UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

        x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   For The Quarterly Period Ended March 31, 2002

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

            For The Transition Period From                      to                     

Commission File No. 0-5108

STATE STREET CORPORATION

(Exact name of registrant as specified in its charter)

COMMONWEALTH OF MASSACHUSETTS	04-2456637
State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)
225 Franklin Street Boston, Massachusetts (Address of principal executive office)	02110     (Zip Code)

617-786-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x         No  ¨

The number of shares of the Registrant’s Common Stock outstanding on March 31, 2002 was 325,246,957.

STATE STREET CORPORATION

Table of Contents

	Page
PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
Consolidated Statement of Income	1
Consolidated Statement of Condition	2
Consolidated Statement of Changes in Stockholders’ Equity	3
Consolidated Statement of Cash Flows	4
Notes to Consolidated Financial Statements	5
Independent Accountants’ Review Report	13
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.    Quantitative and Qualitative Disclosure About Market Risk	23
PART II.    OTHER INFORMATION
Item 2.    Changes in Securities and Use of Proceeds	24
Item 4.    Submission of Matters to a Vote of Security Holders	24
Item 6.    Exhibits and Reports on Form 8-K	25
Signatures	26
Exhibits

PART I.   ITEM 1.

FINANCIAL STATEMENTS

Consolidated Statement of Income—State Street Corporation (Unaudited)

(Dollars in millions, except per share data) Three months ended March 31,	2002		2001
Fee Revenue
Servicing fees	$	422	$	396
Management fees		135		127
Foreign exchange trading		68		99
Processing fees and other		76		21
Total fee revenue		701		643
Net Interest Revenue
Interest revenue		524		855
Interest expense		243		608
Net interest revenue		281		247
Provision for loan losses		1		1
Net interest revenue after provision for loan losses		280		246
Total Revenue		981		889
Operating Expenses
Salaries and employee benefits		421		392
Information systems and communications		96		87
Transaction processing services		59		64
Occupancy		60		53
Other		79		110
Total operating expenses		715		706
Income before income taxes		266		183
Income taxes		88		62
Net Income	$	178	$	121
Earnings Per Share
Basic	$	.55	$	.38
Diluted		.54		.37
Average Shares Outstanding (in thousands)
Basic		323,689		324,681
Diluted		328,999		330,098
Cash Dividends Declared Per Share	$	.11	$	.095

The accompanying notes are an integral part of these financial statements.

1

PART I.  ITEM 1

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Condition—State Street Corporation

	March 31,			December 31,
(Dollars in millions)	2002			2001
	(Unaudited)			(Note A)
Assets
Cash and due from banks	$	797		$	1,651
Interest-bearing deposits with banks		24,259			20,317
Securities purchased under resale agreements and securities borrowed		17,487			16,680
Federal funds sold		300
Trading account assets		1,054			994
Investment securities (including securities pledged of $9,464 and $9,006)		20,570			20,781
Loans (less allowance of $61 and $58)		4,804			5,283
Premises and equipment		846			829
Accrued income receivable		924			880
Goodwill		474			470
Other intangible assets		138			142
Other assets		1,645			1,823
Total Assets	$	73,298		$	69,850
Liabilities
Deposits:
Interest-bearing—U.S.	$	10,128		$	2,753
Noninterest-bearing		8,340			9,390
Interest-bearing—Non-U.S.		24,399			26,416
Total deposits		42,867			38,559
Securities sold under repurchase agreements		20,751			19,006
Federal funds purchased		1,111			3,315
Other short-term borrowings		706			1,012
Accrued taxes and other expenses		1,501			1,582
Other liabilities		1,126			1,314
Long-term debt		1,242			1,217
Total Liabilities		69,304			66,005
Stockholders’ Equity
Preferred stock, no par: authorized 3,500,000; issued none
Common stock, $1 par: authorized 500,000,000; issued 329,997,000 and 329,999,000		330			330
Surplus		102			110
Retained earnings		3,755			3,612
Other unrealized comprehensive income		13			70
Treasury stock, at cost (4,750,000 and 6,329,000 shares)		(206	)		(277	)
Total Stockholders’ Equity		3,994			3,845
Total Liabilities and Stockholders’ Equity	$	73,298		$	69,850

The accompanying notes are an integral part of these financial statements.

2

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Changes in Stockholders’ Equity—State Street Corporation (Unaudited)

(Dollars in millions, shares in thousands)	Common Stock				Surplus			Retained Earnings			Other Unrealized Comprehensive Income (Loss)			Treasury Stock
	Shares		Amount											Shares		Amount			Total
Balance at December 31, 2000	167,219		$	167	$	69		$	3,278		$	(1	)	5,508		$	(251	)	$	3,262
Comprehensive income:
Net income									121											121
Change in net unrealized gain/loss on available-for-sale securities, net of related tax expense of $32												45								45
Foreign currency translation, net of related tax benefit of $10												(19	)							(19	)
Other												4								4
Comprehensive income									121			30								151
Cash dividends declared—$.095 per share									(31	)										(31	)
Common stock issued pursuant to:
Acquisitions						63								(1,007	)		45			108
Stock awards and options exercised, including tax benefit of $5	(1	)				8								(185	)		7			15
Debt conversion														(4	)
Common stock acquired														210			(21	)		(21	)
Balance at March 31, 2001	167,218		$	167	$	140		$	3,368		$	29		4,522		$	(220	)	$	3,484
Balance at December 31, 2001	329,999		$	330	$	110		$	3,612		$	70		6,329		$	(277	)	$	3,845
Comprehensive income:
Net income									178											178
Change in net unrealized gain/loss on available-for-sale securities, net of related tax benefit of $43												(59	)							(59	)
Other, net of related tax expense of $2												2								2
Comprehensive income									178			(57	)							121
Cash dividends declared—$.11 per share									(35	)										(35	)
Common stock issued pursuant to:
Stock awards and options exercised, including tax benefit of $14	(2	)				(8	)							(1,581	)		71			63
Common stock acquired														2
Balance at March 31, 2002	329,997		$	330	$	102		$	3,755		$	13		4,750		$	(206	)	$	3,994

The accompanying notes are an integral part of these financial statements.

3

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Cash Flows—State Street Corporation (Unaudited)

(Dollars in millions) Three months ended March 31,		2002			2001
Operating Activities
Net Income	$	178		$	121
Non-cash charges for depreciation, amortization, provision for loan losses and deferred income taxes		236			90
Securities gains, net		(4	)		(6	)
Change in trading account assets, net		(60	)		(317	)
Other, net		(147	)		(419	)
Net Cash Provided by (Used by) Operating Activities		203			(531	)
Investing Activities
Payments for purchases of:
Available-for-sale securities		(4,079	)		(4,919	)
Held-to-maturity securities		(293	)		(1,623	)
Premises and equipment		(73	)		(44	)
Equity investments and other long-term assets		(9	)		(71	)
Lease financing assets					(147	)
Business acquisitions, net of cash acquired					(90	)
Proceeds from:
Maturities of available-for-sale securities		3,142			1,418
Maturities of held-to-maturity securities		304			1,597
Sales of available-for-sale securities		952			598
Principal collected from lease financing		16			9
Net (payments for) proceeds from:
Interest-bearing deposits with banks		(3,942	)		3,307
Federal funds sold, resale agreements and securities borrowed		(1,107	)		2,082
Loans		507
Net Cash (Used by) Provided by Investing Activities		(4,582	)		2,117
Financing Activities
Proceeds from issuance of:
Non-recourse debt for lease financing					90
Treasury stock		49			10
Payments for:
Non-recourse debt for lease financing		(31	)		(70	)
Cash dividends		(36	)		(31	)
Purchase of common stock					(21	)
Net proceeds from (payments for):
Deposits		4,308			(19	)
Short-term borrowings		(765	)		(2,060	)
Net Cash Provided by (Used by) Financing Activities		3,525			(2,101	)
Net Decrease		(854	)		(515	)
Cash and due from banks at beginning of period		1,651			1,618
Cash and Due From Banks at End of Period	$	797		$	1,103

The accompanying notes are an integral part of these financial statements.

4

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note A—Basis of Presentation

State Street Corporation (“State Street” or the “Corporation”) is a financial holding company that provides custody, accounting, daily pricing and administration; master trust and master custody; investment management; trustee and recordkeeping; foreign exchange; securities lending; cash management; trading; and information services to clients worldwide. State Street reports two lines of business. Investment Servicing includes custody, accounting, daily pricing and administration; master trust and master custody; trustee and recordkeeping; foreign exchange; securities lending; deposit and short-term investment facilities; lease financing; investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. Investment Management offers a broad array of services for managing financial assets, including investment management and investment research services for both institutions and individual investors worldwide. These services include active and passive U.S. and non-U.S. equity and fixed income strategies, and other related services, such as securities lending.

The consolidated financial statements include the accounts of State Street and its subsidiaries, including its principal subsidiary, State Street Bank and Trust Company (“State Street Bank”). Revenue is recognized when earned based on contractual terms, or as transactions or services are provided. Revenue on interest-earning assets is recognized based on the effective yield of the financial instrument. All significant intercompany balances and transactions have been eliminated upon consolidation. The results of operations of businesses purchased are included from the date of acquisition. Investments in affiliates in which the Corporation has the ability to exercise significant influence, but not control, are accounted for using the equity method.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” effective for years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but will be subject to annual impairment tests in accordance with the Statement. State Street adopted SFAS No. 142 as of January 1, 2002. Based upon management’s review, no impairment of goodwill has been identified.

In November 2001, the FASB issued Emerging Issues Task Force (“EITF”) No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-Of-Pocket Expenses Incurred.” This guidance, effective January 1, 2002, requires companies to recognize the reimbursement of client-related expenses as revenue and the costs as operating expense. Historically, State Street has netted these reimbursements against the related operating expenses. Client reimbursements for out-of-pocket expenses are reflected in fee revenue in the accompanying financial statements. Prior periods have been reclassified to reflect this presentation, which resulted in an increase to fee revenue and operating expenses of $7 million for the three months ended  March 31, 2001.

In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation, have been included. Certain previously reported amounts have been reclassified to conform to the current method of presentation. Operating results for the three month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending  December 31, 2002. These statements should be read in conjunction with the financial statements and other information included in State Street’s latest annual report on Form 10-K.

5

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

The Statement of Condition at December 31, 2001 has been derived from the audited financial statements at that date but does not include footnotes required by generally accepted accounting principles for complete financial statements.

Note B—Investment Securities

Available-for-sale securities and held-to-maturity securities consisted of the following as of the dates indicated:

	March 31, 2002								December 31, 2001
	Amortized Cost		Unrealized				Fair Value		Amortized Cost		Unrealized				Fair Value
(Dollars in millions)			Gains		Losses						Gains		Losses
Available for sale:
U.S. Treasury and federal agencies	$	10,681	$	58	$	31	$	10,708	$	10,157	$	94	$	3	$	10,248
State and political subdivisions		1,468		16		1		1,483		1,444		20		1		1,463
Asset-backed securities		3,584		40		17		3,607		3,592		58		12		3,638
Collateralized mortgage obligations		838		5		4		839		789		7		1		795
Other debt investments		574		1				575		568		5		1		572
Money market mutual funds and other equity securities		1,933				5		1,928		2,624				2		2,622
Total	$	19,078	$	120	$	58	$	19,140	$	19,174	$	184	$	20	$	19,338
Held to maturity:
U.S. Treasury and federal agencies	$	1,283	$	6	$	5	$	1,284	$	1,296	$	13	$	1	$	1,308
Other investments		147						147		147						147
Total	$	1,430	$	6	$	5	$	1,431	$	1,443	$	13	$	1	$	1,455

During the three months ended March 31, 2002, there were gross gains of $7 million and gross losses of $3 million realized on the sales of available-for-sale securities. During the three months ended March 31, 2001, there were gross gains of $6 million and gross losses of less than $1 million realized on the sales of available-for-sale securities.

Note C—Allowance for Loan Losses

State Street establishes an allowance for loan losses to absorb probable credit losses. Changes in the allowance for loan losses were as follows:

	Three Months Ended March 31,
(Dollars in millions)	2002		2001
Balance at beginning of period	$	58	$	57
Provision for loan losses		1		1
Recoveries		2
Balance at end of period	$	61	$	58

6

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note D—Goodwill and Other Intangible Assets

The following pro forma table adjusts reported net income and earnings per share for the three months ended March 31, 2001, to exclude amortization of goodwill:

	For the Three Months Ended March 31,
(Dollars in millions, except per share data)		2002		2001
Reported net income	$	178	$	121
Add back: goodwill amortization, after tax				5
Adjusted net income	$	178	$	126
Basic earnings per share:
Reported net income	$	.55	$	.38
Goodwill amortization, after tax				.01
Adjusted basic earnings per share	$	.55	$	.39
Diluted earnings per share:
Reported net income	$	.54	$	.37
Goodwill amortization, after tax				.01
Adjusted diluted earnings per share	$	.54	$	.38

The changes in the carrying amount of goodwill for the three months ended March 31, 2002, are as follows:

(Dollars in millions)	Investment Servicing			Investment Management		Total
Balance as of December 31, 2001	$	261		$	209	$	470
Goodwill acquired		4			1		5
Translation adjustments		(1	)				(1	)
Balance as of March 31, 2002	$	264		$	210	$	474

The gross carrying amount and accumulated amortization of other intangible assets as of March 31, 2002, is as follows:

(Dollars in millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Other intangible assets:
Customer lists	$	116	$	(4	)	$	112
Bond servicing rights		62		(38	)		24
Software and other		4		(2	)		2
Total	$	182	$	(44	)	$	138

Amortization expense related to other intangible assets was $3 million for the three months ended March 31, 2002. State Street expects to amortize $3 million per quarter through the year 2007 related to intangible assets currently held.

7

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note E—Processing Fees and Other Fee Revenue

Processing fees and other revenue includes fees from brokerage services, software licensing and maintenance, loans fees, investment banking, trade banking, profits or losses from joint ventures, gains and losses on sales of investment securities, gains and losses on sales of leased equipment and other assets, trading account profits and losses, amortization of investments in tax-advantaged financings, and residual interests from special purpose entities.

Processing fees and other revenue of $76 million and $21 million for the three months ended March 31, 2002 and 2001, respectively, included $23 million and $21 million, respectively, for brokerage services. In the first quarter of 2001, State Street recorded the write-off of $50 million of its total investment in Bridge Information Systems, Inc. in processing fees and other revenue.

Note F—Net Interest Revenue

Net interest revenue consisted of the following:

	Three Months Ended March 31,
(Dollars in millions)	2002		2001
Interest Revenue
Deposits with banks	$	161	$	246
Securities purchased under resale agreements, securities borrowed and federal funds sold		96		302
Investment securities:
U.S. Treasury and federal agencies		112		121
State and political subdivisions (exempt from federal tax)		17		18
Other investments		78		79
Commercial and financial loans		24		46
Lease financing		28		28
Trading account assets		8		15
Total interest revenue		524		855
Interest Expense
Deposits		111		275
Other borrowings		111		310
Long-term debt		21		23
Total interest expense		243		608
Net interest revenue	$	281	$	247
Note G—Operating Expenses-Other The other category of operating expenses consisted of the following:
	Three Months Ended March 31,
(Dollars in millions)		2002		2001
Professional services	$	21	$	31
Advertising and sales promotion		13		17
Other		45		62
Total operating expenses—other	$	79	$	110

8

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note H—Regulatory Matters

The regulatory capital amounts and ratios were the following at March 31, 2002, and December 31, 2001:

	Regulatory Guidelines (1)				State Street						State Street Bank
(Dollars in millions)	Minimum		Well Capitalized		2002			2001			2002			2001
Risk-based ratios:
Tier 1 capital	4	%	6	%		14.6	%		13.6	%		13.7	%		12.9	%
Total capital	8		10			15.5			14.5			13.8			13.0
Tier 1 leverage ratio	3		5			5.3			5.4			5.2			5.3
Tier 1 capital					$	3,995		$	3,795		$	3,683		$	3,558
Total capital						4,255			4,050			3,718			3,587
Adjusted risk-weighted assets and market-risk equivalents:
On-balance sheet					$	20,412		$	20,528		$	19,965		$	20,141
Off-balance sheet						6,534			6,708			6,538			6,710
Market-risk equivalents						458			706			439			679
Total					$	27,404		$	27,942		$	26,942		$	27,530
Quarterly average adjusted assets					$	75,692		$	70,922		$	70,445		$	67,496

(1) State Street must meet the regulatory designation of “well capitalized” in order to maintain its status as a financial holding company. In addition, Regulation Y defines “well capitalized” for a bank holding company such as State Street for the purpose of determining eligibility for a streamlined review process for acquisition proposals. For such purposes, “well capitalized” requires State Street to maintain a minimum Tier 1 risk-based capital ratio of 6% and a minimum total risk-based capital ratio of 10%.

Note I—Lines of Business

The following is a summary of the lines of business operating results for the three months ended March 31:

(Dollars in millions, except where otherwise noted; taxable equivalent)	Investment Servicing				Investment Management
	2002		2001		2002		2001
Total revenue	$	846	$	800	$	150	$	153
Income before income taxes		267		228		14		19
Average assets (billions)		74.6		67.1		1.9		1.7

Total revenue presented above is greater than the consolidated statement of income by the taxable equivalent adjustments of $15 million and $14 million for the three months ended March 31, 2002, and 2001, respectively. In addition, for the three months ended March 31, 2001, total revenue and income before income taxes presented above is greater than the reported consolidated statement of income by $50 million for the write-off of State Street’s total investment in Bridge Information Systems, Inc.

9

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note J—Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended March 31,
(Dollars in millions, except per share data; shares in thousands)	2002		2001
Net Income	$	178	$	121
Earnings per share
Basic	$	.55	$	.38
Diluted		.54		.37
Basic average shares		323,689		324,681
Stock options and stock awards		4,908		4,728
7.75% convertible subordinated debentures		402		689
Dilutive average shares		328,999		330,098

Note K—Commitments and Contingent Liabilities

State Street provides custody, accounting, daily pricing and administration; master trust and master custody; investment management; trustee and recordkeeping; foreign exchange; securities lending; cash management; trading; and information services to clients worldwide. Assets under custody and assets under management are held by State Street in a fiduciary or custodial capacity and are not included in the Consolidated Statement of Condition because such items are not assets of State Street. Management conducts regular reviews of its responsibilities for these services and considers the results in preparing its financial statements. In the opinion of management, there are no contingent liabilities at March 31, 2002, that would have a material adverse effect on State Street’s financial position or results of operations.

State Street is subject to pending and threatened legal actions that arise in the normal course of business. In the opinion of management, after discussion with counsel, these actions can be successfully defended or resolved without a material adverse effect on State Street’s financial position or results of operations.

10

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note L—Off-Balance Sheet Financial Instruments, Including Derivatives

State Street uses various off-balance sheet financial instruments, including derivatives. The following table summarizes the contractual or notional amounts of derivative financial instruments held or issued by State Street for trading and balance sheet management:

(Dollars in millions)	March 31, 2002		December 31, 2001
Trading:
Interest rate contracts:
Swap agreements	$	2,867	$	2,385
Options and caps purchased		275		281
Options and caps written		433		418
Futures—short position		9,772		7,395
Options on futures purchased		180		235
Options on futures written		280		285
Foreign exchange contracts:
Forward, swap and spot		168,123		167,415
Options purchased		334		1,097
Options written		335		1,095
Balance Sheet Management:
Interest rate contracts:
Swap agreements		1,671		1,299

In connection with its interest rate risk management strategies, State Street has executed interest rate swap agreements with a notional value of $1.0 billion at March 31, 2002, designated as fair value hedges to hedge the changes in the fair value of certain securities. For the quarter ended March 31, 2002, State Street recognized net pre-tax losses of approximately $2 million, which represented the ineffective portion of the hedge.

State Street has designated interest rate swaps with a notional value of $150 million as cash flow hedges to its floating rate debt. These interest rate swaps constitute a fully-effective hedge. In addition, effective February 20, 2002, State Street entered into interest rate swaps with a notional value of $500 million designated as a fair value hedge to certain of its fixed rate debt. The fair value hedge swaps increased the value of long-term debt presented in the Statement of Condition by $25 million. For the three months ended March 31, 2002, the Corporation’s overall weighted average interest rate for long-term debt was 7.06% on a contractual basis and 6.75% including the effects of derivative contracts.

The following is a summary of the contractual amount of State Street’s credit-related, off-balance sheet financial instruments:

(Dollars in millions)	March 31, 2002		December 31, 2001
Indemnified securities on loan	$	132,740	$	113,047
Loan commitments		13,104		12,962
Asset purchase agreements		10,292		10,366
Standby letters of credit		3,859		3,918
Letters of credit		129		164

11

PART I.  ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note L—Off-Balance Sheet Financial Instruments, Including Derivatives (continued)

On behalf of its clients, State Street lends their securities to creditworthy brokers and other institutions. In certain circumstances, State Street may indemnify its clients for the fair market value of those securities against a failure of the borrower to return such securities. State Street requires the borrowers to provide collateral in an amount equal to or in excess of 102% of the fair market value of the securities borrowed. The borrowed securities are revalued daily to determine if additional collateral is necessary. State Street held, as collateral, cash and U.S. government securities totaling $136.7 billion and $117.2 billion for indemnified securities on loan at March 31, 2002, and December 31, 2001, respectively.

Approximately 87% of the loan commitments and asset purchase agreements will expire in one year or less from the date of issue. Since many of the commitments are expected to expire or renew without being drawn, the total commitment amounts do not necessarily represent future cash requirements.

12

Independent Accountants’ Review Report

The Stockholders and Board of Directors

State Street Corporation

We have reviewed the accompanying consolidated statement of condition of State Street Corporation as of March 31, 2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2002 and 2001. These financial statements are the responsibility of the Corporation’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated statement of condition of State Street Corporation as of December 31, 2001, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein) and in our report dated January 16, 2002, we expressed an unqualified opinion on those consolidated financial statements.

ER NST & YOUNG LLP

Boston, Massachusetts

April 16, 2002

13

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Summary

Diluted operating earnings per share for the first quarter were $.54, up 13% from comparable operating earnings per share of $.48 in the first quarter of 2001. Operating results for 2001 exclude the write-off of State Street’s total investment in Bridge Information Systems, Inc. of $50 million, equal to $33 million, or $.10 per diluted share after tax. Comparable results for 2001 also exclude $8 million of goodwill amortization expense, equal to $5 million, or $.01 per diluted share after tax. Effective January 1, 2002, State Street adopted SFAS No. 142, “Goodwill and Intangible Assets”, which eliminates the amortization of goodwill. Reported diluted earnings per share for 2001 were $.37.

Total revenue on a taxable-equivalent basis was $996 million in 2002, up $43 million, or 5%, from operating revenue of the prior year. Net income was $178 million, up from comparable operating earnings of $159 million a year earlier. Return on stockholders’ equity was 18.2%.

Condensed Income Statement—Taxable Equivalent Basis

	Three Months Ended March 31,
(Dollars in millions, except per share data)	2002			2001(2)			Change			%
Operating Results (1)
Fee revenue:
Servicing fees	$	422		$	396		$	26		6
Management fees		135			127			8		6
Foreign exchange trading		68			99			(31	)	(32	)
Processing fees and other		76			71			5		8
Total fee revenue		701			693			8		1
Net interest revenue		296			261			35		14
Provision for loan losses		(1	)		(1	)
Total revenue		996			953			43		5
Operating expenses		715			706			9		1
Income before income taxes		281			247			34		14
Income taxes		88			79			9
Taxable equivalent adjustment		15			14			1
Operating earnings	$	178		$	154		$	24		16
Operating earnings per share
Basic	$	.55		$	.48		$	.07		15
Diluted		.54			.47			.07		15
Operating Results (1) Excluding Goodwill Amortization in 2001 (3)
Operating expenses	$	715		$	698		$	17		2
Operating earnings		178			159			19		12
Operating earnings per share
Basic	$	.55		$	.49		$	.06		12
Diluted		.54			.48			.06		13
Reported Results
Total revenue	$	996		$	903		$	.93		10
Net income		178			121			.57		47
Earnings Per Share
Basic	$	.55		$	.38		$	.17		45
Diluted		.54			.37			.17		46

(1) Operating results for the three months ended March 31, 2001, exclude the write-off of State Street’s total investment in Bridge Information Systems, Inc. of $50 million, equal to $33 million after tax, or $.10 per diluted share.

(2) Results for 2001 have been reclassified in accordance with FASB guidance effective January 1, 2002, to present client-reimbursed out-of-pocket expenses as gross revenue and expense. As a result, servicing fees, management fees and operating expenses for the three months ended March 31, 2001 increased by $6 million, $1 million and $7 million, respectively.

(3) Operating results excluding goodwill amortization expense are presented for comparability. Effective January 1, 2002, State Street does not amortize goodwill, in accordance with SFAS No. 142.

14

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

Total Revenue

In the first quarter of 2002, total revenue was $996 million, up $43 million, or 5%, from operating revenue of a year ago. Growth came primarily from servicing fees and net interest revenue, offset somewhat by a decline in foreign exchange trading revenue. Servicing fee revenue continues to come from existing clients, as well as from new client relationships. Securities lending revenue, which increased compared to the first quarter of 2001, contributed to servicing fees as well. Higher net interest revenue was driven by wider interest rate spreads compared to a year ago and by balance sheet growth from clients’ investment activities.

Fee Revenue

Fee revenue was $701 million, up $8 million, or 1%, over 2001. Growth from servicing fees, management fees and processing fees and other revenue was largely offset by a decline in foreign exchange trading revenue.

Servicing fees in the first quarter of 2002 were $422 million, up 6% from a year ago. Servicing fees are derived from custody, accounting, daily pricing and administration; master trust and master custody; trustee and recordkeeping; securities lending; performance, risk and compliance analytics; and investment manager operations outsourcing. New business from existing and new clients drove growth in servicing fees. Higher securities lending revenue was a contributor as well. The impact of declines in comparable average equity market valuations offset some of the growth. Many servicing contracts are priced based in part on daily average values of assets under custody. For the three months ended March 31, 2002, the daily average S&P 500^® index declined 11% and the MSCI EAFE^® index declined 20% from the first three months of 2001. Total assets under custody were $6.3 trillion, compared to $5.8 trillion a year ago.

Management fees from investment management services, delivered through State Street Global Advisors, were $135 million in the first quarter of 2002, up 6% from $127 million a year ago, reflecting new business, including business gained through acquisitions. The impact of declines in comparable average equity market valuations partially offset growth in management fees. Management fees are largely based on the average of month-end values of assets under management. For the three months ended March 31, 2002, the average of month-end indices declined 10% for the S&P 500^® index and 19% for the MSCI EAFE^® index from the first three months of 2001. Management fees include revenue from an extensive range of investment management strategies, securities lending, specialized investment management advisory services, and other services. Total assets under management were $808 billion, compared to $703 billion in 2001.

Foreign exchange trading revenue was $68 million for the first quarter of 2002, compared to $99 million a year ago, primarily reflecting low currency volatility in the quarter. Volatility in State Street’s most-traded currencies experienced a sharp decline, and U.S. investors are doing less cross-border investing during this current period of economic and political uncertainty.

Processing fees and other revenue for the first quarter of 2002 was $76 million, up $5 million from 2001, excluding the write-off of State Street’s total investment in Bridge Information Systems, Inc., recorded in  March 2001, of $50 million. Processing fees and other revenue includes fees from brokerage services, software licensing and maintenance, loan fees, investment banking, trade banking, profits and losses from joint ventures, gains and losses on sales of investment securities, gains and losses on sales of leased equipment and other assets, trading account profits and losses, amortization of investments in tax-advantaged financings, and residual interests from special purpose entities.

15

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

Net Interest Revenue

Taxable-equivalent net interest revenue for the first quarter was $296 million, up $35 million, or 14%, from a year ago. State Street provides repurchase agreements and deposit services for clients’ investment activities, which generates net interest revenue. Improved spreads between rates paid and rates earned versus a year ago, reflecting the impact of significant rate decreases worldwide in 2001, and balance sheet growth from clients’ investment activities drove the increase in net interest revenue.

	Three Months Ended March 31,
	2002				2001
(Dollars in millions)	Average Balance		Rate		Average Balance		Rate
Interest-earning assets	$	71,145	3.07	%	$	62,990	5.59	%
Interest-bearing liabilities		62,779	1.58			54,279	4.54
Excess of rate earned over rate paid			1.49	%			1.05	%
Net Interest Margin			1.69	%			1.68	%

Net interest margin for the three months ended March 31, 2002, was 1.69%, compared to 1.68% in 2001. Rates earned in excess of rates paid increased by 44 basis points year-over-year.

Operating Expenses

Operating expenses for the first quarter of 2002 were $715 million, up $17 million, or 2%, from comparable expenses of $698 million. Comparable expenses for the first quarter of 2001 exclude $8 million of goodwill amortization expense. State Street has lowered its growth rate of expenses by aligning more rigorously levels of expense with strategic priorities, while continuing to invest in the best key initiatives that offer opportunities for future growth.

Salaries and employee benefits expenses increased $29 million, or 7%, to $421 million, reflecting additional staff hired in the first half of 2001 to support new business installed during that year.

Information systems and communications expense grew $9 million to $96 million for the first quarter, as State Street continued to invest in the hardware and software critical to continued growth and in efficiency improvements.

Transaction processing services expense of $59 million was down $5 million, or 8%, reflecting lower contract service costs.

Occupancy expense increased $7 million to $60 million, reflecting additional space necessary for additional staff hired in the first half of 2001 to support new business installed during that year.

Other operating expenses were down $23 million on a comparable basis, excluding $8 million of goodwill amortization expense in 2001, reflecting the success of efforts to align levels of expense with strategic priorities. Lower professional services and travel expenses drove the decline. Effective January 1, 2002, State Street adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but will be subject to annual impairment tests in accordance with the Statement. Based upon management’s review, no impairment of goodwill has been identified.

16

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

State Street will continue to align people and resources to keep pace with market opportunities and business growth. Staff reductions such as the actions announced April 29, 2002, where the Corporation disclosed plans to reduce staff by approximately 375 positions, will be balanced by hiring and expansion in growth areas. State Street anticipates that expenses related to the reductions will decrease second-quarter diluted earnings per share by approximately $.04. The savings from these actions are expected to offset the associated costs by the end of the year, and the net impact will be neutral to diluted earnings per share for the full year.

Income Taxes

Income taxes for the first quarter of 2002 were $88 million, up from $79 million in the first quarter of last year, excluding the impact of the write-off of Bridge Information Systems, Inc. State Street’s estimated full-year tax rate for 2002 is 33.0%, up from 32.6% for the full year 2001.

Credit Quality

At March 31, 2002, total gross loans were $4.9 billion. At quarter end, the allowance for loan losses was $61 million, an increase from $58 million a year ago. For the quarter ended March 31, 2002, the provision for loan losses charged against income was $1 million; there were no charge-offs during the first quarter of 2002, and there were $2 million in recoveries. At March 31, 2002, State Street had no non-performing loans, down from $4 million a year ago.

Lines of Business

Following is a summary of line of business operating results for the three months ended March 31:

	Investment Servicing						Investment Management
(Dollars in millions; taxable equivalent)	2002			2001			2002			2001
Fee revenue:
Servicing fees	$	422		$	396
Management fees							$	135		$	127
Foreign exchange trading		68			99
Other(1)		72			64			4			7
Total fee revenue		562			559			139			134
Net interest revenue after provision for loan losses		284			241			11			19
Total operating revenue(1)		846			800			150			153
Operating expense		579			572			136			134
Operating earnings before income taxes(1)	$	267		$	228		$	14		$	19
Pre-tax margin		32	%		29	%		9	%		12	%
Average assets (billions)	$	74.6		$	67.1		$	1.9		$	1.7

(1) Operating results for the three months ended March 31, 2001 exclude the write-off of $50 million for State Street’s investment in Bridge.

17

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

Investment Servicing.    Investment Servicing includes custody, accounting, daily pricing and administration; master trust and master custody; trustee and recordkeeping; foreign exchange; securities lending; deposit and short-term investment facilities; lease financing; investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. State Street provides shareholder services, which includes mutual fund and collective fund shareholder accounting, through 50%-owned affiliates, Boston Financial Data Services, Inc. and the International Financial Data Services group of companies. Revenue from Investment Servicing comprised 85% of State Street’s total operating revenue for the three months ended March 31, 2002.

Total operating revenue for the three months ended March 31, 2002, increased $46 million to $846 million, up 6% from $800 million reported for the first three months of 2001. This increase in revenue is driven primarily by an 18% increase in net interest revenue and a 6% increase in servicing fees; offset somewhat by a decline in foreign exchange trading revenue.

Servicing fees in the first quarter of 2002 were $422 million, up 6% from a year ago. New business from existing and new clients drove growth in servicing fees. Higher securities lending revenue was a contributor as well. The impact of declines in comparable average equity market valuations offset some of the growth. Many servicing contracts are priced based in part on daily average values of assets under custody. For the three months ended March 31, 2002, the daily average S&P 500 index declined 11% and the MSCI EAFE index declined 20% from the first three months of 2001. Total assets under custody were $6.3 trillion, compared to $5.8 trillion a year ago.

Net interest revenue benefited from improved spreads between rates paid and rates earned versus a year ago, which reflected the multiple decreases in interest rates globally throughout 2001. Balance sheet growth, driven by clients’ investment activities, was a contributing factor as well.

Foreign exchange trading revenue was $68 million for the first quarter of 2002, compared to $99 million a year ago, primarily reflecting low currency volatility in the quarter. Volatility in State Street’s most-traded currencies experienced a sharp decline, and U.S. investors are doing less cross-border investing during this current period of economic and political uncertainty.

Operating expenses for the first quarter of 2002 were $579 million, up $12 million, or 2%, from comparable expenses of $567 million. Comparable expenses for the first quarter of 2001 exclude $5 million of goodwill amortization expense. Salaries and employee benefits expenses increased, reflecting additional staff hired in the first half of 2001 to support new business installed during that year, and information systems and communications expense grew for the first quarter, as State Street continued to invest in the hardware and software critical to continued growth and in efficiency improvements. Offsetting growth in expenses, transaction processing services expense was down, reflecting lower contract service costs, and other operating expenses were down, reflecting lower professional services and travel expenses.

Investment Management.    Investment Management offers a broad array of services for managing financial assets, including investment management and investment research services for both institutions and individual investors worldwide. These services included active and passive U.S. and non-U.S. equity and fixed income strategies, and other related services, such as securities lending. Revenue from this line of business comprised 15% of State Street’s total operating revenue for the three months ended March 31, 2002.

Total revenue for the three months ended March 31, 2002 was $150 million, down $3 million, or 2%, from $153 million reported for the first three months of 2001. Growth in management fees was offset by a decline in net interest revenue.

18

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

Management fees from investment management services, delivered through State Street Global Advisors, were $135 million in the first quarter of 2002, up 6% from $127 million a year ago, reflecting new business, including business gained through acquisitions. The impact of declines in comparable average equity market valuations partially offset growth in management fees. Management fees are largely based on the average of month-end values of assets under management. For the three months ended March 31, 2002, the average of month-end indices declined 10% for the S&P 500 index and 19% for the MSCI EAFE index from the first three months of 2001. Total assets under management were $808 billion, compared to $703 billion in 2001.

Operating expenses for the quarter of 2002 were $136 million, up $5 million, or 4%, from comparable expenses of $131 million. Comparable expenses for the first quarter of 2001 exclude $3 million of goodwill amortization expense. State Street has lowered its growth rate of expenses by aligning more rigorously levels of expense with strategic priorities, while continuing to invest in the best key initiatives that offer opportunities for future growth. Salaries and employee benefits expense increased primarily due to acquisitions.

Liquidity and Capital

Liquidity.    The primary objective of State Street’s liquidity management is to ensure that the Corporation has sufficient funds to meet its commitments and business needs, including accommodating the transaction and cash management requirements of its clients. Liquidity is provided by State Street’s access to global debt markets, its ability to gather additional deposits from its clients, maturing short-term assets, sales of securities and repayment of clients’ loans. Client deposits and other funds provide multi-currency, geographically diverse sources of liquidity. State Street maintains a large portfolio of liquid assets. As of March 31, 2002, the Corporation’s liquid assets were 88% of total assets.

Capital.    State Street’s objective is to maintain a strong capital base in order to provide financial flexibility for its business needs, including funding corporate growth and supporting clients’ cash management needs. As a state-chartered bank and member of the Federal Reserve System, State Street Bank, State Street’s principal subsidiary, is primarily regulated by the Federal Reserve Board, which has established guidelines for minimum capital ratios. State Street has developed internal capital adequacy policies to ensure that State Street Bank meets or exceeds the level required for the “well capitalized” category, the highest of the Federal Reserve Board’s five capital categories. State Street Bank must meet the regulatory designation of “well capitalized” in order for State Street to maintain its status as a financial holding company. State Street’s capital management emphasizes risk exposure rather than asset levels. At March 31, 2002, State Street Bank’s Tier 1 risk-based capital ratio was 13.7% and the Corporation’s Tier 1 risk-based capital ratio was 14.6%. Both significantly exceed the regulatory minimum of 4% and the well-capitalized threshold of 6%. See Note H to the Consolidated Financial Statements for further information.

Trading Activities: Foreign Exchange and Interest Rate Sensitivity

As part of its trading activities, the Corporation assumes positions in both the foreign exchange and interest rate markets by buying and selling cash instruments and using financial derivatives, including foreign exchange forward contracts, foreign exchange and interest rate options, and interest rate swaps. As of March 31, 2002, the notional amount of these derivative instruments was $182.6 billion, of which $168.1 billion were foreign exchange forward contracts. Long and short foreign exchange forward positions are closely matched to minimize currency and interest rate risk. All foreign exchange contracts are valued daily at current market rates.

19

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

The following table presents State Street’s market risk for its trading activities as measured by its value at risk methodology:

Value at Risk for the three months ended March 31,

(Dollars in millions)	Average		Maximum		Minimum
2002:
Foreign exchange products	$	.8	$	1.7	$	.4
Interest rate products		3.1		4.3		2.3
2001:
Foreign exchange products		1.0		1.6		.4
Interest rate products		3.4		3.9		3.0

State Street compares actual daily profits and losses from trading activities to estimate one-day value at risk. During the first three months of 2002, State Street did not experience any trading losses in excess of its end-of-day value at risk estimate.

Financial Goals and Factors That May Affect Them

State Street’s primary financial goal is sustainable real growth in earnings per share. The Corporation has two supporting goals, one for total revenue growth and one for return on common stockholders’ equity (ROE). The long-term revenue goal is for a 12.5% real, or inflation adjusted, compound annual growth rate of revenue from 2000 through 2010. At present, this equates to approximately a 15% nominal compound annual growth rate. The annual return on stockholders’ equity goal is 18%.

State Street considers these to be financial goals, not projections or forward-looking statements. However, the discussion included in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in other portions of this report on Form 10-Q, may contain statements that are considered “forward-looking statements” within the meaning of the federal securities laws. These statements may be identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “may,” “will,” or similar statements or variations of such terms. The Corporation’s financial goals and such forward-looking statements involve certain risks and uncertainties, including the issues and factors listed below and factors further described in conjunction with the forward-looking information, which could cause actual results to differ materially.

Factors that may cause such differences include, but are not limited to, the factors discussed in this section and elsewhere in this Form 10-Q. Each of these factors, and others, are also discussed from time to time in the Corporation’s other filings with the Securities and Exchange Commission, including in the Corporation’s Form 10-K. The forward-looking statements contained in this report on Form 10-Q speak only as of the time the statements were given, and the Corporation does not undertake to revise those forward-looking statements to reflect events after the date of this report.

Cross-border investing.    Increased cross-border investing by clients worldwide benefits State Street’s revenue. Future revenue may increase or decrease depending upon the extent of increases or decreases in cross-border investments made by clients or future clients. Economic and political uncertainties resulting from terrorist attacks and subsequent military actions could result in decreased cross-border investment activities.

20

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

Savings rate of individuals.    State Street benefits from the savings of individuals that are invested in mutual funds and other collective funds or in defined contribution plans. Changes in savings rates or investment styles may affect revenue.

Value of worldwide financial markets.    As worldwide financial markets increase or decrease in value, State Street’s opportunities to invest and service financial assets may change. Since a portion of the Corporation’s fees are based on the value of assets under custody and management, fluctuations in the valuation of worldwide securities markets will affect revenue. State Street estimates, based on a study conducted in 2000, that a 10% increase or decrease in worldwide equity values would cause a corresponding change in State Street’s total revenue of approximately 2%. If bond values worldwide were to increase or decrease by 10%, State Street would anticipate a corresponding change of approximately 1% in its total revenue.

Dynamics of markets served.    Changes in markets served, including the growth rate of collective funds worldwide, outsourcing decisions, mergers, acquisitions and consolidations among clients and competitors and the pace of debt issuance, can affect revenue. In general, State Street benefits from increases in the volume of financial market transactions serviced.

State Street provides services worldwide. Global and regional economic factors and changes or potential changes in laws and regulations affecting the Corporation’s business—including volatile currencies, pace of inflation, changes in monetary policy, and social and political instability—could affect results of operations. For example, the significant slowing of economic growth globally is affecting worldwide equity values and business growth. The terrorist attacks that took place in the United States on September 11, 2001, and subsequent military and terrorist activities, have caused economic and political uncertainties. These activities and the national and global efforts to combat terrorism have affected and may further adversely affect economic growth, and may have other adverse effects on many companies, including State Street, in ways that are not predictable.

Legislation enacted in 1999 by the U.S. Congress may cause changes in the competitive environment in which State Street operates, which could include, among other things, broadening the scope of activities of significant competitors, or facilitating consolidation of competitors into stronger entities, or attracting large and well-capitalized new competitors into State Street’s traditional businesses. Such factors and changes and the ability of the Corporation to address and adapt to the regulatory and competitive challenges may affect future results of operations.

Interest rates.    The levels of market interest rates, the shape of the yield curve and the direction of interest rate changes affect net interest revenue and securities lending revenue, which is recorded in both servicing and management fees. All else being equal, in the short term, State Street’s net interest revenue and securities lending revenue benefit from falling interest rates and are negatively affected by rising rates because interest-bearing liabilities reprice sooner than interest-earning assets. In general, sustained lower interest rates have a constraining effect on the net interest revenue growth rate.

Liquidity.    Any occurrence which may limit the Corporation’s access to the funds markets, such as a decline in the confidence of debt purchasers, depositors or counterparties participating in the funds markets in general or with State Street in particular, or a downgrade of State Street’s debt rating, may adversely affect State Street.

Capital.    Under regulatory capital adequacy guidelines, State Street and State Street Bank must meet guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items, subject to qualitative judgments by regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements could have a direct material effect on State Street’s financial condition; failure to

21

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

maintain the status of “well capitalized” under the regulatory framework could affect State Street’s status as a financial holding company and eligibility for streamlined review process for acquisition proposals. In addition, failure to maintain the status of “well capitalized” could affect the confidence of State Street’s clients in the Corporation and would adversely affect its business.

Volatility of currency markets. The degree of volatility in foreign exchange rates can affect the amount of foreign exchange trading revenue. In general, State Street benefits from currency volatility.

Pace of pension reform.    State Street expects to benefit from worldwide pension reform that creates additional pools of assets that use custody and related services, and investment management services. The pace of pension reform and resulting programs, including public and private pension schemes, may affect the pace of revenue growth.

Pricing/competition.    Future prices the Corporation is able to obtain for its products may increase or decrease from current levels depending upon demand for its products, its competitors’ activities and the introduction of new products into the marketplace.

Pace of new business.    The pace at which State Street attracts new clients, and the pace at which existing and new clients use additional services and assign additional assets to State Street for management or custody, will affect future results of operations.

Business mix.    Changes in business mix, including the mix of U.S. and non-U.S. business, may affect future results of operations.

Business continuity.    State Street has business continuity and disaster recovery plans in place. However, events, including terrorist or military actions and resulting political and social turmoil, could arise that would cause unforeseen damage to State Street’s physical facilities or could cause delays or disruptions to operational functions, including information processing and financial market settlement functions. Additionally, State Street’s clients, vendors and counterparties could suffer from such events. Should these events affect State Street, or the clients, vendors or counterparties with which it conducts business, State Street’s results of operations could be negatively affected.

Rate of technological change.    Technological change creates opportunities for product differentiation and reduced costs, as well as the possibility of increased expenses. Developments in the securities processing industry, including shortened settlement cycles and straight-through-processing, will result in changes to existing procedures. Alternative delivery systems have emerged, including the widespread use of the Internet. State Street’s financial performance depends in part on its ability to develop and market new and innovative services, and to adopt or develop new technologies that differentiate State Street’s products or provide cost efficiencies.

The risks inherent in this process include rapid technological change in the industry, the Corporation’s ability to access technical and other information from clients, and the significant and ongoing investments required to bring new services to market in a timely fashion at competitive prices. A further risk is the introduction by competitors of services that could replace or provide lower-cost alternatives to State Street services.

State Street uses appropriate trademark, trade secret, copyright and other proprietary rights procedures to protect its technology, and has applied for a limited number of patents in connection with certain software programs. However, in the event a third party asserts a claim of infringement of its proprietary rights, obtained through patents or otherwise, against the Corporation, State Street may be required to spend significant resources to defend against such claims, develop a non-infringing program or process, or obtain a license to the infringed process.

22

PART I.  ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (continued)

Acquisitions and alliances.    Acquisitions of complementary businesses and technologies and development of strategic alliances are an active part of State Street’s overall business strategy. The Corporation has completed several acquisitions and alliances in recent years. However, there can be no assurance that services, technologies, key personnel or businesses of acquired companies will be effectively assimilated into State Street’s business or service offerings or that alliances will be successful.

PART I.  ITEM 3.

Quantitative and Qualitative Disclosure About Market Risk

See information under the caption “Trading Activities: Foreign Exchange and Interest Rate Sensitivity” on pages 19-20.

State Street’s Risk Management function is described in detail in the Corporation’s 2001 Annual Report on Form 10-K.

23

PART II—OTHER INFORMATION

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)    Directors of the Corporation who are not employees receive an annual retainer of $50,000 payable at their election in shares of Common Stock of the Corporation or in cash. In April 2002, a total of 12,740 shares were issued and receipt of 3,185 shares was deferred as payment for the 2002 annual retainer. Exemption from registration of the shares is claimed by the Corporation under Section 4(2) of the Securities Act of 1933.

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

Registrant’s annual meeting of stockholders was held on April 17, 2002. At the meeting, the following nominees for Director were elected:

	Number of Shares
	For	Withheld
Tenley E. Albright, M.D.	272,722,200	4,163,964
Nader F. Darehshori	274,058,440	2,827,724
Ronald E. Logue	274,061,287	2,824,877
Gregory L. Summe	274,018,566	2,867,598
Diana Chapman Walsh	273,931,817	2,954,347

The following directors continue in office: David A. Spina, I. MacAllister Booth, Truman S. Casner, Arthur L. Goldstein, David P. Gruber, Linda A. Hill, Charles R. LaMantia, Dennis J. Picard, Alfred Poe, Richard P. Sergel, and Robert E. Weissman.

Also at the meeting, the following action was voted upon:

	Number of Shares
	For	Against	Abstain or Not Voting	Broker Nonvotes
Vote to increase the number of shares of Common Stock available under the 1997 Equity Incentive Plan	258,203,505	16,762,337	1,920,322
Vote to approve the performance goals under the 1997 Equity Incentive Plan	265,531,281	8,678,352	2,676,531
Vote to request the directors to redeem the outstanding rights under the Corporation’s Rights Agreement	124,585,393	113,219,531	3,907,444	35,173,796
Vote to exempt the Board of Directors from Massachusetts General Laws, Chapter 156B, Section 50A(a)	85,747,069	147,724,962	8,240,337	35,173,796
Vote to amend the By-laws applicable to the Audit Committee and independent auditors, self-dealing and interlocking directorships	18,498,724	216,935,766	6,277,878	35,173,796

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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit Index

Exhibit Number		Page of this Report
12	Ratio of earnings to fixed charges	27
15	Letter regarding unaudited interim financial information	28

(b) Current Reports on Form 8-K

A current report on Form 8-K dated March 12, 2002, was filed, by the Registrant, on March 12, 2002, with the Securities Exchange Commission that reported the resignation of Ronald L. O’Kelley as Chief Financial Officer, and the interim appointment of Stefan M. Gavell as acting Chief Financial Officer.

A current report on Form 8-K dated April 30, 2002, was filed, by the Registrant, on April 30, 2002, with the Securities Exchange Commission that reported staff reductions and the estimated impact on the Registrant’s diluted earnings per share.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STATE STREET CORPORATION
Date:  May 3, 2002	By:	/s/    STEFAN M. GAVELL
		Stefan M. Gavell Executive Vice President and Chief Financial Officer

Date:  May 3, 2002	By:	/s/    FREDERICK P. BAUGHMAN
		Frederick P. Baughman Senior Vice President, Controller and Chief Accounting Officer

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