+===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                       for the Year ended January 31, 2001


                         Commission File Number 0-15502


                            COMVERSE TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)

                               New York 13-3238402
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)

                            170 Crossways Park Drive
                            Woodbury, New York 11797
                    (Address of principal executive offices)


Registrant's telephone number, including area code: 516-677-7200

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

                                               Name of each exchange
             Title of each class                on which registered
             -------------------                --------------------

               Not applicable                      Not applicable


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

                     Common Stock, $.10 par value per share
                                (Title of Class)

     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: [_]
================================================================================


<PAGE>

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


                                      [X]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant on April 23, 2001 was approximately $11,020,000,000.  The closing
price of the  registrant's  common stock on the NASDAQ National Market System on
April 23, 2001 was $66.68 per share.

     There were 171,106,918 shares of the registrant's  common stock outstanding
on April 23, 2001.


                       DOCUMENTS INCORPORATED BY REFERENCE

     The  registrant  hereby  incorporates  by  reference  in  this  report  the
information  required by Part III appearing in the registrant's  proxy statement
or information  statement distributed in connection with the 2001 Annual Meeting
of  Shareholders  of the  registrant  or in an  amendment to this report on Form
10K/A.

                                   ----------


   TRILOGUE, Access NP, RELIANT, Loronix, CCTVware, ImageShare, Signalware and
     Ulticom Call Control are registered trademarks, and TRILOGUE INfinity,
       AUDIODISK, Ultra, Ulticom, Inc., Nexworx, Ultimate Service Control,
     Programmable Network, Service Enabling Software, Instant Conferencing,
       JTCAP, JISUP, JOAM, Softservice and Nexworld are trademarks, of the
                                    Company.

                                     - ii -


<PAGE>

                                     PART I

ITEM 1.  BUSINESS.

The Company

     Comverse Technology,  Inc. ("CTI" and, together with its subsidiaries,  the
"Company") designs,  develops,  manufactures,  markets and supports computer and
telecommunications  systems  and  software  for  multimedia  communications  and
information processing applications.  The Company's products are used in a broad
range of  applications  by  wireless  and  wireline  telecommunications  network
operators and service providers,  call centers,  and other public and commercial
organizations worldwide.

     Through its subsidiary  Comverse Network Systems,  Inc.  ("Comverse"),  the
Company  provides  enhanced  services  platform  ("ESP")  products  that  enable
telecommunications  service  providers to offer a variety of  revenue-generating
services  accessible  to large numbers of  simultaneous  users.  These  services
include a broad range of  integrated  messaging,  information  distribution  and
personal communications  services, such as call answering,  voicemail,  faxmail,
unified  messaging (voice,  fax and email in a single mailbox,  media conversion
such as  email to voice  and  visual  mailbox  presentation),  prepaid  wireless
calling services, short messaging services ("SMS"), wireless Internet access and
associated services, interactive voice response ("IVR"), Internet-based services
such as  Internet  messaging  and  voice  portal  services,  which are part of a
voice-controlled  portfolio of services such as voice dialing,  voice-controlled
Web browsing and voice-controlled  messaging. The Company's principal market for
ESP systems consists of  organizations  that use the systems to provide services
to the public, often on a subscription or pay-per-usage basis, and includes both
wireless   and  wireline   telecommunications   network   operators   and  other
telecommunications  service provider organizations.  The Company markets its ESP
systems throughout the world, with its own direct sales force and in cooperation
with  a  number  of  leading   international   vendors   of   telecommunications
infrastructure  equipment.  The Company is the market-share  leader in providing
large capacity  messaging  systems for wireless and wireline  telecommunications
service  providers.  More  than 360  wireless  and  wireline  telecommunications
service  providers in more than 100 countries,  including the majority of the 20
largest telecom companies in the world, have selected the Company's platforms to
provide enhanced  telecommunications  services to their public customers.  Major
network operators and service providers using the Company's ESP systems include,
among others,  AT&T (USA),  BellSouth  (USA),  British  Telecom  (UK),  Deutsche
Telekom  (Germany and other  European  countries),  KDDI  (Japan),  MCI Worldcom
(USA),  NTT (Japan),  Orange (UK),  Pacific Century  CyberWorks (Hong Kong), SBC
Communications (USA), SFR Cegetel (France),  SingTel (Singapore),  Sprint (USA),
Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),  Verizon (USA) and
Vodafone (multiple European countries).

     Through its subsidiary  Comverse  Infosys,  Inc.  ("Infosys"),  the Company
provides  business  intelligence  solutions based on digital  recording of voice
(telephone  transactions) video (closed circuit television ("CCTV") cameras) and
the Internet.  These systems support the acquisition of voice,  fax, video, data
and screen  imagery  from  multiple  telecommunications  channels  and  Internet
Protocol-based  ("IP") networks,  and enable access to the recorded  information
for  processing  and further  analysis.  The Infosys Ultra  product  targets the
enterprise


<PAGE>

call center and customer  relationship  management  ("CRM") markets and provides
end users with  business  intelligence  about the  enterprise  customers and the
performance of agents.  The Infosys InfoGate product targets the public networks
market,  providing monitoring interfaces to a variety of wireline,  wireless and
IP networks for traffic monitoring and law enforcement compliance  applications.
The Infosys Reliant  product  targets the law enforcement and government  agency
markets,  providing legal interception and surveillance  solutions.  The Loronix
product   targets  a   variety   of   organizations,   including   the   retail,
transportation, gaming, corporate and government markets, and provides end users
with  business  intelligence  about  their  operations  based on  digital  video
recording  of CCTV  cameras  and  networked  access to recorded  video.  Infosys
markets its Ultra, InfoGate,  Reliant, and Loronix products throughout the world
with  its  own  direct  sales  force  and  through  resellers  and  VARs.  Major
enterprises  using  Infosys  products  include,  among  others,  Barclays  Bank,
Fidelity,  Hewitt  Bank,  HSBC,  Midland  Bank  and TIAA  CREF in the  financial
segment;  Ameritech,  NTT Docomo (Japan),  Orange (UK) and Sprint in the service
provider segment;  telecommunications  infrastructure  equipment vendors such as
Ericsson and Lucent;  corporate and retail entities such as Cisco, Fedex, Intel,
Target and Tiffany, and government agencies in over 40 countries worldwide.

     Through its subsidiary  Ulticom,  Inc.  ("Ulticom"),  the Company  provides
service  enabling   network   software  for  wireless,   wireline  and  Internet
communication  services known as Signalware.  Signalware  call control  products
interconnect the complex circuit  switching,  database and messaging systems and
manage vital number,  routing and billing  information that form the backbone of
today's global public  networks,  primarily  through  Signaling  System Number 7
("SS7").  SS7 is a widely used set of  signaling  standards  and  protocols  for
communications  networks  worldwide.  Signalware enables  communication  service
providers to offer intelligent network ("IN") services,  such as global roaming,
prepaid calling, caller ID and voice and text messaging. Signalware products are
also embedded in a range of packet  softswitching  products,  which enable voice
and data networks to interoperate,  or converge,  allowing service  providers to
offer such  converged  network  services as voice over the Internet and Internet
call waiting.  Ulticom's Nexworx product  initiative is designed to move service
control into the hands of  subscribers,  so that  businesses  or  consumers  can
access network resources to create and customize their  communication  services.
Ulticom had an initial public  offering of its common stock in April,  2000, and
its common stock is listed on the NASDAQ National Market System under the symbol
ULCM. The Company holds approximately 75% of Ulticom's outstanding common stock.

     The  Company  markets  other  telecommunications   products  and  services,
including  products that are integrated  with its systems and products that work
in  combination  with  other  systems  to  provide  advanced  telecommunications
services,  such  as  automatic  call  distribution  and  messaging  systems  for
telephone  answering  service bureaus,  and intelligent IP gateways for wireless
roaming and Voice over Internet Protocol ("VoIP") applications. The Company also
engages in venture capital  investment and capital market activities for its own
account.


                                     - 2 -
<PAGE>

     Throughout this document,  references are made to  technologies,  features,
capabilities,  capacities and  specifications  in conjunction with the Company's
products and technological  resources.  Such references do not necessarily apply
to all product lines, models and system configurations.

     The Company was  incorporated in the State of New York in October 1984. Its
headquarters are located at 170 Crossways Park Drive,  Woodbury, New York 11797,
where its telephone number is (516) 677-7200.

THE COMPANY'S PRODUCTS

Enhanced Services Platforms

     The market for  network-based  ESP systems and software  has grown  rapidly
over the past several years.  The Company believes that a number of factors have
contributed to this growth, including the heightened emphasis among wireless and
wireline  telecommunications  network  operators  on offering  new  services for
revenue-generation,  competitive  differentiation,  and customer retention,  the
increasing public awareness and acceptance of multimedia messaging services, the
expanding  availability  of call  answering  services,  and the  growing  use of
wireless communications services, which almost universally offer a mailbox-based
call answering service, as well as text-based services such as SMS.

     The  Company's   primary   focus  has  been  on  supplying   carrier  grade
large-capacity ESP systems and software,  which are marketed primarily under the
names   Access   NP  and   TRILOGUE   INfinity,   to   wireless   and   wireline
telecommunications  network  operators.  These  organizations  benefit  from the
ability to offer their customers,  often on a subscription or pay-per-use basis,
a variety of revenue-generating services provided by the Company's systems, such
as automated call answering, voice and fax messaging,  unified messaging (voice,
fax and email in a single mailbox,  media  conversion such as email to voice and
visual mailbox presentation), prepaid services, wireless data and Internet-based
services such as Internet  messaging,  short text messaging,  wireless  Internet
access and associated  services,  IVR, call screening,  personal number service,
one-touch call return,  wireless instant messaging,  wireless music infotainment
services,  location-based  services,  and  voice-controlled  services,  such  as
voice-controlled  dialing,  voice-controlled  Web browsing,  voice  portal,  and
voice-controlled  messaging.  With call  answering and voice and fax  messaging,
telecommunications  service providers benefit not only from service subscription
fees,  but also from  traffic  revenue  generated  by the  increase  in billable
completed calls. In addition,  these services improve overall network efficiency
by reducing congestion from repeated unbillable busy/no-answer calls, and foster
customer  loyalty  which  results  in  overall  reduction  in  churn.   Wireless
telecommunications service providers are almost universally adding voicemail and
SMS to  their  service  offerings,  and  often as part of  their  basic  service
package, not only because of these benefits, but also because wireless voicemail
messaging  services directly  increase billable airtime by stimulating  outbound
calls and wireless



                                     - 3 -
<PAGE>

short  messaging   services  increase   billable   transactions  by  stimulating
person-to-person messaging and information retrieval.

     The Company's carrier grade ESP systems and software have been designed and
packaged  to  meet  the  capacity,   reliability,   availability,   scalability,
maintainability,  network and OMAP (Operations, Maintenance, Administration, and
Provisioning)  interfaces and physical requirements of large  telecommunications
network  operators.   The  systems  are  offered  in  a  variety  of  sizes  and
configurations  and can be  clustered  for larger  capacity  installations.  The
systems also offer redundancy of critical components,  so that no single failure
will  interrupt  the service.  The  Company's  platforms  are  available in both
centralized and widely distributed configurations,  and maintain their integrity
as a single system in  distributed  configurations.  The  Company's  distributed
architecture  incorporates VoIP and Wide Area Networking ("WAN") technologies to
reduce the cost of long  distance  message  transmissions,  message  retrievals,
voice signature  transmissions,  and prepaid service  database  inquiries.  This
architecture utilizes lower cost packet-switched  networks, such as IP-networks,
rather than more costly,  traditional  circuit-switched  methods,  to reduce the
network operators' cost of operation.

     The Company's systems also incorporate  components that are compatible with
the IN and AIN protocols for Intelligent  Peripherals,  permitting the Company's
network  operator  customers to develop and deploy services based on the overall
IN/AIN  architecture.  In addition,  when the system is  configured as a Service
Node  ("SN"),  it  enables  customers  to offer  IN/AIN-based  services  such as
personal number, call screening/caller  introduction,  one-touch call return and
prepaid calling services.  The incorporation of IN and AIN-related software also
allows  a  customer,   which  has  not  yet  implemented   intelligent   network
infrastructure,  to purchase an ESP system from the Company with the  confidence
that it  contains  a built-in  migration  path to IN/AIN  standards,  should the
network operator decide to implement IN/AIN infrastructure in the future.

     The   Company's   platforms   incorporate   both    company-developed   and
third-party-developed  software, and third-party and company-designed  hardware,
in an open,  standards-based  system  architecture.  The systems  support a wide
variety of digital telephony and IP interfaces and signaling  systems,  enabling
them to  adapt  to a  variety  of  different  network  environments  and  IN/AIN
applications,  and provide a  "universal  port" -- a single  port that  supports
multiple applications and services at any time during a single call. The Company
has also  introduced  Internet  messaging  capabilities,  enabling  end-users to
access their voice,  fax and email  messages  from anywhere in the world via the
Internet.

Business Intelligence Through Intelligent Recording

     Traditionally,  analog tape  recorders,  alone or coupled with a variety of
other special purpose devices, have been utilized for communications monitoring,
recording  and  related  applications.   The  limited  capacity  and  processing
capability  inherent in these systems have imposed  constraints on organizations
that process large amounts of multimedia  information from



                                     - 4 -
<PAGE>

multiple  channels  and that need to store the  processed  information  for long
periods while keeping it available for rapid retrieval.  The Infosys Intelligent
Recording  systems interface with a variety of  telecommunications  channels and
automatically acquire and collect multimedia  communications.  Most importantly,
they  also  enable  users  to  adapt   efficiently   to  the  emergence  of  new
telecommunications  technologies,  such as  digital  transmission  and  enhanced
signaling  systems,  for which  analog,  tape  recorder-based  equipment was not
designed.  From a  collection  standpoint,  the  systems  provide  a  number  of
advantages over analog, tape recorder-based  systems,  including improvements in
capacity,  reliability,   accuracy,  processing  efficiency  and  archiving  and
retrieval capabilities.  Once the information has been collected and recorded in
a digital  form, a variety of  processing  and analysis  tools can be applied to
sort out information and to provide end users with actionable information.  This
process  delivers to the end user  business  intelligence  about the  enterprise
customers   and/or   operations   which  helps  the   enterprise   improve  it's
competitiveness and effectiveness.

     The Company's Ultra line of multiple channel,  multimedia digital recording
systems are  marketed  primarily  to call  centers and CRM  applications.  Ultra
systems provide  computer-telephony  integration  enabled  recording,  including
integration with major PBX/ACDs,  middleware products and CRM applications.  The
computer-telephony  integration  connection allows the customer to easily search
calls through database  queries.  In addition,  selective  recording is possible
through  time-driven  schedules or event  triggers.  Ultra systems  support high
volume of simultaneous  playbacks over the telephone or through LANs,  WANs, and
the  Internet.  Immediate  access to  recordings  is possible  through  advanced
optical disk technology and jukeboxes. The Ultra product supports three business
applications: transaction recording, for customers that need to capture specific
voice and data  calls for long term  storage  and/or  access by large  number of
users;  agent performance  management,  for customers that track the performance
and  quality of  service of their  agents and  provide  them with  training  and
incentive  programs for improvement;  and customer  experience  monitoring,  for
enterprises that monitor their customers'  experience while interacting over the
phone, email and the Internet.

     The  InfoGate  product  targets  the  public  networks  market,   providing
monitoring  interfaces  to a variety of  wireline,  wireless and IP networks for
traffic monitoring and law enforcement compliance applications.  InfoGate allows
access to  specific  calls  routed via public  networks  through  interfaces  to
network switches from vendors such as Alcatel,  Ericsson, Lucent, Nokia, Nortel,
Siemens  and many  others.  InfoGate  also  supports  interfaces  to packet data
networks such as the Internet and general packet radio services.

     The Reliant product provides legal interception and surveillance  solutions
for law enforcement and government agencies. The Reliant product design is based
on open system  architecture and  client/server  concepts,  and supports a broad
range of multimedia monitoring capabilities.  Reliant's capabilities include the
recording,  processing and retrieval of analog audio signals,  such as telephone
and radio channels; analog facsimile and modem communications; digital audio and
data signals,  including  ISDN, T1 and E1; and  telephony  signaling,  including
Pulse Dialing,  DTMF, Calling Line  Identification and Call Progress Tones (such
as  busy,



                                     - 5 -
<PAGE>

no-answer and ringback). Reliant systems simultaneously process incoming signals
over multiple  channels,  apply digital signal  processing  technologies and use
magnetic and optical  disks for temporary and  long-term  digital  storage.  The
systems  also enable users to transmit  multimedia  information  among  multiple
sites  over  communication   links.  Reliant  is  designed  to  support  various
communications  links,  including T1, E1, ISDN,  dial-up  telephone  lines (over
modems),  satellite links and TCP/IP over Ethernet (with  routers).  The Company
offers Reliant systems in a range of configurations,  which share  substantially
the same hardware,  software and user interface. The Reliant systems' multimedia
server  can be  configured  in a  variety  of  models  to  support  a  range  of
applications,  including large, fixed-site audio monitoring platforms. Moreover,
several Reliant multimedia servers may be networked for increased capacity or to
satisfy redundancy requirements.

     The Loronix product line of digital video monitoring systems is marketed to
a variety of  organizations  that  require  the  capture  and  analysis of video
information  recorded from CCTV cameras.  Traditionally,  such systems  utilized
analog,  VCR-based  equipment to archive  recorded  video images.  The Company's
digital  video  technology  offers  several  advantages  over analog  equipment,
including  faster search and  retrieval,  and the ability to monitor and control
from a remote location.  Target markets  include,  among others,  retail,  where
recorded video from stores is used for improving operations efficiency primarily
through reduced theft,  transportation,  where recorded video is used mainly for
public safety, and gaming, where video recording is regulated.

Service Enabling Network Software

     The Company's Ulticom subsidiary provides service enabling network software
for wireless,  wireline and Internet communication services known as Signalware.
Signalware call control  products  interconnect  the complex circuit  switching,
database  and  messaging  systems and manage vital  number,  routing and billing
information that form the backbone of today's global public networks,  primarily
through SS7.  Signalware  provides  many of the features that are crucial to the
connectivity  of  communication  networks  and the  rapid  delivery  of  revenue
generating  services,  including:  open  standards,  service  reliability,  high
performance,  scalability and global interoperability.  It also plays a key role
in the convergence of disparate  networks by providing a means to bridge circuit
and packet  technology.  Signalware is used to build a wide range of IN services
and services for converged  networks,  and is embedded in several  firms' packet
softswitching products.

     Signalware   is  sold  in  packages  that  offer   specific   features  and
functionality.  Signalware  works with  multiple SS7  networks,  supports a wide
variety of SS7  protocol  elements  and enables  analog or digital  wireline and
wireless transmissions.  Signalware packages can be configured for use in single
or multiple  computing  configurations  for fault  resiliency  and  reliability.
Signalware products also provide a means to separate the signaling function from
the application development  environment,  which provides greater flexibility in
configuring services. Signalware customers include equipment manufacturers, such
as Alcatel,  Ericsson and  Siemens,  application



                                     - 6 -
<PAGE>

developers such as Logica and Sonus and service  providers such as Level (3) and
MCI Worldcom.

     Ulticom  also  continues  to develop its Nexworx  service  control  product
initiative. Currently, this technology combines the key attributes of Signalware
to create a platform  that enables  service  creation both inside and outside of
traditional telephone networks. Nexworx is designed to move service control into
the hands of  subscribers,  so that  businesses and consumers can access network
resources to create and  customize  their  communication  services.  The network
interfaces  that are  provided  by Nexworx,  combined  with  private  databases,
browser enabled  appliances,  personal  computers or wireless devices,  puts the
subscriber in control, creating a new Programmable Network. Examples of services
that can be developed  using Nexworx  include  web-based call  forwarding,  call
screening,   instant  conferencing,   messaging  services,   reminder  services,
click-to-dial services, location sensitive directory assistance and personal 800
number service.

Other Telecommunications Products and Services

     The Company's other telecommunications  products and services are developed
and marketed  through  subsidiaries  in the United  States and  internationally.
These include  automatic call  distribution and messaging  systems for telephone
answering service bureaus and other  organizations,  and intelligent IP gateways
for wireless roaming and VoIP applications.

ACQUISITIONS

     During the year ended  January 31, 2001,  the Company,  in exchange for its
common shares, acquired several companies in the telecommunications and business
intelligence  industries having products and resources complementary to those of
the  Company.  See Note 8 to the  Company's  consolidated  financial  statements
included  elsewhere  in this  report.  Products of the  acquired  companies  are
included in the descriptions of the Company's products set forth above.

MARKETS, SALES AND MARKETING

     The  Company's  ESP  systems  and  software  are  marketed  by the  Company
throughout  the  world,  with  its own  direct  sales  force  as  well as  local
distributors,  and in cooperation with a number of leading international vendors
of telecommunications  infrastructure equipment. The Company is the market share
leader in providing large capacity  messaging  systems for wireless and wireline
telecommunications network operators around the world.

     More than 360 wireless and wireline telecommunications network operators in
more than 100  countries,  including  the  majority of the 20 largest  telephone
companies  in the  world,  have  selected  the  Company's  platforms  to provide
enhanced  telecommunications  services to their



                                     - 7 -
<PAGE>

public  customers.  Major  network  operators  using the  Company's  ESP systems
include,  among  others,  AT&T (USA),  BellSouth  (USA),  British  Telecom (UK),
Deutsche  Telekom  (Germany and other  European  countries),  KDDI (Japan),  MCI
Worldcom  (USA),  NTT (Japan),  Orange (UK),  Pacific Century  CyberWorks  (Hong
Kong), SBC  Communications  (USA), SFR Cegetel  (France),  SingTel  (Singapore),
Sprint (USA),  Telecom Italia (Italy),  Telmex  (Mexico),  Telstra  (Australia),
Verizon (USA) and Vodafone (multiple European countries).

     The Company  provides  its  customers,  through  its  Medalist  plan,  with
programs of marketing  consultation,  seminars and materials  designed to assist
them in marketing enhanced  telecommunications  services, and also undertakes to
play an ongoing supporting role in their business and market planning processes.

     The Company's Ultra, InfoGate,  Reliant and Loronix systems are marketed by
the Company  worldwide  through its direct sales force and,  where  appropriate,
through agents, distributors and system integrators.  Primary target markets for
the Ultra Series include call centers and enterprises with CRM applications. The
InfoGate  target markets are the network  operators and public  networks  switch
vendors.  The Reliant  systems are sold  primarily  to the law  enforcement  and
government   markets.   The  Loronix  systems  are  sold  primarily  to  retail,
transportation,  gaming,  corporate and government  markets.  Major  enterprises
using Infosys' products include, among others,  Barclays Bank, Fidelity,  Hewitt
Bank, HSBC, Midland Bank, and TIAA-CREF in the financial sector;  Ameritech, NTT
Docomo (Japan), Orange (UK) and Sprint in the service provider sector; equipment
vendors  such as Ericsson  and Lucent;  corporate  and retail  entities  such as
Cisco,  Fedex,  Intel,  Target and Tiffany,  and government  agencies in over 40
countries worldwide.

     Ulticom's  Signalware  products  are  used  by over  50  customers  and are
deployed in more than 90  countries.  Ulticom  markets its products and services
primarily  through its direct sales  organization and through key  relationships
with  customers  such  as   telecommunications   equipment   manufacturers   and
application developers. These customers include Signalware within their products
and sell them as an  integrated  solution  to  service  providers.  The  service
providers,  in turn,  install the solution in their  communication  networks and
then  offer  the  service  enabled  by such a  solution  to  their  subscribers.
Signalware customers include equipment manufacturers,  such as Alcatel, Ericsson
and  Siemens,  application  developers  such as Logica  and  Sonus  and  service
providers such as Level (3) and MCI Worldcom.

     Ulticom  actively   participates  in  industry  activities  to  define  the
technology  to  facilitate  the  convergence  of  telephony  networks  with  the
Internet. It is a founding member, along with British Telecom, Microsoft, Nortel
and Siemens,  of The Parlay  Group,  an industry  consortium  to specify an open
interface to enable secure public access to core  capabilities of voice and data
networks.  Ulticom also is a founding  member of JAIN,  the Java API  Integrated
Networks  industry  initiative  to define common  interfaces  between IN and SS7
environments so that services and protocols can run anywhere in the network.  In
addition, Ulticom has worked with the Internet Engineering Task Force to develop
a set of signaling  transport  standards called



                                     - 8 -
<PAGE>

SIGTRAN to enable  communication  service  providers  to more  easily  implement
services that span existing  circuit-switched networks and packet networks using
IP.

TECHNOLOGIES

     The Company's  research and development  efforts focus  particularly on the
design  of very  large,  high  throughput  systems,  digital  signal  processing
technologies for voice,  image, video, and data  communications,  development of
various network and OMAP interfaces, and application development.  The Company's
products use advanced  technologies  in the areas of digital signal  processing,
VoIP, facsimile protocols,  networking interfaces,  databases,  data networking,
multi-processor computer architecture and real-time software design. The Company
uses its  proprietary  technology  and expertise in the  development of software
products, solutions and applications within the IN and AIN environment.

     The  Company's  products  are  based  upon  flexible  system  architectures
specifically designed to handle multiple channel,  multimedia  communication and
processing  applications.  The Company's  products  employ open system,  modular
architectures,  which use distributed processors,  rather than one large central
processor, as well as multiple storage devices and data networking.  The product
design  is  intended  to  be  readily   adaptable  to  the  usage  and  capacity
requirements of the individual  end-user.  The product  architectures also allow
the Company to add  enhancements  and new  technologies  to its systems  without
rendering existing products  obsolete.  The Company's  distributed  architecture
incorporates  VoIP and WAN  technologies  to  reduce  the cost of long  distance
message transmissions,  message retrievals,  voice signature transmissions,  and
prepaid  service  database  inquiries.  This  architecture  utilizes  lower cost
IP-based   packet-switched   networks  rather  than  more  costly,   traditional
circuit-switched methods, to reduce the network operators' cost of operation.

     The Company has  developed or  integrated  third-party  interfaces  for its
products  to most  circuit-switched  and IP  networks  used  around  the  world,
including  digital  interfaces,  such as T1, E1 and  ISDN,  SS7,  IP,  and VoIP,
designed  to  encompass   both  basic  network   connectivity   and  the  IN/AIN
capabilities of Intelligent  Peripherals and Service Nodes. The Company has also
developed Internet Protocols,  including WAP, cHTML, VPIM, POP3, IMAP4, HTTP and
HTML.  The  Company  has  implemented  facsimile   communication  and  intercept
protocols for Group 3 facsimile.  Certain of the Company's products  incorporate
LAN and WAN technologies  used for the transfer of digitized voice,  fax, video,
and modem information, as well as for the transfer of data among various network
elements.

     The Company utilizes  state-of-the-art mass storage technologies in many of
its  products.  A variable  number of disks may be configured in a disk array to
serve large numbers of users and to provide full or partial disk  redundancy for
critical  applications.  Special  algorithms  utilized  by the Company to handle
optical   disks   within  a  number  of  jukebox   devices   include   automatic
channel-to-disk  allocation,  automatic retrieval of multimedia information from
any  disk  located  in the  jukeboxes  and  redundant  archiving  on two or more
cartridges simultaneously.


                                     - 9 -
<PAGE>

RESEARCH AND DEVELOPMENT

     Because of the  continuing  technological  changes  that  characterize  the
telecommunications  and computer industries,  the Company's success will depend,
to a considerable  extent,  upon its ability to continue to develop  competitive
products  through its research and development  efforts.  The Company  currently
employs more than 2,500  scientists,  engineers and  technicians in its research
and development  efforts,  with broad  experience in the areas of digital signal
processing,    computer   architecture,    telephony,   IP,   data   networking,
multi-processing,  databases, real-time software design and application software
design, among others.

     A portion of the Company's research and development operations benefit from
financial  incentives  provided  by  government   instrumentalities  to  promote
research and  development  activities,  including  its research and  development
activities  situated in Israel. The cost of such efforts will be affected by the
continued  availability  of funding under such programs.  During the past fiscal
year,  the  Company's  research and  development  activities  included  projects
submitted for partial funding under a program  administered by the Office of the
Chief  Scientist  of the  Ministry of Industry and Trade of the State of Israel,
under which reimbursement of a portion of the Company's research and development
expenditures  will be made  subject to final  approval of project  budgets.  The
percentage  of  the  Company's  total  research  and  development   expenditures
reimbursed  under these programs has declined in recent years, and will continue
to decline with the growth in the Company's overall  operations,  the increasing
amount of research and  development  conducted by the Company at locations other
than those in which  reimbursement  programs  are  available  to it, and general
reductions  in program  budgets.  The  Company  pays  royalties  on its sales of
certain  products  developed in part with funding  supplied under such programs.
Permission  from the  government  of  Israel  is  required  for the  Company  to
manufacture  outside of Israel products  resulting from research and development
activities funded under such programs,  or to transfer outside of Israel related
technology  rights,  and in order to obtain such  permission  the Company may be
required to increase the royalties to the  applicable  funding  agencies  and/or
repay certain  amounts  received as  reimbursement  of research and  development
costs. See "Business--Licenses  and Royalties" and "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."


                                     - 10 -
<PAGE>


PATENTS AND INTELLECTUAL PROPERTY RIGHTS

     The Company holds a number of United States and foreign patents.  While the
Company files patent applications  periodically,  no assurance can be given that
patents will be issued on the basis of such applications or that, if patents are
issued,  the claims allowed will be sufficiently  broad to protect the Company's
technology.  In addition,  no assurance can be given that any patents  issued to
the Company will not be  challenged,  invalidated  or  circumvented  or that the
rights  granted  under the  patents  will  provide  significant  benefits to the
Company.

     In order to safeguard its unpatented  proprietary  know-how,  trade secrets
and technology,  the Company relies  primarily upon trade secret  protection and
non-disclosure  provisions in agreements with employees and others having access
to confidential information.  There can be no assurance that these measures will
adequately  protect the  Company  from  disclosure  or  misappropriation  of its
proprietary information.

     The Company and its customers from time to time receive communications from
third   parties,   including  some  of  the  Company's   competitors,   alleging
infringement  by  the  Company  of  such  parties'  patent  rights.  While  such
communications are common in the computer and telecommunications  industries and
the  Company  has in the past been  able to obtain  any  necessary  licenses  on
commercially  reasonable terms, there can be no assurance that the Company would
prevail in any  litigation  to enjoin the Company  from  selling  certain of its
products on the basis of such alleged infringement, or that the Company would be
able to license any valid patents on reasonable terms.

     In January  2000,  the Company  and Lucent  Technologies,  Inc.  ("Lucent")
entered into a non-exclusive  cross-licensing  arrangement  covering current and
certain  future patents issued to the Company and its affiliates and a portfolio
of  current  and  certain  future  patents  in the  area  of  telecommunications
technology issued to Lucent and its affiliates.

LICENSES AND ROYALTIES

     The Company  licenses certain  technology,  know-how and related rights for
use in the  manufacture  and  marketing of its products,  and pays  royalties to
third-parties  under such  licenses  and under  other  agreements.  The  Company
believes that its rights under such licenses and other agreements are sufficient
for  the  manufacturing  and  marketing  of its  products  and,  in the  case of
licenses, extend for periods at least equal to the estimated useful lives of the
related  technology  and know-how.  The Company  currently  pays  royalties on a
substantial  portion of its product  sales.  The royalties  vary in amount based
upon the revenues attributable to the various components of such products.


                                     - 11 -
<PAGE>

INTERNATIONAL SALES

     The Company  sells a  significant  amount of its products  outside of North
America.  International sales and marketing efforts may be adversely affected by
a number of factors,  including  the need for export  licenses;  instability  in
international trading relations; currency fluctuations;  and additional costs of
marketing,  service and support due to lack of proximity with the end-users.  In
certain cases, the Company's contracts are denominated in local currencies,  and
as  such,  the  Company  may be  adversely  affected  by  fluctuations  in those
currencies.  International sales of certain systems  manufactured by the Company
also are subject to a variety of legal restrictions governing the export of such
products.

     For additional  information  regarding foreign  operations,  see Note 19 of
Notes to  Consolidated  Financial  Statements and  "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations - Certain  Trends and
Uncertainties" appearing elsewhere in this report.

BACKLOG

     At January 31, 2001, the backlog of the Company  amounted to  approximately
$319,857,000.  Substantially  all of the  backlog is  expected  to be  delivered
within the next 12 months.

SERVICE AND SUPPORT

     The Company has a strong  commitment to provide product service and support
to its customers and emphasizes such commitment in its marketing. Because of the
intensity of use of systems by  telecommunications  network  operators and other
customers of the Company's products, and their low tolerance for down-time,  the
Company is  required  to make a greater  commitment  to service  and  support of
systems used by these customers, and such commitment increases operating costs.

     The Company's general warranty policy is to replace or repair any component
that fails  during a specified  warranty  period.  Broader  warranty and service
coverage is provided in many cases, and is sometimes made available to customers
on a contractual basis for an additional charge.

     The Company provides technical assistance from several locations around the
world.   Technical   support  is  available  for  the  Company's   customers  24
hours-a-day, seven days-a-week.



                                     - 12 -
<PAGE>

COMPETITION

     The  Company  faces  strong  competition  in  the  markets  for  all of its
products.  The  market  for ESP  systems  is highly  competitive,  and  includes
numerous products offering a broad range of features and capacities. The primary
competitors  are  suppliers  of turnkey ESP systems and  software,  and indirect
competitors that supply certain components to systems  integrators.  Many of the
Company's  competitors  specialize  in a subset of the  Company's  portfolio  of
services.  Direct and/or indirect competitors include, among others, ADC, Boston
Communications,    Cap   Gemini,   Cisco,   CMG,   Ericsson,    Glenayre,   IBM,
InterVoice-Brite,  Logica, Lucent,  Motorola,  Nokia, Openwave,  Sema, Tecnomen,
Telcordia,  and  Unisys.  Competitors  of the  Company  that  manufacture  other
telecommunications  equipment may derive a competitive  advantage in selling ESP
systems to customers  that are  purchasing or have  previously  purchased  other
compatible equipment from such manufacturers.

     Indirect   competition   is  provided  by  messaging  and  other   enhanced
communications  products employed at end-user sites as an alternative to the use
of  services  available  through   telecommunications  network  operators.  This
"enterprise  based  equipment"  includes  a broad  range  of  products,  such as
stand-alone  voicemail  systems,  answering  machines,  telephone  handsets with
voice-activated  dialing  and other  enhanced  services  capabilities,  products
offering "call processing" services that are supplied with voicemail features or
integrated with other voicemail systems, as well as personal computer modems and
add-on  cards  and  software   designed  to  furnish   enhanced   communications
capabilities.

     The Company  believes that  competition in the sale of ESP systems is based
on a number of factors,  the most  important  of which are product  features and
functionality,  system  capacity and  reliability,  marketing  and  distribution
capability and price.  Other important  competitive  factors include service and
support  and the  capability  to  integrate  systems  with a variety  of telecom
networks,  IP networks and  Operation  and Support  Systems  (OSS).  The Company
believes that the range of capabilities provided by, and the ease of use of, its
systems compare favorably with other products currently being marketed, and that
its  ESP  systems   are  the   leading   systems   designed   specifically   for
telecommunications  network operators.  The Company anticipates that a number of
its direct and  indirect  competitors  will be  introducing  new or improved ESP
systems during the next several years.

     The market in which Ultra products are sold is highly competitive.  Primary
competitors include ASC, Atis, e-Talk, Eyretel,  Lernout & Hauspie, Nice, Racal,
TEAC and  Witness.  The  InfoGate  product is sold to switch  vendors and public
networks.  Some of the switch vendors that have developed  competitive offerings
include Lucent, Nokia, Nortel, and Siemens. Other competitors include ADC, Atis,
and ETI.  The Company is aware of a number of  manufacturers  of  products  that
compete with the Reliant product line including Applied Signal,  Atis, ETI, GTE,
Harris,  JSI,  Nice,  and  Raytheon.  Competition  also  has  been  provided  by
manufacturers and integrators of custom designed computer and telecommunications
systems in response to



                                     - 13 -
<PAGE>

particular   government   procurements  in  specific  markets  where  they  have
entrenched customer relationships. The Loronix product line's primary competitor
is Nice. The government market in general is highly competitive and difficult to
penetrate,  and the Company may be at a competitive  disadvantage  in respect of
certain  customers and market segments as a result of its small size in relation
to  other   potential   vendors  and  the  existence  of   entrenched   customer
relationships with other vendors.

     Competitors  for Ulticom's  present and planned future  products  include a
number of  companies  ranging  from SS7 software  stack  providers,  such as ADC
NewNet and Trillium  Digital Systems,  to vendors of  communication  and network
infrastructure equipment, such as Compaq and Hewlett Packard's Agilent Group.

     Many of the Company's  present and potential  competitors are  considerably
larger than the Company,  are more established,  have a larger installed base of
customers and have greater financial, technical, marketing and other resources.

MANUFACTURING AND SOURCES OF SUPPLIES

     The Company's manufacturing  operations consist primarily of final assembly
and testing,  involving the application of extensive testing and quality control
procedures to materials, components, subassemblies and systems. The Company uses
third-parties to perform printed circuit board assembly,  component  testing and
sheet metal fabrication.  Although the Company generally uses standard parts and
components in its products, certain components are presently available only from
a limited  number  of  sources.  To date,  the  Company  has been able to obtain
adequate supplies of all components in a timely manner from existing sources or,
when  necessary,  from  alternative  sources.  However,  the inability to obtain
sufficient  quantities of components or to locate alternative  sources of supply
if  and  as  required  in the  future,  would  adversely  affect  the  Company's
operations.

     The  Company  maintains  organization-wide  quality  assurance  procedures,
coordinating  the quality  control  activities  of the  Company's  research  and
development,  manufacturing  and  service  departments.  The  Company's  primary
manufacturing   and   research  and   development   facilities   have   received
certification to Quality Standard ISO 9001.

CAPITAL MARKET ACTIVITIES

     The Company organized a subsidiary, CTI Capital Corp. ("CTI Capital"), that
directly and through a subsidiary in Israel, Comverse Investments Ltd., seeks to
identify and  implement  suitable  investments  for the Company,  and engages in
portfolio  investment and capital market  activities,  including venture capital
investments  directly and indirectly through private equity funds,  primarily in
Israel.  Through a joint  venture  formed by CTI  Capital  in  partnership  with
Quantum  Industrial  Holdings Ltd., an investment  company managed by Soros Fund
Management  LLC., the Company invests venture capital in high technology  firms,
and engages in other



                                     - 14 -
<PAGE>

investment  activities.  Comverse  also engages in direct  strategic and capital
management investment activities for its own account.

OPERATIONS IN ISRAEL

     A  substantial  portion  of the  Company's  research  and  development  and
manufacturing operations are located in Israel and, accordingly, may be affected
by economic,  political and military  conditions in that country.  To date,  the
Company's  operations have not been materially affected by armed conflict in the
Middle East,  but no assurances  can be given that  escalation of hostilities in
the future might not have a negative impact on the Company's business.

     Israel is a member of the United Nations, the International  Monetary Fund,
the International Bank for Reconstruction and Development, and the International
Finance Corporation,  and is a signatory to the General Agreement on Tariffs and
Trade,  which  provides  for  reciprocal  lowering of trade  barriers  among its
members. In addition,  Israel has been granted preferences under the Generalized
System of Preferences  from the United  States,  Australia,  Canada,  and Japan.
These  preferences  allow Israel to export the products covered by such programs
either duty-free or at reduced tariffs.

     Israel  and the  European  Union  are  parties  to a Free  Trade  Agreement
pursuant to which,  subject to rules of origin,  Israel's  industrial exports to
the European Union are exempt from customs duties and other non-tariff  barriers
and import restrictions.  Israel also has an agreement with the United States to
establish a Free Trade Area ("FTA")  which is intended  ultimately  to eliminate
all  tariff and  certain  non-tariff  barriers  on most  trade  between  the two
countries.  Under the FTA agreement,  most products received immediate duty-free
status in 1985,  and all tariffs  have since been  eliminated.  In 1993,  Israel
entered into an agreement  with the European  Free Trade  Association  ("EFTA"),
which includes Austria, Finland, Iceland, Liechtenstein, Norway and Switzerland,
that  established a free-trade  zone between  Israel and EFTA nations  exempting
manufactured  goods and some agricultural goods and processed foods from customs
duties,  while reducing duties on other goods.  The end of the Cold War has also
enabled  Israel to establish  commercial  and trade  relations  with a number of
nations,  including  Russia,  China,  India,  Turkey and the  nations of Eastern
Europe, with whom Israel had not previously had such relations.

     The  Company's  business  is also  dependent  to  some  extent  on  trading
relationships  between  Israel and other  countries.  Certain  of the  Company's
products incorporate  components imported into Israel from the United States and
other  countries and most of the Company's  products are sold outside of Israel.
Accordingly,  the  Company's  operations  would be  adversely  affected if major
hostilities  involving  Israel should occur or if trade  between  Israel and its
current trading  partners were  interrupted or curtailed.  The Company  benefits
from various  policies of the Government of Israel,  including  reduced taxation
and  special  subsidy  programs,   designed  to  stimulate   economic  activity,
particularly high technology  industry,  in that country.  As a condition of its
receipt of funds for various research and development  projects  conducted under

                                     - 15 -
<PAGE>

programs  sponsored  by the  Government  of Israel,  the Company has agreed that
products  resulting  from these  projects may not be  manufactured,  nor may the
technology  developed in the projects be transferred,  outside of Israel without
government consent.

     Israel's  economy  has in the past,  from  time to time,  been  subject  to
significant inflation.  This inflation in the past, and the associated increases
in salaries  that are linked by Israeli law to increases  in the consumer  price
index, have increased the cost of the Company's operations in Israel, and salary
costs  have  further  increased  as a  result  of the  growing  competition  for
qualified  scientific,  engineering  and  technical  personnel  in  Israel.  The
increases in costs in recent periods have not, in each instance,  been offset by
proportional  devaluation  of the Israeli shekel  against the U.S.  dollar,  and
accordingly  have had a  negative  impact on the  Company's  overall  results of
operations.

     The results of  operations of the Company have been  favorably  affected by
participation   in  Israeli   Government   programs   related  to  research  and
development,  as well  as  utilization  of  certain  tax  incentives  and  other
incentives  available under  applicable  Israeli laws and  regulations,  some of
which have been reduced,  discontinued or otherwise modified in recent years. In
addition,  the Company's ability to obtain benefits under various  discretionary
funding  programs  has  declined  and may  continue  to decline as its  internal
financial and operational  resources increase relative to other applicants.  The
results of  operations  of the  Company  could be  adversely  affected  if these
programs  were further  reduced or eliminated  and not replaced with  equivalent
programs or if its ability to  participate  in these programs were to be reduced
significantly.

EMPLOYEES

     At January 31, 2001, the Company employed  approximately 6,370 individuals,
of whom approximately 76% are scientists,  engineers and technicians  engaged in
research and development, marketing and support activities.

     The Company is not a party to any collective  bargaining or other agreement
with any labor  organization;  however,  certain  provisions  of the  collective
bargaining  agreements  between the  Histadrut  (General  Federation of Labor in
Israel) and the  Coordinating  Bureau of Economic  Organizations  (including the
Industrialists'  Association) are applicable to the Company's  Israeli employees
by order of the Israeli  Ministry of Labor.  Israeli law generally  requires the
payment  by  employers  of  severance  pay upon the  death of an  employee,  his
retirement or upon  termination of his employment,  and the Company provides for
such payment  obligations  through monthly  contributions  to an insurance fund.
Israeli employees and employers are required to pay  pre-determined  sums to the
National  Insurance  Institute,  which payment covers medical and other benefits
similar  to  the  benefits   provided  by  the  United  States  Social  Security
Administration.


                                     - 16 -
<PAGE>

     The  continuing  success of the  Company  will  depend,  to a  considerable
extent, on the contributions of its senior management and key employees, many of
whom would be difficult to replace,  and on the Company's ability to attract and
retain  qualified  employees in all areas of its business.  Competition for such
personnel  is  intense,  particularly  in the  computer  and  telecommunications
industries.  In order to attract and retain talented  personnel,  and to provide
incentives for their performance,  the Company has emphasized the award of stock
options as an important element of its compensation  program,  including options
to purchase shares in certain of the Company's  subsidiaries,  and provides cash
bonuses  based  on  several  parameters,  including  the  profitability  of  the
recipients' respective business units.

ITEM 2.  PROPERTIES.

     As of January 31, 2001,  the Company  leased an aggregate of  approximately
2,479,000 square feet of office space and manufacturing  and related  facilities
for its operations worldwide,  including  approximately 1,591,000 square feet in
Tel Aviv, Israel, approximately 367,000 square feet in Wakefield, Massachusetts,
approximately 77,000 square feet in Andover, Massachusetts, approximately 47,000
square  feet in  Woodbury,  New York,  approximately  85,000  square feet in Mt.
Laurel,  New Jersey,  approximately  23,000  square feet in Irvine,  California,
approximately  15,000  square feet in Durango,  Colorado,  and an  aggregate  of
approximately  274,000  square  feet at various  other  locations  in the United
States, Europe, the Far East, Australia, Latin America and Africa. The aggregate
base  monthly  rent for the  facilities  under  lease at  January  31,  2001 was
approximately  $2,990,000,  and  all of  such  leases  are  subject  to  various
pass-throughs and escalation adjustments.

     In September,  1999, the Company acquired approximately 423,000 square feet
of unimproved land in Ra'anana,  Israel, with a view to the future consolidation
and construction of facilities for its Israeli operations.

     The Company believes that its facilities currently under lease are adequate
for its current  operations,  and that additional  facilities can be acquired or
developed to provide for such future  expansion of the  Company's  operations as
may be warranted.


ITEM 3.  LEGAL PROCEEDINGS.

     The  Company  from time to time is subject  to claims in legal  proceedings
arising in the  ordinary  course of its  business.  There are  currently no such
claims that  individually or in the aggregate are believed by management to pose
any material risk to its business or financial condition.



                                     - 17 -
<PAGE>

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the last fiscal year.


                                     - 18 -
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS.

     The Common  Stock  trades on the NASDAQ  National  Market  System under the
symbol CMVT.  The following  table sets forth the range of closing prices of the
Common  Stock as  reported on NASDAQ for the past two fiscal  years.  All prices
have been  adjusted to reflect the  three-for-two  stock split,  effected in the
form of a stock  dividend,  distributed on April 15, 1999,  and the  two-for-one
stock split,  effected in the form of a stock dividend,  distributed on April 3,
2000.

              Year       Fiscal Quarter            Low        High

              1999       2/1/99 - 4/30/99         21.81       33.06
                         5/1/99 - 7/31/99         30.69       40.69
                         8/1/99 -10/31/99         33.59       56.75
                        11/1/99 - 1/31/00         54.81       76.97

              2000       2/1/00 - 4/30/00         68.06      119.69
                         5/1/00 - 7/31/00         65.25      102.75
                         8/1/00 -10/31/00         76.06      114.81
                        11/1/00 - 1/31/01         86.19      121.63

     There were 2,011 holders of record of Common Stock at April 23, 2001.  Such
record holders  include a number of holders who are nominees for an undetermined
number of beneficial  owners. The Company believes that the number of beneficial
owners of the shares of Common Stock  outstanding at such date was approximately
30,000.

     The  Company  has not  declared  or paid any cash  dividends  on its equity
securities  and does not  expect to pay any cash  dividends  in the  foreseeable
future, but rather intends to retain its earnings to finance the development and
growth of the Company's business. Any future determination as to the declaration
and  payment  of  dividends  will be  made  by the  Board  of  Directors  in its
discretion,  and will depend upon the Company's earnings,  financial  condition,
capital  requirements and other relevant factors.  See "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations--Liquidity  and
Capital Resources."

     The  following  is a summary  of the  transactions  during  the year  ended
January 31, 2001  involving a sale of the  Company's  securities  which were not
registered under the Securities Act of 1933 (the "Securities Act"):

     On November 22, 2000 and December 12, 2000, the Company completed a private
placement  under Section 4(2) of the  Securities  Act of $600 million  aggregate
principal amount of



                                     - 19 -
<PAGE>

1.50% Senior Convertible  Debentures due 2008 (the "Convertible  Debentures") to
Lehman Brothers Inc. (the "Initial Purchaser").  The Convertible  Debentures are
convertible  into  shares of Common  Stock at any time  prior to  redemption  or
maturity,  at a  conversion  price of $116.325  per share (equal to a conversion
rate of 8.5966 shares per $1,000  principal  amount of Convertible  Debentures),
subject to adjustment under certain  circumstances.  The Convertible  Debentures
were  originally  issued by the Company to the Initial  Purchaser  at a price of
98.125% of their principal  amount,  and were  subsequently  sold by the Initial
Purchaser  to  "qualified  institutional  buyers" in  transactions  exempt  from
registration  pursuant  to Rule  144A  under the  Securities  Act.  The  Company
subsequently filed a Registration Statement on Form S-3 covering the Convertible
Debentures and the underlying Common Stock.

     On August 30, 2000,  the Company  acquired all of the  outstanding  capital
stock  of  Exalink  Ltd.  ("Exalink"),  a  company  in  Israel  specializing  in
router-based wireless application protocol gateways and application software for
the delivery of Internet-based services to wireless devices, in exchange for the
issuance of 5,261,211 shares of Common Stock to the former Exalink  shareholders
and the assumption by the Company of Exalink's outstanding options. The sales of
Common Stock in connection with this transaction  were exempt from  registration
pursuant  to  Regulation  S under the  Securities  Act and  Section  4(2) of the
Securities Act. The Company subsequently filed a Registration  Statement on Form
S-3  covering  the resale of the Common  Stock  issued in  connection  with this
transaction.

     On August 8, 2000,  the Company  acquired  all of the  outstanding  capital
stock  of  Gaya  Software   Industries  Ltd.  ("Gaya"),   a  company  in  Israel
specializing  in  software-based  intelligent  Internet  protocol  gateways  and
voice-over-Internet-protocol technology, in exchange for the issuance of 283,758
shares of the  Company's  Common Stock to the former Gaya  shareholders  and the
assumption by the Company of Gaya's outstanding options and warrants.  The sales
of  Common  Stock  in  connection  with  this   transaction   were  exempt  from
registration  pursuant to  Regulation  S under the  Securities  Act. The Company
subsequently  filed a Registration  Statement on Form S-3 covering the resale of
the Common Stock issued in connection with this transaction.

     On July 31, 2000,  the Company  acquired all of the  outstanding  shares of
Syborg  Informationsysteme  GmbH  ("Syborg"),  a German  company  that  develops
software-based  digital voice and Internet  recording  and workforce  management
systems,  in exchange for the issuance of 201,251 shares of the Company's Common
Stock to the former Syborg shareholders. The sales of Common Stock in connection
with this  transaction  were exempt from  registration  pursuant to Regulation S
under  the  Securities  Act.  The  Company  subsequently  filed  a  Registration
Statement  on Form S-3  covering  the  resale  of the  Common  Stock  issued  in
connection with this transaction.


                                     - 20 -
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

     The following tables present selected  consolidated  financial data for the
Company for each of the years in the two years ended  December 31, 1997, the one
month period ended January 31, 1998, and the years ended January 31, 1999,  2000
and  2001.  Such  information  has  been  derived  from  the  Company's  audited
consolidated  financial  statements and should be read in  conjunction  with the
Company's  consolidated  financial  statements and the notes to the consolidated
financial   statements   included   elsewhere  in  this  report.  All  financial
information  presented  herein has been  retroactively  adjusted for the January
1998 merger with Boston  Technology,  Inc.  ("Boston")  and the July 2000 merger
with  Loronix  Information  Systems,  Inc.  ("Loronix")  to  account  for  those
transactions  as pooling of  interests.  All per share data has been restated to
reflect  a  three-for-two  stock  split  effected  as a 50%  stock  dividend  to
shareholders  of record on March 31, 1999,  distributed on April 15, 1999, and a
two-for-one  stock split  effected as a 100% stock dividend to  shareholders  of
record on March 27, 2000, distributed on April 3, 2000.

<TABLE>
<CAPTION>
                                                                                 Transition
                                                              Year Ended         Period Ended                 Year Ended
                                                              December 31,        January 31,                 January 31,
                                                        ----------------------   ------------     ----------------------------------
                                                        1996(1)(4)   1997(2)(4)      1998          1999(4)     2000(4)         2001
                                                                           (In thousands, except per share data)
<S>                                                      <C>         <C>         <C>              <C>         <C>         <C>
   Statement of Operations Data:
     Sales                                               $400,555    $498,343    $  14,401        $708,805    $909,667    $1,225,058
     Cost of sales                                        175,484     209,325       21,146(3)      288,113     352,748       460,630
     Research and development, net                         67,209      98,152       13,481         134,201     169,816       232,198
     Selling, general and administrative                   96,685     142,055       51,892(3)      157,106     193,996       259,607
     Royalties and license fees                            10,443      12,325          520          16,552      18,841        22,028
     Merger expenses                                           --          --       41,877              --       2,016        15,971
     Interest and other income, net                         2,674       4,957          175           8,315      16,595        33,339
     Income (loss) before
           income tax provision                            53,499      41,443     (114,340)        121,148     188,845       267,963
     Income tax provision                                  10,331       9,430          867          11,783      15,698        18,827
                                                         --------    --------    ---------        --------    --------    ----------
     Net income (loss)                                   $ 43,168    $ 32,013    $(115,207)       $109,365    $173,147    $  249,136
                                                         ========    ========    =========        ========    ========    ==========

     Earnings (loss) per share - diluted                 $   0.34    $   0.23    $   (0.89)       $   0.75    $   1.08    $     1.39
                                                         ========    ========    =========        ========    ========    ==========

Weighted average number of
   common and common equivalent
     shares outstanding - diluted                         134,952     139,702      130,060         145,439     178,986       189,964
</TABLE>
<TABLE>
<CAPTION>
                                                      December 31,                                January 31,
                                               ------------------------     --------------------------------------------------------
                                               1996(5)(6)    1997(6)(7)       1998          1999(6)        2000(6)            2001
                                                                                (In thousands)
<S>                                             <C>           <C>           <C>           <C>             <C>             <C>
Balance Sheet Data:
  Working capital                               $342,139      $402,901      $280,793      $  712,165      $  858,304      $1,860,379
  Total assets                                   533,847       636,342       527,652       1,042,959       1,372,847       2,625,264
  Long-term debt, including
    current portion                              117,605       142,790       124,257         416,327         308,082         906,723
  Stockholders' equity                           302,477       357,514       231,390         390,855         724,839       1,236,165
</TABLE>

(1)  Includes results for Boston for its fiscal year ended January 31.

(2)  Includes results for Boston for the 11 months ended December 31, 1997.

(3)  Includes  approximately  $7.8 million in cost of sales and $36.1 million in
     selling,  general  and  administrative  expenses  relating  to charges as a
     result of the merger with Boston.

(4)  Includes the results of Loronix for its fiscal year ended December 31.

(5)  Includes amounts for Boston as of its fiscal year ended January 31.

(6)  Includes amounts for Loronix as of its fiscal year ended December 31.

(7)  Includes amounts for Boston as of December 31, 1997.

                                     - 21 -
<PAGE>

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

RESULTS OF OPERATIONS

INTRODUCTION

     In July 2000,  Comverse  acquired all of the  outstanding  stock of Loronix
Information Systems,  Inc., a Nevada corporation  ("Loronix"),  in a transaction
accounted for as a pooling of interests.  The Company's financial statements for
the years ended January 31, 2000 and 1999 include the  operations of Loronix for
the years ended December 31, 1999 and 1998, respectively.

     Cost of sales  include  material  costs,  subcontractor  costs,  salary and
related  benefits for the operations and service  departments,  depreciation and
amortization  of  equipment  used in the  operations  and  service  departments,
amortization  of  capitalized  software  costs,  travel  costs  and an  overhead
allocation.  Research and development  costs include salary and related benefits
as well as travel,  depreciation  and  amortization  of research and development
equipment,  an  overhead  allocation,  as well as other  costs  associated  with
research and development activities.  Selling,  general and administrative costs
include salary and related  benefits,  travel,  depreciation  and  amortization,
marketing and promotional  materials,  recruiting  expenses,  professional fees,
facility costs, as well as other costs associated with sales, marketing, finance
and administrative departments.


Year Ended January 31, 2001 Compared to Year Ended January 31, 2000

     Sales.  Sales for the fiscal year ended  January 31, 2001  ("fiscal  2000")
increased by approximately  $315.4 million,  or 35%,  compared to the year ended
January 31, 2000 ("fiscal 1999"). This increase is primarily  attributable to an
increase in sales of ESP products of approximately $277.2 million. Such increase
was principally due to increased  sales to European and American  customers.  In
addition, sales of business intelligence recording products and service enabling
network software  products  increased by  approximately  $23.8 million and $18.7
million, respectively.

     Cost of Sales.  Cost of sales for fiscal 2000  increased  by  approximately
$107.9  million,  or 31%, as compared to fiscal  1999.  The  increase in cost of
sales is primarily  attributable to (i) increased materials and production costs
of  approximately  $62.3  million due to the increase in sales,  (ii)  increased
personnel-related  costs  of  approximately  $30.3  million  due  to  hiring  of
additional  personnel  and  increased  compensation  and  benefits  for existing
personnel,  (iii) increased  travel-related  costs of approximately $7.1 million
and (iv) an increase in depreciation  and  amortization  costs of  approximately
$4.3 million.  Gross margins increased from  approximately 61% in fiscal 1999 to
approximately 62% in fiscal 2000.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  for  fiscal  2000  increased  by  approximately  $65.6
million,  or 34%,  compared to fiscal  1999,  and as a  percentage  of sales was
approximately  21% in both  fiscal  1999  and  fiscal  2000.  The  increase  was
primarily due to hiring of additional  personnel and increased  compensation and
benefits for existing  personnel to support the increased  level of sales during
fiscal 2000.


                                     - 22 -
<PAGE>

     Research and Development.  Net research and development expenses for fiscal
2000 increased by approximately  $62.4 million,  or 37%, compared to fiscal 1999
due to overall growth of research and development  operations and the initiation
of significant new research and development projects. The increase was primarily
due to hiring of additional  personnel and increased  compensation  and benefits
for existing  personnel to support the higher volume of research and development
activities.

     Royalties  and License  Fees.  Royalties  and license  fees for fiscal 2000
increased by approximately  $3.2 million,  or 17%,  compared to fiscal 1999. The
increase  was  primarily  a result  of the  growth in sales of  royalty  bearing
products.

     Merger  Expenses.  In  February  1999,  the  Company  acquired  all  of the
outstanding  stock  of  Amarex   Technology,   Inc.,  a  company  that  develops
software-based  applications for the telephone  network operator and call center
markets.  In August 1999, the Company  acquired all of the outstanding  stock of
InTouch  Systems,  Inc.,  a  company  that  develops  and  markets  a  suite  of
intelligent  voice-controlled  software applications.  In July 2000, the Company
acquired  all of the  outstanding  stock of  Loronix,  a company  that  develops
software-based  digital video recording and management  systems,  and all of the
outstanding  stock of Syborg  Informationsysteme  GmBH, a company that  develops
software-based  digital voice and internet  recording  and workforce  management
systems.  In August 2000, the Company  acquired all of the outstanding  stock of
Gaya  Software  Industries  Ltd.,  a  company   specializing  in  software-based
intelligent IP gateways and voice-over-IP technology, and all of the outstanding
stock  of  Exalink  Ltd.,  a  company  specializing  in  protocol  gateways  and
applications  software for the delivery of Internet-based  services to all types
of wireless devices.  These business  combinations were accounted for as pooling
of interests.

     In  connection  with the above  acquisitions,  the  Company  has charged to
operations  approximately  $2.0  million  and $16.0  million in fiscal  1999 and
fiscal 2000,  respectively,  for merger related charges.  Such charges relate to
the following:

     Asset write-downs and impairments

     In connection with the  acquisitions in fiscal 2000,  certain assets became
impaired due to the existence of duplicative technology,  property and equipment
and inventory of the merged  companies.  Accordingly,  these assets were written
down to their net  realizable  value at the time of the  mergers and a charge of
approximately $7.4 million was charged to operations.

     Professional fees and other direct merger expenses

     In connection  with the  acquisitions  in fiscal 1999 and fiscal 2000,  the
Company  recorded  a charge of  approximately  $2.0  million  and $8.6  million,
respectively,   for  professional  fees  to  lawyers,   investment  bankers  and
accountants,  as well as  other  direct  merger  costs  in  connection  with the
mergers, such as printing costs and filing fees.



                                     - 23 -
<PAGE>

     Interest and Other Income,  Net. Interest and other income, net, for fiscal
2000  increased by  approximately  $16.7 million as compared to fiscal 1999. The
principal reasons for the increase are increased interest and dividend income of
approximately  $26.7  million,  a change in  foreign  currency  gains/losses  of
approximately  $8.8 million and a decrease in interest  expense of approximately
$1.4  million.  These  increases  were  partially  offset by an  increase in net
realized losses and  write-downs on the Company's  investments and the equity in
the earnings of  affiliates  of  approximately  $20.7  million.  In November and
December 2000 the Company issued $600 million convertible senior debentures with
the  interest  income  earned on the proceeds of such  debentures  adding to the
increase  in  interest  and  dividend  income in fiscal  2000.  The  decrease in
interest  expense is  primarily a result of the  inclusion in fiscal 1999 of the
Company's 5-3/4% convertible subordinated debentures redeemed in October 1999.

     Income Tax Provision. Provision for income taxes increased from fiscal 1999
to fiscal 2000 by approximately  $3.1 million,  or 20%, due to increased pre-tax
income. The Company's overall effective tax rate decreased from approximately 8%
during fiscal 1999 to  approximately  7% in fiscal 2000.  The Company's  overall
rate  of tax is  reduced  significantly  by the  tax  benefits  associated  with
qualified activities of certain of its Israeli subsidiaries,  which are entitled
to  favorable  income tax rates  under a program of the Israeli  Government  for
"Approved Enterprise" investments in that country.

     Net Income. Net income increased by approximately $76.0 million, or 44%, in
fiscal 2000 compared to fiscal 1999,  while as a percentage  of sales  increased
from  approximately  19% in fiscal 1999 to approximately 20% in fiscal 2000. The
increase resulted primarily from the factors described above.

Year Ended January 31, 2000 Compared to Year Ended January 31, 1999

     Sales. Sales for fiscal 1999 increased by approximately  $200.9 million, or
28%,  compared to fiscal  year ended  January 31,  1999  ("fiscal  1998").  This
increase is  primarily  attributable  to an increase in sales of ESP products of
approximately  $161.5  million.  Such increase was  principally due to increased
sales  to  European  customers.  In  addition,  sales of  business  intelligence
recording  products and service enabling network software products  increased by
approximately $31.3 million and $6.3 million, respectively.

     Cost of Sales.  Cost of sales for fiscal 1999  increased  by  approximately
$64.6 million, or 22%, as compared to fiscal 1998. The increase in cost of sales
is  primarily  attributable  to  increased  materials  and  production  costs of
approximately   $40  million  due  to  the  increase  in  sales  and   increased
personnel-related costs of approximately $23 million due to hiring of additional
personnel and increased compensation and benefits for existing personnel.  Gross
margins increased from  approximately 59% in fiscal 1998 to approximately 61% in
fiscal 1999.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  for  fiscal  1999  increased  by  approximately  $36.9
million, or 23%, compared to fiscal 1998, but as a percentage of sales decreased
from  approximately  22% in fiscal 1998 to approximately 21% in fiscal 1999. The
increase was primarily due to hiring of additional



                                     - 24 -
<PAGE>

personnel  and  increased  compensation  and benefits for existing  personnel to
support the increased level of sales during fiscal 1999.

     Research and Development.  Net research and development expenses for fiscal
1999 increased by approximately  $35.6 million,  or 27%, compared to fiscal 1998
due to overall growth of research and development  operations and the initiation
of significant new research and development projects. The increase was primarily
due to hiring of additional  personnel and increased  compensation  and benefits
for existing  personnel to support the higher volume of research and development
activities.

     Royalties  and License  Fees.  Royalties  and license  fees for fiscal 1999
increased by approximately  $2.3 million,  or 14%,  compared to fiscal 1998. The
increase  was  primarily  a result  of the  growth in sales of  royalty  bearing
products.

     Interest and Other Income,  Net. Interest and other income, net, for fiscal
1999  increased by  approximately  $8.3 million as compared to fiscal 1998.  The
principal reasons for the increase are increased interest and dividend income of
approximately  $11.3  million  and  increased  realized  gains on the  Company's
investments  of  approximately  $11.2  million.  These  increases were partially
offset by increased  interest expense of approximately $3.3 million and a change
in foreign currency gains/losses of approximately $12.3 million. The increase in
interest and dividend  income and interest  expense is primarily a result of the
inclusion  for a full  year  in  fiscal  1999  of  the  Company's  $300  million
convertible subordinated debentures issued in June 1998.

     Income Tax Provision. Provision for income taxes increased from fiscal 1998
to fiscal 1999 by approximately  $3.9 million,  or 33%, due to increased pre-tax
income.  The Company's overall  effective tax rate decreased from  approximately
10% during fiscal 1998 to approximately 8% in fiscal 1999. The Company's overall
rate  of tax is  reduced  significantly  by the  tax  benefits  associated  with
qualified activities of certain of its Israeli subsidiaries,  which are entitled
to  favorable  income tax rates  under a program of the Israeli  Government  for
"Approved Enterprise" investments in that country.

     Net Income. Net income increased by approximately $63.8 million, or 58%, in
fiscal 1999 compared to fiscal 1998,  while as a percentage  of sales  increased
from  approximately  15% in fiscal 1998 to approximately 19% in fiscal 1999. The
increase resulted primarily from the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

     The   Company's   working   capital  at  January  31,  2001  and  2000  was
approximately $1,860.4 million and $858.3 million, respectively.

     Operations for fiscal 2000,  fiscal 1999 and fiscal 1998, after adding back
non-cash items,  provided cash of approximately  $309.7 million,  $208.1 million
and $131.5 million,  respectively.  During such years,  other changes in working
capital  used cash of  approximately  $65.2  million,



                                     - 25 -
<PAGE>

$30.8 million and $27.8 million, respectively,  resulting in cash being provided
by operating  activities of  approximately  $244.5  million,  $177.4 million and
$103.6 million, respectively.

     Investment  activities  for fiscal  2000,  fiscal 1999 and fiscal 1998 used
cash  of  approximately  $207.3  million,  $475.7  million  and  $10.5  million,
respectively.  These  amounts  include  (i)  additions  to  property,  plant and
equipment in fiscal  2000,  fiscal 1999 and fiscal 1998 of  approximately  $97.3
million,  $85.6 million and $25.6  million,  respectively;  (ii)  maturities and
sales  (purchases) of bank time deposits and investments,  net, of approximately
($94.5)  million,  ($377.6) million and $24.3 million,  respectively;  and (iii)
capitalization  of software  development  costs of approximately  $15.5 million,
$12.5 million and $9.1 million,  respectively. The property additions in each of
fiscal 2000 and fiscal 1999 include the increase of the  Company's  fixtures and
equipment  as a result of the  growth  of the  Company  and in  fiscal  1999 the
purchase  of land by the  Company  of  approximately  $25.8  million  for future
construction  purposes.  In addition, in each of fiscal 2000 and fiscal 1999 the
Company increased the amount of its bank time deposits and investments to better
utilize  the  net  proceeds  of the  2000  and  1998  issuances  of  convertible
debentures.

     Financing  activities for fiscal 2000, fiscal 1999 and fiscal 1998 provided
cash  of  approximately  $894.1  million,  $53.6  million  and  $308.3  million,
respectively.  These  amounts  include (i) the net proceeds from the issuance of
convertible  debentures in fiscal 2000 and fiscal 1998 of  approximately  $588.4
million and $292.7  million,  respectively;  (ii)  proceeds from the issuance of
common  stock in  connection  with the exercise of stock  options,  warrants and
employee stock purchase plan of approximately $111.4 million,  $50.6 million and
$36.2 million,  respectively;  (iii) net proceeds (repayments) of bank loans and
other debt of  approximately  ($0.9) million,  $3.1 million and ($20.6) million,
respectively;  and (iv) net  proceeds  from the  issuance  of common  stock of a
subsidiary in connection with public  offerings in fiscal 2000 of  approximately
$195.2 million.

     In November  2000,  the Company  issued $500  million  aggregate  principal
amount of its 1.50% convertible senior debentures due December 2005. In December
2000, the Company issued an additional $100 million  aggregate  principal amount
of its 1.50% convertible  senior debentures due December 2005 as a result of the
initial purchaser exercising in full their over-allotment option.

     As of January 31, 2001, the Company had outstanding  convertible debentures
of $900 million.

     The Company believes that its existing working capital, together with funds
generated  from  operations,  will be  sufficient  to  provide  for its  planned
operations for the foreseeable future.

     The Company regularly examines  opportunities for strategic acquisitions of
other  companies or lines of business and  anticipates  that it may from time to
time  issue   additional  debt  and/or  equity   securities   either  as  direct
consideration  for such acquisitions or to raise additional funds to be used (in
whole or in part) in payment for acquired  securities or assets. The issuance of
such  securities  could be expected to have a dilutive  impact on the  Company's
shareholders,



                                     - 26 -
<PAGE>

and there can be no assurance as to whether or when any acquired  business would
contribute   positive   operating  results   commensurate  with  the  associated
investment.

     The Company's  liquidity and capital  resources  have not been, and are not
anticipated to be, materially affected by restrictions pertaining to the ability
of its foreign  subsidiaries to pay dividends or by withholding taxes associated
with any such dividend payments.

CERTAIN TRENDS AND UNCERTAINTIES

     The  Company's  future  operating  results and  financial  condition may be
adversely  affected  should  current  conditions  of general  economic  weakness
continue.  Revenues  from  the  Company's  business  intelligence  products  are
currently  being  adversely  affected by reductions in capital  expenditures  by
end-users.  The Company's revenues from telecommunications  systems and software
may be  adversely  affected  by the  slowdown  in  infrastructure  purchases  by
telecommunications  services  providers  exhibited  in  recent  periods,  and by
declines in technology  expenditures in general, if such conditions continue. In
addition,  the severe  recent  decline in the  public  trading  prices of equity
securities,  particularly in the technology and telecommunications  sectors, and
potential  corresponding  decline  in values  of  privately-held  companies  and
venture  capital funds in which the Company has invested,  may adversely  affect
the Company's financial results and costs of operations.

     The Company has benefited  from the growth in its business and capital base
over the past several years to make significant investment in its operations and
infrastructure,  the  development  of new  products  and  technologies  and  its
expansion into new lines of business  intended to enhance its  opportunities for
future  growth  and  profitability.  The  Company  intends to  continue  to make
significant   investment  in  the  growth  of  its  business,   and  to  examine
opportunities   for  additional   growth  through   acquisitions  and  strategic
investments.  These activities involve significant  expenditures and obligations
that cannot readily be curtailed or reduced if anticipated  growth in demand for
the associated products does not materialize or is delayed.  The impact of these
decisions on future  profitability  cannot be predicted with assurance,  and the
Company's  commitment to growth may increase its  vulnerability  to downturns in
its markets, technology changes and shifts in competitive conditions.

     The telecommunications industry has been particularly affected by worldwide
conditions of economic  weakness.  Telecommunications  services  providers  have
announced  reductions  in actual or  planned  future  expenditures  to expand or
replace  infrastructure  equipment and delays or reductions in the deployment of
services,  and a large number of  telecommunications  equipment  providers  have
announced  reductions  in  projected  revenues  and  deterioration  in projected
operating results. While the Company's revenues and net income have continued to
grow in recent periods, the continuation and/or exacerbation of those conditions
may have an adverse effect on the Company's future results.  In addition to loss
of potential revenue, weakness in the telecommunications industry may affect the
Company's  business by  increasing  the risks of credit or business  failures of
suppliers,  customers  or  distributors,  by  customer  requirements  for vendor
financing, by delays in customer payments, and by price reductions instituted by
competitors to retain market share.




                                     - 27 -
<PAGE>

     The  telecommunications  industry is subject to rapid technological change.
The  introduction of new technologies in the  telecommunications  market and new
alternatives  for the  delivery of services  are having,  and can be expected to
continue to have, a profound effect on competitive  conditions in the market and
the  success  of market  participants,  including  the  Company.  The  Company's
continued   success  will  depend  on  its  ability  to   correctly   anticipate
technological trends in its industries, to react quickly and effectively to such
trends and to enhance its existing  products and to introduce  new products on a
timely and cost-effective  basis. The Company's  products involve  sophisticated
hardware and software  technology  that  performs  critical  functions to highly
demanding  standards.  There can be no assurance  that the Company's  current or
future  products  will not  develop  operational  problems,  which  could have a
material adverse effect on the Company.

     The  telecommunications  industry  is  undergoing  significant  change as a
result of deregulation and  privatization  worldwide,  reducing  restrictions on
competition in the industry.  Unforeseen  changes in the regulatory  environment
may have an impact on the Company's  revenues  and/or costs in any given part of
the world.  The worldwide ESP system industry is already highly  competitive and
the Company expects competition to intensify. The Company believes that existing
competitors  will continue to present  substantial  competition,  and that other
companies,  many  with  considerably  greater  financial,  marketing  and  sales
resources than the Company, may enter the ESP system markets.  Moreover,  as the
Company enters into new markets as a result of its own research and  development
efforts or acquisitions, it is likely to encounter new competitors.

     The market for telecommunications monitoring systems is also in a period of
significant transition. Budgetary constraints,  uncertainties resulting from the
introduction  of new  technologies  in the  telecommunications  environment  and
shifts in the pattern of government  expenditures  resulting  from  geopolitical
events  have  increased  uncertainties  in  the  market,  resulting  in  certain
instances in the  attenuation of government  procurement  programs  beyond their
originally  expected  performance  periods and an increased  incidence of delay,
cancellation or reduction of planned projects.  Sales of the Company's  business
intelligence  systems  to  customers  in the  private  sector  have been and may
continue  to be affected by general  economic  conditions  and delays in planned
capital  expenditures by enterprise  customers.  Competitive  conditions in this
sector  have also been  affected  by the  increasing  use by  certain  potential
government  customers of their own internal  development  resources  rather than
outside vendors to provide certain technical solutions. In addition, a number of
established government  contractors,  particularly developers and integrators of
technology products, have taken steps to redirect their marketing strategies and
product  plans in reaction to  cut-backs  in their  traditional  areas of focus,
resulting in an increase in the number of competitors  and the range of products
offered  in  response  to  particular  requests  for  proposals.   The  lack  of
predictability in the timing and scope of government procurements have similarly
made planning decisions more difficult and have increased the associated risks.

     The Company has historically derived a significant portion of its sales and
operating  profit  from  contracts  for large  system  installations  with major
customers.  The Company  continues to emphasize  large  capacity  systems in its
product development and marketing



                                     - 28 -
<PAGE>

strategies.  Contracts for large  installations  typically involve a lengthy and
complex bidding and selection process,  and the ability of the Company to obtain
particular  contracts is inherently  difficult to predict.  The Company believes
that  opportunities  for large  installations  will continue to grow in both its
commercial  and  government  markets,  and  intends  to  continue  to expand its
research and development, manufacturing, sales and marketing and product support
capabilities in anticipation  of such growth.  However,  the timing and scope of
these  opportunities  and the pricing and margins  associated  with any eventual
contract  award are  difficult  to  forecast,  and may vary  substantially  from
transaction  to  transaction.   The  Company's  future  operating   results  may
accordingly  exhibit a higher degree of volatility than the operating results of
other companies in its industries that have adopted  different  strategies,  and
than the Company has  experienced in prior periods.  The degree of dependence by
the Company on large system orders,  and the  investment  required to enable the
Company to perform such orders,  without assurance of continuing order flow from
the same  customers and  predictability  of gross margins on any future  orders,
increase the risk associated with its business.

     The Company has  significantly  increased its  expenditures in all areas of
its  operations  during  recent  periods,  including  the areas of research  and
development and marketing and sales. The Company's costs of operations have been
affected by increases in the cost of its  operations in Israel,  resulting  both
from  appreciation of the Israeli shekel relative to the United States dollar in
certain periods and  devaluation of the Israeli shekel at rates  insufficient to
offset cost  increases in others,  and from  increases in the cost of attracting
and retaining  qualified  scientific,  engineering  and  technical  personnel in
Israel, where the demand for such personnel has grown rapidly with the expansion
of high technology industries in that country. Continuation of such trends could
have a material adverse effect on the Company's future results of operations.

     A  significant  portion  of the  Company's  research  and  development  and
manufacturing  operations  are  located  in  Israel.  The  Company's  historical
operating  results  reflect  substantial  benefits it has received from programs
sponsored by the Israeli government for the support of research and development,
as well as tax moratoriums and favorable tax rates  associated with  investments
in approved  projects  ("Approved  Enterprises")  in Israel.  To be eligible for
these programs and tax benefits,  the Company must continue to meet  conditions,
including  making  specified   investments  in  fixed  assets  and  financing  a
percentage of investments with share capital.  If the Company fails to meet such
conditions  in the future,  the tax  benefits  would be canceled and the Company
could be required to refund the tax benefits already received.

     These  programs  and tax benefits may not be continued in the future at the
current  levels or at any level,  and the  availability  of such benefits may be
affected by budgetary  constraints  resulting from adverse economic  conditions.
The Israeli  government has reduced the benefits  available  under some of these
programs in recent years, and Israeli government authorities have indicated that
the  government  may further  reduce or eliminate  some of these benefits in the
future. The Company currently pays royalties,  of between 3% and 5% (or 6% under
certain  circumstances) of associated  product revenues  (including  service and
other related  revenues),  to the Government of Israel for repayment of benefits
received  under a conditional  grant program  administered  by the Office of the
Chief  Scientist of the  Ministry of Industry and Trade,  a program in which the
Company  has  regularly  participated  and under which it  continues  to



                                     - 29 -
<PAGE>

receive  significant  benefits  through  reimbursement of up to 50% of qualified
research and development expenditures.  Such royalty payments are required to be
made until the  government  has been  reimbursed  the  amounts  received  by the
Company plus, for amounts received under projects  approved by the Office of the
Chief Scientist  after January 1, 1999,  interest on such amount at a rate equal
to the  12-month  LIBOR  rate in effect at the time of  approval.  In  addition,
permission  from the  Government  of  Israel  is  required  for the  Company  to
manufacture  outside of Israel products  resulting from research and development
activities funded under these programs, or to transfer outside of Israel related
technology  rights.  In order to obtain  such  permission,  the  Company  may be
required to increase the royalties to the  applicable  funding  agencies  and/or
repay certain  amounts  received as  reimbursement  of research and  development
costs.  The Israeli  authorities  have also indicated that this funding  program
will be further reduced significantly or eliminated in the future,  particularly
for larger companies such as the Company.  The termination or reduction of these
programs could adversely affect the Company's operating results.

     The Israeli  government has also shortened the period of the tax moratorium
applicable to Approved  Enterprises from four years to two years.  Although this
change has not  affected  the tax  status of the  Company's  projects  that were
eligible for the  moratorium  prior to 1997, it applies to subsequent  "Approved
Enterprise"  projects.  Recently,  the government announced a proposal to impose
additional  limitations on the tax benefits  associated with Approved Enterprise
projects for certain  categories of taxpayers,  which would include the Company,
although it has not submitted legislation to the Israeli Parliament.  If further
changes in the law or  government  policies  regarding  those  programs  were to
result in their termination or adverse  modification,  or if the Company were to
become unable to participate in, or take advantage of, those programs,  the cost
of the  Company's  operations  in Israel  would  increase  and there  could be a
material adverse effect on the Company's  operations and financial  results.  To
the extent that the Company increases its activities outside Israel, which could
result from, among other things, future acquisitions,  such increased activities
will not be eligible for programs sponsored by Israel.

     The Company currently derives a significant portion of its total sales from
customers  outside  of the United  States.  International  transactions  involve
particular  risks,  including  political  decisions  affecting tariffs and trade
conditions,  rapid and unforeseen  changes in economic  conditions in individual
countries,  turbulence  in foreign  currency and credit  markets,  and increased
costs  resulting  from  lack  of  proximity  to  the  customer.   Volatility  in
international  currency  exchange  rates  may have a  significant  impact on the
Company's  operating results.  The risk of currency  instability is increased by
prevailing conditions of economic weakness in a number of world markets, and the
potential for recession.  The Company has, and anticipates that it will continue
to receive,  significant  contracts  denominated in foreign  (primarily  Western
European) currencies. As a result of the unpredictable timing of purchase orders
and payments under such contracts and other factors, it is often not practicable
for the Company to effectively hedge the risk of significant changes in currency
rates during the contract  period.  Since it is the Company's  practice to hedge
the  exchange  rate  risks  associated  with  contracts  denominated  in foreign
currencies only to a limited extent,  if at all, its operating results have been
and may in the future be negatively  affected to a material extent by the impact
of currency fluctuations.  Operating results may also be affected by the cost of
such hedging activities that the Company does undertake.


                                     - 30 -
<PAGE>

     The Company holds a large  proportion of its net assets in cash equivalents
and short-term  investments,  including a variety of public and private debt and
equity instruments,  and has made significant venture capital investments,  both
directly and through private  investment  funds.  Such  investments  subject the
Company to the risks  inherent  in the  capital  markets  generally,  and to the
performance of other  businesses over which it has no direct control.  Given the
relatively  high  proportion  of the  Company's  liquid  assets  relative to its
overall size,  the results of its  operations  in the future will reflect,  to a
greater extent than in the past, the results of the Company's capital management
and  investment  activities  and the risks  associated  with  those  activities.
Declines  in the public  equity  markets  have  caused,  and may be  expected to
continue to cause, the Company to experience realized and unrealized  investment
losses. In addition, while the Company's interest and other income has benefited
from the positive  spread between the fixed interest it pays on its  outstanding
indebtedness  and  interest  earned  on the  investment  of its  cash  balances,
reduction in prevailing  interest rates due to economic conditions or government
policies can be expected to have an adverse  impact on the Company's  results of
operations.

     The Company has  benefited  from the long-term  rise in the public  trading
price of its  shares in  various  ways,  including  its  ability  to use  equity
incentive  arrangements  as a means  of  attracting  and  retaining  the  highly
qualified  employees necessary for the growth of its business and its ability to
raise capital on relatively  attractive  conditions.  The recent  decline in the
price  of the  Company's  shares,  and the  overall  decline  in  equity  prices
generally,  and in the shares of  technology  companies  in  particular,  can be
expected to make it more  difficult for the Company to rely on equity  incentive
arrangements as a means to recruit and retain talented employees,  and may limit
the  ability of the  Company to raise  capital on terms as  advantageous  to the
Company as in the past.

     The trading  price of the  Company's  shares may be affected by the factors
noted above as well as prevailing  economic and financial  trends and conditions
in   the   public   securities   markets.   Share   prices   of   companies   in
technology-related  industries,  such as the  Company,  tend to  exhibit  a high
degree of volatility.  The announcement of financial  results that fall short of
the  results  anticipated  by the public  markets  could have an  immediate  and
significant  effect on the trading  price of the  Company's  shares in any given
period.  Such  shortfalls  may result from events that are beyond the  Company's
immediate control,  can be unpredictable and, since a significant  proportion of
the  Company's  sales  during  each fiscal  quarter  tend to occur in the latter
stages of the  quarter,  may not be  discernible  until  the end of a  financial
reporting period.  These factors may contribute to the volatility of the trading
value of its shares regardless of the Company's long-term prospects. The trading
price of the Company's  shares may also be affected by  developments,  including
reported  financial  results and fluctuations in trading prices of the shares of
other publicly-held  companies in the  telecommunications  equipment industry in
general,  and the Company's business segments in particular,  which may not have
any direct relationship with the Company's business or prospects.


                                     - 31 -
<PAGE>

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

     In 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133  "Accounting  for  Derivative
Instruments and Hedging Activities" which was subsequently  amended by SFAS Nos.
137 and 138  (collectively  "SFAS 133").  SFAS 133  establishes  accounting  and
reporting  standards for derivative  instruments,  including certain derivatives
embedded in other contracts,  and hedging activities and requires that an entity
recognize  all  derivatives  as either assets or  liabilities  and measure those
instruments  at fair  value.  Under SFAS 133,  certain  contracts  that were not
formerly  considered  derivatives  may now meet the  definition of a derivative.
SFAS 133 is effective for all fiscal  quarters of fiscal years  beginning  after
June 15, 2000.  The Company will adopt SFAS 133 effective  February 1, 2001. The
adoption of SFAS 133 will not have a material effect on the Company's operations
or financial position.

FORWARD-LOOKING STATEMENTS

     From  time  to  time,   the  Company  makes   forward-looking   statements.
Forward-looking  statements include financial  projections,  statements of plans
and objectives for future operations, statements of future economic performance,
and statements of assumptions relating thereto.

     The Company may include forward-looking  statements in its periodic reports
to the Securities and Exchange  Commission on Forms 10-K,  10-Q, and 8-K, in its
annual report to shareholders,  in its proxy statements,  in its press releases,
in other written  materials,  and in  statements  made by employees to analysts,
investors, representatives of the media, and others.

     By  their  very   nature,   forward-looking   statements   are  subject  to
uncertainties,  both  general and  specific,  and risks exist that  predictions,
forecasts,   projections  and  other  forward-looking  statements  will  not  be
achieved.  Actual  results  may differ  materially  due to a variety of factors,
including   without   limitation  those  discussed  under  "Certain  Trends  and
Uncertainties"  and  elsewhere  in this  report.  Investors  and  others  should
carefully consider these and other uncertainties and events,  whether or not the
statements are described as forward-looking.

     Forward-looking  statements  made by the Company are intended to apply only
at the time they are made, unless  explicitly stated to the contrary.  Moreover,
whether  or not  stated in  connection  with a  forward-looking  statement,  the
Company  undertakes  no  obligation  to  correct  or  update  a  forward-looking
statement  should the  Company  later  become  aware that it is not likely to be
achieved.  If the Company were in any particular instance to update or correct a
forward-looking  statement,  investors  and others  should not conclude that the
Company will make additional updates or corrections thereafter.


                                     - 32 -
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The  Company  is exposed to market  risk from  changes in foreign  currency
exchange rates, interest rates and equity trading prices, which could impact its
results of operations and financial condition.  The Company manages its exposure
to these market risks through its regular  operating  and  financing  activities
and,  when  deemed  appropriate,   through  the  use  of  derivative   financial
instruments.

     The Company from time to time uses foreign currency exchange  contracts and
other  derivative  instruments  to  reduce  its  exposure  to the risk  that the
eventual net cash inflows and  outflows  resulting  from the sale of products to
foreign  customers will be adversely  affected by changes in exchange rates. The
use of these derivative  financial  instruments allows the Company to reduce its
exposure  to  exchange  rate  movements,  since the  gains  and  losses on these
contracts  substantially offset losses and gains on the assets,  liabilities and
transactions  being hedged.  In many instances,  the Company elects not to hedge
these  transactions.  Management does not expect any significant  changes in the
strategies it employs to manage such exposure in the near future.  As of January
31, 2001,  the Company had no material  outstanding  foreign  currency  exchange
contracts.

     Various financial  instruments held by the Company are sensitive to changes
in interest rates.  Interest rate changes would result in gains or losses in the
market value of the Company's  investments in debt securities due to differences
between the market  interest rates and rates at the inception of these financial
instruments.  Neither a 100 basis  point  increase  nor  decrease  from  current
interest rates would have a material effect on the Company's financial position,
results of operations or cash flows.

     Equity  investments  held by the Company are subject to equity price risks.
Neither a 10%  increase  nor  decrease  in equity  prices  would have a material
effect on the Company's financial position, results of operations or cash flows.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The financial  information required by Item 8 is included elsewhere in this
report.

     See Part IV, Item 14.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     Not applicable.



                                     - 33 -
<PAGE>

                                    PART III

     The  information  required by Part III is omitted  pursuant to  instruction
G(3).



                                     - 34 -
<PAGE>


                                     PART IV


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

                                                                         Page(s)
                                                                         -------

          (a)  Documents filed as part of this report.

               (1)  Financial Statements.

                    Index to Consolidated Financial Statements               F-1

                    Independent Auditors' Report                             F-2

                    Consolidated Balance Sheets as of
                           January 31, 2000 and 2001                         F-3

                    Consolidated Statements of Income
                           for the  Years Ended
                           January 31, 1999, 2000 and 2001                   F-4

                    Consolidated Statements of Stockholders' Equity
                           for the  Years Ended
                           January 31, 1999, 2000 and 2001                   F-5

                    Consolidated Statements of Cash Flows
                           for the Years Ended
                           January 31, 1999, 2000 and 2001                   F-6

                    Notes to Consolidated Financial Statements               F-7

               (2)  Financial Statement Schedules.

                    None

               (3)  Exhibits.

                    The  Index of  Exhibits  commences  on the  following  page.
                    Exhibits  numbered  10.1  through 10.3 and 10.5 through 10.8
                    comprise material compensatory plans and arrangements of the
                    registrant.



                                     - 35 -
<PAGE>


                                    Exhibits

No.  Description
---  -----------

3      Articles of Incorporation and By-Laws:

       3.1*   Certificate of  Incorporation.  (Incorporated  by reference to the
              Registrant's  Annual  Report  on Form 10-K  under  the  Securities
              Exchange Act of 1934 for the year ended December 31, 1987.)

       3.2*   Certificate of Amendment of Certificate of Incorporation effective
              February 26, 1993.  (Incorporated by reference to the Registrant's
              Annual  Report on Form 10-K under the  Securities  Exchange Act of
              1934 for the year ended December 31, 1992.)

       3.3*   Certificate of Amendment of Certificate of Incorporation effective
              January 12, 1995.  (Incorporated  by reference to the Registrant's
              Annual  Report on Form 10-K under the  Securities  Exchange Act of
              1934 for the year ended December 31, 1994.)

       3.4*   Certificate  of Amendment of Certificate  of  Incorporation  dated
              October 18, 1999.  (Incorporated  by reference to the Registrant's
              Annual  Report on Form 10-K under the  Securities  Exchange Act of
              1934 for the year ended January 31, 2000.)

       3.5    Certificate  of Amendment of Certificate  of  Incorporation  dated
              September 19, 2000.

       3.6*   By-Laws,   as  amended.   (Incorporated   by   reference   to  the
              Registrant's  Annual  Report  on Form 10-K  under  the  Securities
              Exchange Act of 1934 for the year ended December 31, 1987.)

4      Instruments defining the rights of security holders including indentures:

       4.1*   Excerpts  from  Certificate  of  Incorporation.  (Incorporated  by
              reference to the Registrant's  Registration  Statement on Form S-1
              under  the  Securities  Exchange  Act of  1933,  Registration  No.
              33-9147.)

       4.2*   Excerpt  from   Certificate   of  Amendment  of   Certificate   of
              Incorporation  effective  February  26,  1993.   (Incorporated  by
              reference to the Registrant's Annual Report on Form 10-K under the
              Securities  Exchange  Act of 1934 for the year ended  December 31,
              1992.)

       4.3*   Excerpt  from   Certificate   of  Amendment  of   Certificate   of
              Incorporation   effective  January  12,  1995.   (Incorporated  by
              reference to the Registrant's Annual Report on Form 10-K under the
              Securities  Exchange  Act of 1934 for the year ended  December 31,
              1994.)


                                     - 36 -
<PAGE>

       4.4*   Excerpts from By-Laws,  as amended.  (Incorporated by reference to
              the  Registrant's  Annual Report on Form 10-K under the Securities
              Exchange Act of 1934 for the year ended December 31, 1992.)

       4.5*   Specimen  stock  certificate.  (Incorporated  by  reference to the
              Registrant's  Annual  Report  on Form 10-K  under  the  Securities
              Exchange Act of 1934 for the year ended December 31, 1992.)

       4.6*   Indenture dated as of June 30, 1998 from Comverse Technology, Inc.
              to The Chase Manhattan Bank,  Trustee.  (Incorporated by reference
              to  the  Registrant's   Current  Report  on  Form  8-K  under  the
              Securities Exchange Act of 1934 filed July 2, 1998.)

       4.7*   Specimen  4 1/2%  Convertible  Subordinated  Debenture  due  2005.
              (Incorporated by reference to the  Registrant's  Current Report on
              Form 8-K under the  Securities  Exchange Act of 1934 filed July 2,
              1998.)

       4.8*   Indenture dated as of November 22, 2000 from Comverse  Technology,
              Inc.  to The  Chase  Manhattan  Bank,  Trustee.  (Incorporated  by
              reference to the Registrant's  Registration  Statement on Form S-3
              under the Securities Act of 1933, Registration No. 333-55526.)

       4.9*   Specimen   1  1/2%   Convertible   Senior   Debenture   Due  2005.
              (Incorporated  by  reference  to  the  Registrant's   Registration
              Statement  on  Form  S-3  under  the   Securities   Act  of  1933,
              Registration No. 333-55526.)

10     Material contracts:

       10.1*  Form of Stock  Option  Agreement  pertaining  to shares of certain
              subsidiaries  of  Comverse  Technology,   Inc.   (Incorporated  by
              reference to the Registrant's Annual Report on Form 10-K under the
              Securities  Exchange  Act of 1934 for the year ended  December 31,
              1993.)

       10.2*  Form  of  Incentive  Stock  Option  Agreement.   (Incorporated  by
              reference to the Registrant's  Registration  Statement on Form S-1
              under the Securities Act of 1933, Registration No. 33-9147.)

       10.3*  Form of Stock Option  Agreement for options  other than  Incentive
              Stock  Options.  (Incorporated  by reference  to the  Registrant's
              Annual  Report on Form 10-K under the  Securities  Exchange Act of
              1934 for the year ended December 31, 1987.)

       10.4*  Form of Indemnity Agreement between Comverse Technology,  Inc. and
              its  Officers  and  Directors.  (Incorporated  by reference to the
              Registrant's  Annual  Report  on Form 10-K  under  the  Securities
              Exchange Act of 1934 for the year ended December 31, 1987.)

       10.5*  1997 Employee Stock Purchase  Plan, as amended.  (Incorporated  by
              reference to the Definitive  Proxy Materials for the  Registrant's
              Annual Meeting of Stockholders held October 8, 1999.)

       10.6*  1997 Stock Incentive Compensation Plan. (Incorporated by reference
              to the  Definitive  Proxy  Materials for the  Registrant's  Annual
              Meeting of Stockholders held January 13, 1998.)


                                     - 37 -
<PAGE>

       10.7*  1999 Stock Incentive Compensation Plan. (Incorporated by reference
              to the  Definitive  Proxy  Materials for the  Registrant's  Annual
              Meeting of Stockholders held October 8, 1999.)

       10.8*  2000 Stock Incentive Compensation Plan. (Incorporated by reference
              to the  Definitive  Proxy  Materials for the  Registrant's  Annual
              Meeting of Stockholders held September 15, 2000.)

       10.9*  Memorandum  of Agreement  dated  November 22, 1995 between  Boston
              Technology,  Inc.  and AT&T.  (Incorporated  by  reference  to the
              Annual  Report of Boston  Technology,  Inc. on Form 10-K under the
              Securities  Exchange  Act of 1934 for the year ended  January  31,
              1996, confidential treatment requested as to certain portions.)

       10.10* Lease dated November 5, 1990 between Boston  Technology,  Inc. and
              Wakefield Park Limited Partnership.  (Incorporated by reference to
              the Annual  Report of Boston  Technology,  Inc. on Form 10-K under
              the Securities Exchange Act of 1934 for the year ended January 31,
              1991.)

       10.11* First Amendment dated as of March 31, 1993 to Lease dated November
              5, 1990 between Boston Technology, Inc. and Wakefield Park Limited
              Partnership. (Incorporated by reference to the Quarterly Report of
              Boston Technology, Inc. on Form 10-Q under the Securities Exchange
              Act of 1934 for the quarter ended October 31, 1993.)

       10.12* Second  Amendment  dated as of  August  31,  1994 to  Lease  dated
              November 5, 1990 between  Boston  Technology,  Inc. and  Wakefield
              Park Limited Partnership. (Incorporated by reference to the Annual
              Report  of  Boston  Technology,   Inc.  on  Form  10-K  under  the
              Securities  Exchange  Act of 1934 for the year ended  January  31,
              1995.)

       10.13* License   Agreement   dated   January  22,  1990  between   Boston
              Technology, Inc. and Dytel Corporation. (Incorporated by reference
              to the Annual Report of Boston Technology, Inc. on Form 10-K under
              the Securities Exchange Act of 1934 for the year ended January 31,
              1990.)

       10.14* Settlement  Agreement  dated  December 28, 1993 between the Boston
              Technology,  Inc.  and Theis  Research,  Inc.  and Peter F. Theis.
              (Incorporated   by  reference  to  the  Annual  Report  of  Boston
              Technology, Inc. on Form 10-K under the Securities Exchange Act of
              1934 for the year ended January 31, 1994.)

       10.15* Lease dated June 7, 1996 between Boston Technology,  Inc. and WBAM
              Limited  Partnership.  (Incorporated  by  reference  to the Annual
              Report  of  Boston  Technology,   Inc.  on  Form  10-K  under  the
              Securities  Exchange  Act of 1934 for the year ended  January  31,
              1997.)

21     Subsidiaries of Registrant.

23     Consent of Deloitte & Touche LLP

----------
*    Incorporated by reference.


                                     - 38 -
<PAGE>


COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                                            Page

Independent Auditors' Report                                                F-2

Consolidated Balance Sheets as of January 31, 2000 and 2001                 F-3

Consolidated Statements of Income for the
   Years Ended January 31, 1999, 2000 and 2001                              F-4

Consolidated Statements of Stockholders' Equity for the
   Years Ended January 31, 1999, 2000 and 2001                              F-5

Consolidated Statements of Cash Flows for the
   Years Ended January 31, 1999, 2000 and 2001                              F-6

Notes to Consolidated Financial Statements                                  F-7

<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Comverse Technology, Inc.
Woodbury, New York

We have  audited  the  accompanying  consolidated  balance  sheets  of  Comverse
Technology,  Inc. and  subsidiaries  (the  "Company") as of January 31, 2000 and
2001, and the related  consolidated  statements of income,  stockholders' equity
and cash flows for each of the three years in the period ended January 31, 2001.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of Comverse  Technology,  Inc. and
subsidiaries  as of  January  31,  2000  and  2001,  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
January 31, 2001 in conformity with accounting  principles generally accepted in
the United States of America.


/S/ Deloitte & Touche LLP

New York, New York
March 8, 2001

                                      F-2
<PAGE>


COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 AND 2001
(In thousands, except share data)
--------------------------------------------------------------------------------

ASSETS                                                   2000            2001
------                                                   ----            ----

CURRENT ASSETS:
   Cash and cash equivalents                           $  342,535     $1,275,105
   Bank time deposits                                       9,800          3,000
   Short-term investments                                 429,254        457,735
   Accounts receivable, net                               266,203        359,317
   Inventories                                            101,728        115,799
   Prepaid expenses and other current assets               41,243         64,729
                                                       ----------     ----------
TOTAL CURRENT ASSETS                                    1,190,763      2,275,685
PROPERTY AND EQUIPMENT, net                               126,101        183,444
INVESTMENTS                                                19,749         96,870
OTHER ASSETS                                               36,234         69,265
                                                       ----------     ----------
TOTAL ASSETS                                           $1,372,847     $2,625,264
                                                       ==========     ==========

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

LIABILITIES AND STOCKHOLDERS' EQUITY                      2000             2001
------------------------------------                      ----             ----

CURRENT LIABILITIES:
   Accounts payable and accrued expenses               $  235,860     $  288,921
   Bank loans                                               1,160          4,066
   Advance payments from customers                         94,777        122,175
   Other current liabilities                                  662            144
                                                       ----------     ----------
TOTAL CURRENT LIABILITIES                                 332,459        415,306
CONVERTIBLE DEBENTURES                                    300,000        900,000
LIABILITY FOR SEVERANCE PAY                                 6,185          7,924
OTHER LIABILITIES                                           9,364         12,404
                                                       ----------     ----------
TOTAL LIABILITIES                                         648,008      1,335,634
                                                       ----------     ----------

MINORITY INTEREST                                              --         53,465
                                                       ----------     ----------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
   Preferred stock, $0.01 par value--authorized,
      2,500,000 shares; issued, none
   Common stock, $0.10 par value -
     authorized, 600,000,000 shares;
     issued and outstanding, 155,776,298 and
       168,643,623 shares                                  15,577         16,864
   Additional paid-in capital                             424,075        692,014
   Retained earnings                                      282,764        520,144
   Accumulated other comprehensive income                   2,423          7,143
                                                       ----------     ----------
TOTAL STOCKHOLDERS' EQUITY                                724,839      1,236,165
                                                       ----------     ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $1,372,847     $2,625,264
                                                       ==========     ==========



                See notes to consolidated financial statements.



                                      F-3
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JANUARY 31, 1999, 2000 AND 2001
(In thousands, except per share data)
--------------------------------------------------------------------------------


                                          January 31,  January 31,   January 31,
                                             1999         2000          2001
                                             ----         ----          ----

Sales                                      $708,805     $909,667     $1,225,058
Cost of sales                               288,113      352,748        460,630
                                           --------     --------     ----------
Gross margin                                420,692      556,919        764,428

Operating expenses:
   Research and development, net            134,201      169,816        232,198
   Selling, general and administrative      157,106      193,996        259,607
   Royalties and license fees                16,552       18,841         22,028
   Merger expenses                               --        2,016         15,971
                                           --------     --------     ----------

   Income from operations                   112,833      172,250        234,624

   Interest and other income, net             8,315       16,595         33,339
                                           --------     --------     ----------

Income before income tax provision          121,148      188,845        267,963
Income tax provision                         11,783       15,698         18,827
                                           --------     --------     ----------

Net income                                 $109,365     $173,147     $  249,136
                                           ========     ========     ==========
Earnings per share:
     Basic                                 $   0.81     $   1.19     $     1.54
                                           ========     ========     ==========
     Diluted                               $   0.75     $   1.08     $     1.39
                                           ========     ========     ==========


                See notes to consolidated financial statements.


                                      F-4
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1999, 2000 AND 2001
(In thousands, except share data)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Accumulated Other
                                                                                                Comprehensive Income
                                                Common Stock                                  -----------------------
                                          -------------------------    Additional              Unrealized  Cumulative      Total
                                           Number of         Par        Paid-in      Retained     Gains    Translation Stockholders'
                                            Shares          Value       Capital      Earnings  (Losses)    Adjustment      Equity

<S>                                       <C>             <C>           <C>          <C>         <C>          <C>       <C>
BALANCE, JANUARY 31, 1998                 131,961,174     $  13,196     $ 225,707    $  2,709    $  641       $ 489     $  242,742

Comprehensive income:
Net income                                                                            109,365
Unrealized gain on available-for-
      sale securities                                                                             2,874
Translation adjustment                                                                                        (367)
Total comprehensive income                                                                                                 111,872
Warrant exercise                            1,299,000           130          (130)                                              --
Common stock issued for employee
   stock purchase plan                        210,666            21         2,277                                            2,298
Exercise of stock options                   5,792,064           579        33,364                                           33,943
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 1999                 139,262,904        13,926       261,218     112,074     3,515         122        390,855

Comprehensive income:
Net income                                                                            173,147
Unrealized (loss) on available-for-sale
     securities                                                                                    (397)
Translation adjustment                                                                                         (817)
Total comprehensive income                                                                                                 171,933
Warrant exercises                           1,746,635           175          (175)                                              --
Common stock issued for acquisitions        1,371,216           137           930                                            1,067
Retained earnings of acquired companies                                               (2,457)                               (2,457)
Common stock issued for employee
   stock purchase plan                        377,016            38         5,514                                            5,552
Exercise of stock options                   5,477,611           547        44,464                                           45,011
Conversion of debentures                    7,540,916           754       112,079                                          112,833
Tax benefit of dispositions of
   stock options                                                               45                                               45
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2000                 155,776,298        15,577       424,075     282,764     3,118        (695)       724,839

Comprehensive income:
Net income                                                                            249,136
Unrealized gain on available-for-sale
     securities                                                                                   4,408
Translation adjustment                                                                                          312
Total comprehensive income                                                                                                 253,856
Change in year-end of pooled company                                                    (705)                                 (705)
Common stock issued for acquisitions        5,746,220           575        10,498                                           11,073
Retained earnings of acquired companies                                              (11,051)                              (11,051)
Common stock issued for employee
     stock purchase plan                      131,452            13         9,842                                            9,855
Exercise of stock options                   6,989,653           699       100,840                                          101,539
Issuance of subsidiary shares                                             145,958                                          145,958
Tax benefit of dispositions of
   stock options                                                              801                                              801
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2001                 168,643,623     $  16,864     $ 692,014    $520,144    $7,526       $(383)    $1,236,165
                                         ============     =========     =========    ========    ======       =====     ==========



                                          See notes to consolidated financial statements.
</TABLE>


                                                                F-5
<PAGE>


COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1999, 2000 AND 2001
(In thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                 January 31,    January 31,      January 31,
                                                                    1999           2000             2001
                                                                    ----           ----             ----
<S>                                                              <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                    $ 109,365       $ 173,147       $   249,136
   Adjustments to reconcile net income to net cash provided
       by operating activities:
     Depreciation and amortization                                  22,106          34,969            53,196
     Asset write-downs and impairments                                  --              --             7,399
     Changes in assets and liabilities:
       Accounts receivable                                        (112,456)        (68,024)          (92,039)
       Inventories                                                  15,723         (53,085)          (16,915)
       Prepaid expenses and other current assets                    (5,735)         (3,055)          (22,464)
       Accounts payable and accrued expenses                        58,789          49,117            52,165
       Advance payments from customers                              16,371          48,114            26,325
       Liability for severance pay                                    (143)          1,847             1,729
       Other                                                          (398)         (5,680)          (14,041)
                                                                 ---------       ---------       -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                          103,622         177,350           244,491
                                                                 ---------       ---------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Maturities and sales (purchases) of bank time deposits
     and investments, net                                           24,257        (377,613)          (94,452)
   Purchase of property and equipment                              (25,632)        (85,638)          (97,337)
   Capitalization of software development costs                     (9,120)        (12,482)          (15,489)
                                                                 ---------       ---------       -----------
NET CASH USED IN INVESTING ACTIVITIES                              (10,495)       (475,733)         (207,278)
                                                                 ---------       ---------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from issuance of debentures                        292,672              --           588,429
   Proceeds from issuance of common stock in connection
     with exercise of stock options, warrants, and
     employee stock purchase plan                                   36,241          50,563           111,394
   Proceeds from issuance of common stock of subsidiary                 --              --           195,231
   Net proceeds (repayments) of bank loans and other debt          (20,645)          3,064              (943)
                                                                 ---------       ---------       -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                          308,268          53,627           894,111
                                                                 ---------       ---------       -----------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                401,395        (244,756)          931,324
CASH ACQUIRED IN POOLING OF INTERESTS TRANSACTIONS                      --           1,707             1,246
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                       184,189         585,584           342,535
                                                                 ---------       ---------       -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $ 585,584       $ 342,535       $ 1,275,105
                                                                 =========       =========       ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for interest                        $  14,169       $  20,329       $    14,665
                                                                 =========       =========       ===========
   Cash paid during the year for income taxes                    $   2,453       $     708       $     4,393
                                                                 =========       =========       ===========
</TABLE>


                See notes to consolidated financial statements.


                                      F-6
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 2000 AND 2001
--------------------------------------------------------------------------------

1.   ORGANIZATION AND BUSINESS

     Comverse Technology,  Inc. ("CTI" and, together with its subsidiaries,  the
     "Company")  was organized as a New York  corporation  in October 1984.  The
     Company is engaged in the design, development,  manufacture,  marketing and
     support of special  purpose  computer  and  telecommunications  systems and
     software  for  multimedia   communications   and   information   processing
     applications.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation - The consolidated financial statements include
     the  accounts  of  Comverse  and  its   wholly-owned   and   majority-owned
     subsidiaries. All material intercompany balances and transactions have been
     eliminated.

     Cash, Cash  Equivalents and Bank Time Deposits - The Company  considers all
     highly  liquid  investments  purchased  with  original  maturities of three
     months or less to be cash  equivalents.  Bank deposits  with  maturities in
     excess of three months are classified as bank time deposits.

     Short-Term  Investments  - The  Company  classifies  all of its  short-term
     investments   (including  U.S.   treasury  bills)  as   available-for-sale,
     accounted  for at fair value,  with  resulting  unrealized  gains or losses
     reported as a separate  component of stockholders'  equity, on a net-of-tax
     basis.

     Concentration  of Credit Risk -  Financial  instruments  which  potentially
     expose the Company to  concentration of credit risk,  consist  primarily of
     cash  investments  and  accounts  receivable.  The Company  places its cash
     investments with high-credit  quality financial  institutions and currently
     invests  primarily  in bank time  deposits,  money market funds placed with
     major  banks  and  financial  institutions,   corporate  commercial  paper,
     corporate  medium-term  notes, and U.S.  government  obligations.  Accounts
     receivable  are generally  diversified  due to the number of commercial and
     government  entities  comprising  the  Company's  customer  base and  their
     dispersion  across many  geographical  regions.  As of January 31, 2000 and
     2001,  the  Company's  allowance  for doubtful  accounts was  approximately
     $29,319,000  and  $23,755,000,   respectively.   The  Company  believes  no
     significant  concentration of credit risk exists with respect to these cash
     investments and accounts receivable.

     Inventories - Inventories  are stated at the lower of cost or market.  Cost
     is determined by the first-in, first-out method.

     Property and  Equipment - Property and  equipment  are carried at cost less
     accumulated  depreciation  and  amortization.  The Company  depreciates its
     property and equipment on a  straight-line  basis over periods ranging from
     three to seven years. Leasehold improvements are amortized over the shorter
     of their  estimated  useful  lives or the related  lease term.  The cost of
     maintenance  and repairs is charged to operations as incurred.  Significant
     renewals and betterments are capitalized.

     Income  Taxes - The Company  accounts  for income taxes using the asset and
     liability  method.  Under this method,  deferred tax assets and liabilities
     are determined based on differences between


                                      F-7
<PAGE>



     financial  reporting  and tax  bases of  assets  and  liabilities,  and are
     measured  using the enacted  tax rates and laws that are  expected to be in
     effect when the differences are expected to reverse.

     Revenue and Expense  Recognition  - Revenue is generally  recognized at the
     time of  shipment  for sales of systems  which do not  require  significant
     customization  to be  performed  by  the  Company  and  collection  of  the
     resulting  receivable  is deemed  probable by the  Company.  The  Company's
     systems are  generally a bundled  hardware and software  solution  that are
     shipped  together.  The Company  generally has no  obligations to customers
     after the date  products are shipped,  except for product  warranties.  The
     Company  generally  warranties  its  products  for one year after  sale.  A
     provision for estimated warranty costs is recorded at the time of sale.

     Customers may also purchase separate maintenance contracts, which generally
     consist of bug-fixing and telephone access to Company technical  personnel,
     but in  certain  circumstances  may  also  include  the  right  to  receive
     unspecified product updates, upgrades and enhancements.  Revenue from these
     services is recognized ratably over the contract period.

     Revenues  from  certain  development  contracts  are  recognized  under the
     percentage-of-completion method on the basis of physical completion to date
     or using actual costs  incurred to total expected costs under the contract.
     Revisions in estimates of costs and profits are reflected in the accounting
     period in which the facts that require the revision  become  known.  At the
     time a loss on a contract is known, the entire amount of the estimated loss
     is accrued.  Amounts  received from customers in excess of revenues  earned
     under the percentage-of-completion  method are recorded as advance payments
     from  customers.  Related  contract  costs include all direct  material and
     labor costs and those indirect costs related to contract  performance,  and
     are included in cost of sales in the consolidated statements of income.

     Expenses  incurred in connection with research and development  activities,
     other than certain software  development  costs that are  capitalized,  and
     selling,  general and administrative  expenses are charged to operations as
     incurred.

     Software  Development  Costs - Software  development  costs are capitalized
     upon the establishment of technological  feasibility and are amortized over
     the  estimated  useful  life of the  software,  which to date has been four
     years or less.  Amortization  begins in the  period  in which  the  related
     product  is  available  for  general  release  to  customers.  Amortization
     expenses  amounted to  $3,649,000,  $6,304,000 and $7,203,000 for the years
     ended January 31, 1999, 2000 and 2001, respectively.

     Functional Currency and Foreign Currency Transaction Gains and Losses - The
     United States dollar (the "dollar") is the functional currency of the major
     portion of the Company's foreign  operations.  Most of the Company's sales,
     and materials purchased for manufacturing,  are denominated in or linked to
     the dollar.  Certain  operating  costs,  principally  salaries,  of foreign
     operations are denominated in local currencies.  In those instances where a
     foreign  subsidiary has a functional  currency  other than the dollar,  the
     Company  records any necessary  foreign  currency  translation  adjustment,
     reflected in stockholders' equity, at the end of each reporting period.

     Net gains  (losses)  from foreign  currency  transactions,  included in the
     consolidated statements of income,  approximated  $2,847,000,  $(9,422,000)
     and  $(646,000)  for the  years  ended  January  31,  1999,  2000 and 2001,
     respectively.

     The Company occasionally enters into foreign exchange forward contracts and
     options  on  foreign  currencies.  The  purpose  of the  Company's  foreign
     currency  hedging  activities  is to protect the Company from the risk that
     the  eventual  dollar  cash flows  resulting  from the sale of  products to
     international  customers will be adversely  affected by changes in exchange
     rates. Any gain or loss



                                      F-8
<PAGE>

     on a foreign  exchange  contract which hedges a firm commitment is deferred
     until the underlying  transaction is realized, at which time it is included
     in the  consolidated  statement  of income.  The Company may also  purchase
     foreign exchange options which permit,  but do not require,  the Company to
     exchange  foreign  currencies  at a future  date  with  another  party at a
     contracted  exchange rate. To finance  premiums paid on such options,  from
     time to time the  Company  may also write  offsetting  options at  exercise
     prices which limit, but do not eliminate,  the effect of purchased  options
     as a hedge.  As of January 31,  2000 and 2001,  the Company had no material
     outstanding foreign exchange contracts.

     Other  Assets - Licenses  of patent  rights  and  acquired  "know-how"  are
     recorded  at cost and  amortized  using the  straight-line  method over the
     estimated useful lives of the related technology, not exceeding five years.
     Goodwill and other intangible assets associated with acquired  subsidiaries
     are amortized  over periods  ranging from five to twelve years.  Debt issue
     costs are amortized  using the effective  interest  method over the term of
     the related debt.

     Long-Lived  Assets - The Company  reviews for the  impairment of long-lived
     assets and certain  identifiable  intangibles whenever events or changes in
     circumstances  indicate  that the  carrying  amount  of an asset may not be
     recoverable.  An impairment loss would be recognized when estimated  future
     cash flows  expected to result  from the use of the asset and its  eventual
     disposition are less than its carrying amount.

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

     Reclassifications  - Certain prior year amounts have been  reclassified  to
     conform to the manner of presentation in the current year.

3.   RESEARCH AND DEVELOPMENT

     A significant portion of the Company's research and development  operations
     are located in Israel where the Company derives  substantial  benefits from
     participation  in programs  sponsored by the  Government  of Israel for the
     support of research and development  activities  conducted in that country.
     The  Company's   research  and  development   activities  include  projects
     partially  funded by the Office of the Chief  Scientist  of the Ministry of
     Industry  and Trade of the  State of Israel  (the  "OCS")  under  which the
     funding  organization  reimburses a portion of the  Company's  research and
     development  expenditures  under approved project  budgets.  The Company is
     currently  involved in several ongoing  research and  development  projects
     supported by the OCS. The Company accrues royalties to the OCS for the sale
     of  products  incorporating  technology  developed  in these  projects.  In
     addition,  under the terms of the applicable funding  agreements,  products
     resulting from projects funded by the OCS may not be  manufactured  outside
     of Israel without  government  approval.  The amounts reimbursed by the OCS
     for the years  ended  January  31,  1999,  2000 and 2001 were  $16,732,000,
     $16,797,000 and $21,508,000, respectively.


                                      F-9
<PAGE>


4.   SHORT-TERM INVESTMENTS

     The   Company   classifies   all   of   its   short-term   investments   as
     available-for-sale    securities.   The   following   is   a   summary   of
     available-for-sale securities as of January 31, 2001:

<TABLE>
<CAPTION>
                                                 Gross        Gross      Estimated
                                               Unrealized   Unrealized     Fair
                                     Cost        Gains        Losses       Value
                                   ----------------------------------------------
                                                   (In thousands)
<S>                                <C>          <C>         <C>          <C>
     Corporate debt securities     $339,182     $   462     $  4,360     $335,284
     U.S. Government bonds           18,003         674           --       18,677
     U.S. Government
      agency bonds                   60,050           7            9       60,048
                                   --------     -------     --------     --------
     Total debt securities          417,235       1,143        4,369      414,009
                                   --------     -------     --------     --------

     Common stock                    28,072      10,561           --       38,633
     Mutual funds investing in
        U.S. government and
        agencies obligations          1,863          85           --        1,948
     Preferred stock                  2,863         282           --        3,145
                                   --------     -------     --------     --------
     Total equity securities         32,798      10,928           --       43,726
                                   --------     -------     --------     --------

                                   $450,033     $12,071     $  4,369     $457,735
                                   ========     =======     ========     ========
</TABLE>

     The following is a summary of  available-for-sale  securities as of January
     31, 2000:

<TABLE>
<CAPTION>
                                                 Gross        Gross      Estimated
                                               Unrealized   Unrealized     Fair
                                     Cost        Gains        Losses       Value
                                   ----------------------------------------------
                                                   (In thousands)
<S>                                <C>          <C>         <C>          <C>
     Corporate debt securities     $397,325     $  478      $    668     $397,135
     U.S. Government
            agency bonds              8,096         --           604        7,492
                                   --------     ------      --------     --------
     Total debt securities          405,421        478         1,272      404,627
                                   --------     ------      --------     --------

     Common stock                    14,336      5,010         1,670       17,676
     Mutual funds investing in
        U.S. government and
        agencies obligations          1,878         --            45        1,833
     Preferred stock                  4,211      1,565           658        5,118
                                   --------     ------      --------     --------
     Total equity securities         20,425      6,575         2,373       24,627
                                   --------     ------      --------     --------

                                   $425,846     $7,053      $  3,645     $429,254
                                   ========     ======      ========     ========
</TABLE>

     During the year ended January 31, 2001,  the gross  realized gains on sales
     of securities  totaled  approximately  $9,905,000,  and the gross  realized
     losses totaled approximately $8,394,000.  During the year ended January 31,
     2000, the gross realized gains on sales of securities totaled



                                     F-10
<PAGE>

     approximately   $11,652,000,   and  the  gross   realized   losses  totaled
     approximately $4,613,000. During the year ended January 31, 1999, the gross
     realized gains on sales of securities totaled approximately $1,358,000, and
     the gross realized losses totaled  approximately  $5,472,000.  The basis on
     which cost was  determined  in  computing  realized  gain or loss is by the
     first-in, first-out method.

     The amortized cost and estimated  fair value of debt  securities at January
     31, 2001, by contractual maturity, are as follows:

                                                                   Estimated
                                                      Cost        Fair Value
                                                      ----        ----------
                                                          (In thousands)

     Due in one year or less                         $321,834      $319,764
     Due after one year through three years            87,284        85,665
     Due after three years                              8,117         8,580
                                                     --------      --------

                                                     $417,235      $414,009
                                                     ========      ========

5.   INVENTORIES

     Inventories consist of:

                                                          January 31,
                                                          -----------
                                                   2000              2001
                                                   ----              ----
                                                        (In thousands)

     Raw materials                               $ 41,391          $ 49,014
     Work in process                               29,790            27,423
     Finished goods                                30,547            39,362
                                                 --------          --------

                                                 $101,728          $115,799
                                                 ========          ========

6.   PROPERTY AND EQUIPMENT

     Property and equipment consists of:



                                     F-11
<PAGE>

                                                         January 31,
                                                   2000              2001
                                                   ----              ----
                                                        (In thousands)

     Fixtures and equipment                      $ 166,966       $ 242,922
     Land                                           26,029          27,569
     Software                                       18,315          24,293
     Transportation vehicles                         1,597           1,263
     Leasehold improvements                          7,640          11,832
                                                 ---------       ---------
                                                   220,547         307,879
     Less accumulated depreciation
            and amortization                       (94,446)       (124,435)
                                                 ---------       ---------

                                                 $ 126,101       $ 183,444
                                                 =========       =========



                                     F-12
<PAGE>


7.   OTHER ASSETS

     Other assets consist of:

                                                            January 31,
                                                        2000          2001
                                                        ----          ----
                                                          (In thousands)

     Software development costs,  net of
        accumulated amortization
        of $21,628 and $25,959                         $22,230      $28,325
     Debt issue costs, net of accumulated
        amortization of $1,404 and $3,157                5,703       15,784

     Other assets                                        8,301       25,156
                                                       -------      -------

                                                       $36,234      $69,265
                                                       =======      =======

8.   BUSINESS COMBINATIONS

     In July 2000, the Company acquired all of the outstanding  stock of Loronix
     Information   Systems,   Inc.   ("Loronix"),   a  company   that   develops
     software-based digital video recording and management systems for 1,994,806
     shares of the  Company's  common  stock and the  assumption  of  options to
     purchase  370,101 shares of the Company's common stock. The combination was
     accounted for as a pooling of interests.  For the six months ended June 30,
     2000,  Loronix  had sales of  approximately  $18.1  million and a net loss,
     including merger related expenses, of approximately $2.3 million.

     The table below sets forth the separate  and  combined  results of Comverse
     and Loronix for the fiscal years ended January 31, 1999 and 2000:

                                        CTI         Loronix      Combined
                                        ---         -------      --------
                                  (In thousands, except per share data amounts)

     January 31, 1999
     Sales                             $696,094    $ 12,711     $708,805
     Net income (loss)                 $111,527    $ (2,162)    $109,365
     Earnings per share - diluted      $   0.78                 $   0.75

     January 31, 2000
     Sales                             $872,190    $ 37,477     $909,667
     Net income                        $170,261    $  2,886     $173,147
     Earnings per share - diluted      $   1.07                 $   1.08


     The consolidated statement of income data combines the historical statement
     of income data of the Company for the fiscal  years ended  January 31, 1999
     and 2000 with the  historical  statement  of income data of Loronix for the
     fiscal years ended December 31, 1998 and 1999, respectively.  Loronix's net
     loss  for  the  period  from  July  1,  2000   through  July  31,  2000  of
     approximately  $705,000 has been excluded  from the Company's  consolidated
     statement  of income for the year



                                     F-13
<PAGE>

     ended January 31, 2001 as a result of conforming  fiscal years and has been
     included as an adjustment to retained earnings.

     In July 2000, the Company  acquired all of the outstanding  stock of Syborg
     Informationsysteme  GmbH, ("Syborg") a company that develops software-based
     digital voice and internet recording and workforce  management systems, for
     201,251 shares of the Company's common stock. The combination was accounted
     for as a pooling of interests.  The Company did not restate prior financial
     statements for this acquisition due to immateriality  and recorded the book
     value of the net  assets  of  Syborg  of  approximately  $(475,000)  in the
     statement of stockholders' equity.

     In August  2000,  the  Company  acquired  all of the  outstanding  stock of
     Exalink Ltd.,  ("Exalink") a company specializing in router-based  protocol
     gateways  and  applications  software  for the  delivery of  Internet-based
     services  to all types of wireless  devices,  for  5,261,211  shares of the
     Company's  common  stock and the  assumption  of options  and  warrants  to
     purchase  810,377 shares of the Company's common stock. The combination was
     accounted for as a pooling of interests.  The Company did not restate prior
     financial statements for this acquisition due to immateriality and recorded
     the book value of the net assets of Exalink of approximately  $(973,000) in
     the statement of stockholders' equity.

     In August 2000, the Company  acquired all of the outstanding  stock of Gaya
     Software Industries Ltd., ("Gaya") a company specializing in software-based
     intelligent internet protocol ("IP") gateways and voice-over-IP technology,
     for 283,758  shares of the  Company's  common stock and the  assumption  of
     options and  warrants to purchase  10,505  shares of the  Company's  common
     stock.  The  combination  was accounted for as a pooling of interests.  The
     Company did not restate prior financial statements for this acquisition due
     to  immateriality  and recorded the book value of the net assets of Gaya of
     approximately $1,470,000 in the statement of stockholders' equity.

     In August  1999,  the  Company  acquired  all of the  outstanding  stock of
     InTouch  Systems,  Inc.,  ("InTouch") a company that develops and markets a
     suite of intelligent  voice-controlled  software applications,  for 679,202
     shares of the  Company's  common  stock and the  assumption  of  options to
     purchase 79,122 shares of the Company's  common stock.  The combination was
     accounted for as a pooling of interests.  The Company did not restate prior
     financial statements for this acquisition due to immateriality and recorded
     the  book  value  of the net  assets  of  InTouch  of  $(1,122,000)  in the
     statement of stockholders' equity.

     In February  1999,  the Company  acquired all of the  outstanding  stock of
     Amarex Technology, Inc., ("Amarex"), a company that develops software-based
     applications  for the telephone  network  operator and call center markets,
     for 692,014  shares of the  Company's  common stock and the  assumption  of
     options and warrants to purchase  239,286  shares of the  Company's  common
     stock.  The  combination  was accounted for as a pooling of interests.  The
     Company did not restate prior financial statements for this acquisition due
     to immateriality and recorded the book value of the net assets of Amarex of
     $(268,000) in the statement of stockholders' equity.

     In  connection  with  the  above  acquisitions,  the  Company  has  charged
     $2,016,000 and $15,971,000,  respectively, to operations in the years ended
     January 31, 2000 and 2001 for merger related  charges.  Such charges relate
     to the following:

     Asset write-downs and impairments (In thousands)

     Inventory                                                       $3,685
     Property and equipment                                           1,528
     Capitalized software costs                                       2,186
                                                                     ------
     Total asset write-downs and impairments                         $7,399
                                                                     ======

                                     F-14
<PAGE>

     In  connection  with the  acquisitions  in the year ended January 31, 2001,
     certain  assets  became  impaired  due  to  the  existence  of  duplicative
     technology,  property and equipment and inventory of the merged  companies.
     Accordingly,  these assets were written down to their net realizable  value
     at the time of the merger.

     Professional fees and other direct merger expenses

     In connection with the  acquisitions in the years ended in January 31, 2000
     and 2001,  the  Company  recorded a charge of  $2,016,000  and  $8,572,000,
     respectively,  for  professional  fees to lawyers,  investment  bankers and
     accountants,  as well as other direct merger costs in  connection  with the
     mergers, such as printing costs and filing fees.


9.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of:

                                                          January 31,
                                                    2000              2001
                                                    ----              ----
                                                         (In thousands)

     Accounts payable                             $ 76,546         $ 87,999
     Accrued salaries                               29,890           37,479
     Accrued vacation                               13,568           18,940
     Accrued royalties                              26,567           40,670
     Other accrued expenses                         89,289          103,833
                                                  --------         --------

                                                  $235,860         $288,921
                                                  ========         ========


                                     F-15
<PAGE>

10.  CONVERTIBLE DEBENTURES

     In November  2000,  the Company  issued  $500,000,000  aggregate  principal
     amount of its 1.50%  convertible  senior  debentures due December 2005 (the
     "Debentures").   In  December   2000,  the  Company  issued  an  additional
     $100,000,000  of  the  Debentures  as a  result  of the  initial  purchaser
     exercising  in  full  their  over-allotment   option.  The  Debentures  are
     unsecured senior obligations of the Company ranking equally with all of the
     Company's existing and future unsecured senior  indebtedness and are senior
     in  right  of  payment  to  any  of  the  Company's   existing  and  future
     subordinated indebtedness. The Debentures are convertible, at the option of
     the  holders,  into shares of the  Company's  common  stock at a conversion
     price of $116.325 per share,  subject to adjustment in certain events;  and
     are subject to  redemption  at any time on or after  December  1, 2003,  in
     whole or in part,  at the  option  of the  Company,  at  redemption  prices
     (expressed as percentages of the principal  amount) of 100.375% if redeemed
     during the twelve-month  period beginning December 1, 2003, and 100% of the
     principal amount if redeemed thereafter.  The Debenture holders may require
     the  Company  to  repurchase  the  Debentures  at par in the event that the
     common stock ceases to be publicly traded and, in certain instances, upon a
     change  in  control  of the  Company.  Upon the  occurrence  of a change in
     control,  instead of paying the  repurchase  price in cash, the Company may
     pay the repurchase price in common stock.

     In June 1998, the Company issued  $300,000,000 of convertible  subordinated
     debentures bearing interest at 4.50% per annum, payable semi-annually.  The
     debentures  mature on July 1, 2005.  The debentures  are  convertible  into
     shares of the  Company's  common stock at a conversion  price of $21.50 per
     share,  subject  to  adjustment  in  certain  events.  The  debentures  are
     subordinated  in  right  of  payment  to all  existing  and  future  senior
     indebtedness of the Company. The debentures are redeemable at the option of
     the Company,  in whole or in part, at prices  decreasing from 101.8% of the
     principal  amount on July 10, 2001 to par on July 10, 2003.  The  debenture
     holders may require the Company to repurchase  the debentures at par in the
     event that the common  stock  ceases to be publicly  traded and, in certain
     instances, upon a change in control of the Company.

     In  October  1996,   the  Company   issued   $115,000,000   of  convertible
     subordinated  debentures  bearing  interest  at 5.75%  per  annum,  payable
     semi-annually.  In October 1999,  the Company  called these  debentures for
     redemption.  The debentures were converted into 7,540,916  shares of common
     stock.

11.  LIABILITY FOR SEVERANCE PAY

     Liability for severance  pay consists of the Company's  unfunded  liability
     for severance pay to employees of certain foreign  subsidiaries and accrued
     severance to the Company's chief executive officer.

     Under Israeli law, the Company is obligated to make  severance  payments to
     employees  of its Israeli  subsidiaries  on the basis of each  individual's
     current salary and length of employment.  These  liabilities  are currently
     provided primarily by premiums paid by the Company to insurance providers.

     The  Company  is  obligated  under an  agreement  with its chief  executive
     officer  to  provide  a  severance  payment  upon  the  termination  of his
     employment  with the Company.  Approximately  $1,925,000 and $2,270,000 has
     been  accrued as of January  31, 2000 and 2001,  respectively,  relating to
     this liability.


                                     F-16
<PAGE>

12.  COMMON STOCK

     Stock  Splits - On April 15,  1999,  the Company  effected a  three-for-two
     stock  split by paying a 50% stock  dividend to  stockholders  of record on
     March 31, 1999. On April 3, 2000, the Company effected a two-for-one  stock
     split by paying a 100% stock  dividend to  shareholders  of record on March
     27,  2000.  All  share  and per share  information  has been  retroactively
     restated in the consolidated financial statements to reflect these splits.

     Increase  in  Authorized   Common  Shares  -  At  the  Annual   Meeting  of
     Shareholders held on October 8, 1999, the Company's  shareholders  approved
     an amendment to the Company's Certificate of Incorporation to increase from
     100,000,000 to 300,000,000 the aggregate number of authorized common shares
     of the Company. At the Annual Meeting of Shareholders held on September 15,
     2000,  the  Company's  shareholders  approved an amendment to the Company's
     Certificate of  Incorporation  to increase from  300,000,000 to 600,000,000
     the aggregate number of authorized common shares of the Company.

     Issuance of Subsidiary  Stock - In April 2000, a subsidiary of the Company,
     Ulticom, Inc.  ("Ulticom"),  issued 4,887,500 shares of its common stock in
     an initial public offering. As a result of the initial public offering, the
     Company's ownership interest in Ulticom was reduced to 80.4%. Proceeds from
     the  offering,  based on the  offering  price of $13.00 per share,  totaled
     approximately  $58,062,000,  net of  offering  expenses.  In October  2000,
     Ulticom  issued an  additional  2,843,375  shares of its common  stock in a
     public  offering.  As a  result  of  the  public  offering,  the  Company's
     ownership  interest  in Ulticom  was  reduced to 74.5%.  Proceeds  from the
     offering,  based  on the  offering  price  of  $50.00  per  share,  totaled
     approximately $137,169,000,  net of offering expenses. The Company recorded
     a gain of approximately  $145,854,000  which was recorded as an increase in
     stockholders' equity as a result of these issuances.

13.  STOCK OPTIONS

     Employee Stock Options - At January 31, 2001,  26,163,560  shares of common
     stock  were  reserved  for  issuance  upon the  exercise  of  options  then
     outstanding  and  507,856  shares  were  available  for future  grant under
     Comverse's  Stock Option  Plans,  under which options may be granted to key
     employees,  directors, and other persons rendering services to the Company.
     Options which are designated as "incentive  stock options" under the option
     plans may be granted  with an exercise  price not less than the fair market
     value of the  underlying  shares  at the date of grant and are  subject  to
     certain  quantity  and other  limitations  specified  in Section 422 of the
     Internal  Revenue  Code.  Options  which are not  intended  to  qualify  as
     incentive stock options may be granted at any price,  but not less than the
     par value of the underlying shares,  and without  restriction as to amount.
     The  options  and the  underlying  shares  are  subject  to  adjustment  in
     accordance  with the terms of the  plans in the  event of stock  dividends,
     recapitalizations  and  similar  transactions.  The right to  exercise  the
     options generally vests in increments over periods of up to four years from
     the date of grant or the date of commencement  of the grantee's  employment
     with  the  Company,  up to a  maximum  term of ten  years  for all  options
     granted.

     The changes in the number of options were as follows:

                                     F-17
<PAGE>

<TABLE>
<CAPTION>
                                                     Year Ended January 31,
                                          -------------------------------------------
                                            1999            2000           2001
                                            ----            ----           ----
<S>                                       <C>             <C>             <C>
     Outstanding at beginning of year     25,184,797      21,243,496      23,810,758
     Options from pooling
            of interests transactions             --         224,758         820,882
     Granted during the year               2,788,526       8,589,990       9,306,315
     Exercised during the year            (5,792,064)     (5,477,611)     (6,989,653)
     Canceled, terminated and expired       (937,763)       (769,875)       (784,742)
                                         -----------     -----------     -----------

     Outstanding at end of year           21,243,496      23,810,758      26,163,560
                                         ===========     ===========     ===========
</TABLE>

     At January 31, 2001,  options to purchase an aggregate of 6,980,474  shares
     were vested and currently exercisable under the option plans and options to
     purchase an additional  19,183,086  shares vest at various dates  extending
     through the year 2004.

     Weighted average option exercise price information was as follows:

                                                              Year Ended
                                                              January 31,
                                                      --------------------------
                                                        1999      2000    2001
                                                        ----      ----    ----

     Outstanding at beginning of year                 $ 8.64    $ 9.59    $22.14
     Assumed from pooling of interests                    --      3.16      3.21
     Granted during the year                           10.53     43.98     84.83
     Exercised during the year                          5.87      8.23     14.45
     Canceled, terminated and expired                  10.38     11.96     31.01
     Exercisable at year end                            6.87      9.05     14.73


                                     F-18
<PAGE>

     Significant  option  groups  outstanding  at January  31,  2001 and related
     weighted average price and life information were as follows:

<TABLE>
<CAPTION>
                                        Weighted Average        Weighted                          Weighted
     Range of                Number        Remaining           Average            Number         Average
     Exercise Price        Outstanding  Contractual Life     Exercise Price     Exercisable    Exercise Price
     --------------        -----------  ----------------     --------------     -----------    --------------
<S>                         <C>               <C>              <C>                <C>             <C>
     $0.01-$10.42           8,137,870         6.77             $    9.04          4,825,923       $    8.87
     $10.71-$46.50          8,678,003         8.15                 37.90          2,120,646           27.50
     $48.22-$84.74            404,526         8.89                 66.87             33,905           49.58
     $85.00-$119.69         8,943,161         9.77                 85.52                 --              --
                            ---------         ----             ---------          ---------       ---------

                           26,163,560         8.28             $   45.65          6,980,474       $   14.73
                           ==========         ====             =========          =========       =========
</TABLE>

     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
     for Stock Issued to Employees," and related  interpretations  in accounting
     for its option  plans.  Accordingly,  as all options  have been  granted at
     exercise  prices  equal  to fair  market  value on the  date of  grant,  no
     compensation  expense has been recognized by the Company in connection with
     its stock-based compensation plans. Had compensation cost for the Company's
     stock option plans been  determined  based upon the fair value at the grant
     date  for  awards  under  these  plans   consistent  with  the  methodology
     prescribed under Statement of Financial  Accounting  Standards ("SFAS") No.
     123,  "Accounting for Stock-Based  Compensation",  the Company's net income
     and  earnings   per  share  would  have  been   reduced  by   approximately
     $29,261,000,  $45,239,000  and  $87,112,000  or $0.20,  $0.27 and $0.47 per
     diluted  share  for the  years  ended  January  31,  1999,  2000 and  2001,
     respectively.  The weighted  average fair value of the options  granted for
     the years ended January 31, 1999, 2000 and 2001, respectively, is estimated
     at $5.51,  $21.54 and $50.38 on the date of grant (using the  Black-Scholes
     option pricing model) with the following  weighted average  assumptions for
     the years ended January 31, 1999, 2000 and 2001,  respectively:  volatility
     of 56%, 56% and 65%; risk-free interest rate of 4.7%, 5.9% and 5.5%; and an
     expected life of 5.0, 4.1 and 4.9 years.

     Options on Subsidiary  Shares - In accordance with the  requirements of his
     employment  agreement,  the chief  executive  officer of the Company  holds
     options to acquire up to 7.5% of the shares of certain subsidiaries,  other
     than Comverse  Network Systems,  Inc. In addition,  the Company has granted
     options  to  certain   other   employees  to  acquire   shares  of  certain
     subsidiaries,  other  than  Comverse  Network  Systems,  Inc.  Such  option
     issuances  are not tied to the  performance  of the  subsidiaries,  but are
     intended to  incentivize  employees in the units for which they have direct
     responsibility.  The portion of the shares of the  subsidiaries  upon which
     such options have been granted varies among the subsidiaries  affected, not
     exceeding in any instance 20% of the shares  outstanding  assuming exercise
     in full.  The options  have terms of up to 15 years and become  exercisable
     and vest over  various  periods  ranging up to seven years from the date of
     initial grant.  The exercise price of each option is equal to the higher of
     the book  value of the  underlying  shares at the date of grant or the fair
     market  value of such  shares  at that date  determined  on the basis of an
     arms'-length  transaction  with a third  party or, if no such  transactions
     have  occurred,  on a reasonable  basis as determined by a committee of the
     Board of Directors.

                                     F-19
<PAGE>

14.  WARRANTS

     In November  1995,  the Company  entered  into an  agreement  to supply its
     products to a  customer.  Pursuant to this  agreement,  the Company  issued
     warrants to  purchase  shares of its common  stock at an exercise  price of
     $7.18  per  share.  The  warrants  vest in five  equal  annual  increments,
     commencing  with the first  anniversary  of the date of grant,  and  remain
     exercisable for 30 months after first becoming  exercisable.  As of January
     31,  2001,  warrants  to  purchase  1,914,432  shares are  outstanding  and
     exercisable. In February 2001 all such warrants were exercised.

15.  EMPLOYEE STOCK PURCHASE PLAN

     Under the 1997 Employee Stock Purchase Plan ("ESPP"), all employees who had
     completed  three  months  of  employment  are  entitled,   through  payroll
     deductions of amounts up to 10% of their base salary, to purchase shares of
     the Company's  common stock at 85% of the lesser of the market price at the
     offering  commencement date or the offering termination date. The number of
     shares  available  under the ESPP is  2,000,000,  of which 719,134 had been
     issued as of January 31, 2001.

16.  EARNINGS PER SHARE ("EPS")

     Basic earnings per share is determined by using the weighted average number
     of shares of common stock outstanding during each period.  Diluted earnings
     per share  further  assumes the issuance of common  shares for all dilutive
     potential common shares outstanding. The calculation for earnings per share
     for the years ended January 31, 1999, 2000 and 2001 was as follows:

<TABLE>
<CAPTION>
                                     January 31, 1999                 January 31, 2000                 January 31, 2001
                               -----------------------------   ------------------------------    -----------------------------
                                                     Per Share                       Per Share                       Per Share
                                 Income    Shares     Amount    Income    Shares      Amount     Income    Shares      Amount
                                                           (In thousands, except per share data)
<S>                            <C>         <C>        <C>      <C>         <C>         <C>      <C>         <C>         <C>
     Basic EPS
     Net Income                $109,365    134,389    $0.81    $173,147    145,889     $1.19    $249,136    161,496     $1.54
                                                      =====                            =====                            =====
     Effect of Dilutive
          Securities
     Options and warrants                   11,050                          13,905                          14,514
     Convertible debentures                                      19,399     19,192                14,552    13,954
                               --------    -------    -----    --------    -------     -----    --------    -------     -----

     Diluted EPS               $109,365    145,439    $0.75    $192,546    178,986     $1.08    $263,688    189,964     $1.39
                               ========    =======    =====    ========    =======    ======    ========    =======     =====
</TABLE>

     Debentures   convertible  into  21,494,472   weighted  average  shares  and
     1,059,855  weighted  average shares were outstanding as of January 31, 1999
     and  January  31,  2001,  respectively,   but  were  not  included  in  the
     computation  of diluted EPS because the effect of including  them would not
     be dilutive.



                                     F-20
<PAGE>

17.  INTEREST AND OTHER INCOME, NET

     Interest and other income, net, consists of the following:

                                                Year Ended January 31,
                                            1999          2000        2001
                                            ----          ----         ----
                                                       (In thousands)

          Interest and dividend income     $25,552      $36,872      $63,607
          Interest expense                 (16,141)     (19,423)     (18,031)
          Other, net                        (1,096)        (854)     (12,237)
                                          --------     --------     --------
                                            $8,315      $16,595      $33,339
                                          ========     ========     ========

18.  INCOME TAXES

     The provision for income taxes consists of the following:

                                            Year Ended January 31,
                                     1999            2000            2001
                                     ----            ----            ----
                                               (In thousands)

     Current:
       Federal                      $     --           $171         $1,507
       State                             127            769            844
       Foreign                        11,664         14,743         16,698
                                    --------       --------       --------

                                      11,791         15,683         19,049
                                    --------       --------       --------

     Deferred (benefit):
       Federal                          (430)           (49)           (37)
       State                              13              5            (88)
       Foreign                           409             59            (97)
                                    --------       --------       --------

                                          (8)            15           (222)
                                    --------       --------       --------

                                     $11,783        $15,698        $18,827
                                    ========       ========       ========

     The  reconciliation of the U.S. Federal statutory tax rate to the Company's
     effective tax rate is as follows:

                                                  Year Ended January 31,
                                                1999       2000       2001
                                                ----       ----       ----

     U.S. Federal statutory rate                 35%        35%        35%
     Consolidated worldwide income
          in excess of U.S. income              (38)       (36)       (38)
     Foreign income taxes                         9          8          6
     Other                                        4          1          4
                                                ---        ---        ---
     Company's effective tax rate                10%         8%         7%
                                                ===        ===        ===


                                     F-21
<PAGE>

     Deferred  income  taxes  reflect  the  net  tax  effects  of (a)  temporary
     differences  between the  carrying  amounts of assets and  liabilities  for
     financial  reporting  purposes and the amounts used for income tax purposes
     and (b) operating loss carryforwards.  The tax effects of significant items
     comprising  the  Company's  deferred tax asset and liability at January 31,
     2000 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                                January 31,
                                                            2000            2001
                                                            ----            ----
                                                                (In thousands)
<S>                                                        <C>           <C>
     Deferred tax liability:
       Expenses deductible for tax purposes and
         not for financial reporting purposes              $     722     $      --
       Unrealized gain on available-for-sale securities        1,154         2,785
                                                           ---------     ---------
                                                           $   1,876     $   2,785
                                                           =========     =========
     Deferred tax asset:
       Reserves not currently deductible                   $  19,690     $  14,173
       Tax loss carryforwards                                105,378       198,135
       Inventory capitalization                                  504           512
                                                           ---------     ---------
                                                             125,572       212,820
     Less: valuation allowance                              (123,335)     (209,452)
                                                           ---------     ---------

           Total deferred tax asset                        $   2,237     $   3,368
                                                           =========     =========
</TABLE>

     At January 31, 2001, the Company had net operating loss  carryforwards  for
     Federal income tax purposes of approximately $534.2 million, which begin to
     expire in 2012 through 2032.

     Income  tax has not been  provided  on  unrepatriated  earnings  of foreign
     subsidiaries  as currently  it is the  intention of the Company to reinvest
     such foreign earnings in their operations.

19.  BUSINESS SEGMENT INFORMATION

     The Company has  historically  operated  its  business  based on  different
     geographical  regions.  During the year ended January 31, 2000, the Company
     changed the manner in which it operates into its various  product  business
     units.

     The Company's reporting segments are as follows:

     Enhanced  Services Platform  Products - Enable  telecommunications  network
     operators to offer a variety of  revenue-generating  services,  including a
     broad range of integrated messaging,  information distribution and personal
     assistant services,  such as call answering,  voice mail, fax mail, unified
     messaging, pre-paid services, wireless data and Internet-based services.

     Service  Enabling  Network  Software  Products -  Interconnect  the complex
     circuit  switching,  database and messaging  systems and manage the number,
     routing and billing information of communication  networks.  These products
     also enable voice and data networks to interoperate,  or converge, allowing
     service  providers to offer such converged  network  services as voice over
     the  Internet and  Internet  call  waiting.  This  segment  represents  the
     Company's Ulticom subsidiary.


                                     F-22
<PAGE>


     Business  Intelligence Through Intelligent Recording Products - Support the
     voice,  fax,  data and video  recording  and  analysis  activities  of call
     centers and a variety of other  commercial and  governmental  organizations
     and supports  the  monitoring,  recording,  surveillance,  and  information
     gathering  and analysis  activities  of law  enforcement  and  intelligence
     agencies.

     All Other - Includes other miscellaneous operations.

     The table  below  presents  information  about  operating  income/loss  and
     segment assets as of and for the years ended January 31, 2000 and 2001:

<TABLE>
<CAPTION>
                                                   Service
                                      Enhanced     Enabling        Business
                                      Services      Network      Intelligence
                                      Platform     Software        Recording        All           Reconciling      Consolidated
                                      Products     Products        Products        Other             Items            Totals
                                    -------------------------------------------------------------------------------------------
                                                                          (In thousands)
<S>                                  <C>            <C>          <C>               <C>           <C>                 <C>
     Year Ended
     January 31, 2000

     Sales                           $  755,597     $ 25,831     $ 115,551         $ 19,494      $    (6,806)        $  909,667

     Operating Income
            (Loss)                   $  191,086     $  2,809     $  (9,530)        $ (2,043)     $   (10,072)        $  172,250

     Total Assets                    $  694,872     $ 17,794     $  99,183         $ 39,512      $   521,486         $1,372,847


     Year Ended
     January 31, 2001

     Sales                           $1,032,860     $ 47,441     $ 139,252         $ 15,233      $    (9,728)        $1,225,058

     Operating Income
          (Loss)                     $  251,748     $  8,356     $  (5,963)(1)     $ (1,955)     $   (17,562)(2)     $  234,624

     Total Assets                    $1,041,622     $232,187     $ 118,484         $ 80,571      $ 1,152,400         $2,625,264
</TABLE>

     (1)  Operating income, excluding merger expenses of $10,909,000, would have
          been $4,946,000.

     (2)  Includes merger related expenses of $5,062,000.

     Reconciling items consist of the following:

          Sales - elimination of intersegment revenues.

          Operating Income (Loss) - elimination of intersegment operating income
          and corporate operations.

          Total Assets - elimination of intersegment receivables and unallocated
          corporate assets.

                                     F-23
<PAGE>


     Historical operating information could not be reasonably restated for prior
     years based on the Company's new operating structure.  Historical condensed
     operating  information based on geographical regions for the year ended and
     January 31, 1999 was as follows:

<TABLE>
<CAPTION>
                                      United
                                      States          Israel            Other         Eliminations         Total
                                      ------          ------            -----         ------------         -----
                                                                 (In thousands)
<S>                                 <C>               <C>               <C>              <C>              <C>
     Year Ended
     January 31, 1999

     Sales                          $ 354,407         $ 407,809         $ 33,510         $(86,921)        $ 708,805
     Costs and expenses              (379,890)         (274,218)         (31,009)          89,145          (595,972)
                                    ---------         ---------         --------         --------         ---------
     Operating income (loss)        $ (25,483)        $ 133,591         $  2,501         $  2,224         $ 112,833
                                    =========         =========         ========         ========         =========
</TABLE>

     Sales by country,  based on end-user  location,  as a  percentage  of total
     sales, for the years ended January 31, 1999, 2000 and 2001 were as follows:

                                                     January 31,
                                          1999          2000           2001
                                          ----          ----           ----

     United States                        27%            24%            25%
     Germany                              11             10             11
     Other foreign                        62             66             64
                                         ---            ---            ---
     Total                               100%           100%           100%
                                         ===            ===            ===

     No customer  accounted for 10% or more of sales for the years ended January
     31, 1999, January 31, 2000 or January 31, 2001.

     Long-lived assets by country of domicile consist of:

                                                      January 31,
                                               2000                2001
                                               ----                ----
                                                     (In thousands)

     United States                            $ 72,494             $182,473
     Israel                                     95,275              142,569
     Other                                      10,570                8,625
                                              --------             --------

                                              $178,339             $333,667
                                              ========             ========


                                     F-24
<PAGE>


20.  COMMITMENTS AND CONTINGENCIES

     Leases - The Company  leases  office,  manufacturing,  and warehouse  space
     under non-cancelable operating leases. Rent expense for all leased premises
     approximated  $15,168,000,  $22,500,000  and $28,304,000 in the years ended
     January 31, 1999, 2000 and 2001, respectively.

     As of January 31, 2001, the minimum annual rent  obligations of the Company
     were approximately as follows:

            Twelve Months Ended
                January 31,                                         Amount
                -----------                                     (In thousands)
                                                                --------------
                    2002                                         $    32,521
                    2003                                              32,005
                    2004                                              30,308
                    2005                                              28,305
               2006 and thereafter                                    47,150
                                                                 -----------

                                                                 $   170,289
                                                                 ===========

     Employment Agreements - The Company is obligated under employment contracts
     with its chief executive officer to provide salary, bonuses,  insurance and
     fringe benefits through January 31, 2004. Minimum salary payments under the
     contracts  currently amount to $642,000 per year. The executive is entitled
     to annual  bonuses  equal to at least 2.75% of the  Company's  consolidated
     after-tax  net  income  during  each  year,  determined  without  regard to
     acquisition-related   expenses  and  charges.   Following   termination  or
     expiration of the term of employment,  the executive is entitled to receive
     a severance  payment  equal to $124,025  times the number of years from the
     beginning of his employment  with the Company,  the amount of which payment
     increases  at the  rate  of 10%  per  annum  compounded  for  each  year of
     employment  following December 31, 2000, plus continued fringe benefits for
     three years and insurance  coverage for up to 10 years.  If the executive's
     employment  is  terminated  by  the  Company  without  "cause",  or by  the
     executive for "good reason" (as those terms are defined in the  agreement),
     the  executive  is  entitled to  additional  payments  attributable  to the
     salary,  bonus and the  monetary  equivalence  of other  benefits  which he
     otherwise would have expected to receive for a period of three years or the
     balance of the agreement  term,  whichever is longer.  If such  termination
     occurs  following  a  change  in  control  of  the  Company,  the  required
     additional  payment is three times the executive's annual salary and bonus,
     and the executive is additionally  entitled to the  accelerated  vesting of
     all  retirement  benefits and stock  options,  and payments  sufficient  to
     reimburse any associated excise tax liability and income tax resulting from
     such  reimbursement.  The  agreements  also  provide for the  executive  to
     receive  options  entitling  him  to  purchase  7-1/2%  of  the  equity  of
     Comverse's  subsidiaries,  other than Comverse  Network  Systems,  Inc., at
     prices  equal to the higher of the book value of the  underlying  shares at
     the date of option  grant or the fair  market  value of such shares at that
     date  determined on the basis of an arms'-length  transaction  with a third
     party or, if no such transactions  have occurred,  on a reasonable basis as
     determined by the Board of Directors. These options, as well as any options
     granted the executive  under the Company's  stock option or stock incentive
     plans, become fully vested,  exercisable and nonforfeitable in the event of
     a change in control of the  Company,  the  termination  of the  executive's
     employment  by the  Company  without  cause  or by the  executive  for good
     reason, or the executive's death or disability.  Insurance benefits include
     life  insurance  providing   cumulative  death  benefits  of  approximately
     $40,000,000,  including  amounts provided


                                     F-25
<PAGE>

     under a  split  dollar  arrangement  through  which  the  Company  is to be
     reimbursed premiums from the benefit payments or cash surrender value.

     Most other  employment  agreements  of the Company are  terminable  with or
     without cause with prior notice of 90 days or less.  In certain  instances,
     the  termination  of  employment  agreements  without  cause  entitles  the
     employees to certain  benefits,  including  acceleration  of the vesting of
     stock options and severance payments of as much as one year's compensation.

     Licenses  and  Royalties  -  The  Company  licenses   certain   technology,
     "know-how" and related rights for use in the  manufacture  and marketing of
     its products,  and pays  royalties to third parties under such licenses and
     under  other  agreements  entered  into in  connection  with  research  and
     development   financing.   The  Company   currently  pays  royalties  on  a
     substantial  portion of its product sales in varying amounts based upon the
     revenues  attributed to the various components of such products.  Royalties
     typically  range up to 6% of net sales of the related  products and, in the
     case of royalties due to government  funding sources in respect of research
     and  development  projects,  are  required  to be paid  until  the  funding
     organization has received total royalties  ranging from 100% to 150% of the
     amounts received by the Company under the approved project budgets.

     Dividend  Restrictions - The ability of Comverse's Israeli  subsidiaries to
     pay  dividends  is  governed  by  Israeli  law,  which  provides  that cash
     dividends  may be paid  by an  Israeli  corporation  only  out of  retained
     earnings as determined for statutory  purposes in Israeli currency.  In the
     event of a  devaluation  of the Israeli  currency  against the dollar,  the
     amount in dollars  available  for  payment of cash  dividends  out of prior
     years'  earnings  will  decrease  accordingly.  Cash  dividends  paid by an
     Israeli  corporation to United States  residents are subject to withholding
     of Israeli  income tax at source at a rate of up to 25%,  depending  on the
     particular facilities which have generated the earnings that are the source
     of the dividends.

     Investments - In 1997,  wholly-owned  subsidiaries  of Comverse and Quantum
     Industrial  Holdings Ltd.  organized two new companies to make  investments
     primarily  relating to Israel,  including  investments  in high  technology
     ventures.  Each participant committed a total of $37,500,000 to the capital
     of the new  companies,  for use as suitable  investment  opportunities  are
     identified.  Quantum  Industrial  Holdings  Ltd.  is the  principal  direct
     investment  vehicle  of the  Quantum  Group,  a group of  investment  funds
     managed by Soros Fund  Management LLC. As of January 31, 2000 and 2001, the
     Company   has   invested   approximately    $11,300,000   and   $22,640,000
     respectively,  related to these  ventures which are included in the caption
     "Investments" in the accompanying balance sheets. In addition,  the Company
     has committed  $28,035,000 to various  companies,  ventures and funds which
     may be called at the option of the investee.

     Guaranties  - The  Company  has  obtained  bank  guaranties  primarily  for
     performance of certain  obligations  under contracts with customers.  These
     guaranties, which aggregated approximately $39,982,000 at January 31, 2001,
     are to be released  by the  Company's  performance  of  specified  contract
     milestones, which are scheduled to be completed primarily during 2001.

     Litigation - The Company is subject to certain legal actions arising in the
     normal course of business.  After taking into consideration legal counsel's
     evaluation of such  actions,  management is of the opinion that their final
     resolution will not have any significant  adverse effect upon the Company's
     financial position or results of operations.

                                     F-26
<PAGE>

21.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair value amounts have been determined by the Company, using
     available  market  information  and  appropriate  valuation  methodologies.
     However,  considerable  judgment is  necessarily  required in  interpreting
     market  data to develop  the  estimates  of fair  value.  Accordingly,  the
     estimates  presented  herein are not necessarily  indicative of the amounts
     that the Company could  realize in a current  market  exchange.  The use of
     different market  assumptions  and/or  estimation  methodologies may have a
     material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
                                                                             January 31,
                                                     ----------------------------------------------------------
                                                               2000                            2001
                                                               ----                            ----
                                                     Carrying        Estimated         Carrying       Estimated
                                                      Amount        Fair Value          Amount       Fair Value
                                                      ------        ----------          ------       ----------
                                                                            (In thousands)
<S>                                                  <C>             <C>               <C>             <C>
     Liabilities:
       Convertible debentures                        $300,000        $1,313,400        $900,000        $2,307,000

     Off-balance sheet financial instruments:
     Foreign exchange forward contracts and
       options used for hedging purposes             $     --        $       --        $     --        $       --
</TABLE>

     Cash and Cash  Equivalents,  Bank Time  Deposits,  Short-Term  Investments,
     Accounts  Receivable,  Investments,  and  Accounts  Payable - The  carrying
     amounts of these items are a reasonable estimate of their fair value.

     Convertible  Debentures and Foreign Exchange  Forward  Contracts - The fair
     value of these  securities  is estimated  based on quoted  market prices or
     recent sales for those or similar securities.

     The  fair  value  estimates   presented   herein  are  based  on  pertinent
     information  available to management  as of January 31, 2001.  Such amounts
     have not been  comprehensively  revalued  for  purposes of these  financial
     statements since January 31, 2001, and current  estimates of fair value may
     differ significantly from the amounts presented herein.

22.  EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

     In 1998,  the  Financial  Accounting  Standards  Board  issued SFAS No. 133
     "Accounting for Derivative  Instruments and Hedging  Activities"  which was
     subsequently  amended by SFAS Nos. 137 and 138  (collectively  "SFAS 133").
     SFAS 133  establishes  accounting  and reporting  standards for  derivative
     instruments, including certain derivatives embedded in other contracts, and
     hedging activities and requires that an entity recognize all derivatives as
     either assets or liabilities  and measure those  instruments at fair value.
     Under  SFAS  133,  certain  contracts  that  were not  formerly  considered
     derivatives  may now  meet  the  definition  of a  derivative.  SFAS 133 is
     effective for all fiscal  quarters of fiscal years beginning after June 15,
     2000.  The Company  will adopt SFAS 133  effective  February  1, 2001.  The
     adoption  of SFAS  133 will not have a  material  effect  on the  Company's
     operations or financial position.



                                     F-27
<PAGE>

23.  QUARTERLY INFORMATION (UNAUDITED)

     The following  table shows  selected  results of operations for each of the
     quarters during the years ended January 31, 2000 and 2001:

<TABLE>
<CAPTION>
                                                                     Fiscal Quarter Ended
                                April 30,   July 31,     Oct. 31,    Jan. 31,    April 30,   July 31,    Oct. 31,    Jan. 31
                                  1999        1999         1999        2000        2000       2000         2000       2001
                                  ----        ----         ----        ----        ----       ----         ----       ----
                                                               (In thousands, except per share amounts)
<S>                             <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
 Sales                           $207,897    $216,810    $232,893    $252,067    $268,469    $292,070    $317,966    $346,553
 Gross profit                     125,936     132,971     142,970     155,042     166,418     182,081     198,942     216,987
 Net income                        36,192      41,023      44,035      51,897      56,206      51,703      64,362      76,865

 Diluted earnings per share      $   0.24    $   0.26    $   0.27    $   0.30    $   0.32    $   0.30    $   0.35    $   0.41
                                 ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>













                                      F-28
<PAGE>


                                   SIGNATURES

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

                               COMVERSE TECHNOLOGY, INC.
                                     (Registrant)


April 26, 2001                    By: S/ Kobi Alexander
                                      -----------------------------------------
                                         Kobi Alexander, Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the Registrant and in the
capacities and on the dates indicated.


S/ Kobi Alexander                                             April 26, 2001
------------------------------------
Kobi Alexander,
Chairman of the Board and
Chief Executive Officer; Director


S/ David Kreinberg                                            April 26, 2001
------------------------------------
David Kreinberg,
Chief Financial Officer


S / Zvi Alexander                                             April 26, 2001
------------------------------------
Zvi Alexander, Director


S / Itsik Danziger                                            April 26, 2001
------------------------------------
Itsik Danziger, President; Director


S / John H. Friedman                                          April 26, 2001
------------------------------------
John H. Friedman, Director


S/ Francis E. Girard                                          April 26, 2001
------------------------------------
Francis E. Girard, Director


S/ Sam Oolie                                                  April 26, 2001
------------------------------------
Sam Oolie, Director


S/ William F. Sorin                                           April 26, 2001
------------------------------------
William F. Sorin, Director


S/ Shaula A. Yemini                                           April 26, 2001
------------------------------------
Dr. Shaula A. Yemini, Director