<PAGE>
 
________________________________________________________________________________
    
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                  FORM 10-Q/A
                                AMENDMENT NO. 1
                                      TO
                                   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 March 31, 1997

                                       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 April 30, 1997, there were 6,124,976 shares of Common Stock
outstanding and 320,336 shares of Class A Common Stock outstanding.

________________________________________________________________________________

<PAGE>
 
<TABLE>
<CAPTION>
    
The undersigned registrant hereby amends the following item of its Quarterly Report
on Form 10-Q as set forth on the pages attached hereto:       

INVESTORS FINANCIAL SERVICES CORP.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND  MARCH 31, 1997
____________________________________________________________________________________________________________________________________

 
                                                                                 DECEMBER 31,                   MARCH 31,
ASSETS                                                                               1996                          1997
                                                                                   (audited)                   (unaudited)
<S>                                                                           <C>                           <C>
Cash and due from banks                                                        $   19,226,453               $   23,082,951
Federal funds sold and securities purchased under resale agreements               120,000,000                       -
Securities held to maturity (approximate market values of
     $460,182,579 and $648,999,683 at December 31, 1996
     and March 31, 1997, respectively)                                            460,009,923                  652,449,979
Securities available for sale                                                     271,120,964                  304,235,614
Nonmarketable equity securities                                                       967,400                    5,476,600 
Loans, less allowance for loan losses of $100,000 at
     December 31, 1996 and March 31, 1997                                          66,236,889                   76,608,227
Accrued interest and fees receivable                                               16,366,171                   20,183,133
Equipment and leasehold improvements, net                                           5,243,974                    5,141,450
Other assets                                                                        5,289,873                    7,111,667
                                                                               --------------               --------------
TOTAL ASSETS                                                                     $964,461,647               $1,094,289,621
                                                                               ==============               ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
 
LIABILITIES:
     Deposits:
          Demand                                                               $  264,914,614               $  283,528,047
          Savings                                                                 276,602,295                  280,262,692
          Time                                                                     55,000,000                   60,000,000
                                                                               --------------               --------------
              Total deposits                                                      596,516,909                  623,790,739

Short-term borrowings                                                             296,820,752                  365,181,507
Other liabilities                                                                   9,264,676                   16,349,003
                                                                               --------------               --------------
              Total liabilities                                                   902,602,337                1,005,321,249
                                                                               --------------                -------------
 Company obligated mandatorily preferred securities of subsidiary trust                -                        24,244,743
                                                                               --------------                -------------
Stockholders' equity:
     Class A common stock                                                               3,595                        3,240
     Common stock                                                                      60,848                       61,213
     Surplus                                                                       54,352,812                   54,369,302
     Deferred compensation                                                         (1,687,675)                  (1,577,950)
     Retained earnings                                                              8,480,431                   11,173,111
     Net unrealized gain on securities  available for sale                            649,299                      694,713
                                                                               --------------               --------------
 Total stockholders' equity                                                        61,859,310                   64,723,629
                                                                               --------------               --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $964,461,647               $1,094,289,621
                                                                               ==============               ==============
See notes to consolidated financial statements.
</TABLE>

                                         2  
<PAGE>
 
<TABLE>
<CAPTION>
 
INVESTORS FINANCIAL SERVICES CORP.

CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED  MARCH 31, 1996 AND 1997
____________________________________________________________________________________________________________________________________

                                                                                 MARCH 31,                      MARCH 31,
                                                                                   1996                           1997
<S>                                                                      <C>                            <C>
OPERATING REVENUE:
Interest income:
     Federal funds sold and securities purchased
         under resale agreements                                            $      444,544                 $     675,747
     Other short-term investments                                                    6,448                         -
Investment securities held to maturity and available for sale                    5,095,690                    13,691,446
     Loans                                                                         418,031                       664,409
                                                                            --------------                 -------------
         Total interest income                                                   5,964,713                    15,031,602
                                                                            --------------                 -------------
Interest expense:
     Deposits                                                                      977,919                     4,445,602
     Short-term borrowings                                                       1,044,958                     4,129,864
                                                                            --------------                 -------------
         Total interest expense                                                  2,022,877                     8,575,466
                                                                            --------------                 -------------
         Net interest income                                                     3,941,836                     6,456,136
 
Provision for loan losses                                                           21,047                        -
                                                                            --------------                 -------------
         Net interest income after provision for loan losses                     3,920,789                     6,456,136
 
Noninterest income:
     Asset administration fees                                                  12,797,364                    17,625,593
     Computer service fees                                                         124,043                       116,460
     Other operating income                                                         20,343                        17,767
     Gain on sale of security available for sale                                     2,448                        -
                                                                            --------------                 -------------
         Net operating revenue                                                  16,864,987                    24,215,956
OPERATING EXPENSES:
     Compensation of officers and employees                                      7,436,913                     9,820,726
     Pension and other employee benefits                                         1,350,761                     1,647,409
     Occupancy                                                                   1,161,231                     1,088,480
     Equipment                                                                   1,306,380                     1,618,642
     Insurance                                                                     305,083                       181,759
     Subcustodian fees                                                             821,815                     1,438,498
     Depreciation and amortization                                                 310,870                       388,339
     Professional fees                                                             554,146                       916,728
     Travel and sales promotion                                                    199,449                       331,503
     Other operating expenses                                                    1,070,800                     1,881,589
                                                                            --------------                 -------------
         Total operating expenses                                               14,517,448                    19,313,673
                                                                            --------------                 -------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                                 2,347,539                     4,902,283

Provision for income taxes                                                         927,277                     1,822,219
Minority interest expense, net of income taxes                                     -                             258,498
NET INCOME                                                                  $    1,420,262                $    2,821,566
                                                                            ==============                ==============
 
WEIGHTED AVERAGE SHARES OUTSTANDING                                              6,493,614                     6,558,441
                                                                            ==============                ==============

EARNINGS PER SHARE                                                                   $0.22                         $0.43
</TABLE> 
 
 
See notes to consolidated financial statements.

                                         3  
<PAGE>
 
<TABLE> 
<CAPTION> 


INVESTORS FINANCIAL SERVICES CORP.
 
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED  MARCH 31, 1997
____________________________________________________________________________________________________________________________________


                                                                                                             NET
                                                                                                          UNREALIZED
                                                                                                           GAIN ON
                                                                                                          INVESTMENT
                                           CLASS A                                                        SECURITIES 
                                           COMMON     COMMON                   DEFERRED      RETAINED      AVAILABLE
                                            STOCK     STOCK      SURPLUS     COMPENSATION    EARNINGS       FOR SALE      TOTAL
<S>                                      <C>       <C>        <C>          <C>           <C>             <C>        <C>  
BALANCE, DECEMBER 31, 1996                 $3,595    $60,848   $54,352,812   $(1,687,675)  $ 8,480,431    $649,299   $61,859,310
 
Conversion of class A to common stock        (355)       355                                                                   -
Amortization of deferred compensation                                            109,725                                 109,725
Exercise of stock options                                 10        16,490                                                16,500
Net income                                                                                   2,821,566                 2,821,566
Payment of dividend                                                                           (128,886)                 (128,886)
Change in net unrealized gain on
   securities available for sale                                                                            45,414        45,414
                                           ------    -------   -----------   -----------   -----------    --------   -----------
 
BALANCE,  MARCH 31, 1997                   $3,240    $61,213   $54,369,302   $(1,577,950)  $11,173,111    $694,713   $64,723,629
                                           ======    =======   ===========   ===========   ===========    ========   ===========
</TABLE>
See notes to consolidated financial statements

                                       4  
<PAGE>
 
<TABLE> 
<CAPTION> 

INVESTORS FINANCIAL SERVICES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED  MARCH 31, 1996 AND 1997
____________________________________________________________________________________________________________________________________

 
                                                                                 MARCH 31,                MARCH 31,
                                                                                   1996                     1997
<S>                                                                          <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                   $   1,420,262            $   2,821,566
                                                                             -------------            -------------
Adjustments to reconcile net income to net cash provided by
operating activities:
     Depreciation and amortization                                                 310,870                  388,339
     Amortization of deferred compensation                                         106,162                  109,725
     Provision for loan losses                                                      21,047                 -
     Amortization of premiums on securities, net of accretion of discounts         539,813                  771,189
     Deferred income taxes                                                         -                         16,879
     Gain on sale of securities available for sale                                  (2,448)                -
     Changes in assets and liabilities:
          Accrued interest and fees receivable                                  (2,905,922)              (3,816,962)
          Other assets                                                            (103,761)              (1,821,794)
          Other liabilities                                                      3,919,632                7,126,236
                                                                             -------------            -------------
 
              Total adjustments                                                  1,885,393                2,773,612
                                                                             -------------            -------------
              Net cash provided by operating activities                          3,305,655                5,595,178
                                                                             -------------            -------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale                        3,874,545               26,279,300
Proceeds from maturities of securities held to maturity                          7,068,248               14,698,733
Proceeds from sale of securities available for sale                              5,010,591                 -
Purchases of securities available for sale                                     (26,978,069)             (59,892,284)
Purchases of securities held to maturity                                      (161,988,205)            (207,425,019)
Purchase of nonmarketable equity securities                                        -                     (4,509,200)
Net decrease in time deposits due from banks                                     1,000,000                 -
Net (increase) decrease in federal funds sold and securities
     purchased under resale agreements                                         (35,000,000)             120,000,000
Net increase in loans                                                          (13,822,640)             (10,371,338)
Payments for purchases of equipment and leasehold improvements                    (106,433)                (285,814)
                                                                             -------------            -------------

              Net cash used for investing activities                          (220,941,963)            (121,505,622)
                                                                             -------------            -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits                                                199,049,687               18,613,432
Net increase in time and savings deposits                                          298,620                8,660,397
Net increase in short-term borrowings                                           25,396,899               68,360,756
Stock issuance costs                                                                87,693                 (755,257)
Proceeds from exercise of stock options                                            -                         16,500
Proceeds from preferred stock                                                      -                     25,000,000
Dividends paid                                                                     -                       (128,886)
                                                                             -------------            -------------
              Net cash provided by financing activities                        224,832,899              119,766,942
                                                                             -------------            -------------
NET INCREASE IN CASH AND DUE FROM BANKS                                          7,196,591                3,856,498
 
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD                                    21,898,903               19,226,453
                                                                             -------------            -------------
CASH AND DUE FROM BANKS, END OF PERIOD                                       $  29,095,494            $  23,082,951
                                                                             =============            =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest                                                       $   1,794,000            $   8,601,000
                                                                             =============            =============
 
Cash paid for income taxes                                                   $   1,228,000            $     503,000
                                                                             =============            =============
 
See notes to consolidated financial statements.
</TABLE>

                                       5  
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED  MARCH 31, 1996
AND 1997 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"). The Bank provides
    domestic and global custody, multicurrency accounting, institutional
    transfer agency, performance measurement, foreign exchange, securities
    lending, and 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
    the Bank from the date of the share exchange discussed below and shall mean
    the Bank prior to that date.

    On November 8, 1995, the business operations of the Company were separated
    from its former parent, Eaton Vance Corp. ("EVC"), by means of a tax-free,
    pro rata distribution of EVC's ownership interest in the Company to the EVC
    stockholders (the "Spin-off Transaction"). Immediately prior to the Spin-off
    Transaction, all of the stockholders of the Bank exchanged their 1,000,000
    shares of the Bank's capital stock for a combination of 3,418,573 shares of
    Common Stock and 611,427 shares of Class A Common Stock ("Class A Stock") of
    a newly formed bank holding company formed for the purpose of facilitating
    the Spin-off Transaction. For financial reporting purposes, the exchange has
    been accounted for as if it occurred on November 1, 1995. Subsequent to the
    completion of the Spin-off Transaction, IFSC sold 2,300,000 additional
    shares of its Common Stock in an initial public offering at an offering
    price of $16.50 per share. The net effect of this transaction was an
    increase in the Company's consolidated capital of approximately $34,000,000.

    In December 1995, the Company changed its fiscal year end from October 31 to
    December 31.

2.  INTERIM FINANCIAL STATEMENTS

    The consolidated interim financial statements of the Company and
    consolidated subsidiaries as of March 31, 1997 and for the  three-month
    periods ended March 31, 1996 and 1997 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.

    Certain amounts from the prior year have been reclassified to conform to
    current year presentation.

                                       6 
<PAGE>
 
3. SECURITIES
<TABLE>
<CAPTION>

    Carrying amounts and approximate market values of securities are summarized as follows as of December 31, 1996:
 
                                     CARRYING             UNREALIZED         UNREALIZED              APPROXIMATE
       HELD TO MATURITY               VALUE                 GAINS              LOSSES               MARKET VALUE
 <S>                              <C>                   <C>               <C>                    <C>
Mortgage-backed securities        $414,664,590           $1,973,263          $1,750,168             $414,887,685
Federal Agency securities           37,517,495               49,546             224,972               37,342,069
Foreign government securities        7,827,838              124,987              -                     7,952,825
                                  ------------           ----------          ----------             ------------

Total                             $460,009,923           $2,147,796          $1,975,140             $460,182,579
                                  ============           ==========          ==========             ============
 
 
                                     AMORTIZED            UNREALIZED         UNREALIZED              CARRYING
       AVAILABLE FOR SALE              COST                 GAINS              LOSSES                  VALUE
 
U.S. Treasury securities          $ 40,107,999           $  151,304          $        3             $ 40,259,300
Mortgage-backed securities         229,930,801            1,086,092             155,229              230,861,664
                                  ------------           ----------          ----------             ------------
 
Total                             $270,038,800           $1,237,396          $  155,232             $271,120,964
                                  ============           ==========          ==========             ============
 
 
Carrying amounts and approximate market values of securities are summarized as follows as of March 31, 1997:

                                     CARRYING             UNREALIZED         UNREALIZED              APPROXIMATE
       HELD TO MATURITY               VALUE                 GAINS              LOSSES               MARKET VALUE
<S>                                 <C>            <C>          <C>          <C>
State and political subdivisions  $ 33,325,563           $        -          $  993,364             $ 32,332,199
Mortgage-backed securities         532,884,781            2,196,130           3,951,330              531,129,581
Federal Agency securities           78,425,764               58,001             697,712               77,786,053
Foreign government securities        7,813,871                    -              62,021                7,751,850
                                  ------------           ----------          ----------             ------------

Total                             $652,449,979           $2,254,131          $5,704,427             $648,999,683
                                  ============           ==========          ==========             ============
  
                                      AMORTIZED           UNREALIZED         UNREALIZED                CARRYING
AVAILABLE FOR SALE                      COST                GAINS              LOSSES                   VALUE
 
U.S. Treasury securities          $ 40,049,633           $   40,631          $   71,539             $ 40,018,725
Mortgage-backed securities         263,117,192            1,427,226             327,529              264,216,889
                                  ------------           ----------          ----------             ------------

Total                             $303,166,825           $1,467,857          $  399,068             $304,235,614
                                  ------------           ----------          ----------             ------------
</TABLE>

                                                7  
<PAGE>
 
3.  SECURITIES (CONTINUED)

    Nonmarketable equity securities at March 31, 1997 consisted of $5,477,000 of
    stock of the Federal Home Loan Bank of Boston (the "FHLBB").  As a member of
    the FHLBB, the Company is required to invest in $100 par value stock of the
    FHLBB in an amount equal to the greater of (i) 1% of its outstanding
    residential mortgage loan principal (including mortgage pool securities),
    (ii) 0.3% of total assets, and (iii) total advances from the FHLBB, divided
    by a leverage factor of 20.  If and when FHLBB stock is redeemed, the
    Company will receive an amount equal to the par value of the stock.

    The carrying amounts and approximate market values of securities by
    effective maturity are as follows:

<TABLE>
<CAPTION>
    
                                                DECEMBER 31, 1996               MARCH 31, 1997
                                             CARRYING      APPROXIMATE     CARRYING      APPROXIMATE
       HELD TO MATURITY                       VALUE       MARKET VALUE      VALUE       MARKET VALUE
 
<S>                                    <C>             <C>             <C>            <C>
    Due within one year                   $ 19,052,213   $ 18,873,837     $          -   $          -
    Due from one to five years             114,459,070    113,819,081      137,036,412    135,358,295
    Due five years up to ten years         240,620,332    241,016,881      364,058,100    362,789,141
    Due after ten years                     85,878,308     86,472,780      151,355,467    150,852,247
                                          ------------   ------------     ------------   ------------

Total                                     $460,009,923   $460,182,579     $652,449,979   $648,999,683
                                          ============   ============     ============   ============
 
 
                                                DECEMBER 31, 1996               MARCH 31, 1997
                                             AMORTIZED      CARRYING       AMORTIZED      CARRYING
AVAILABLE FOR SALE                            COST           VALUE          COST           VALUE
 
    Due within one year                   $ 19,964,080   $ 20,046,800     $ 20,053,119   $ 20,093,750
    Due from one to five years             213,758,992    214,525,641      244,802,622    245,479,611
    Due five years up to ten years          36,315,728     36,548,523       38,311,084     38,662,253
                                          ------------   ------------     ------------   ------------
Total                                     $270,038,800   $271,120,964     $303,166,825   $304,235,614
                                          ============   ============     ============   ============
</TABLE>

    The maturity distributions of mortgage-backed securities have been
    allocated over maturity groupings based upon actual pre-payments to date
    and anticipated pre-payments based upon historical experience.

    There were no sales of securities available for sale during the three months
    ended March 31, 1997.

    The carrying value of securities pledged amounted to approximately
    $362,000,000 and $408,000,000 at December 31, 1996 and March 31, 1997,
    respectively.  Securities are pledged primarily to secure public funds and
    clearings with other depository institutions.

 4. LOANS

    Loans consist of demand loans with individuals and 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.  There were no impaired or
    nonperforming loans at December 31, 1996 or March 31, 1997.  In addition,
    there have been no loan charge-offs or recoveries during the three months
    ended March 31, 1996 and 1997.  Loans consisted of the following at
    December 31, 1996 and March 31, 1997:

                                       8  
<PAGE>
 

4.  LOANS (CONTINUED)
<TABLE> 
<CAPTION> 
 
                                                     DECEMBER 31,          MARCH 31,
                                                         1996                1997
<S>                                              <C>                  <C>
    Loans to individuals                            $23,448,999           $17,837,098
    Loans to not-for-profit institutions                 12,500                12,500
    Loans to mutual funds                            42,875,390            58,858,629
                                                    -----------           -----------
                                                     66,336,889            76,708,227
    Less allowance for loan losses                      100,000               100,000
                                                    -----------           -----------
    Total                                           $66,236,889           $76,608,227
                                                    ===========           ===========
</TABLE>

The Company had commitments to lend of approximately $37,128,000 and $58,005,000
at December 31, 1996 and March 31, 1997, respectively. The terms of these
commitments are similar to the terms of outstanding loans.


5.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

The major components of equipment and leasehold improvements are as follows at
December 31, 1996 and March 31, 1997:

<TABLE>
<CAPTION>

                                                       DECEMBER 31,            MARCH 31,
                                                          1996                   1997
<S>                                                 <C>                   <C>
    Furniture, fixtures and equipment                   $8,516,450            $7,572,020
    Leasehold improvements                                 744,395               755,559
                                                        ----------            ----------
    Total                                                9,260,845             8,327,579
    Less accumulated depreciation and amortization       4,016,871             3,186,129
                                                        ----------            ----------
    Equipment and leasehold improvements, net           $5,243,974            $5,141,450
                                                        ==========            ==========
</TABLE>
6.  DEPOSITS

    Time deposits at December 31, 1996 and March 31, 1997 include
    noninterest-bearing amounts of approximately $55,000,000 and $60,000,000,
    respectively.

    All time deposits had a minimum balance of $100,000 and a maturity
    of less than three months at December 31, 1996 and March 31, 1997.

7. SHORT-TERM BORROWINGS

    The major components of short-term borrowings are as follows at
    December 31, 1996 and March 31, 1997:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,            MARCH 31,
                                                           1996                  1997
<S>                                                  <C>                   <C>
    Repurchase agreements                               $296,421,201          $335,011,449
    FHLBB advance                                               -               30,000,000
    Treasury, Tax and Loan account                           399,551               170,058
                                                        ------------          ------------
    Total                                               $296,820,752          $365,181,507
                                                        ============          ============
</TABLE>

                                        9
<PAGE>
 
7.  SHORT-TERM BORROWINGS (CONTINUED)

    The Company enters into repurchase agreements whereby securities
    are sold by the Company under agreements to repurchase.  The Company had
    liabilities under these agreements of $296,421,201 and $335,011,499 at
    December 31, 1996 and March 31, 1997 respectively.  The interest
    rate on the outstanding agreements at December 31, 1996 was 5.91% and all
    agreements matured on January 2, 1997.  The interest rates on the
    outstanding agreements at March 31, 1997 ranged from 5.68% to 5.85% and all
    agreements matured by April 1, 1997.  The following securities were pledged
    under these agreements at December 31, 1996 and March 31, 1997:

<TABLE>
<CAPTION>
                                      DECEMBER 31, 1996                MARCH 31, 1997
                                   CARRYING      APPROXIMATE        CARRYING      APPROXIMATE
                                    VALUE        MARKET VALUE         VALUE       MARKET VALUE
<S>                           <C>            <C>                <C>             <C>    
U.S. Treasury securities        $ 37,249,940    $ 37,249,940      $ 37,017,795   $ 37,017,795
Federal Agency securities         25,000,000      24,803,950        25,000,000     24,543,700
Mortgage-backed securities       245,689,672     246,777,873       284,522,070    286,001,337
                                ------------    ------------      ------------   ------------
Total                           $307,939,612    $308,831,763      $346,539,865   $347,562,832
                                ============    ============      ============   ============
</TABLE>

    The Company has a borrowing arrangement with the FHLBB which is utilized on
    an overnight basis to satisfy temporary funding requirements. The Company
    had liabilities under this agreement of $0 at December 31, 1996 and
    $30,000,000 at March 31, 1997. The interest rate on the outstanding balance
    at March 31, 1997 was 7.03%.

    The Company receives federal tax deposits from clients as agent for the
    Federal Reserve Bank and accumulates these deposits in the Treasury, Tax and
    Loan account. The Federal Reserve Bank charges the Company interest at the
    Federal Funds rate on such deposits. The Company had liabilities under this
    agreement of $399,551 at December 31, 1996 and $170,058 at 31, 1997. The
    interest rates on the outstanding balance at December 31, 1996 and March 31,
    1997 were 5.10% and 5.67%, respectively.

8.  COMPANY OBLIGATED MANDATORILY PREFERRED SECURITIES OF SUBSIDIARY TRUST

    On January 31, 1997, the Company completed the issuance and sale of
    $25,000,000 in 9.77% Capital Securities (the "Capital Securities"). The
    Capital Securities were issued by Investors Capital Trust I (the "Trust"), a
    Delaware statutory business trust sponsored by the Company. The proceeds of
    the Capital Securities were invested in 9.77% Junior Subordinated Debentures
    (the "Debentures") issued by the Company. The Debentures will mature on
    February 1, 2027 except that such maturity may under certain circumstances
    be advanced. The Company has guaranteed all of the Trust's obligations under
    the Capital Securities to the extent that the Trust has funds available to
    meet such obligations. The guarantee constitutes an unsecured obligation of
    the Company and is subordinate and ranks junior in right of payment to all
    senior indebtedness of the Company.

 9. STOCKHOLDERS' EQUITY

    The Company  has authorized 1,000,000 shares of Preferred Stock, 650,000
    shares of Class A Common Stock and 20,000,000 shares of Common Stock, all
    with a par value of $.01 per share.  At December 31, 1996 and March 31,
    1997, there were no preferred shares issued or outstanding.  There were
    359,545 and 323,973 shares of Class A Common Stock and 6,084,767 and
    6,121,339 Common Stock issued and outstanding at December 31, 1996 and March
    31, 1997, respectively.  The Common Stock and Class A Common Stock are
    identical except that the Class A Common Stock has ten votes per share and
    automatically converts into Common Stock upon transfer and under certain
    other circumstances.

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

    Under the terms of the 1995 Stock Plan, the Company may grant options to
    purchase up to a maximum of 560,000 shares of Common Stock to certain
    employees, consultants, directors and officers.  The options may be awarded
    as incentive stock options (employees only), nonqualified stock options,
    stock awards or opportunities to make direct purchases of stock.

                                       10  
<PAGE>
 
9.  STOCKHOLDERS' EQUITY (CONTINUED)

    In November 1995, the Company granted 114,000 shares of Common Stock to
    certain officers of the Company under the 1995 Stock Plan. Of these grants,
    105,000 shares vest in sixty equal monthly installments, and the remainder
    vest 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. The Company has recorded
    deferred compensation of $1,687,675 and $1,577,950 December 31, 1996 and
    March 31, 1997, respectively, pursuant to these grants.

    Under the terms of the 1995 Non-Employee Director Stock Option Plan, as
    amended at the Company's 1997 Annual Meeting of Stockholders, the Company
    may grant options to non-employee directors to purchase up to a maximum of
    100,000 shares of Common Stock. Options to purchase 2,500 shares of Common
    Stock were awarded at the date of initial public offering 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, 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 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 1995 Non-Employee Director Stock
    Option Plan and the incentive options under the 1995 Stock Plan may not be
    less than fair market value at the date of the grant.  The exercise price of
    the nonqualified options from the 1995 Stock Plan is determined by the
    compensation committee of the Board of Directors. All options become
    exercisable as specified at the date of the grant.

    The 1997 Employee Stock Purchase Plan was adopted by the Board of Directors
    on January 14, 1997 and subsequently approved by the stockholders at the
    Company's 1997 Annual Meeting. The Company has authorized the issuance of
    140,000 shares of Common Stock pursuant to the exercise of nontransferable
    options granted to participating employees. The 1997 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. Annual payments periods
    consist of two six-month periods, January 1 through June 30 and July 1
    through December 31.

    A summary of option activity under all plans is as follows:

<TABLE>
<CAPTION>
                                                              NUMBER OF    EXERCISE PRICE
                                                               SHARES        PER SHARE
 
<S>                                                          <C>         <C>
          Outstanding at December 31, 1996                     345,150    $16.50 - $26.125
          Granted                                               11,104    $27.50 - $34.25
          Exercised                                             (1,000)       $16.50
          Expired                                                  -             -
                                                              ----------
          Outstanding at March 31, 1997                        355,254    $16.50 -   $34.25
                                                              ==========
          Exercisable at March 31, 1997                         83,543
                                                              ==========
 
</TABLE>

         

                                       11
<PAGE>
 
         

10. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

    LINES OF CREDIT - At March 31, 1997, the Company had commitments to
    individuals under collateralized open lines of credit totaling $85,413,700,
    against which $27,409,106 in loans was 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 following table summarizes the contractual or
    notional amounts of derivative financial instruments held by the Company at
    March 31, 1997:

            Interest rate contracts:
                     Swap agreements             $200,000,000
                     Floor contracts             $30,000,000

    Interest rate contracts involve an agreement with a counterparty to exchange
    cash flows based on an underlying interest rate index. An interest rate
    floor is a contract purchased from a counterparty which specifies a minimum
    interest rate for the specified period of time. 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 the other party may default on its
    contractual obligation, so-called counterparty risk. Credit risk is limited
    to the positive market value of the derivative financial instrument, which
    is significantly less than the notional value. The positive market value of
    the interest rate contracts was $454,241 at March 31, 1997.


11. COMMITMENTS AND CONTINGENCIES

    RESTRICTIONS ON CASH BALANCES - The Company is required to maintain certain
    average cash reserve balances with the Federal Reserve Bank. The reserve
    balance requirement as of March 31, 1997 was $22,708,000. In addition, other
    cash balances in the amount of $1,391,679 were pledged to secure clearings
    with a depository institution as of March 31, 1997.

    LEASE COMMITMENTS - Minimum future commitments on noncancelable operating
    leases at March 31, 1997 were as follows:

<TABLE>
<CAPTION>
 
                                                 Bank
    Fiscal Year Ending                         Premises           Equipment
<S>                                         <C>                 <C>
    1997                                       $ 3,197,158          $981,385
    1998                                         4,873,331           896,378
    1999                                         4,873,331           560,448
    2000                                         4,873,331            20,790
    2001 and beyond                             31,154,658                 -
</TABLE>


    Total rent expense was $1,559,000 and $1,568,611 for the three months
    ended  March 31, 1996 and 1997, respectively.

                                       12
<PAGE>
 
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

    On February 1, 1996, the Company entered into a five year facility
    management agreement with a third party provider of duplicating and delivery
    services. Under the terms of the agreement, the Company agreed to pay
    certain minimum annual charges, subject to increases due to certain usage
    thresholds. Service expense under this contract was $108,074 for the three
    months ended March 31, 1997. No service expense was recognized during the
    comparable 1996 period.

    CONTINGENCIES - The Company provides domestic and 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 March 31, 1997 that
    are material to the consolidated financial position or results of operations
    of the Company.

12. FOREIGN EXCHANGE CONTRACTS

    The Company enters into foreign exchange contracts with clients and
    simultaneously enters into matched positions with another bank. These
    contracts are subject to market value fluctuations in foreign currencies.
    Gains and losses from such fluctuations are netted and recorded as an
    adjustment of asset administration fees. A summary of foreign exchange
    contracts outstanding at December 31, 1996 and March 31, 1997 is as follows
    (in thousands):

<TABLE>
<CAPTION>
 
                                       DECEMBER 31, 1996                               MARCH 31, 1997
                              -----------------------------------          -----------------------------------
                                                       UNREALIZED                                   UNREALIZED
CURRENCY                       PURCHASES    SALES      GAIN/LOSS            PURCHASES    SALES      GAIN/LOSS
<S>                          <C>        <C>           <C>                 <C>          <C>         <C>   
Japan (Yen)                   $ 40,828   $ 40,828           -               $ 37,159    $ 37,159         -
France (Franc)                   1,093      1,093           -                  9,521       9,521         -
Germany (Mark)                   2,118      2,118           -                  5,877       5,877         -
United Kingdom (Pound)           1,873      1,873           -                  5,530       5,530         -
Hong Kong (Dollar)               1,807      1,807           -                  3,543       3,543         -
Indonesia (Rupiah)                 198        198           -                  1,750       1,750         -
Netherlands (Guilder)              918        918           -                  1,615       1,615         -
Spain (Peseta)                      85         85           -                  1,489       1,489         -
Switzerland (Franc)                  -          -           -                  1,302       1,302         -
Canada (Dollar)                      -          -           -                  1,196       1,196         -
South Africa (Rand)                222        222           -                  1,166       1,166         -
Malaysia (Ringgit)               6,009      6,009           -                  1,157       1,157         -
Italy (Lira)                        51         51           -                  1,072       1,072         -
Other currencies                 1,944      1,944           -                  5,280       5,280         -
                              --------   --------        --------           --------    --------     ----------
                              $ 57,146   $ 57,146           -               $ 77,657    $ 77,657         -
                              ========   ========        ========           ========    ========     ========== 
</TABLE> 
<TABLE> 
<CAPTION> 
    The maturity of contracts outstanding as of March 31, 1997 is as follows:

                 Maturity                      Purchases       Sales
<S>                                           <C>            <C> 
                 April 1997                    $ 67,481       $67,481
                 May 1997                         2,535         2,535
                 June 1997                        5,141         5,141
                 August 1997                      2,500         2,500
</TABLE> 
 

                                       13
<PAGE>
 
13. 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 effect on the Company's statements. Under capital
    adequacy guidelines and framework for prompt corrective action, the Bank
    must meet guidelines that involve quantitative measures of the assets,
    liabilities, and certain off-balance sheet items as calculated under
    regulatory accounting practices. 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 Bank to maintain minimum amounts and ratios (set forth in the
    table below) of total and Tier 1 capital (as defined in the regulations) to
    risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
    average assets (as defined). Management believes, as of March 31, 1997, that
    the Bank meets all capital adequacy requirements to which it is subject.

    As of December 21, 1996, the most recent notification from the Federal
    Deposit Insurance Corporation categorized the Bank as well capitalized under
    the regulatory framework for prompt corrective action. To be categorized as
    well capitalized the Bank must maintain minimum total risk-based, Tier 1
    risk-based, and Tier 1 leverage ratios as set forth in the table. There are
    no conditions or events since that notification that management believes
    have changed the institution's category. The following table presents the
    capital ratios for the Bank. The capital ratios for the Company are
    substantially similar to those of the Bank. 

<TABLE>
<CAPTION>
 
 
                                                                                To Be Well
                                                           Minimum          Capitalized Under
                                                         For Capital        Prompt Corrective
                                      Actual          Adequacy Purposes     Action Provisions
                             -----------------------------------------------------------------
                                  Amount     Ratio      Amount     Ratio      Amount     Ratio
                                  ------     -----      ------     -----      ------     -----
<S>                            <C>           <C>     <C>           <C>     <C>           <C>
As of March 31, 1997:
 
Total Capital
  (to Risk Weighted Assets)     $87,990,206  31.30%   $22,491,911   8.00%   $28,114,889  10.00%
Tier I Capital
  (to Risk Weighted Assets)     $87,890,206  31.26%   $11,245,956   4.00%   $16,868,933   6.00%
Tier I Capital
  (to Average Assets)           $87,890,206   8.04%   $43,726,099   4.00%   $54,657,623   5.00%
 
As of December  31, 1996:
 
Total Capital
  (to Risk Weighted Assets)     $60,818,485  24.71%   $19.691,528   8.00%   $24,614,410  10.00%
Tier I Capital
  (to Risk Weighted Assets)     $60,718,485  24.67%   $ 9,845,764   4.00%   $14,768,646   6.00%
Tier I Capital
  (to Average Assets)           $60,718,485   9.65%   $25,155,710   4.00%   $31,444,637   5.00%
 
</TABLE>

    Under Massachusetts law, trust companies such as the Bank may only pay
    dividends out of "net profits" and only to the extent that such payments
    will not impair the Bank's capital stock and surplus account. If, prior to
    declaration of a dividend, the Bank's capital stock and surplus accounts do
    not equal at least 10% of its deposit liabilities, then prior to the payment
    of the dividend, the Bank must transfer from net profits to its surplus
    account the amount required to make its surplus account equal to either (i)
    together with capital stock, 10% of deposit liabilities, or (ii) subject to
    certain adjustments, 100% of capital stock.

                                       14
<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: July 16, 1997              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)

                                       15