================================================================================
                       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, 2000


                         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: [ ]

================================================================================


37994.0003
<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 24, 2000 was approximately $11,671,000,000. The
closing price of the registrant's common stock on the NASDAQ National Market
System on April 24, 2000 was $75.25 per share.

           There were 155,497,390 shares of the registrant's common stock
outstanding on April 24, 2000.


                       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 2000 Annual Meeting
of Shareholders of the registrant or in an amendment to this report on Form
10K/A.





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



        TRILOGUE, Access NP and Signalware are registered trademarks, and
      TRILOGUE INfinity, AUDIODISK, Ultra, Ulticom, Nexworx, Ultimate Call
 Control, Programmable Network and Softservice are trademarks, of the Company.



                                     - ii -
<PAGE>
                                     PART I

ITEM 1. BUSINESS.

THE COMPANY

           Comverse Technology, Inc. ("Comverse" 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 telephone
network operators, government agencies, call centers, financial institutions and
other public and commercial organizations worldwide.

           Through its subsidiary Comverse Network Systems, Inc. ("CNS"), the
Company provides enhanced services platform ("ESP") products that enable
telecommunications network operators 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 assistant services, such as call answering, voice mail, fax mail,
unified messaging (voice, fax and e-mail in a single mailbox), pre-paid
services, short text messaging, interactive voice response ("IVR"), wireless
data and Internet-based services such as Internet messaging, Internet call
management ("ICM") and voice portal services, which include a voice activated
portfolio of services such as voice dialing, voice activated Web browsing and
voice activated 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 telephone network operators and other telecommunications
services 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 ESP systems
for wireless and wireline telecommunications network operators. More than 320
wireless and wireline telephone network operators in more than 90 countries,
including 14 of the 20 largest telephone companies in the world, have selected
the Company's platforms to provide enhanced telecommunications services to their
public customers. Major network operators using the Company's ESP systems
include, among others, AT&T (USA), Bell Atlantic (USA), BellSouth (USA), Cable &
Wireless (UK), DDI (Japan), Deutsche Telekom (Germany), Hongkong Telecom (Hong
Kong), Mannesmann D2 (Germany), NTT (Japan), SBC Communications (USA), SFR
(France), Sprint PCS (USA), Telecom Italia (Italy), Telmex (Mexico) and Telstra
(Australia).

           Through its subsidiary Comverse Infosys, Inc. ("Infosys"), the
Company provides digital monitoring and recording systems for call centers,
customer relationship management ("CRM") applications, public networks and
government agencies. These systems support the acquisition of voice, fax, data
and screen imagery from multiple telecommunications channels and IP networks,
and enable access to the recorded information through the telephone and/or IP
networks for processing and further analysis. The Company's Ultra product
targets the call center and CRM markets with three business applications:
transaction recording, agent performance management and customer experience
monitoring. The Company's InfoGate product targets the public networks market,
providing monitoring interfaces to a variety of wireline, wireless and IP


<PAGE>

networks for traffic monitoring and law enforcement compliance applications. The
Company's Reliant product targets the law enforcement and government agency
markets, providing surveillance and intelligence gathering solutions. Infosys
markets its Ultra, InfoGate and Reliant products throughout the world with its
own direct sales force and through resellers and VARs. Major enterprises using
Infosys products include, among others, Fidelity, TIAA-CREF, Barclays Bank,
Hewitt and Midland Bank in the financial segment; Ameritech, Sprint, Docomo
(Japan) and Orange (UK) in the service provider segment; telecommunications
infrastructure equipment vendors such as Lucent and Ericsson; and government
agencies in over 30 countries worldwide.

           Through its subsidiary Ulticom, Inc. ("Ulticom"), the Company
provides network signaling software for wireless, wireline and Internet
communication services known as Signalware. Signalware call control products
interconnect the switching, database and messaging systems and manage vital
number, routing and billing information 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 voice-activated
dialing, prepaid calling, caller ID and text messaging. Signalware 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. Ulticom's new Nexworx product line is designed to
move service control into the hands of subscribers, so that businesses or
consumers can access network resources to create, manage and personalize their
communication services. Ulticom had an initial public offering of its shares in
April, 2000, and its shares are listed on the NASDAQ National Market System
under the symbol ULCM. The Company holds approximately 80% of Ulticom's
outstanding shares.

           The Company markets other telecommunications hardware and software
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 Company-operated
telemessaging service bureaus. The Company also engages in venture capital
investment and capital market activities for its own account.

           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 principal executive offices are located at 170 Crossways Park Drive,
Woodbury, New York 11797, where its telephone number is (516) 677-7200.


                                      -2-
<PAGE>

THE COMPANY'S PRODUCTS

ENHANCED SERVICES PLATFORMS

           The market for network-based ESP systems 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 and competitive differentiation, the increasing public
awareness and acceptance of multimedia messaging services, the expanding
availability from the major telephone companies of call answering services, and
the growing use of wireless telephone services, which almost universally offer a
mailbox-based call answering service, as well as text based services such as
Short Messaging Service ("SMS").

           The Company's primary focus has been on supplying large-capacity ESP
systems, which are marketed 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-call basis, a variety of revenue-generating services provided by the
Company's systems, such as automated call answering, voice and fax messaging,
unified messaging, pre-paid services, wireless data and Internet-based services
such as Internet messaging, short text messaging, IVR, call screening, personal
number service, one-touch call return, automated personal assistant services,
"virtual telephone" service and "Voice Portal" services, such as voice activated
dialing, voice activated Web browsing and voice activated messaging. With call
answering and voice and fax messaging, telephone operating companies 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. Wireless telephone service operators are almost
universally adding voice mailboxes 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 messaging services directly increase billable airtime by
stimulating outbound calls.

           The Company's ESP systems have been designed and packaged to meet the
capacity, reliability, scalability, maintainability and physical requirements of
large telephone network operators. The systems are offered in a variety of sizes
and configurations, extending to a single-system capacity of up to 6,000 ports
and 1,000,000 mailboxes, 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 Voice Over Internet Protocol ("VoIP") and
Wide Area Networking ("WAN") technologies to reduce the cost of long distance
message transmissions, message retrievals, voice signature transmissions, and
pre-paid service database inquiries. This architecture utilizes lower cost
Packet Switched networks, such as the Internet, rather than more costly,
traditional circuit switched methods, to reduce the network operators' cost of
operation.


                                      -3-
<PAGE>


           The Company's systems also incorporate components that are compatible
with the IN and AIN protocols for Intelligent Peripherals ("IP"), 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 next-generation IN/AIN-based
services such as personal number, call screening/caller introduction, one-touch
call return and pre-paid. 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 proprietary and third-party
software, and industry standard and proprietary 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 any combination of
voice and fax 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 e-mail text messages from anywhere in the world via the World
Wide Web.

MONITORING AND RECORDING SYSTEMS

           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 multiple
channels and that need to store the processed information for long periods while
keeping it available for rapid retrieval. The Company's systems interface with a
variety of analog and digital communications protocols and automatically
recognize and adapt to voice, fax or modem content on each recorded channel.
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. 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.

           The Company's Ultra line of multiple channel, multimedia digital
recording systems are marketed primarily to call centers and CRM applications.
Other markets include financial institutions, emergency ("911") service
providers, correctional institutions, and other organizations that record large
volumes of communications, and require fast and easy retrieval of recorded


                                      -4-
<PAGE>

information. Ultra systems provide Computer-Telephony Integration ("CTI")
enabled recording, including integration with major PBX/ACDs, Predictive Dialers
and middleware products. The CTI 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, e-mail and the web.

           The InfoGate product provides a variety of interfaces to wireline,
wireless and IP networks. InfoGate allows access to specific calls routed via
public networks through interfaces to network switches from vendors such as
Lucent, Nortel, Ericsson, Nokia, Siemens, Alcatel, Qualcomm and many others.
InfoGate also supports interfaces to packet data networks such as the Internet
and GPRS.

           The Reliant product design is based on open system architecture and
client/server concepts, and supports a broad range of multimedia monitoring
capabilities. Reliant is the current generation of the AUDIODISK product
marketed by the Company since 1987. 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, 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. Digital signal processing technologies that are employed by
Reliant to enhance monitoring applications include, among others, signal
compression, automatic signal identification, automatic signal interpretation
and noise cancellation. Magnetic and optical disks permit virtually
instantaneous retrieval and sharing of stored information among many users. 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. Storage configurations include magnetic disks,
optical drives and optical jukebox devices. Multiple jukebox configurations


                                      -5-
<PAGE>

provide automated management of optical media, with virtually unlimited audio
and fax storage capacity available for rapid automated retrieval.

NETWORK SIGNALING SOFTWARE

Signalware
----------

           The Company's Ulticom subsidiary provides network signaling software
for wireless, wireline and Internet communication services known as Signalware.
Signalware call control products interconnect switching, database and messaging
systems and manage vital number, routing and billing information through
Signaling System Number 7 ("SS7"). Signalware provides many of the features that
are crucial to the global connectivity of communication networks, including:
open standards, fault resilience, high performance, scalability, and global
operability. 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 Intelligent Network services and services for converged
networks.

           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 wireless
transmission. Signalware product packages run on a range of operating systems,
including Sun Solaris, Unixware, and Windows NT, and for a broad range of
hardware platforms. 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 Ericsson, Siemens and Lucent, and application developers such as Logica.


Nexworx
-------

           In June 1999, Ulticom announced the Nexworx service control product
line. Currently, this product combines the key attributes of Signalware with an
object-oriented database and additional network management capabilities creating
a platform for new programmable network services. The Nexworx product line is
designed to move service control into the hands of subscribers, so that
businesses and consumers can access network resources to create, manage and
personalize their communication services. The first Nexworx product is a
software-based server that enables subscribers to maintain their telephone
number, regardless of location or service provider. The product is highly
scalable to give the service provider the capacity for growth as demand for this
and future Nexworx services increase. Other Nexworx products currently under
development may enable subscribers to create a virtual call center on a desktop
and schedule time-of-day routing over the Internet.


                                      -6-
<PAGE>


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 Company-operated telemessaging
service bureaus.

           In March 2000, the Company signed a definitive agreement to acquire
all of the outstanding stock of Loronix Information Systems, Inc. ("Loronix"), a
company that develops software-based digital video recording and management
systems used in a variety of applications and industries. The Company's
acquisition of Loronix is expected to be accounted for as a pooling of
interests. The Company will issue 0.385 new common shares for each outstanding
Loronix share, or approximately 1,974,000 new shares to Loronix shareholders,
and will assume outstanding Loronix stock options. Loronix will have the right
to terminate the agreement if the value of the Company's shares to be received
by Loronix shareholders is less than $36 per Loronix share. In such case, the
Company will have the right to increase the exchange ratio to adjust the
consideration to $36 per share. The acquisition is subject to various
conditions, including the approval by shareholders of Loronix.


MARKETS, SALES AND MARKETING

           The Company's ESP systems 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 a market share leader in providing
large capacity messaging systems for wireless and wireline telephone network
operators around the world.

           More than 320 wireless and wireline telephone network operators in
more than 90 countries, including 14 of the 20 largest telephone companies in
the world, have selected the Company's platforms to provide enhanced
telecommunications services to their public customers. Major network operators
using the Company's ESP systems include, among others, AT&T (USA), Bell Atlantic
(USA), BellSouth (USA), Cable & Wireless (UK), DDI (Japan), Deutsche Telekom
(Germany), Hongkong Telecom (Hong Kong), Mannesmann D2 (Germany), NTT (Japan),
SBC Communications (USA), SFR (France), Sprint PCS (USA), Telecom Italia
(Italy), Telmex (Mexico) and Telstra (Australia).

           The Company provides its customers 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.


                                      -7-
<PAGE>

           The Company's Ultra, InfoGate and Reliant 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, enterprises with CRM applications, financial
institutions, public safety and emergency services organizations. The InfoGate
target markets are the network operators and public networks switch vendors and
the Reliant systems are sold primarily to the law enforcement and government
markets. Major enterprises using Infosys' products include, among others,
Fidelity, TIAA-CREF, Barclays Bank, Hewitt and Midland Bank in the financial
sector; Ameritech, Sprint, Docomo (Japan) and Orange (UK) in the service
provider sector; equipment vendors such as Lucent and Ericsson; and government
agencies in over 30 countries worldwide.

           Ulticom's Signalware products are used by over 40 customers
throughout North America, Europe and the Pacific Rim and are deployed in more
than 50 countries. Ulticom markets its products and related services through its
direct sales organization and through 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 Ericsson, Siemens and Lucent, and application
developers such as Logica.

           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 Intelligent
Network and SS7 environments so that services and protocols can run anywhere in
the network.


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 and data communications, development of various
network and OMAP (Operations, Maintenance, Administration, and Provisioning)
interfaces, and application development. The Company's products use advanced
technologies in the areas of digital signal processing, VOIP, facsimile
protocols, telephony interfaces, mass storage, digital networking,
multi-processor computer architecture and real-time software design. The Company
also possesses considerable technology and expertise in the development of
software products, solutions and applications within the IN and AIN environment.


                                      -8-
<PAGE>

           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 digital 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
pre-paid service database inquiries. This architecture utilizes lower cost
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 telephony 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, VPIM, POP3, HTTP and HTML. The Company has
implemented facsimile communication and intercept protocols for Group 3
facsimile. Certain of the Company's products incorporate local area network and
wide area network technologies used for the transfer of digitized voice, fax 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. Proprietary algorithms developed by the Company are
utilized for storage of multimedia information to facilitate real-time
processing of large amounts of information and optimal use of media. 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.


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 1,960 scientists, engineers and technicians in its research
and development efforts, with broad experience in the areas of digital signal
processing, computer architecture, telephony, IP, digital networking,
multi-processing, mass storage, and real-time software design.


                                      -9-
<PAGE>

           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 is 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."


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


                                      -10-
<PAGE>

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 organized a wholly-owned subsidiary,
Comverse Patent Holding Company, Inc. ("CPH"), and entered into an agreement
with Lucent Technologies GRL Corp., a subsidiary of Lucent Technologies Inc.
("Lucent") under which CPH granted Lucent and its affiliates a non-exclusive
license to those patents owned by CPH or which CPH has a right to license during
the term of the agreement. In return, CPH was granted a non-exclusive license to
certain patents owned by Lucent or which Lucent has the right to license during
the term of the agreement. The agreement provides that CPH has the right to
grant a sublicense to its affiliated companies, including the Company and its
subsidiaries, and those affiliates have similarly entered into agreements
allowing CPH to sublicense their patents 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 entered into in
connection with research and development financing. 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 most of its
product sales. The royalties vary in amount based upon the revenues attributable
to the various components of such products.


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 system customization and
special integrations, government approvals and 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


                                      -11-
<PAGE>

Analysis of Financial Condition and Results of Operations - Certain Trends and
Uncertainties" appearing elsewhere in this report.


BACKLOG

           At January 31, 2000, the backlog of the Company amounted to
approximately $225,467,000. Substantially all of the current backlog is expected
to be delivered within the next 12 months.




                                      -12-
<PAGE>


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 telephone 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 certain instances, and is usually 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.


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
direct competitors are manufacturers of stand-alone messaging systems,
including, among others, Centigram Communications Corporation, Glenayre
Electronics, Inc., InterVoice-Brite, Inc., the Octel Messaging division of
Lucent Technologies, Inc., Tecnomen Oy, Unisys Corporation, and manufacturers of
central office telecommunications equipment, including Ericsson. In certain
applications, such as prepaid telephone service, wireless data services, and
Unified Messaging, the Company faces additional competition from switch vendors
and other suppliers of telecommunications equipment, such as Cisco, CMG, Logica,
Phone.com and Sema, as well as numerous other, smaller companies. Competitors of
the Company that manufacture other telecommunications equipment may derive a
competitive advantage in selling voice processing and message management systems
to customers that are purchasing or have previously purchased other compatible
equipment from such manufacturers.

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



                                      -13-
<PAGE>


           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 central office
and cellular switches, IP networks and other communications systems. The Company
believes that the range of features provided by, and the ease of use of, its
systems compare favorably with other platforms currently being marketed, and
that its ESP systems are the leading systems designed specifically for telephone
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 GmBH, Atis GmbH, Dictaphone Corporation, Eyretel
Ltd., Nice Systems, Ltd., Racal Recorders Ltd., TEAC America, Inc., Teknekron
Infoswitch Corporation and Witness Systems, Inc. The InfoGate product is sold to
switch vendors and public networks. Some of the switch vendors that have
developed competitive offerings include Lucent, Nortel, Siemens and Nokia. Other
competitors include ADC Newnet, ETI and Atis GmBH. The Company is aware of a
number of manufacturers of products that compete with the Reliant product line
including Applied Signal Technology, Inc., Atis GmBH, the E-Systems division of
Raytheon Corporation, ETI, GTE Government Systems Division, Harris Corporation,
JSI Corporation, Nice Systems, Ltd and Syborg GmBH. Competition also has been
provided by manufacturers and integrators of custom designed computer and
telecommunications systems in response to particular government procurements in
specific markets where they have entrenched customer relationships. The Company
believes that it derives a competitive advantage over many potential competitors
of its Reliant product line by reason of its ability to offer prospective
customers a family of products that can provide a solution to most customer
requirements without extensive special development effort. 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 signaling system #7 software solution
providers, such as ADC NewNet and Trillium Digital Systems, to vendors of
communication and network infrastructure equipment, such as Hewlett Packard and
Compaq.

           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.



                                      -14-
<PAGE>


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 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 has organized a wholly-owned subsidiary, CTI Capital
Corp. ("CTI Capital"), that directly and through a wholly-owned 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, primarily in Israel. Such activities include, in addition to
direct investment in public and private companies, investment and merchant
banking activities and short-term trading of debt and equity securities. Through
ComSor Investment Fund N.V., 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, primarily
located in Israel, and engages in other 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 significant negative impact on the Company's
business.


                                      -15-
<PAGE>


           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, Norway, Finland, Switzerland, Iceland and Liechtenstein,
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 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
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 from time to time been subject to significant
inflation. This inflation, 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.


                                      -16-
<PAGE>

           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, 2000, the Company employed approximately 4,760
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.

           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.


                                      -17-
<PAGE>

ITEM 2.    PROPERTIES.

           As of January 31, 2000, the Company leased an aggregate of
approximately 1,753,000 square feet of space for its operations worldwide,
including approximately 1,005,000 square feet in Tel Aviv, Israel, approximately
367,000 square feet in Wakefield, Massachusetts, approximately 77,000 square
feet in Andover, Massachusetts, approximately 56,000 square feet in Woodbury,
New York, approximately 67,000 square feet in Mt. Laurel, New Jersey,
approximately 23,000 square feet in Irvine, California, and an aggregate of
approximately 158,000 square feet at various other locations in the United
States, Europe, the Far East and Australia. The aggregate base monthly rent for
the facilities under lease at January 31, 2000 was approximately $2,090,000, 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.

           On November 5, 1998, Comverse's subsidiary, Comverse Network Systems,
Inc. ("CNS"), filed a complaint against Priority Call Management, Inc. ("PCM")
alleging that PCM is infringing and has infringed certain patents owned by CNS.
On October 6, 1999, CNS amended the complaint to include allegations of
misappropriations of trade secrets and confidential information, conversion,
intentional interference with contractual relations and unfair and deceptive
practices. CNS is seeking a declaratory judgment, injunctive relief,
compensatory and treble damages and attorneys fees. PCM answered the complaint,
asserting numerous affirmative defenses, and is seeking a declaratory judgment
that it has not infringed the CNS patents and that the patents are invalid. On
March 16, 1999, PCM filed an amended answer and counterclaim asserting
violations of the Sherman Antitrust Act, tortious interference and patent
misuse. In its counterclaim PCM seeks declaratory judgments, compensatory and
treble damages in unspecified amounts and attorneys fees. Currently, the parties
are engaged in discovery.

           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.


                                      -18-
<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.



                                      -19-
<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 three calendar years and for
the period from January 1 through April 24, 2000. 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              CALENDAR QUARTER             LOW            HIGH

           1997           1/1/97    -    3/31/97         12.29          15.46
                          4/1/97    -    6/30/97         12.17          17.34
                          7/1/97    -    9/30/97         15.32          17.69
                         10/1/97    -   12/31/97         10.75          18.07

           1998           1/1/98    -    3/31/98         10.21          16.34
                          4/1/98    -    6/30/98         14.09          18.36
                          7/1/98    -    9/30/98         12.21          18.98
                         10/1/98    -   12/31/98          9.98          23.67

           1999           1/1/99    -    3/31/99         21.81          28.50
                          4/1/99    -    6/30/99         27.28          38.60
                          7/1/99    -    9/30/99         33.60          47.44
                         10/1/99    -   12/31/99         46.50          72.38

           2000           1/1/00    -    3/31/00         67.63         119.69
                          4/1/00    -    4/24/00         68.06          90.19

           There were 2,103 holders of record of Common Stock at April 24, 2000.
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,


                                      -20-
<PAGE>

capital requirements and other relevant factors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."








                                      -21-
<PAGE>


ITEM 6.    SELECTED FINANCIAL DATA.

           The following tables present selected consolidated financial data for
the Company for each of the years in the three years ended December 31, 1997,
the one month period ended January 31, 1998, and the years ended January 31,
1999 and 2000. 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") to account for that
transaction as a 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
                                                                                        PERIOD ENDED              YEAR ENDED
                                             YEAR ENDED DECEMBER 31,                     JANUARY 31,              JANUARY 31,
-----------------------------------------------------------------------------------------------------------------------------------
                                             1995 (1)       1996 (1)        1997(2)          1998           1999             2000

                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                      <C>            <C>            <C>             <C>             <C>             <C>
   Statement of Operations Data:
     Sales                               $   242,416    $   389,639    $   488,940     $    14,401     $    696,094    $    872,190
     Cost of sales                           104,980        169,524        202,640          21,146 (3)      279,690         329,802
     Selling, general and administrative      72,953         93,604        138,305          51,892 (3)      151,985         184,080
     Research and development, net            41,310         66,228         96,626          13,481          132,820         168,132
     Royalties and license fees                3,321         10,443         12,325             520           16,552          18,841
     Non-recurring charges                    21,000              -              -          41,877                -           2,016
     Interest and other income, net            5,323          2,376          4,719             175            8,263          16,519
     Income (loss) before
           income tax provision                4,322         52,307         43,923        (114,340)         123,310         185,838
     Income tax provision                      2,162         10,170          9,398             867           11,783          15,577
                                        ------------   ------------    -----------    ------------      -----------     -----------
     Net income (loss)                  $      2,160   $     42,137    $    34,525    $   (115,207)     $   111,527     $   170,261
                                        ============   ============    ===========    =============     ===========     ===========

     Earnings per share - diluted       $       0.02   $       0.34    $      0.25    $     (0.89)      $      0.78     $      1.07
                                        ============   ============    ===========    ============      ===========     ===========

Weighted average number of
   common and common equivalent
     shares outstanding - diluted            116,280        133,132        137,908         130,060        143,650          176,862


                                                              DECEMBER 31,                          JANUARY 31,
                                         --------------------------------------------    ------------------------------------------
                                             1995(4)         1996(4)        1997          1998            1999               2000

                                                                               (IN THOUSANDS)
<S>                                     <C>            <C>             <C>           <C>            <C>              <C>
   Balance Sheet Data:
     Working capital                    $    193,693   $    332,660    $   395,744   $   280,793    $     707,281    $     848,826
     Total assets                            306,115        519,074        622,931       527,652        1,031,393        1,352,368
     Long-term debt, including
        current portion                       61,361        117,605        142,075       124,257          415,247          306,774
     Stockholders' equity                    176,080        288,550        346,161       231,390          381,662          711,340
</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 amounts for Boston as of its fiscal year ended January 31.


                                      -22-
<PAGE>

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


RESULTS OF OPERATIONS

INTRODUCTION

           On January 14, 1998, Comverse consummated a merger (the "Merger")
with Boston Technology, Inc., a Delaware corporation ("Boston"), in a
transaction accounted for as a pooling of interests. The Company's financial
statements for the year ended December 31, 1997 include the operations of Boston
for the eleven months ended December 31, 1997.

           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 and an overhead allocation. Research
and development costs include salaries 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, 2000 COMPARED TO YEAR ENDED JANUARY 31, 1999

           Sales. Sales for the fiscal year ended January 31, 2000 ("fiscal
1999") increased by approximately $176.1 million, or 25%, 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 multimedia digital monitoring systems and
network signaling software products increased by approximately $6.5 million and
$6.3 million, respectively.

           Cost of Sales. Cost of sales for fiscal 1999 increased by
approximately $50.1 million, or 18%, as compared to fiscal 1998. The increase in
cost of sales is primarily attributable to increased materials and production
costs of approximately $26 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 60% in fiscal 1998 to approximately 62% in
fiscal 1999.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 increased by approximately $32.1
million, or 21%, 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 personnel and increased


                                      -23-
<PAGE>

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 $35.3 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 $3.2 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 $3.8 million, or 32%, due to
increased pre-tax income. Our 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 $58.7 million, or
53%, in fiscal 1999 compared to fiscal 1998, while as a percentage of sales
increased from approximately 16% in fiscal 1998 to approximately 20% in fiscal
1999. The increase resulted primarily from the factors described above.



YEAR ENDED JANUARY 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1997

           Sales. Sales for fiscal 1998 increased by approximately $207.2
million, or 42%, compared to fiscal year ended December 31, 1997 ("fiscal
1997"). This increase is primarily attributable to an increase in sales of ESP
products of approximately $176.8 million. Such increase was principally due to
increased sales to European customers. In addition, sales of multimedia digital
monitoring systems increased by approximately $25 million.


                                      -24-
<PAGE>


           Cost of Sales. Cost of sales for fiscal 1998 increased by
approximately $77.1 million, or 38%, as compared to fiscal 1997. The increase in
cost of sales is primarily attributable to increased materials and production
costs of approximately $48 million due to the increase in sales, increased
personnel-related costs of approximately $14 million due to hiring of additional
personnel and increased compensation and benefits for existing personnel, and an
increase in overhead costs of approximately $8.5 million. Gross margins
increased from approximately 59% in fiscal 1997 to approximately 60% in fiscal
1998.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998 increased by approximately $13.7
million, or 10%, compared to fiscal 1997, but as a percentage of sales decreased
from approximately 28% in fiscal 1997 to approximately 22% in fiscal 1998. 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 1998.

           Research and Development. Net research and development expenses for
fiscal 1998 increased by approximately $36.2 million, or 37%, compared to fiscal
1997 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
1998 increased by approximately $4.2 million, or 34%, compared fiscal 1997. 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 1998 increased by approximately $3.5 million as compared to fiscal 1997.
The principal reasons for the increase are increased interest and dividend
income of approximately $9.7 million and a change in foreign currency
gains/losses of approximately $5.0 million. These increases were partially
offset by increased interest expense of approximately $6.3 million and net
realized losses on the Company's investments of approximately $5.6 million. The
increase in interest and dividend income and interest expense in fiscal 1998 is
primarily a result of the issuance by the Company of $300 million convertible
subordinated debentures issued in June 1998.

           Income Tax Provision. Provision for income taxes increased from
fiscal 1997 to fiscal 1998 by approximately $2.4 million, or 25%, due to
increased pre-tax income. Our overall effective tax rate decreased from
approximately 21% during fiscal 1997 to approximately 10% in fiscal 1998. 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 $77.0 million, or
223%, in fiscal 1998 compared to fiscal 1997, while as a percentage of sales
increased from approximately 7% in fiscal 1997 to approximately 16% in fiscal
1998. The increase resulted primarily from the factors described above.


                                      -25-
<PAGE>

TRANSITION PERIOD

           In 1998, the Company changed its fiscal year from the calendar year
to the fiscal year ending January 31, corresponding to Boston's fiscal year. As
a result of the change in fiscal year, the Company's results of operations for
the one month ended January 31, 1998 have previously been reported separately as
a transition period and included on a transition report on Form 10-K. The
Company had sales of approximately $14.4 million, costs and expenses of
approximately $129.6 million, and a net loss of approximately $115.2 million for
the one month ended January 31, 1998.

           In connection with the Merger, the Company has charged $41,877,000 to
operations for merger and restructuring related charges. Such charges relate to
the following:


            Asset write-downs and impairments
            ---------------------------------
                                                      (In thousands)

               Research and development equipment        $ 9,106
               Capitalized software costs                  2,987
               Prepaid license fees                        2,190
               Furniture and equipment                     1,474
               Other                                         161
                                                         -------
               Total asset write-downs and impairments   $15,918
                                                         =======


           In connection with the Merger, certain assets became impaired due to
the closing of duplicative facilities, or the existence of duplicative
technology of the merged companies. In addition, the Company decided to develop
a new software platform for the combined company and to discontinue certain
software enhancements under development which were previously capitalized.
Accordingly, these assets were written down to their net realizable value at the
time of the merger.

        Severance and other restructuring charges
        -----------------------------------------
                                                         (In thousands)

             Terminated employment contracts and severance   $6,825
             Terminated leases of duplicative facilities        571
             Other                                              449
                                                             ------
             Total                                           $7,845
                                                             ======

           In connection with the Merger, management having the requisite
authority determined to close certain duplicate facilities, sever certain
employees and otherwise streamline the combined operations. The Company


                                      -26-
<PAGE>

also terminated certain employment contracts for employees that provided no
future benefit to the merged companies. In connection with this plan, the
Company recorded a charge for severance and related fringe benefits for 50
employees, consisting of 25 software engineers, 10 operations employees, 5
customer service employees and 10 general and administrative employees. The
employees under employment contracts and employees who were terminated under the
severance plan were considered redundant by the Company as a result of the
Merger. Prior to the Merger, the Company and BTI each had sales offices in
certain countries and, as a result of the Merger, duplicative facilities were
closed.


Professional fees and other direct merger expenses
--------------------------------------------------

In connection with the Merger, the Company recorded a charge of $11,040,000 for
professional fees to lawyers, investment bankers and accountants, as well as
other direct merger costs, such as printer fees for the proxy statement incurred
directly in connection with the merger.

Other merger related charges
----------------------------
                                                          (In thousands)

            Penalties under product development agreements   $5,989
            Terminated development contracts                  1,085
                                                             ------
                                                             $7,074
                                                             ======

In connection with the Merger, the Company also terminated certain existing
development contracts which provided no future benefit to the merged companies.
Prior to the Merger, the Company had commitments with third parties to develop
technology in which it was contractually obligated. As a result of the Merger,
the Company decided to develop a new software platform for the combined company
and to discontinue certain enhancements under development. In addition, the
Company incurred penalties under product development agreements relating to
transfer of technology.

In addition, approximately $36,055,000 has been charged to selling, general and
administrative expenses in the one month period ended January 31, 1998 relating
to the impairment of receivables resulting from the Merger. Included in this
amount is approximately $14.9 million from an international distributor who
refused to pay the Company, claiming his exclusive distribution agreement was
violated as a result of the Merger. Also included in this amount is
approximately $21.1 million that was due from customers who had switched as
customers from BTI to the Company or from the Company to BTI. In order to
continue good customer relations, the Company decided to forgive the amounts
owed.

Approximately $7,831,000 has been charged to cost of sales in the one month
ended January 31, 1998 relating to the Merger. Such charge relates to the
write-off of inventory that was considered obsolete and duplicative as a result
of the merger. Both the Company and BTI had two ESP products. As a result of the
Merger, the Company decided that one product from each of the Company and BTI
would no longer be sold.


                                      -27-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

           The Company's working capital at January 31, 2000 and 1999 was
approximately $848.8 million and $707.3 million, respectively.

           Operations for the years ended January 31, 2000 and 1999 and December
31, 1997, after adding back non-cash items, provided cash of approximately
$203.7 million, $132.4 million and $56.5 million, respectively. During such
years, other changes in working capital used cash of approximately $28.5
million, $28.1 million and $35.2 million, respectively, resulting in cash being
provided by operating activities and working capital management of approximately
$175.2 million, $104.3 million and $21.3 million, respectively.

           Investment activities for the years ended January 31, 2000 ("Fiscal
1999") and 1999 ("Fiscal 1998") and December 31, 1997 ("Fiscal 1997") used cash
of approximately $474.3 million, $9.0 million and $96.1 million, respectively.
These amounts include (i) additions to property in Fiscal 1999, Fiscal 1998 and
Fiscal 1997 of approximately $84.8 million, $24.7 million and $36.5 million,
respectively; (ii) maturities and sales (purchases) of bank time deposits and
investments, net, of approximately ($377.6) million, $24.2 million and ($53.5)
million, respectively; and (iii) capitalization of software development costs of
approximately $11.9 million, $8.6 million and $6.0 million, respectively. The
property additions in Fiscal 1999 include the increase of the Company's fixtures
and equipment as a result of the growth of the Company and the purchase of land
by the Company of approximately $25.8 million for future construction purposes.
In addition, in Fiscal 1999 the Company increased the amount of its bank time
deposits and investments to better utilize the net proceeds of the 1998 issuance
of convertible debentures.

           Financing activities for Fiscal 1999, Fiscal 1998 and Fiscal 1997
provided cash of approximately $52.1 million, $307.8 million and $52.0 million,
respectively. These amounts include (i) the net proceeds from the issuance of
convertible debentures in Fiscal 1998 of approximately $292.7 million; (ii)
proceeds from the issuance of common stock in connection with the exercise of
stock options, warrants and employee stock purchase plan of approximately $49.2
million, $36.2 million and $23.0 million, respectively; and (iii) net proceeds
(repayments) of bank loans and other debt of approximately $2.9 million, ($21.1)
million and $29.0 million, respectively.

           As of January 31, 2000, the Company had outstanding convertible
subordinated debentures of $300 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, and there can be no assurance as to whether or when any


                                      -28-
<PAGE>

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 has benefited from the growth in its business and capital
base over the past several years to make significant new investment in its
operations and infrastructure intended to enhance its opportunities for future
growth and profitability. The Company intends to continue to make significant
investments in the growth of its business, and to examine opportunities for
additional growth through acquisitions and strategic investments. 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 unforeseen
downturns in its markets, technology changes and shifts in competitive
conditions. However, the Company believes that significant opportunities exist
in the markets for each of its main product lines, and that continued strong
investment in its technical, product development, marketing and sales
capabilities will enhance its opportunities for long term growth and
profitability.

           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 revenue stream 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. In addition, if the Company were to
delay the introduction of new products, the Company's operating results could be
adversely affected.

           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 for enhanced services as a result of its own
research and development efforts or acquisitions, it is likely to encounter new
competitors.


                                      -29-
<PAGE>


           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. The delays and uncertainties
surrounding the Communications Assistance for Law Enforcement Act ("CALEA") have
had a significant negative impact on acquisition plans of law enforcement
agencies in North America engaged in monitoring activities. 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 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. Although the Company is actively pursuing a number
of significant procurement opportunities, both the timing of any eventual
procurements and the probability of the Company's receipt of significant
contract awards are uncertain. 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, and the Company plans to further increase
these expenditures in the foreseeable future. The increase in research and
development expenditures reflects the Company's concentration on enhancing the
range of features and capabilities of its existing product lines, developing new
generations of its products and expanding into new product areas. The Company
believes that these efforts are essential for the continuing competitiveness of
its product offerings and for positioning itself to participate in future growth

                                      -30-
<PAGE>

opportunities in both the commercial and government sectors. The increase in
sales and marketing expenditures primarily results from the Company's decision
to expand its activities and direct presence in a growing number of world
markets. The Company's costs of operations have also 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 is growing 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. 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 receive significant benefits through
reimbursement of up to 50% of qualified research and development expenditures.
For amounts received under programs which have been, or will be, approved by the
Office of the Chief Scientist after January 1, 1999, repayment of the amount
received (calculated in U.S. Dollars), plus interest on such amount at a rate
equal to the 12-month LIBOR rate in effect at the time of the approval of the
program, is required through the application of royalty payments. 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.


                                      -31-
<PAGE>


           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. 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 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 the Company will
hedge the exchange rate risks associated with long-term contracts denominated in
foreign currencies only to a limited extent, if at all, operating results can be
affected by the impact of currency fluctuations as well as the cost of such
hedging.

           The Company's future operating results and financial condition will
be adversely affected should economic instability result in widespread slowdown
or recessionary conditions in major world markets, or in severe trade or
currency disruptions.

           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 and government contracting businesses, and particularly publicly
traded companies such as the Company, tend to exhibit a high degree of
volatility. Shortfalls in revenues or earnings from the levels 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
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.


                                      -32-
<PAGE>


EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

           During 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all
derivative financial instruments be recognized as either assets or liabilities
in the balance sheet. Measurement is at fair value, and if the derivative is not
designed as a hedging instrument, changes in fair value (i.e., gains and losses)
are to be recognized in earnings in the period of change. If certain conditions
are met, a derivative may be designed as a hedge, in which case the accounting
for changes in fair value will depend on the specific exposure being hedged. The
method that will be used for assessing the effectiveness of a hedging
derivative, as well as the measurement approach for determining the ineffective
aspects of the hedge, must be established at the inception of the hedge. The
methods must be consistent with the Company's approach to managing risk. SFAS
133, as amended by Statement of Financial Accounting Standards No. 137, will be
effective for fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact that the adoption of SFAS 133 will have on its
financial statements.


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.


                                      -33-
<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



                                      -34-
<PAGE>

January 31, 2000, 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.


                                    PART III

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



                                      -35-
<PAGE>

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
                                                                                                       Page(s)
                                                                                                       -------
<S>                                                                                                    <C>
           (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, 1999 and 2000                                       F-3

                                Consolidated Statements of Income
                                          for the   Years Ended December 31,
                                          1997 and January 31, 1999 and 2000                              F-4

                                Consolidated Statements of Stockholders' Equity
                                          for the   Years Ended December 31, 1997,
                                          and January 31, 1999 and 2000                                   F-5

                                Consolidated Statements of Cash Flows for the
                                          Years Ended December 31, 1997
                                          and January 31, 1999 and 2000                                   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 10.7
                                comprise material compensatory plans
                                and arrangements of the registrant.

</TABLE>


                                      -36-
<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.

           3.5*       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.)

           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.)


                                      -37-
<PAGE>

           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.)

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.)

           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*      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.)

           10.9*      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.)

           10.10*      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


                                      -38-
<PAGE>

                      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.)

           10.11*     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.)

           10.12*     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.)

           10.13*     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.)

           10.14*     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

27         Financial Data Schedule

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


                                      -39-
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES

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

                                                                      PAGE

Independent Auditors' Report                                          F-2

Consolidated Balance Sheets as of January 31, 1999 and 2000           F-3

Consolidated Statements of Income for the
   Years Ended December 31, 1997 and January 31, 1999 and 2000        F-4

Consolidated Statements of Stockholders' Equity for the
   Years Ended December 31, 1997 and January 31, 1999 and 2000        F-5

Consolidated Statements of Cash Flows for the
   Years Ended December 31, 1997 and January 31, 1999 and 2000        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, 1999 and
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for years ended December 31, 1997 and January 31, 1999 and 2000.
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 generally accepted auditing standards
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, 1999 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 1997 and
January 31, 1999 and 2000 in conformity with generally accepted accounting
principles in the United States of America.


/S/ Deloitte & Touche LLP

New York, New York
March 6, 2000     (April 3, 2000 as to Note 12)



                                      F-2
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS                                                                       1999                        2000
------                                                                       ----                        ----
<S>                                                                  <C>                            <C>
CURRENT ASSETS:
   Cash and cash equivalents                                         $       583,959                $       338,638
   Bank time deposits                                                         10,000                          9,800
   Short-term investments                                                     63,658                        429,254
   Accounts receivable, net of allowance for
     doubtful accounts of $25,218 and $28,691                                192,317                        259,357
   Inventories                                                                46,689                         97,653
   Prepaid expenses and other current assets                                  36,014                         40,829
                                                                     ---------------                ---------------
TOTAL CURRENT ASSETS                                                         932,637                      1,175,531
PROPERTY AND EQUIPMENT, net                                                   61,445                        121,897
INVESTMENTS                                                                    7,902                         19,749
OTHER ASSETS                                                                  29,409                         35,191
                                                                     ---------------                ---------------
TOTAL ASSETS                                                             $ 1,031,393                $     1,352,368
                                                                     ===============                ===============

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


LIABILITIES AND STOCKHOLDERS' EQUITY                                         1999                        2000
------------------------------------                                         ----                        ----

CURRENT LIABILITIES:
   Accounts payable and accrued expenses                             $       184,870                $       231,245
   Bank loans                                                                    247                          1,077
   Advance payments from customers                                            39,051                         94,171
   Other current liabilities                                                   1,188                            212
                                                                     ---------------                ---------------
TOTAL CURRENT LIABILITIES                                                    225,356                        326,705
CONVERTIBLE SUBORDINATED DEBENTURES                                          415,000                        300,000
LIABILITY FOR SEVERANCE PAY                                                    4,338                          6,185
OTHER LIABILITIES                                                              5,037                          8,138
                                                                     ---------------                ---------------
TOTAL LIABILITIES                                                            649,731                        641,028
                                                                     ---------------                ---------------

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, 300,000,000 shares;
     issued and outstanding, 137,473,872 and 153,822,408 shares               13,747                         15,382
   Additional paid-in capital                                                246,192                        407,645
   Retained earnings                                                         118,086                        285,890
   Accumulated other comprehensive income                                      3,637                          2,423
                                                                     ---------------                ---------------
TOTAL STOCKHOLDERS' EQUITY                                                   381,662                        711,340
                                                                     ---------------                ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $     1,031,393                $     1,352,368
                                                                     ===============                ===============
</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND JANUARY 31, 1999 AND 2000 (IN THOUSANDS,
EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------


                                       DECEMBER 31,   JANUARY 31,   JANUARY 31,
                                           1997          1999          2000
                                           ----          ----          ----

Sales                                    $488,940     $696,094       $872,190
Cost of sales                             202,640      279,690        329,802
                                         --------     --------       --------
Gross margin                              286,300      416,404        542,388

Operating expenses:
   Research and development, net           96,626      132,820        168,132
   Selling, general and administrative    138,305      151,985        184,080
   Royalties and license fees              12,325       16,552         18,841
   Merger expenses                           --           --            2,016
                                         --------     --------       --------

   Income from operations                  39,044      115,047        169,319

   Interest and other income, net           4,879        8,263         16,519
                                         --------     --------       --------

Income before income tax provision         43,923      123,310        185,838
Income tax provision                        9,398       11,783         15,577
                                         --------     --------       --------

Net income                               $ 34,525     $111,527       $170,261
                                         ========     ========       ========

Earnings per share:
     Basic                               $   0.27     $   0.84       $   1.18
                                         ========     ========       ========
     Diluted                             $   0.25     $   0.78       $   1.07
                                         ========     ========       ========



                 See notes to consolidated financial statements.


                                      F-4
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND JANUARY 31, 1999 AND 2000 (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, 1997                     123,951,982  $12,395   $187,398      $86,872     $1,547          $338      $288,550
Comprehensive income:
Net income                                                                          34,525
Unrealized (loss) on available-for-
      sale securities                                                                            (430)
Translation adjustment                                                                                          106
Total comprehensive income                                                                                                 34,201
Warrant exercises                               1,656,432      166       (166)
Common stock issued for acquisition               487,500       49        (33)                                                 16
Retained earnings of acquired
   company                                                                             661                                    661
Common stock issued for employee
     stock purchase plan                          152,764       15      1,291                                               1,306
Issuance of treasury stock upon
   exercise of stock options                                                          (292)                                  (292)
Exercise of stock options                       3,772,408      377     14,412                                              14,789
Tax benefit of dispositions of stock options                            6,930                                               6,930
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                    130,021,086 $ 13,002  $ 209,832    $ 121,766    $ 1,117         $ 444     $ 346,161
                                              =========== ========  =========    =========    =======         =====     =========

BALANCE, FEBRUARY 1, 1998                     130,172,392 $ 13,017  $ 210,684      $ 6,559      $ 641         $ 489     $ 231,390
Comprehensive income:
Net income                                                                         111,527
Unrealized gain on available-for-sale
     securities                                                                                 2,874
Translation adjustment                                                                                         (367)
Total comprehensive income                                                                                                114,034
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                       5,791,814      579     33,361                                              33,940
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1999                     137,473,872   13,747    246,192      118,086      3,515           122       381,662
Comprehensive income:
Net income                                                                         170,261
Unrealized gain on available-for-sale
     securities                                                                                  (397)
Translation adjustment                                                                                         (817)
Total comprehensive income                                                                                                169,047
Warrant exercises                               1,738,144      174       (174)
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                       5,321,244      532     43,104                                              43,636
Conversion of debentures                        7,540,916      754    112,079                                             112,833
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 2000                     153,822,408 $ 15,382  $ 407,645    $ 285,890    $ 3,118        $ (695)    $ 711,340
                                              =========== ========  =========    =========    =======        =======    =========
</TABLE>


                 See notes to consolidated financial statements.


                                      F-5
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND JANUARY 31, 1999 AND 2000
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,       JANUARY 31,        JANUARY 31,
                                                                                 1997              1999               2000
                                                                                 ----              ----               ----
<S>                                                                        <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                              $      34,525     $      111,527     $     170,261
   Adjustments to reconcile net income to net cash provided
        by operating activities:
     Depreciation and amortization                                                22,000             20,872            33,473
     Changes in assets and liabilities:
        Accounts receivable                                                      (23,977)          (112,624)          (63,729)
        Inventories                                                              (14,818)            16,335           (50,679)
        Prepaid expenses and other current assets                                (17,802)            (6,491)           (2,954)
        Accounts payable and accrued expenses                                      8,314             58,929            44,636
        Advance payments from customers                                            8,595             16,371            48,114
        Liability for severance pay                                                  807               (143)            1,847
        Other                                                                      3,657               (440)           (5,721)
                                                                           -------------     ---------------    --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                         21,301            104,336           175,248
                                                                           -------------     --------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Maturities and sales (purchases) of bank time deposits
     and investments, net                                                        (53,524)            24,199         (377,582)
   Purchase of property and equipment                                            (36,532)           (24,673)         (84,830)
   Capitalization of software development costs                                   (6,008)            (8,569)         (11,928)
                                                                           --------------    ---------------    -------------
NET CASH USED IN INVESTING ACTIVITIES                                            (96,064)            (9,043)        (474,340)
                                                                           --------------    ---------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from issuance of debentures                                            -            292,672                 -
   Proceeds from issuance of common stock in connection
     with exercise of stock options, warrants, and
     employee stock purchase plan                                                 23,041             36,238            49,188
   Net proceeds from bank loans and other debt                                    28,989            (21,099)            2,876
                                                                           -------------      --------------    -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                         52,030            307,811            52,064
                                                                           -------------      -------------     -------------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                              (22,733)           403,104          (247,028)
CASH ACQUIRED IN POOLING OF INTERESTS TRANSACTIONS                                     -                  -             1,707
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                     210,756            180,855           583,959
                                                                           -------------      -------------      ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                     $     188,023      $     583,959      $    338,638
                                                                           =============      =============      ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for interest                                  $       9,184      $      14,094      $     20,216
                                                                           =============      =============      ============
   Cash paid during the year for income taxes                              $      10,811      $       2,452      $        619
                                                                           =============      =============      ============
</TABLE>

                 See notes to consolidated financial statements.

                                      F-6
<PAGE>

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND JANUARY 31, 1999 AND 2000
--------------------------------------------------------------------------------

1.       ORGANIZATION AND BUSINESS

         Comverse Technology, Inc. ("Comverse" and, together with its
         subsidiaries, "CTI" or 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.

         In 1998, the Company changed its fiscal year from the calendar year to
         the fiscal year ending January 31. As a result of the change in fiscal
         year, the Company's results of operations for the one month ended
         January 31, 1998 have previously been reported separately as a
         transition period and included on a transition report on Form 10-K.


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.
         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. The cost of maintenance and repairs
         is charged to operations as incurred. Significant renewals and
         betterments are capitalized.


                                      F-7
<PAGE>


         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 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 $3,546,000, $3,230,000 and $5,754,000
         for the years ended December 31, 1997 and January 31, 1999 and 2000,
         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 $(2,192,000),
         $2,847,000 and $(9,422,000) for the years ended December 31, 1997 and
         January 31, 1999 and 2000, respectively.


                                      F-8
<PAGE>


         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 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 also purchases 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, 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.
         No such impairment losses have been identified by the Company.

         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


                                      F-9
<PAGE>

         December 31, 1997 and January 31, 1999 and 2000 were $16,276,000,
         $16,732,000 and $16,797,000, respectively.


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, 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
                                           =============              ==========             =========             =============

         The following is a summary of available-for-sale securities as of
January 31, 1999:

                                                                        GROSS                  GROSS               ESTIMATED
                                                                     UNREALIZED              UNREALIZED               FAIR
                                                 COST                   GAINS                  LOSSES                 VALUE
                                             ----------------------------------------------------------------------------------
                                                                                (IN THOUSANDS)
<S>                                         <C>                       <C>                    <C>                   <C>
         Corporate debt securities          $     40,819              $      924             $       6             $    41,737
                                            ------------              ----------             ---------             -----------

         Common stock                             13,993                   3,448                 1,082                  16,359
         Mutual funds investing in
            U.S. government and
            agencies obligations                   1,929                      70                     -                   1,999
         Preferred stock                           3,173                     481                    91                   3,563
                                            ------------              ----------             ---------             -----------
         Total equity securities                  19,095                   3,999                 1,173                  21,921
                                            ------------              ----------             ---------             -----------

                                            $     59,914              $    4,923             $   1,179             $    63,658
                                            ============              ==========             =========             ===========
</TABLE>

         During the year ended January 31, 2000, the gross realized gains on
         sales of securities totaled approximately $11,652,000, and the gross
         realized losses totaled approximately $4,613,000. During the year ended


                                      F-10
<PAGE>

         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. During the year ended December 31, 1997, the
         gross realized gains on sales of securities totaled approximately
         $4,037,000, and the gross realized losses totaled approximately
         $2,503,000. 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, 2000, by contractual maturity, are as follows:

                                                             ESTIMATED
                                                      COST   FAIR VALUE
                                                      ----   ----------
                                                       (IN THOUSANDS)

          Due in one year or less                  $374,310   $374,075
          Due after one year through three years     20,845     20,549
          Due after three years                      10,266     10,003
                                                   --------   --------

                                                   $405,421   $404,627
                                                   ========   ========


5.       INVENTORIES

         Inventories consist of:
                                                           JANUARY 31,
                                                           -----------
                                                      1999            2000
                                                      ----            ----
                                                          (IN THOUSANDS)

         Raw materials                               $23,944        $38,641
         Work in process                              11,171         29,755
         Finished goods                               11,574         29,257
                                                     -------        -------

                                                     $46,689        $97,653
                                                     =======        =======


                                      F-11
<PAGE>

6.       PROPERTY AND EQUIPMENT

         Property and equipment consists of:
                                                            JANUARY 31,
                                                            -----------
                                                      1999               2000
                                                      ----               ----
                                                           (IN THOUSANDS)

Fixtures and equipment                              $ 120,297         $ 165,370
Land                                                     --              25,803
Software                                                4,034            13,593
Transportation vehicles                                 1,985               808
Leasehold improvements                                  3,044             7,408
                                                    ---------         ---------
                                                      129,360           212,982
Less accumulated depreciation
       and amortization                               (67,915)          (91,085)
                                                    ---------         ---------

                                                    $  61,445         $ 121,897
                                                    =========         =========


7.       OTHER ASSETS

         Other assets consist of:
                                                             JANUARY 31,
                                                             -----------
                                                        1999            2000
                                                        ----            ----
                                                           (IN THOUSANDS)
Software development costs,  net of
   accumulated amortization
   of $14,126 and $19,880                              $15,140        $21,314
Debt issue costs, net of accumulated
   amortization of $1,078 and $1,404                     9,140          5,703

   Other assets                                          5,129          8,174
                                                       -------        -------


                                                       $29,409        $35,191
                                                       =======        =======


8.      BUSINESS COMBINATIONS

        In March 2000, the Company signed a definitive agreement to acquire all
        of the outstanding stock of Loronix Information Systems, Inc.
        ("Loronix"), a company that develops software-based digital video
        recording and management systems used in a variety of applications and
        industries. The Company's acquisition of Loronix is expected to be
        accounted for as a pooling of interests. The Company will issue 0.385
        new common shares for each outstanding Loronix share, or approximately
        1,974,000 new shares to Loronix shareholders, and will assume
        outstanding Loronix stock options. Loronix will have the right to
        terminate the agreement if the value of the Company's shares to be
        received by Loronix shareholders is less than $36 per Loronix share. In


                                      F-12
<PAGE>

        such case, the Company will have the right to increase the exchange
        ratio to adjust the consideration to $36 per share.

        Unaudited pro forma consolidated statement of income data for the fiscal
        years ended December 31, 1997 and January 31, 1999 and 2000 are as
        follows:
<TABLE>
<CAPTION>
                                                             CTI                 LORONIX                COMBINED
                                                             ---                 -------                --------
                                                                 (In thousands, except share data amounts)
<S>                                                 <C>                      <C>                   <C>
            DECEMBER 31, 1997
            Sales                                   $      488,940           $     9,403           $      498,343
            Net income (loss)                       $       34,525           $    (2,512)          $       32,013
            Earnings per share - diluted            $         0.25                                 $         0.23

            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

</TABLE>

        The unaudited pro forma consolidated statement of income data combine
        the historical statement of income data of the Company for the years
        ended December 31, 1997 and January 31, 1999 and 2000 with the
        historical statement of income data of Loronix for the fiscal years
        ended December 31, 1997, 1998 and 1999, respectively.

        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 January 1998, Boston Technology, Inc., a Delaware corporation,
        ("BTI") merged with and into Comverse in a transaction that was
        accounted for as a pooling of interests. BTI designed, developed,
        manufactured, marketed and supported standard and customized enhanced
        services platforms and software applications for the telephone network
        operator market. Pursuant to the merger, the issued and outstanding


                                      F-13
<PAGE>

        shares of BTI at the effective date of the merger were converted into an
        aggregate of approximately 54,423,556 shares of Comverse's common stock
        and outstanding options and warrants to purchase BTI stock were
        converted into options and warrants to purchase an aggregate of
        10,374,796 Comverse shares.

        The table below sets forth the unaudited separate and combined results
        of CTI and BTI for the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
                                                        CTI                 BTI                  ADJUSTMENTS              COMBINED
                                                        ---                 ---                  -----------              --------
                                                                       (In thousands, except per share amounts)

<S>                                              <C>                   <C>                   <C>                  <C>
           Sales                                 $      280,281        $      210,525        $     (1,866)        $       488,940
           Net income (loss)                     $       43,500        $      (7,503)        $     (1,472)        $        34,525
           Earnings per share - diluted          $         0.54                                                   $          0.25
</TABLE>


        BTI had a January 31 fiscal year end. Accordingly, the consolidated
        statement of income data combines the historical statement of income
        data of the Company for the year ended December 31, 1997 with the
        historical statement of income data of BTI for the eleven months ended
        December 31, 1997.

        In 1998, the Company changed its fiscal year from the calendar year to
        the fiscal year ending January 31, corresponding to BTI's fiscal year.
        As a result of the change in fiscal year, the Company's results of
        operations for the one month ended January 31, 1998 have previously been
        reported separately as a transition period and included on a transition
        report on Form 10-K. Consolidated statement of operations data for the
        one month ended January 31, 1998 is as follows:

                                                              (In thousands,
                                                       except per share amounts)

        Sales                                                  $  14,401
        Cost of Sales                                             21,146
        Selling, general and administrative expenses              51,892
        Research and development                                  13,481
        Royalties and license fees                                   520
        Merger and restructuring charges                          41,877
                                                               ---------
        Loss from operations                                    (114,515)
        Interest and other income, net                               175
                                                               ---------
        Loss before income tax                                  (114,340)
        Income tax provision                                        (867)
                                                               ---------
        Net loss                                               $(115,207)
                                                               =========
        Net loss per share                                     $   (0.89)
                                                               =========

        In connection with the merger, the Company has charged $41,877,000 to
        operations for merger and restructuring related charges. Such charges
        relate to the following:


                                      F-14
<PAGE>

        Asset write-downs and impairments
        ---------------------------------
                                                      (In thousands)

               Research and development equipment        $ 9,106
               Capitalized software costs                  2,987
               Prepaid license fees                        2,190
               Furniture and equipment                     1,474
               Other                                         161
                                                         -------
               Total asset write-downs and impairments   $15,918
                                                         =======


        In connection with the merger with BTI, certain assets became impaired
        due to the closing of duplicative facilities, or the existence of
        duplicative technology of the merged companies. In addition, the Company
        decided to develop a new software platform for the combined company and
        to discontinue certain software enhancements under development which
        were previously capitalized. Accordingly, these assets were written down
        to their net realizable value at the time of the merger. Net realizable
        value was determined in accordance with the Company's accounting
        policies disclosed in Note 1.

        Severance and other restructuring charges
        -----------------------------------------
                                                          (In thousands)

             Terminated employment contracts and severance   $6,825
             Terminated leases of duplicative facilities        571
             Other                                              449
                                                             ------
             Total                                           $7,845
                                                             ======

        In connection with the merger with BTI, management having the requisite
        authority determined to close certain duplicate facilities, sever
        certain employees and otherwise streamline the combined operations. The
        Company also terminated certain employment contracts for employees that
        provided no future benefit to the merged companies. In connection with
        this plan, the Company recorded a charge for severance and related
        fringe benefits for 50 employees, consisting of 25 software engineers,
        10 operations employees, 5 customer service employees and 10 general and
        administrative employees. The employees under employment contracts and
        employees who were terminated under the severance plan were considered
        redundant by the Company as a result of the merger. Prior to the merger,
        the Company and BTI each had sales offices in certain countries and, as
        a result of the merger, duplicative facilities were closed.


                                      F-15
<PAGE>


        A summary of the restructuring reserve is as follows:

                                    One Month Ended         Year Ended
                                      January 31,           January 31,
                                         1998           1999          2000
                                         ----           ----          ----
                                                  (In thousands)

    Balance, beginning of period       $  --         $ 7,356       $ 2,063
    Provision                            7,845          --            --
    Payments for:
       Terminated employment
          contracts and severance         (334)       (4,528)       (1,952)
       Duplicative facilities              (56)         (515)         --
       Other                               (99)         (250)         --
                                       -------       -------       -------

    Balance, end of period             $ 7,356       $ 2,063       $   111
                                       =======       =======       =======


        Professional fees and other direct merger expenses
        --------------------------------------------------

        In connection with the merger with BTI, the Company recorded a charge of
        $11,040,000 for professional fees to lawyers, investment bankers and
        accountants, as well as other direct merger costs, such as printer fees
        for the proxy statement incurred directly in connection with the merger.


        Other merger related charges
        ----------------------------
                                                            (In thousands)

           Penalties under product development agreements      $5,989
           Terminated development contracts                     1,085
                                                               ------
                                                               $7,074
                                                               ======

        In connection with the merger with BTI, the Company also terminated
        certain existing development contracts which provided no future benefit
        to the merged companies. Prior to the merger, the Company had
        commitments with third parties to develop technology in which it was
        contractually obligated. As a result of the merger, the Company decided
        to develop a new software platform for the combined company and to
        discontinue certain enhancements under development. In addition, the
        Company incurred penalties under product development agreements relating
        to transfer of technology.

        In addition, approximately $36,055,000 has been charged to selling,
        general and administrative expenses in the one month period ended
        January 31, 1998 relating to the impairment of receivables resulting
        from the merger. Included in this amount is approximately $14.9 million
        from an international distributor who refused to pay the Company,
        claiming his exclusive distribution agreement was violated as a result
        of the merger. Also included in this amount is approximately $21.1
        million that was due from customers who had switched as customers from
        BTI to the Company or from the Company to BTI. In order to continue good
        customer relations, the Company decided to forgive the amounts owed.

        Approximately $7,831,000 has been charged to cost of sales in the one
        month ended January 31, 1998 relating to the merger. Such charge relates
        to the write-off of inventory that was considered obsolete and


                                      F-16
<PAGE>

        duplicative as a result of the merger. Both the Company and BTI had two
        enhanced services platform products. As a result of the merger, the
        Company decided that one product from each of the Company and BTI would
        no longer be sold.


        In February 1997, the Company acquired all of the outstanding stock of
        Enhanced Communications Corporation ("ECC"), a company providing
        outsourcing of voice messaging, for 487,500 shares of the Company's
        common stock. The combination has been 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 ECC of $661,000 in the statement of stockholders' equity.


9.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of:

                                                  JANUARY 31,
                                              1999          2000
                                              ----          ----
                                                 (IN THOUSANDS)

               Accounts payable            $ 63,606      $ 74,074
               Accrued salaries              22,645        28,825
               Accrued vacation               9,004        13,568
               Accrued royalties             18,165        26,567
               Other accrued expenses        71,450        88,211
                                           --------      --------

                                           $184,870      $231,245
                                           ========      ========



10.        CONVERTIBLE SUBORDINATED DEBENTURES

        In June 1998, the Company issued $300,000,000 of convertible
        subordinated debentures bearing interest at 4-1/2% 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 face 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 5-3/4% 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.


                                      F-17
<PAGE>

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 $1,648,000 and $1,925,000
         has been accrued as of January 31, 1999 and 2000, respectively,
         relating to this liability.


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.


13.      STOCK OPTIONS

        EMPLOYEE STOCK OPTIONS - At January 31, 2000, 23,409,800 shares of
        common stock were reserved for issuance upon the exercise of options
        then outstanding and 90,020 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 annual 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.


                                      F-18
<PAGE>


The changes in the number of options were as follows:


                                                    YEAR ENDED
                                     ------------------------------------------
                                     DECEMBER 31,            JANUARY 31,
                                        1997            1999            2000
                                        ----            ----            ----

Outstanding at beginning of year     16,718,884      24,791,386      20,777,464
Options from pooling
       of interests transactions           --              --           224,758
Granted during the year               3,314,250       2,690,582       8,463,306
Exercised during the year            (3,772,408)     (5,791,814)     (5,321,244)
Canceled, terminated and expired       (427,014)       (912,690)       (734,484)
                                    -----------     -----------     -----------

Outstanding at end of year           15,833,712      20,777,464      23,409,800
                                    ===========     ===========     ===========


        At January 31, 2000, options to purchase an aggregate of 7,087,800
        shares were vested and currently exercisable under the option plans and
        options to purchase an additional 16,322,000 shares vest at various
        dates extending through the year 2003.

        Weighted average option exercise price information was as follows:

                                                        YEAR ENDED
                                          ----------------------------------
                                          DECEMBER 31,         JANUARY 31,
                                             1997         1999          2000
                                             ----         ----          ----

Outstanding at beginning of year         $    5.54    $    8.64    $    9.62
Assumed from pooling of interests              --           --          3.16
Granted during the year                      14.35        10.72        44.36
Exercised during the year                     4.13         5.87         8.21
Canceled, terminated and expired              8.99        10.42        12.10
Exercisable at year end                       3.90         6.79         9.06

        Significant option groups outstanding at January 31, 2000 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>               <C>
        $ 0.63 - $10.00         5,083,276                6.63                $   6.89               3,009,902         $   5.31
        $10.42 - $10.42         6,770,474                7.99                   10.42               2,709,088            10.42
        $11.08 - $27.33         3,911,690                7.60                   15.88               1,347,210            14.12
        $46.50 - $49.28         7,644,360                9.69                   46.51                  21,600            46.50
                               ----------                ----                --------               ---------         --------
                               23,409,800                8.18                $  22.35               7,087,800         $   9.06
                               ==========                ====                ========               =========         ========

</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

                                      F-19
<PAGE>


        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 $13,505,000, $28,769,000 and
        $44,853,000 or $0.10, $0.20 and $0.27 per diluted share for the years
        ended December 31, 1997 and January 31, 1999 and 2000, respectively. The
        weighted average fair value of the options granted for the years ended
        December 31, 1997 and January 31, 1999 and 2000, respectively, is
        estimated at $7.74, $5.58 and $21.67 on the date of grant (using the
        Black-Scholes option pricing model) with the following weighted average
        assumptions for the years ended December 31, 1997 and January 31, 1999
        and 2000, respectively: volatility of 54%, 55% and 55%; risk-free
        interest rate of 6.5%, 4.7% and 5.9%; and an expected life of 4.7, 5.0
        and 4.1 years.

        OPTIONS ON SUBSIDIARY SHARES - In accordance with the requirements of
        his employment agreement, the chief executive officer of Comverse holds
        options to acquire up to 7.5% of the shares of certain subsidiaries,
        other than Comverse Network Systems, Inc. In addition, Comverse has
        granted to certain other employees of the Company options 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.


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, 2000, warrants to purchase 1,914,432 shares are outstanding,
        none of which are exercisable.


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 1,500,000, of which 587,682
        had been issued as of January 31, 2000.


                                      F-20
<PAGE>

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 December 31,
         1997 and January 31, 1999 and 2000 was as follows:

<TABLE>
<CAPTION>
                                    DECEMBER 31, 1997                   JANUARY 31, 1999                   JANUARY 31, 2000
                             ---------------------------------   -------------------------------  ---------------------------------
                                                   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                   $  34,525    127,240   $ 0.27        $111,527    132,600   $   0.84  $  170,261     144,018   $  1.18
                                                    ======                              ========                           =======

EFFECT OF DILUTIVE
     SECURITIES
-------------------
Options and warrants                       10,668                              11,050                             13,652
Convertible debentures                                                                                19,399      19,192
                             ---------  ---------   ------     ---------    --------   -------    ----------   ---------

DILUTED EPS                  $  34,525    137,908   $ 0.25     $ 111,527    143,650    $  0.78   $  189,660      176,862  $   1.07
                             =========    =======   ======     =========    =======    =======   ==========    =========  ========
</TABLE>


         Debentures convertible into 7,540,984 shares and 21,494,472 shares were
         outstanding as of December 31, 1997 and January 31, 1999, respectively,
         but were not included in the computation of diluted EPS because the
         effect of including them would be antidilutive.


17.      INTEREST AND OTHER INCOME, NET

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

                                                        YEAR ENDED
                                           DECEMBER 31,           JANUARY 31,
                                             1997           1999          2000
                                             ----           ----          ----
                                                       (IN THOUSANDS)

Interest and dividend income             $ 15,692       $ 25,410       $ 36,690
Interest expense                           (9,727)       (16,065)       (19,310)
Other, net                                 (1,086)        (1,082)          (861)
                                         --------       --------       --------
                                         $  4,879       $  8,263       $ 16,519
                                         ========       ========       ========



                                      F-21
<PAGE>

18.      INCOME TAXES

         The provision for income taxes consists of the following:

                                                YEAR ENDED
                             DECEMBER 31,                JANUARY 31,
                               1997                1999              2000
                               ----                ----              ----
                                              (IN THOUSANDS)

       Current:
         Federal           $     3,471        $          -       $          -
         State                     703                 127                762
         Foreign                 2,216              11,664             14,743
                           -----------        ------------       ------------

                                 6,390              11,791             15,505
                           -----------        ------------       ------------

       Deferred (benefit):
         Federal                 2,810                (430)                 -
         State                     215                  13                 13
         Foreign                   (17)                409                 59
                           ------------       ------------       ------------

                                 3,008                  (8)                72
                           -----------        -------------      ------------

                           $     9,398        $     11,783       $     15,577
                           ===========        ============       ============


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

                                                   YEAR ENDED
                                   DECEMBER 31,               JANUARY 31,
                                     1997               1999              2000
                                     ----               ----              ----

U.S. Federal statutory rate             35%              35%               35%
Consolidated worldwide income
     in excess of U.S. income          (31)             (37)              (36)
Foreign income taxes                     5                9                 8
Other                                   12                3                 1
                                  ---------         ---------         --------
Company's effective tax rate            21%              10%                8%
                                  =========         =========         ========


           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, 1999 and 2000 is as follows:


                                      F-22
<PAGE>

                                                               JANUARY 31,
                                                           1999           2000
                                                           ----           ----
                                                             (IN THOUSANDS)

Deferred tax liability:
  Expenses deductible for tax purposes and
     not for financial reporting purposes                $      94    $     151
  Unrealized gain on available-for-sale securities           1,301        1,154
                                                         ---------    ---------
                                                         $   1,395    $   1,305
                                                         =========    =========
Deferred tax asset:
  Reserves not currently deductible                      $  22,417    $  18,408
  Tax loss carryforwards                                    25,160      104,733
  Inventory capitalization                                     276          408
                                                         ---------    ---------
                                                            47,853      123,549
Less: valuation allowance                                  (46,193)    (121,883)
                                                         ---------    ---------

       Total deferred tax asset                          $   1,660    $   1,666
                                                         =========    =========


         At January 31, 2000, the Company had net operating loss carryforwards
         for Federal income tax purposes of approximately $283.1 million, which
         begin to expire in 2018.

         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 - Enables 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.

         Signaling Software Products - Interconnects the complex switching,
         database and messaging systems and manage the vital number, routing and
         billing information that form the backbone of today's 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.

         Digital Monitoring Systems Products - Supports the voice, fax and data
         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.


                                      F-23
<PAGE>


         All Other - Includes other miscellaneous operations.

         The table below presents information about operating income/loss and
         segment assets as of and for the year ended January 31, 2000:
<TABLE>
<CAPTION>
                                Enhanced                               Digital
                                Services            Signaling        Monitoring
                                Platform            Software           Systems           All        Reconciling      Consolidated
                                Products            Products          Products          Other          Items            Totals
                          -------------------------------------------------------------------------------------------------------
                                                                     (In thousands)

<S>                          <C>                 <C>               <C>             <C>            <C>              <C>
Sales                        $      755,597      $     25,831      $     78,074    $    19,494    $      (6,806)   $      872,190

Operating Income
       (Loss)                $      182,836      $      2,809      $    (12,461)   $    (2,043)   $      (1,822)   $      169,319

Total Assets                 $      694,872      $     17,794      $     78,704    $    39,512    $     521,486    $    1,352,368
</TABLE>


         Reconciling items consist of the following:

             Sales - elimination of intersegment revenues
             Operating Income - elimination of intersegment operating income and
             corporate operations.
             Total Assets - elimination of intersegment
             receivables and unallocated corporate assets.

         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
         years ended December 31, 1997 and January 31, 1999 were as follows:
<TABLE>
<CAPTION>
                                                UNITED
                                                STATES           ISRAEL            OTHER           ELIMINATIONS         TOTAL
                                                ------           ------            -----           ------------         -----

                                                                                (IN THOUSANDS)
             YEAR ENDED
             DECEMBER 31, 1997

<S>                                        <C>               <C>                 <C>                <C>            <C>
             Sales                         $     343,158     $      203,636      $    18,511        $   (76,365)   $     488,940
             Costs and expenses                 (342,396)          (163,847)         (17,694)            74,041         (449,896)
                                           --------------    ---------------     ------------       -----------    --------------
             Operating income (loss)       $         762     $       39,789      $       817        $    (2,324)   $      39,044
                                           ==============    ===============     ============       ===========    ==============

             YEAR ENDED
             JANUARY 31, 1999

             Sales                         $     342,368     $      407,809      $    32,838        $   (86,921)   $     696,094
             Costs and expenses                 (365,711)          (274,218)         (30,263)            89,145         (581,047)
                                           --------------    ---------------     ------------       -----------    --------------
             Operating income (loss)       $     (23,343)    $      133,591      $     2,575        $     2,224    $     115,047
                                           ==============    ===============     ============       ===========    ==============

</TABLE>

                                      F-24
<PAGE>

            Sales by country, based on end-user location, as a percentage of
            total sales, for the years ended December 31, 1997 and January 31,
            1999 and 2000 were as follows:

                             DECEMBER 31,                  JANUARY 31,
                             ------------                  -----------
                                 1997             1999                   2000
                                 ----             ----                   ----

            United States        33%              26%                     21%
            Germany               4%              11%                     10%
            Japan                13%               8%                      9%
            Other foreign        50%              55%                     60%
                             -------           ------                --------
            Total               100%             100%                    100%
                             =======           ======                ========

             No customer accounted for 10% of sales for the years ended December
31, 1997, January 31, 1999 or January 31, 2000.

             Long-lived assets by country of domicile consist of:

                                                 JANUARY 31,
                                        1999                   2000
                                        ----                   ----
                                               (IN THOUSANDS)

                    United States    $    47,996           $      67,527
                    Israel                41,826                  95,275
                    Other                  2,210                  10,416
                                     -----------           -------------

                                     $    92,032           $     173,218
                                     ===========           =============


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 $11,705,000, $15,081,000 and $22,364,000 in the
         years ended December 31, 1997 and January 31, 1999 and 2000,
         respectively.

         As of January 31, 2000, the minimum annual rent obligations of the
Company were approximately as follows:

               TWELVE MONTHS ENDED
                   JANUARY 31,                       AMOUNT
                   -----------                       ------
                                                 (IN THOUSANDS)

                       2001                     $      22,546
                       2002                            17,941
                       2003                            16,522
                       2004                            15,323
                   2005 and thereafter                 41,026
                                                -------------

                                                $     113,358
                                                =============


                                      F-25
<PAGE>

         EMPLOYMENT AGREEMENTS - The Company is obligated under employment
         contracts with its chief executive officer to provide salary, bonuses,
         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 $112,736
         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.

         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," software 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 product development activities. The Company currently
         pays royalties on the sale of most of its product lines 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


                                      F-26
<PAGE>

         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,
        1999 and 2000, the Company has invested approximately $3,100,000 and
        $11,300,000, respectively, related to these ventures which are included
        in the caption "Investments" in the accompanying balance sheets.

         GUARANTIES - The Company has obtained bank guaranties primarily for
         performance of certain obligations under contracts with customers.
         These guaranties, which aggregated approximately $58,405,000 at January
         31, 2000, are to be released by the Company's performance of specified
         contract milestones, which are scheduled to be completed primarily
         during 2000.

         LITIGATION - On November 5, 1998, Comverse's subsidiary, Comverse
         Network Systems, Inc. ("CNS"), filed a complaint against Priority Call
         Management, Inc. ("PCM") alleging that PCM is infringing and has
         infringed certain patents owned by CNS. On October 6, 1999, CNS amended
         the complaint to include allegations of misappropriations of trade
         secrets and confidential information, conversion, intentional
         interference with contractual relations and unfair and deceptive
         practices. CNS is seeking a declaratory judgment, injunctive relief,
         compensatory and treble damages and attorneys fees. PCM answered the
         complaint, asserting numerous affirmative defenses, and is seeking a
         declaratory judgment that it has not infringed the CNS patents and that
         the patents are invalid. On March 16, 1999, PCM filed an amended answer
         and counterclaim asserting violations of the Sherman Antitrust Act,
         tortious interference and patent misuse. In its counterclaim PCM seeks
         declaratory judgments, compensatory and treble damages in unspecified
         amounts and attorneys fees. Currently, the parties are engaged in
         discovery.

         The Company is subject to certain other 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.


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.

                                      F-27
<PAGE>
<TABLE>
<CAPTION>
                                                                                    JANUARY 31,
                                                        ----------------------------------------------------------------------
                                                                    1999                                     2000
                                                                    ----                                     ----
                                                        CARRYING           ESTIMATED               CARRYING          ESTIMATED
                                                         AMOUNT           FAIR VALUE                AMOUNT          FAIR VALUE
                                                         ------           ----------                ------          ----------
                                                                                   (IN THOUSANDS)
<S>                                                  <C>                <C>                      <C>              <C>
        Liabilities:
           Convertible subordinated debentures       $     415,000      $     646,475            $     300,000    $  1,313,400

        Off-balance sheet financial instruments:
        Foreign exchange forward contracts and
           options used for hedging purposes         $           -      $        (909)           $           -    $          -
</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 SUBORDINATED 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, 2000. Although
         management is not aware of any factors that would significantly affect
         the estimated fair value amounts, such amounts have not been
         comprehensively revalued for purposes of these financial statements
         since that date, and current estimates of fair value may differ
         significantly from the amounts presented herein.


22.        EFFECT OF NEW ACCOUNTING PRONOUNCEMENT

         During 1998, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 133, "Accounting for Derivative
         Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires
         that all derivative financial instruments be recognized as either
         assets or liabilities in the balance sheet. Measurement is at fair
         value, and if the derivative is not designed as a hedging instrument,
         changes in fair value (i.e., gains and losses) are to be recognized in
         earnings in the period of change. If certain conditions are met, a
         derivative may be designed as a hedge, in which case the accounting for
         changes in fair value will depend on the specific exposure being
         hedged. The method that will be used for assessing the effectiveness of
         a hedging derivative, as well as the measurement approach for
         determining the ineffective aspects of the hedge, must be established
         at the inception of the hedge. The methods must be consistent with the
         Company's approach to managing risk. SFAS 133, as amended by Statement
         of Financial Accounting Standards No. 137, will be effective for fiscal
         years beginning after June 15, 2000. The Company is currently
         evaluating the impact that the adoption of SFAS 133 will have on its
         financial statements.


                                      F-28
<PAGE>

23.      QUARTERLY INFORMATION (UNAUDITED)

         The following table shows selected results of operations for each of
         the quarters during the years ended January 31, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                       FISCAL QUARTER ENDED
                                    APRIL 30,   JULY 31,    OCT. 31,    JAN. 31,   APRIL 30,   JULY 31,    OCT. 31,    JAN. 31
                                      1998        1998        1998        1999       1999       1999         1999        2000
                                      ----        ----        ----        ----       ----       ----         ----        ----
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Sales                              $160,481    $167,404    $178,107    $190,102    $200,507    $209,280    $221,814    $240,589
Gross profit                       $ 94,616    $ 99,688    $107,158    $114,942    $123,080    $130,214    $138,589    $150,505
Net income                         $ 23,970    $ 26,067    $ 29,121    $ 32,369    $ 35,637    $ 40,401    $ 43,689    $ 50,534

Diluted earnings per share         $   0.17    $   0.18    $   0.21    $   0.22    $   0.23    $   0.26    $   0.28    $   0.30
                                   ========    ========    ========    ========    ========    ========    ========    ========

</TABLE>


                                      F-29
<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 28, 2000                                By: /s/ Kobi Alexander
                                                 -----------------------------
                                                      Kobi Alexander, President


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 28, 2000
----------------------------------------
Kobi Alexander, President,
Chairman of the Board and
Chief Executive Officer; Director


/S/ David Kreinberg                                             April 28, 2000
----------------------------------------
David Kreinberg,
Chief Financial Officer


/S/ Zvi Alexander                                              April 28, 2000
----------------------------------------
Zvi Alexander, Director


/S/ Itsik Danziger                                             April 28, 2000
----------------------------------------
Itsik Danziger, Director


/S/ John H. Friedman                                           April 28, 2000
----------------------------------------
John H. Friedman, Director


/S/ Francis E. Girard                                           April 28, 2000
----------------------------------------
Francis E. Girard, Director


/S/ Sam Oolie                                                   April 28, 2000
----------------------------------------
Sam Oolie, Director


/S/ William F. Sorin                                            April 28, 2000
----------------------------------------
William F. Sorin, Director


/S/ Shaula A. Yemini                                            April 28, 2000
----------------------------------------
Dr. Shaula A. Yemini, Director



                                      F-30