal or interest becomes 60 days past due and the loan's collateral
is not sufficient to cover both principal and accrued interest. Although
virtually all of the Company's loans are fully collateralized with freely
tradable securities, management recognizes some credit risk inherent in the loan
portfolio, and has recorded an allowance for loan losses of $100,000 at June 30,
2000. This amount is not allocated to any particular loan, but is intended to
absorb any risk of loss inherent in the loan portfolio. Management actively
monitors the loan portfolio and the underlying collateral and regularly assesses
the adequacy of the allowance for loan losses.

MARKET RISK:  OVERVIEW

         The active management of market risk is integral to the Company's
operations. The principal objective of the Company's interest rate risk
management function is to evaluate the interest rate risk included in certain
balance sheet accounts, determine the level of appropriate risk given the
Company's business focus, operating environment, capital and liquidity
requirements and performance objectives and manage the risk consistent with
Board approved guidelines.

         The Company administers and oversees the investment risk management
process primarily through two oversight bodies: The Board of Directors and the
Asset and Liability Committee ('ALCO'). The Company's Board of Directors
reviews, on a quarterly basis, the Company's asset/liability position, including
simulations of the effect on the Company's capital of various interest rate
scenarios. ALCO is a senior management committee consisting of the Chief
Executive Officer, the Chief Financial Officer, the Executive Vice President and
members of the Treasury function and others who are responsible for the
day-to-day management of market risk. ALCO meets on a bi-weekly basis to provide
detailed oversight of investment risk, including market risk.

         The extent of the movement of interest rates, higher or lower, is an
uncertainty that could have a negative impact on the earnings of the Company.
The Company has investment guidelines that define the overall framework for
managing market and other investment risks, including accountabilities and
controls over these activities. In addition, the Company also has specific
investment policies that delineate investment limits and strategies that are
appropriate, given liquidity, surplus and regulatory requirements.

         In the normal course of business, the financial position of the Company
is routinely subjected to a variety of risks, including market risks associated
with interest rate movements. The Company regularly assesses these risks and has
established policies and business practices to protect against the adverse
effects of these and other potential exposures. The Company recognizes that
effective management of interest rate risk includes an understanding of when
adverse changes in interest rates will flow through the statement of income and
comprehensive income. Accordingly, the Company will manage its position so that
it monitors its exposure to net interest income over both a one year planning
horizon and a longer term strategic horizon. In order to manage this interest
rate risk, the Company has established that it will follow a policy limit
stating that projected net interest income over the next 12 months will not be
reduced by more than 10% given a change in interest rates of up to 200 basis
points (+ or -) over 12 months.

         The Bank's primary tool in managing interest rate risk in this manner
is an income simulation model wherein the Company projects the future net
interest income derived from the most current projected balance sheet using a
variety of interest rates scenarios. The model seeks to adjust for cash flow
changes arising from the changing interest rates for mortgage prepayments,
callable securities and adjustable rate securities. The Company also utilizes
interest rate swap agreements to manage interest rate risk. Interest rate swap
contracts involve an agreement with a counterparty to exchange cash flows based
on an underlying interest rate index. The effect of these agreements was to
lengthen short-term variable rate liabilities into longer-term fixed rate
liabilities.

         The results of the sensitivity analysis as of June 30, 2000 and June
30, 1999, indicated that an upward shift of interest rates by 200 basis points
would result in a reduction in projected net interest income of 6.41% and 8.37%,
respectively, versus the policy limit of 10%. Conversely, a downward shift of
200 basis points would result in an increase in projected net interest income of
6.10% and 6.71%, respectively.


                                       28
<PAGE>

         Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes requires the making of certain
assumptions that may tend to oversimplify the manner in which actual yield and
costs respond to changes in market interest rates. Assumptions are the
underlying factors that drive the interest rate risk measurement system which
include interest rate forecasts, client liability funding, mortgage prepayment
assumptions and portfolio yields. The model assumes that the composition of the
Company's interest sensitive assets and liabilities existing at the beginning of
a period will change periodically over the period being measured. The model also
assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. Accordingly, although the model provides an indication
of the Company's interest rate risk exposure at a particular point in time, such
measurement is not intended to and does not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest income
and will differ from actual results. The results of this modeling are monitored
by management and presented to the Board of Directors, quarterly.

MARKET RISK:  RE-PRICING RISK

         The Company, like all financial intermediaries, is subject to several
types of interest rate risk. Rapid changes in interest rates could adversely
affect the profitability of the Company by causing changes in the market value
of the Company's assets and its net interest income. Re-pricing risk arises when
an earning asset matures or when its rate of interest changes in a time frame
different from that of the supporting interest bearing liability. By seeking to
minimize the difference between the amount of interest earning assets and the
amount of interest bearing liabilities that could experience changes in interest
rates in the same time frame, the Company attempts to reduce the risk of
significant adverse effects on net interest income caused by interest rate
changes. The Company does not attempt to match each earning asset with a
specific interest bearing liability. Instead, as shown in the table below, it
aggregates all of its earning assets and interest bearing liabilities to
determine the difference between these in specific time frames. This difference
is known as the rate-sensitivity gap. A positive gap indicates that more earning
assets than interest bearing liabilities mature in a time frame, and a negative
gap indicates the opposite. Maintaining a balanced position will reduce risk
associated with interest rate changes, but it will not guarantee a stable
interest rate spread because the various rates within a time frame may change by
differing amounts and change in different directions.

         The Company seeks to manage interest rate risk by investment portfolio
actions designed to address the interest rate sensitivity of asset cash flows in
relation to liability cash flows. Portfolio actions used to manage interest rate
risk include managing the effective duration of the portfolio securities and
utilizing interest rate contracts. Interest rate contracts are used to hedge
against large rate swings and changes in the shape of the yield curve. The
Company uses interest rate swap contracts to hedge against rising interest rates
and changes in the shape of the yield curve. The Company's current strategy is
to use such contracts to offset increases in interest expense related to
customer deposits and other client funding sources including repurchase
agreements.

         Interest rate contracts involve elements of credit and market risk,
which are not reflected in the Company's consolidated financial statements. Such
instruments are entered into for hedging (as opposed to investment or
speculative) purposes. The Company periodically monitors the financial stability
of its counterparties according to prudent investment guidelines and established
procedures. There can be no assurance that such portfolio actions will
adequately limit interest rate risk.


                                       29
<PAGE>

The following table presents the repricing schedule for the Company's interest
earning assets and interest bearing liabilities at June 30, 2000:

<TABLE>
<CAPTION>

                                       Within           Three            Six             One
                                       Three           to Six         to Twelve        Year to        Over Five
                                       Months          Months           Months        Five Years        Years            Total
                                    -------------    ------------    -------------   -------------   -------------   --------------
                                                                        (Dollars in thousands)
<S>                                  <C>            <C>             <C>            <C>            <C>              <C>
Interest-earning assets (1):
    Federal funds sold               $      -       $       -       $       -      $       -      $        -       $       -
    Investment securities (2)         1,309,514         278,163         334,645        371,250         273,372       2,566,944
    Loans - fixed rate                  112,891             -               -              -               -                13
    Loans - variable rate                   -               -               -               13             -           112,891
                                    -----------     -----------     -----------    -----------     -----------     -----------
       Total interest-earning
       assets                       $ 1,422,405     $   278,163     $   334,645    $   371,263    $    273,372     $ 2,679,848

Interest-bearing liabilities:
    Demand deposit accounts         $     5,512     $       -       $       -      $       -      $        -       $     5,512
    Savings accounts                  1,085,986             -               -              -               -         1,085,986
    Time deposit accounts                24,688             -               -              -               -            24,688
    Interest rate contracts            (590,000)         60,000         120,000        410,000             -               -
    Short term borrowings             1,127,855          50,000             -              -               -         1,177,855
                                    -----------     -----------     -----------    -----------     -----------     -----------
       Total interest-bearing
       liabilities                  $ 1,654,041     $   110,000     $   120,000    $   410,000    $        -       $ 2,294,041
                                    -----------     -----------     -----------    -----------     -----------     -----------
       Net interest sensitivity
       gap during the period        $  (231,636)    $   168,163     $   214,645    $   (38,737)   $    273,372     $   385,807
                                    ===========     ===========     ===========    ===========     ===========     ===========
       Cumulative gap               $  (231,636)    $   (63,473)    $   151,172    $   112,435    $    385,807
                                    ===========     ===========     ===========    ===========     ===========
Interest sensitive assets as a
    percent of interest sensitive
    liabilities (cumulative)              86.00%          96.40%        108.02%         104.90%         116.82%
                                    ===========     ===========    ===========     ===========     ===========
Interest sensitive assets as a
    percent of total assets
    (cumulative)                          50.59%          60.48%         72.38%          85.59%          95.31%
                                    ===========     ===========    ===========     ===========     ===========
Net interest sensitivity gap as a
    percent of total assets               (8.24)%          5.98%          7.63%          (1.38)%          9.72%
                                    ===========     ===========    ===========     ===========     ===========
Cumulative gap as a percent
    of total assets                       (8.24)%         (2.26)%         5.38%           4.00%          13.72%
                                    ===========     ===========    ===========     ===========     ===========

</TABLE>

    (1) Adjustable rate assets are included in the period in which interest
        rates are next scheduled to adjust rather than in the period in which
        they are due. Fixed rate loans are included in the period in which they
        are scheduled to be repaid.

    (2) Mortgage-backed securities are included in the pricing category that
        corresponds with their effective maturity.


                                       30
<PAGE>

MARKET RISK: BASIS RISK

         The Company is also exposed to basis risk from interest rate movements
which arise when variable rate assets and liabilities are tied to different
market indices. The Company holds investment securities that are indexed to U.S.
Treasury, LIBOR and to the Prime rate, while its liabilities are primarily
indexed to the Federal Funds overnight rate. The Company continually analyzes
and modifies its simulation assumptions to incorporate projections of all
relevant rate indices.

MARKET RISK: LIQUIDITY

         Liquidity represents the ability of an institution to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management. For
a financial institution such as the Company, these obligations arise from the
withdrawals of deposits and the payment of operating expenses.

         The Company's primary sources of liquidity include cash and cash
equivalents, federal funds sold, new deposits, short-term borrowings, interest
payments on securities held to maturity and available for sale, fees collected
from asset administration clients, and the capital raised from the January 1997
sale of 9.77% Capital Securities (the `Capital Securities'). Asset liquidity is
also provided by managing the duration of the investment portfolio. As a result
of the Company's management of liquid assets and the ability to generate
liquidity through liability funds, management believes that the Company
maintains overall liquidity sufficient to meet its depositors' needs, to satisfy
its operating requirements and to fund the payment of an anticipated annual cash
dividend of approximately $0.06 per share.

         The Company's ability to pay dividends on the Common Stock may depend
on the receipt of dividends from the Bank. In addition, the Company may not pay
dividends on its Common Stock if it is in default under certain agreements
entered into in connection with the sale of the Capital Securities. Any dividend
payments by the Bank are subject to certain restrictions imposed by the
Massachusetts Commissioner of Banks. Subject to regulatory requirements, the
Company expects to pay to an annual dividend to its stockholders, currently
estimated to be in an amount equal to $0.06 per share of outstanding Common
Stock (approximately $1.8 million based upon 29,759,258 shares outstanding as of
June 30, 2000).

         The Company has informal borrowing arrangements with various
counterparties whereby each counterparty has agreed to make funds available to
the Company at the Federal funds overnight rate. The aggregate amount of these
borrowing arrangements as of June 30, 2000 was $525 million. Each bank may
terminate its arrangement at any time and is under no contractual obligation to
provide requested funding to the Company. The Company's borrowings under these
arrangements are typically on an overnight basis. The Company believes that if
these banks were unable to provide funding as described above, a satisfactory
alternative source of funding would be available to the Company. There can be no
assurance, however, that such funding will be available on a timely basis, if at
all. Lack of availability of liquid funds could have a material adverse impact
on the operations of the Company.

         The Company also has Master Repurchase Agreements in place with various
counterparties whereby each broker has agreed to make funds available to the
Company at various rates in exchange for collateral consisting of marketable
securities. The aggregate amount of these borrowing arrangements at June 30,
2000 was $2 billion.

The Company also has a borrowing arrangement with the FHLBB whereby the Company
may borrow amounts determined by prescribed collateral levels and the amount of
FHLBB stock held by the Company. The minimum amount of FHLBB stock required to
be held by the Company is (i) 1% of its outstanding residential mortgage loan
principal (including mortgage pool securities), (ii) 0.3% of total assets, (iii)
total advances from the FHLBB, divided by a leverage factor of 20. If the
Company borrows under this arrangement, the Company is required to hold FHLBB
stock equal to 5% of such outstanding advances. The aggregate amount of
borrowing available to the Company under this arrangement at June 30, 2000 was
$822 million.

         The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities, investing activities, and
financing activities. Net cash provided by operating activities was $48 million
for the six months ended June 30, 2000. Net cash used for investing activities,
consisting primarily of the excess of purchases of investment securities over
proceeds from maturities of investment securities and decrease in federal funds
sold was $288 million for the six months ended June 30, 2000. Net cash provided
by financing activities, consisting primarily of net activity in deposits, was
$215 million for the six months ended June 30, 2000.


                                       31
<PAGE>

CAPITAL RESOURCES

         Historically, the Company has financed its operations principally
through internally generated cash flows. The Company incurs capital expenditures
for furniture, fixtures and miscellaneous equipment needs. The Company leases
microcomputers through operating leases. Such capital expenditures have been
incurred and such leases entered into on an as-required basis, primarily to meet
the growing operating needs of the Company. As a result, the Company's capital
expenditures were $4.1 million and $2.4 million for the six months ended June
30, 2000 and 1999, respectively.

         Stockholders' equity at June 30, 2000 was $156 million, an increase of
$19.2 million or 14%, from $136.8 million at December 31, 1999. The ratio of
stockholders' equity to assets increased to 5.55% at June 30, 2000 from 5.36% at
December 31, 1999.

         The FRB has adopted a system using internationally consistent
risk-based capital adequacy guidelines to evaluate the capital adequacy of banks
and bank holding companies. Under the risk-based capital guidelines, different
categories of assets are assigned different risk weights, based generally upon
the perceived credit risk of the asset. These risk weights are multiplied by
corresponding asset balances to determine a `risk-weighted' asset base. Certain
off-balance sheet items, which previously were not expressly considered in
capital adequacy computations, are added to the risk-weighted asset base by
converting them to a balance sheet equivalent and assigning them the appropriate
risk weight.

         FRB and FDIC guidelines require that banking organizations have a
minimum ratio of total capital to risk-adjusted assets and off balance sheet
items of 8.0%. Total capital is defined as the sum of 'Tier I' and 'Tier II'
capital elements, with at least half of the total capital required to be Tier I.
Tier I capital includes, with certain restrictions, the sum of common
stockholders' equity, non-cumulative perpetual preferred stock, a limited amount
of cumulative perpetual preferred stock, and minority interests in consolidated
subsidiaries, less certain intangible assets. Tier II capital includes, with
certain limitations, subordinated debt meeting certain requirements,
intermediate-term preferred stock, certain hybrid capital instruments, certain
forms of perpetual preferred stock, as well as maturing capital instruments and
general allowances for loan losses.

         The following table summarizes the Company's Tier I and total capital
ratios at June 30, 2000:

<TABLE>
<CAPTION>

                                                                         Amount           Ratio
                                                                      --------------  ---------------
                                                                            (Dollars in thousands)
<S>                                                                       <C>                 <C>
                Tier I capital                                            $ 149,021           16.36%
                Tier I capital minimum requirement                           36,441            4.00%
                                                                      --------------  ---------------
                Excess Tier I capital                                     $ 112,580           12.36%
                                                                       =============  ===============
                Total capital                                             $ 149,121           16.37%
                Total capital minimum requirement                            72,882            8.00%
                                                                      --------------  ---------------
                Excess Total capital                                      $  76,239            8.37%
                                                                       =============  ===============
                Risk adjusted assets, net of intangible assets            $ 911,023
                                                                       =============

</TABLE>


                                       32
<PAGE>

         The following table summarizes the Bank's Tier I and total capital
ratios at June 30, 2000:

<TABLE>
<CAPTION>

                                                                         Amount           Ratio
                                                                      --------------  ---------------
                                                                            (Dollars in thousands)
<S>                                                                       <C>                 <C>
                Tier I capital                                            $ 145,616           16.02%
                Tier I capital minimum requirement                           36,362            4.00%
                                                                      --------------  ---------------
                Excess Tier I capital                                     $ 109,254           12.02%
                                                                       =============  ===============
                Total capital                                             $ 145,716           16.03%
                Total capital minimum requirement                            72,723            8.00%
                                                                      --------------  ---------------
                Excess Total capital                                      $  72,993            8.03%
                                                                       =============  ===============
                Risk adjusted assets, net of intangible assets            $ 909,041
                                                                       =============

</TABLE>

         In addition to the risk-based capital guidelines, the Federal Reserve
Board and the FDIC use a "Leverage Ratio" as an additional tool to evaluate
capital adequacy. The Leverage Ratio is defined to be a company's Tier I capital
divided by its adjusted total assets. The Leverage Ratio adopted by the federal
banking agencies requires a ratio of 3.0% Tier I capital to adjusted average
total assets for top rated banking institutions. All other banking institutions
will be expected to maintain a Leverage Ratio of 4.0% to 5.0%. The computation
of the risk-based capital ratios and the Leverage Ratio requires that the
capital of the Company and the Bank be reduced by most intangible assets. The
Company's Leverage Ratio at June 30, 2000 was 5.53%, which is in excess of
regulatory requirements. The Bank's Leverage Ratio at June 30, 2000 was 5.41%,
which is in excess of regulatory requirements.


                                       33
<PAGE>

         The following tables present average balances, interest income and
expense, and yields earned or paid on the major categories of assets and
liabilities for the periods indicated:

<TABLE>
<CAPTION>

                                               Six Months Ended June 30, 2000            Six Months Ended June 30, 1999
                                         -----------------------------------------   ---------------------------------------
                                            Average                      Average       Average                   Average
                                            Balance        Interest     Yield/Cost     Balance     Interest     Yield/Cost
                                         ---------------  ------------ -----------   -----------  -----------  -------------
                                                                         (Dollars in thousands)
<S>                                       <C>             <C>               <C>     <C>           <C>              <C>
INTEREST EARNING ASSETS
    Federal funds sold and securities
       purchased under resale
       agreements                         $    43,451     $     1,262         5.81% $   47,494    $     1,119        4.71%
    Investment securities(1)                2,333,914          75,687         6.49%  1,488,259         42,605        5.73%
    Loans(2)                                  124,662           2,812         4.51%     67,713          1,506        4.45%
                                          -----------     -----------    --------- -----------    -----------      ------
    Total interest earning assets           2,502,027     $    79,761         6.38%  1,603,466    $    45,230        5.64%
                                                          -----------    ---------                -----------      ------
    Allowance for loan losses                    (100)                                    (100)
    Non-interest-earning assets               142,507                                  130,050
                                          -----------                              -----------
    Total assets                          $ 2,644,434                              $ 1,733,416
                                          ===========                              ===========
INTEREST BEARING LIABILITIES
    Deposits:
       Demand                             $     5,139     $        51         1.98% $   59,589    $     1,348        4.52%
       Savings                              1,085,859          24,936         4.59%    807,269         17,314        4.29%
       Time                                    12,433             369         5.94%      2,766             65        4.70%
    Short term borrowings                   1,061,037          28,418         5.36%    510,257         10,722        4.20%
                                          -----------     -----------       ------ -----------    -----------      ------
    Total interest bearing liabilities      2,164,468     $    53,774         4.97%  1,379,881    $    29,449        4.27%
                                                          -----------       ------                -----------      ------
    Non-interest bearing liabilities
       Demand deposits                        175,365                                   97,759
       Savings                                 37,017                                   42,953
       Non-interest bearing time
         deposits                              65,000                                   65,000
       Other liabilities                       31,374                                   16,473
                                          -----------                              -----------
    Total liabilities                       2,473,224                                1,602,066
    Trust preferred stock                      24,224                                   24,195
    Equity                                    146,986                                  107,155
                                          -----------                              -----------
    Total liabilities and equity          $ 2,644,434                               $1,733,416
                                          ===========                              ===========
    Net interest income                                   $    25,987                             $    15,781
                                                          ===========                             ===========
    Net interest margin(3)                                                    2.08%                                  1.97%
                                                                            ======                                 ======
    Average interest rate spread(4)                                           1.41%                                  1.37%
                                                                            ======                                 ======
    Ratio of interest-earning assets to
       Interest-bearing liabilities                                         115.60%                                116.20%
                                                                          ========                                 ======

</TABLE>

1) Average yield on available for sale securities is based on amortized cost.

2) Average yield on demand loans includes accrual and non-accrual loan balances.

3) Net interest income divided by total interest-earning assets.

4) Yield on interest-earning assets less rate paid on interest-bearing
liabilities.


                                       34
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The information required by this item is contained in the "Market Risk"
         section in the "Management's Discussion and Analysis of Financial
         Condition and Results of Operations," as part of this report.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         In July 2000, two of the Company's Dublin subsidiaries, Investors Trust
         & Custodial Services (Ireland) Ltd. ("ITC") and Investors Fund Services
         (Ireland) Ltd. ("IFS"), received a plenary summons in the High Court,
         Dublin, Ireland, naming ITC and IFS as defendants in an action brought
         by the FTF ForexConcept Fund Plc (the "Fund"), a former client of ITC
         and IFS. The summons also named as defendants FTF Forex Trading and
         Finance, S.A., the Fund's investment manager, Ernst & Young, the Fund's
         auditors, and Dresdner Bank - Kleinworth Benson (Suisse) S.A., a
         counterparty to the Fund. The Fund is an investment vehicle organized
         in Dublin to invest in foreign exchange contracts. A total of
         approximately $4.7 million had been invested in the Fund, most of which
         was lost prior to the Fund's closing to subscriptions in June 1999.

         The summons states only that the Fund's claim is for unspecified
         damages arising from breach of contract, misrepresentation and breach
         of warranty, negligence and breach of duty of care, and breach of
         fiduciary duty, among others. The Fund's claims have not yet been set
         forth in detail in any court filing delivered to ITC or IFS. The
         Company is investigating this matter, has notified its insurers and
         intends to defend itself vigorously. While, as stated above, the Fund's
         claims have not been set forth in detail, based on the Company's
         investigation through July 15, 2000, management of the Company does not
         expect this matter to have a material adverse effect on the results of
         operations and financial condition of the Company.

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

a.       The Annual Meeting of Stockholders (the "Annual Meeting") was held on
         April 18, 2000.

b.       Not applicable.

c.       A vote was proposed to (1) elect Frank B. Condon, Jr. and Robert B.
         Fraser, current directors of the Company, as Class II Directors of the
         Company to serve for a three year term; (2) approve an amendment to the
         Company's Certificate of Incorporation to increase the number of
         authorized shares of the Company's Common Stock from 20 million shares
         to 40 million shares; (3) approve an amendment to the company's
         Certificate of Incorporation to decrease the number of affirmative
         votes necessary to increase the number of authorized shares of the
         Company's Common Stock from 75% of shares eligible to vote to a
         majority of shares eligible to vote; and (4) ratify the selection of
         Deloitte & Touche LLP as independent accountants for the Company for
         the fiscal year ending December 31, 2000.


                                       35
<PAGE>

         The voting results are as follows:

<TABLE>
<CAPTION>

                                                      VOTES AGAINST      VOTES          BROKER        NON-
                     MATTER             VOTES FOR                       WITHHELD      ABSTAINED      VOTES
<S>                                     <C>              <C>            <C>            <C>              <C>
   (1)      Frank B. Condon, Jr.        24,214,492         N/A          774,640          N/A            -
            Robert B. Fraser            24,214,318         N/A          778,814          N/A            -

   (2)      Amendment to charter to                                                                     -
            increase authorized
            shares                      22,893,128       2,056,730        N/A             39,274

   (3)      Amendment to charter to
            decrease votes required
            to increase authorized
            shares                      22,784,242         228,504        N/A          1,976,386

   (3)      Deloitte & Touche           24,937,742          18,000        N/A             33,390        -

</TABLE>

d.       Not applicable.

ITEM 5.  OTHER INFORMATION

         On May 15, 2000, the Board of Directors of Investors Financial Services
Corp. (the "Corporation") declared a two-for-one stock split in the form of a
100% stock dividend (the "Stock Split") which was paid on June 15, 2000 to the
Corporation's stockholders of record on May 31, 2000. As a result of the Stock
Split, on June 15, 2000 the total number of outstanding shares of the
Corporation's common stock increased by 100 percent.

         As a result of the Stock Split, the number of shares of the
Corporation's common stock registered with the Securities and Exchange
Commission on the Corporation's registration statement on Form S-3 (File No.
333-76885) was increased from 900,000 shares to 1,800,000 shares, all of which
are being offered by Hazelnut Partners, L.P.

         Also as a result of the Stock Split, the number of shares of the
Corporation's common stock registered with the Securities and Exchange
Commission on the Corporation's registration statement on (i) Form S-8 (File No.
333-3440) was increased from 1,200,000 shares to 2,400,000 shares, of which
2,240,000 shares are being offered pursuant to the Corporation's Amended and
Restated 1995 Stock Plan and 160,000 shares are being offered pursuant to the
Corporation's 1995 Non-Employee Director Stock Option Plan; (ii) Form S-8 (File
No. 333-43353) was increased from 400,000 shares to 800,000 shares, of which
240,000 shares are being offered pursuant to the Corporation's 1995 Non-Employee
Director Stock Option Plan and 560,000 shares are being offered pursuant to the
Corporation's 1997 Employee Stock Purchase Plan; and (iii) Form S-8 (File No.
333-79639) was increased from 1,200,000 shares to 2,400,000 shares, all of which
are being offered pursuant to the Corporation's Amended and Restated 1995 Stock
Plan.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS.
            Exhibit 27a.     Financial Data Schedule (Period ending June 30,
                             2000)
            Exhibit 27b.     Restated Financial Data Schedule (Period ending
                             June 30, 1999)

(B)      REPORTS ON FORM 8-K. The Company filed no reports on Form 8-K during
         the quarter ended June 30, 2000.


                                       36
<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.

                                        INVESTORS FINANCIAL SERVICES CORP.

Date:  August 14, 2000                  By:  /S/ KEVIN J. SHEEHAN
                                            -------------------------------
                                               Kevin J. Sheehan
                                               Chairman, President and Chief
                                               Executive Officer


                                        By:  /S/ KAREN C. KEENAN
                                               Karen C. Keenan
                                               Chief Financial Officer
                                               (Principal Financial and
                                               Accounting Officer)


                                       37