<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                 Amendment No. 1
                                   FORM 10-K/A


(Mark One)

  X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
-----             ACT OF 1934
                  FOR THE FISCAL YEAR ENDED JUNE 30, 2000
                                            -------------
                                       OR

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

                         Commission File Number: 0-20724
                             WATSON WYATT & COMPANY
             (Exact name of registrant as specified in its charter)

             DELAWARE                               53-0181291
 (State or other jurisdiction of                  (I.R.S. Employer
  incorporation or organization)                  Identification No.)

                            6707 DEMOCRACY BOULEVARD
                                    SUITE 800
                               BETHESDA, MD 20817
           (Address of principal executive offices including zip code)
                                 (301) 581-4600
              (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

       TITLE OF EACH CLASS                          NAME OF EACH EXCHANGE
       TO BE SO REGISTERED                           ON WHICH REGISTERED

               NONE                                         NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

  COMMON STOCK, $1.00 PAR VALUE               OUTSTANDING AT AUGUST 25, 2000
         (TITLE OF CLASS)                           14,812,317 SHARES

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
                                      ---     ---

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.
                                  Yes     No  X
                                      ---    ---

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant is $112,587,673. The aggregate market value was
computed by using the formula book value of the stock (calculated in accordance
with the bylaws) as of August 25, 2000.


This Amendment No. 1 to the Annual Report on Form 10-K/A for Watson Wyatt &
Company for the fiscal year ended June 30, 2000 is being filed to amend Part
III by adding the information required by Items 10, 11, 12 and 13.


<PAGE>


PART I

ITEM 1.  BUSINESS.

GENERAL

Watson Wyatt & Company, including its subsidiaries, (collectively referred to as
"we", "Watson Wyatt" or the "Company") is a global provider of human capital
consulting services. We operate on a geographical basis from 60 offices in 18
countries throughout North America, Asia/Pacific and Latin America. We provide
services in three principal practice areas: employee benefits, human resources
technologies and human capital consulting. We were incorporated in Delaware on
February 17, 1958. Including our predecessors, we have been in business since
1946. We conducted business as The Wyatt Company until changing our corporate
name to Watson Wyatt & Company in connection with the establishment of the
Watson Wyatt Worldwide alliance. In 1995, we entered into an alliance agreement
with R. Watson & Sons (now Watson Wyatt Partners), a United Kingdom-based
actuarial, benefits and human resources consulting partnership that was founded
in 1878. Since 1995, we have marketed our services globally under the Watson
Wyatt Worldwide brand, sharing resources, technologies, processes and business
referrals.

Watson Wyatt is owned almost entirely by its active employees. Our principal
executive offices are located at 6707 Democracy Boulevard, Suite 800, Bethesda,
MD 20817.

GLOBAL OPERATIONS

We are primarily organized based on the following geographic regions: U.S. East,
U.S. Central, U.S. West, Asia/Pacific, Canada, and Latin America. We employ
approximately 4,050 associates as follows:

         U.S. East                          1,010
         U.S. Central                       1,030
         U.S. West                            435
         Asia/Pacific                         720
         Canada                               415
         Latin America                         90
         Data Services                         60
         Corporate/Other                      290
                                           ------
                                            4,050
                                           ======

None of our associates are subject to collective bargaining agreements. We
believe relations with associates are good.

On a worldwide basis, we are primarily managed through the geographic regions
listed above. Like many professional services firms, we also use a
practice-based matrix form of organization within some regions. We are
developing and implementing systems and management reporting to improve
practice-specific information on a company-wide basis.


                                       1
<PAGE>


The percentage of revenues generated in the various geographic regions is as
follows:

<TABLE>
<CAPTION>
                                               2000           1999           1998
                                               -----          -----          ----
<S>                                           <C>             <C>           <C>
U.S. East                                       36 %           36 %           32 %
U.S. Central                                    30             29             29
U.S. West                                       13             14             17
Asia/Pacific                                    10              9              9
Canada                                           8              8              8
Latin America                                    1              1              2
Data Services                                    2              3              3
                                                ---            ---            ---
Total                                           100 %          100 %          100 %
                                                ===            ===            ===

</TABLE>

Prior year percentages have been recalculated to conform to current
classification. For more information about industry segments, see Note 13 of
Notes to the Consolidated Financial Statements, included in Item 14 of this
report.

PRINCIPAL SERVICES

Within the past three years, we have divested several non-core businesses -
including benefits administration outsourcing, defined contribution
record-keeping and risk management consulting services - in order to focus on
our core consulting areas. These core areas are as follows:

BENEFITS CONSULTING: The Benefits Consulting practice provides analysis, design
and implementation of retirement programs, including actuarial services and
required reporting of plan contributions and funding levels, group health
benefit plan design and provider selection and defined contribution plan design
and related services.

HR TECHNOLOGIES CONSULTING: The HR Technologies Consulting practice develops
technology-based solutions to reduce employer costs and improve employee service
in human resources administration, including web-based applications.

HUMAN CAPITAL CONSULTING: The Human Capital Consulting practice provides
comprehensive consulting in compensation plan design, executive compensation,
salary management, benefits communication and organizational effectiveness
consulting.

DATA SERVICES: Watson Wyatt also produces custom and standard compensation,
benefits and best practices surveys and reference works to clients throughout
the world. Over 5,000 companies participate in our surveys and our services
include over seventy remuneration, benefits and employment practices references
utilized by global and local companies in fifty countries.

While we group services into functional categories, management believes our
primary strength is the ability to deliver services without boundaries to meet
the requirements of our clients.

COMPETITION

The human resource consulting business is highly competitive. However, we
believe there are several barriers to entry, such as the need to assemble
specialized intellectual capital to provide expertise on a global scale, and
that we have developed significant competitive advantages in providing human
resources consulting services. However, we face intense competition from several
different sources.


                                       2
<PAGE>


Current and anticipated competitors include:

-    major human resources consulting firms, such as William M. Mercer, Towers
     Perrin and the administration/consulting firm Hewitt Associates;


-    smaller benefits and compensation consulting firms, such as Buck
     Consultants, The Segal Company and Hay Group;

-    the human resources consulting practices of public accounting and
     consulting firms, such as PricewaterhouseCoopers and Booz, Allen &
     Hamilton;

-    information technology consulting firms, such as Andersen Consulting and
     Internet/intranet development firms; and

-    boutique consulting firms comprised primarily of professionals formerly
     associated with the firms mentioned above.

Watson Wyatt is ranked fourth or fifth among the top HR consulting companies,
based on revenues, according to surveys of consulting companies from the 1998
Kennedy Information Research Group report, December 1999 Business Insurance
rankings and June 2000 Consultants News.

The market for our services is subject to change as a result of regulatory,
legislative, competitive and technological developments and to increased
competition from established and new competitors. We believe that the primary
determinants of selecting a human resources consulting firm include reputation,
the ability to provide measurable increases to shareholder value, global scale,
service quality and the ability to tailor services to a client's unique needs.
We believe that we compete favorably with respect to these factors.

WATSON WYATT WORLDWIDE ALLIANCE

Recognizing that a global organization is essential to service the needs of its
clients, we established operations throughout Europe in the late 1970's by
acquiring local firms and opening new offices. Responding to the rapidly
increasing globalization of the world economy, we made a strategic decision in
1995 to strengthen our European capabilities significantly and extend our global
reach by entering into an alliance agreement with R. Watson & Sons (now Watson
Wyatt Partners), a United Kingdom-based actuarial, benefits and human resources
consulting partnership that was founded in 1878. Since 1995, we have marketed
our services globally under the Watson Wyatt Worldwide brand, sharing resources,
technologies, processes and business referrals.

The Watson Wyatt Worldwide global alliance maintains 85 offices in 30 countries
and employs over 5,800 employees. Watson Wyatt & Company operates 60 offices in
18 countries in North America, Asia/Pacific and Latin America. Watson Wyatt
Partners operates 11 offices in the United Kingdom, Ireland and Africa. The
alliance operates 14 offices in 9 continental European countries principally
through a jointly owned holding company, Watson Wyatt Holdings (Europe) Limited,
which is 25% owned by Watson Wyatt and 75% owned by Watson Wyatt Partners.


                                       3
<PAGE>


ITEM 2.  PROPERTIES.

We operate in 60 offices in principal markets throughout the world. Operations
are carried out in leased offices under operating leases that normally do not
exceed ten years in length. We do not anticipate difficulty in meeting our space
needs at lease expiration or if additional space is required earlier. We also
evaluate office relocation on an ongoing basis to meet changing needs in our
markets while minimizing our occupancy expense.

The fixed assets owned by Watson Wyatt represented approximately 14% of total
assets at June 30, 2000 and consisted primarily of computer equipment, office
furniture and leasehold improvements.


ITEM 3.  LEGAL PROCEEDINGS

From time to time, we are a party to various lawsuits, arbitrations or
mediations that arise in the ordinary course of business. These disputes
typically involve claims relating to employment matters or the rendering of
professional services. The four matters summarized below involve the most
significant pending or potential claims against us. Management believes, based
on currently available information, that the results of all such proceedings, in
the aggregate, will not have a material adverse effect on our financial
condition, but claims which are possible in our business could be material to
the financial results for a particular period.

REGINA, SASKATCHEWAN POLICE. The Administrative Board of the Regina Police
Superannuation and Benefit Plan filed an action against us and three
individual employees in 1994 alleging errors in valuation methods,
assumptions and calculations for the plan during the course of work provided
for the plan since the 1970s. Discovery is concluded and expert reports have
been exchanged. Unless settled earlier, trial is scheduled for January 2001.
The Administrative Board seeks approximately $26 million in damages, plus
interest.

CITY OF MILWAUKEE, WISCONSIN. In 1997, the City of Milwaukee Employees
Retirement Board notified us of a potential claim involving an erroneously
calculated cost of living adjustment that was based on a formula provided by the
staff of the Employees Retirement Board. In response to the notice of claim, we
filed a declaratory judgment action against the City of Milwaukee and the
Employees Retirement Board in the U.S. District Court in Chicago. By mutual
consent, the parties agreed to dismiss the claim with leave to reinstate,
pending settlement discussions among other parties.


CONNECTICUT CARPENTERS PENSION FUND. The Connecticut Carpenters Pension Fund
filed an action against us in 1999 claiming errors in valuations from 1991
through 1998 that allegedly resulted in understated liabilities. The plaintiffs
are seeking damages of approximately $65 million; a punitive damage claim has
been dismissed. In the event that the claim is not settled, trial is anticipated
in early 2001.



SOCIETE INTERNATIONALE DE TELECOMMUNICATIONS AERONAUTIQUE S.C. (SITA). In
1999, a law firm representing SITA, a French based cooperative, notified
Watson Wyatt Partners, our European alliance partner, of a claim involving
alleged errors in the design of a global employee stock plan which includes
work performed by a former subsidiary that is now owned by Watson Wyatt
Holdings (Europe) Limited. The claim alleges damages that could exceed $75
million. Formal proceedings have yet to be commenced and the parties have
informally exchanged information pursuant to English legal procedures.
Although the parties concerned are in discussions about the claim, unless a
settlement is reached, proceedings might be commenced as early as October
2000 against Watson Wyatt Partners and/or The Watson Wyatt Company (UK)
Limited, one of our subsidiaries.




                                       4
<PAGE>

We carry substantial professional liability insurance with a self-insured
retention of $1 million per occurrence which provides coverage for professional
liability claims including the cost of defending such claims. We also carry
employment practices liability insurance.


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

On June 26, 2000, at a special meeting of the shareholders of Watson Wyatt &
Company, the shareholders approved the three proposals described below.

The first proposal was to adopt an Agreement and Plan of Merger among Watson
Wyatt & Company, Watson Wyatt & Company Holdings and WW Merger Subsidiary,
Inc. Under the merger agreement, among other things, the merger subsidiary
will merge into Watson Wyatt & Company, and each share of Watson Wyatt &
Company's currently outstanding common stock will be converted into one share
of class B-1 and one share of class B-2 common stock of Watson Wyatt &
Company Holdings, contingent on the consummation of the public offering of
class A common stock of Watson Wyatt & Company Holdings.

The second proposal was to adopt the 2000 Long Term Incentive Plan. The plan
provides for grants of stock options and stock appreciation rights to be made by
Watson Wyatt & Company Holdings to eligible employees of Wyatt Watson & Company
Holdings and its subsidiaries, including Watson Wyatt & Company. This proposal
is contingent on the approval of the merger, the consummation of the merger and
the completion of the public offering.

The third proposal was to approve an amendment to the Watson Wyatt & Company
bylaws. This amendment authorized transfers of the Company's common stock to
specified categories of transferees, including trusts created for the benefit of
the stockholder, his or her spouse or descendants to facilitate estate planning.
This proposal was not contingent upon the effectiveness of any other proposal.

All three amendments were approved by the affirmative vote of shareholders as
follows:

<TABLE>
<CAPTION>
                             PROPOSAL NO. 1       PROPOSAL NO. 2     PROPOSAL NO. 3
                             --------------       --------------     --------------
<S>                          <C>                  <C>                <C>
For:                            13,357,852         13,146,878         13,880,066
Against:                           346,986            439,509            174,297
Abstain:                           393,714            512,165             44,189

</TABLE>


PART II

ITEM 5.   MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION; HOLDERS

There is no established public trading market for the common stock since the
transferability of all shares of our common stock is restricted. Ownership of
the common stock is generally limited to directors, full-time and certain
part-time associates of Watson Wyatt & Company, its subsidiaries and affiliates,
and corporations, partnerships, associations or other entities designated by the
Board of Directors with which we have a business affiliation and the employees
thereof. In addition, all shareholders, prior to selling


                                       5
<PAGE>


any shares of common stock to a third party, must first offer such shares to
the Company. As of August 25, 2000, there were 1,804 registered holders of
our common stock. Transfers of Watson Wyatt & Company's common stock is made
at formula book value, as defined in the bylaws, and the current formula book
value per share is calculated pursuant to the bylaws to be $7.80 per share at
June 30, 2000, as further described in Note 10 of Notes to the Consolidated
Financial Statements, included in Item 14 of this report. This formula book
value reflects an increase of approximately 16.8% from the formula book value
of $6.68 per share at June 30, 1999.

DIVIDENDS

Under our credit facility (see Note 9 of Notes to the Consolidated Financial
Statements, included in Item 14 of this report), we are required to observe
certain covenants (including requirements as to minimum net worth) that affect
the amounts available for the declaration or payment of dividends. Under the
most restrictive of these covenants, approximately $19.0 million was available
for the declaration or payment of dividends as of June 30, 2000. The declaration
and payment of dividends by the Company is at the discretion of our Board of
Directors and depends on numerous factors, including, without limitation, our
net earnings, financial condition, availability of capital, debt covenant
limitations, and our other business needs, including those of our subsidiaries
and affiliates. Historically, while our performance would have permitted the
payment of dividends, we have chosen not to declare dividends every year since
fiscal year 1991. We currently intend to retain our future earnings to finance
the operation and expansion of our business and we do not anticipate paying cash
dividends on our common stock in the foreseeable future.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

The following table sets forth selected consolidated financial data of Watson
Wyatt as of and for each of the years in the five year period ended June 30,
2000. The selected consolidated financial data as of June 30, 2000 and 1999 and
for each of the years in the three year period ended June 30, 2000 are derived
from the audited consolidated financial statements of Watson Wyatt included in
this Form 10-K/A. The selected consolidated financial data as of June 30, 1998,
1997, 1996, and for each of the years ended June 30, 1997 and 1996 have been
derived from audited consolidated financial statements of Watson Wyatt not
included in this Form 10-K/A and have been restated to reflect our discontinued
operations.

                                       6

<PAGE>


The consolidated financial data should be read in conjunction with our
consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Item 7 of this Form 10-K/A. Amounts are in thousands except per
share data.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED JUNE 30
                                                                             ------------------

                                                       2000          1999          1998           1997          1996
                                                       ----          ----          ----           ----          ----
<S>                                                  <C>           <C>           <C>           <C>           <C>
STATEMENTS OF OPERATIONS DATA:
(amounts are in thousands, except per share data)

Revenue                                              $ 624,583     $ 556,860     $ 512,660     $ 486,502     $ 475,298
Costs of providing services:
  Salaries and employee benefits                       332,339       298,915       268,611       252,302       250,103
  Stock incentive bonus plan                            30,283        22,610          --            --            --
  Non-recurring compensation charge                       --            --          69,906          --            --
  Professional and subcontracted services               49,608        47,863        49,907        48,827        42,450
  Occupancy, communications and other                  100,099        92,668        88,840        96,026        84,203
  General and administrative expenses                   63,596        56,578        51,759        45,696        38,656
  Depreciation and amortization                         17,878        15,248        24,994        22,094        25,541
                                                     ---------     ---------     ---------     ---------     ---------
                                                       593,803       533,882       554,017       464,945       440,953
                                                     ---------     ---------     ---------     ---------     ---------
Income (loss) from operations                           30,780        22,978       (41,357)       21,557        34,345
Other:
  Interest income                                        1,823           944           901         1,462         1,441
  Interest expense                                      (1,876)       (2,646)       (2,768)       (1,506)         (930)
Income from affiliates                                   3,116         2,524           258           105          (820)
                                                     ---------     ---------     ---------     ---------     ---------
Income (loss) before income taxes and
    minority interest                                   33,843        23,800       (42,966)       21,618        34,036
Income taxes                                            15,195        11,448        13,134         9,070        14,071
Minority interest                                         (115)         (217)         (112)         (167)         (130)
                                                     ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations                18,533        12,135       (56,212)       12,381        19,835
Discontinued operations                                   --           8,678       (69,906)      (11,483)      (10,480)
                                                     ---------     ---------     ---------     ---------     ---------
Net income (loss)                                    $  18,533     $  20,813     $(126,118)    $     898     $   9,355
                                                     =========     =========     =========     =========     =========
Earnings (loss) per share, continuing
  operations, basic and fully diluted                $    1.24     $    0.80     $   (3.27)    $    0.71     $    1.07
Earnings (loss) per share, net income (loss),
  basic and fully diluted                            $    1.24     $    1.37     $   (7.34)    $    0.05     $    0.51
Weighted average shares outstanding                     15,000        15,215        17,170        17,438        18,516



</TABLE>

<TABLE>
<CAPTION>
                                                         AS OF JUNE 30
                                                         -------------
                                  2000          1999          1998           1997         1996
                                  ----          ----          ----           ----         ----
<S>                            <C>           <C>           <C>           <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents      $  41,410     $  35,985     $  13,405     $  26,257     $  21,694
Net working capital               16,177        11,692        23,748        21,307        18,788
Total assets                     329,960       313,960       268,310       331,778       320,819
Note payable                        --            --           9,000          --            --
Redeemable common stock          115,480       107,631        96,296        96,091        90,214
Total stockholders' deficit      (74,269)      (74,351)      (84,510)      (12,205)       (5,832)
Shares outstanding                14,805        16,112        15,917        18,130        18,262

</TABLE>


                                       7
<PAGE>


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

OVERVIEW

Watson Wyatt is a global provider of human capital consulting services. We
operate on a geographic basis from 60 offices in 18 countries throughout North
America, Asia/Pacific and Latin America. We provide services in three principal
practice areas: employee benefits, human resources technologies and human
capital consulting.

Although we operate globally as an alliance with our affiliates, the revenues
and operating expenses in the Consolidated Statements of Operations reflect
solely the results of operations of Watson Wyatt & Company. Our share of the
results of our affiliates, recorded using the equity method of accounting, is
reflected in the "Income from affiliates" line. Our principal affiliates are
Watson Wyatt Partners, in which we hold a 10% interest in a defined distribution
pool, and Watson Wyatt Holdings (Europe) Limited, a holding company through
which we conduct continental European operations. We own 25% of Watson Wyatt
Holdings (Europe) Limited and Watson Wyatt Partners owns the remaining 75%.

We derive substantially all of our revenue from fees for consulting services,
which generally are billed at standard hourly rates or on a fixed-fee basis;
management believes the approximate percentages are 60% and 40%, respectively.
Clients are typically invoiced on a monthly basis with revenue recognized as
services are performed. For the most recent three fiscal years, revenue from
U.S. consulting operations have comprised approximately 80% of consolidated
revenue. No single client accounted for more than 4% of our consolidated revenue
for any of the most recent three fiscal years.

In delivering consulting services, our principal direct expenses relate to
compensation of personnel. Salaries and employee benefits are comprised of wages
paid to associates, related taxes, benefit expenses such as pension, medical and
insurance costs and fiscal year-end incentive bonuses. In addition, professional
and subcontracted services represent fees paid to external service providers for
legal, marketing and other services, approximately one half of which are
specifically reimbursed by our clients and included in revenue.

Occupancy, communications and other expenses represent expenses for rent,
utilities, supplies and telephone to operate office locations as well as
non-client-reimbursed travel by associates, publications and professional
development. General and administrative expenses include the operational costs
and professional fees paid by corporate management, general counsel, marketing,
human resources, finance, research and technology support.

Historically, we have paid incentive bonuses to associates under a fiscal
year-end bonus program. Beginning in fiscal year 1999, in addition to annual
fiscal year-end bonuses, we have provided supplemental bonus compensation to our
employee shareholders pursuant to our stock incentive bonus plan in an amount
representing all income in excess of a targeted amount. These bonuses are
accrued in the fiscal year to which they relate and are paid in the following
year.

During the third quarter of fiscal year 1998, we elected to exit the benefits
administration outsourcing business and to end our participation in
Wellspring Resources, LLC, a joint venture that we had formed in 1996 with State
Street Bank and Trust Company. Wellspring provided benefits administration
outsourcing services for its clients, managing the day-to-day administration,
including benefit calculations, compliance and reporting, and providing
benefit-related customer service to plan participants through call centers. We
chose to exit the business in order to focus our management attention and
corporate resources on our core business. Pursuant to our restructuring
agreement with Wellspring and State Street Bank and Trust, our 50% interest in
Wellspring was redeemed effective April 1, 1998. In conjunction with this
redemption, we recorded an after-tax charge of $69.9 million in fiscal


                                       8
<PAGE>


year 1998. In fiscal year 1999, we reduced the estimate of the anticipated loss,
and consequently reduced the expected loss on disposal by $8.7 million, net of
tax.

As an employee-owned company without a public trading market, we sold and
purchased shares of our redeemable common stock in transactions with our
employees according to the formula book value, or redemption value, which is
based, in part, on the book value of the company. The $69.9 million charge
incurred in fiscal year 1998 in connection with our exit from the benefits
administration outsourcing business would have reduced our book value and, as
such, reduced the redemption value of our redeemable common stock. We altered
the formula for calculating the redemption value of our common stock to
eliminate the effect of the $69.9 million charge. In accordance with
generally accepted accounting principles, this change in the formula resulted
in an additional one-time, non-cash compensation charge of $69.9 million in
fiscal year 1998.

RESULTS OF OPERATIONS. The table on the following page sets forth Consolidated
Statement of Operations data as a percentage of revenue for the periods
indicated.


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                     Year ended June 30
                                                                     ------------------
                                                              2000         1999        1998
                                                              ----         ----        ----
<S>                                                         <C>         <C>         <C>
Revenue                                                       100.0%      100.0%      100.0%
                                                              -----       -----       -----

Costs of providing services:

   Salaries and employee benefits                              53.2        53.7        52.4
   Stock incentive bonus                                        4.9         4.1          --
   Non-recurring compensation charge                             --          --        13.7
   Professional and subcontracted services                      7.9         8.6         9.7
   Occupancy, communications and other                         16.0        16.7        17.3
   General and administrative expenses                         10.2        10.1        10.1
   Depreciation and amortization                                2.9         2.7         4.9
                                                                ---        ---          ---
                                                               95.1        95.9       108.1
                                                               ----        ----       -----

Income (loss) from operations                                   4.9         4.1        (8.1)

Other:
   Interest income                                              0.3         0.2         0.2
   Interest expense                                            (0.3)       (0.5)       (0.6)

Income from affiliates                                          0.5         0.5         0.1
                                                                ---         ---         ---

Income (loss) before income taxes and minority interest         5.4         4.3        (8.4)

Provision for income taxes:
   Current                                                      2.0         3.4         2.9
   Deferred                                                     0.4        (1.3)       (0.4)
                                                                ---        ----        ----
                                                                2.4         2.1         2.5
                                                                ---         ---         ---

Income (loss) before minority interest                          3.0         2.2       (10.9)

Minority interest in net income of consolidated
   subsidiaries                                                  --          --          --

Income (loss) from continuing operations                        3.0         2.2       (10.9)

Discontinued operations:

Loss from operations of discontinued outsourcing
   business                                                      --          --        (1.4)

Adjustment (loss) on disposal of discontinued
   outsourcing business                                          --         1.5       (12.3)
                                                                ---         ---       -----

Net income (loss)                                               3.0%        3.7%      (24.6)%
                                                                ===         ===       =====

</TABLE>


                                       10
<PAGE>


FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999

REVENUE. Revenue from continuing operations was $624.6 million in fiscal year
2000, compared to $556.9 million in the prior year, an increase of $67.7
million, or 12%. This revenue growth was primarily due to a $25.5 million, or
14% increase in revenue generated by our U.S. East region, a $21.2 million, or
14% increase in revenue generated by our U.S. Central region, a $5.6 million, or
8% increase in our U.S. West region, and a $2.2 million, or 4% increase in other
North American regions. The revenue increase in the North American regions was
due primarily to the realization of net billing rate increases, accounting for
approximately $32.1 million, increased chargeable hours accounting for $10.2
million and improved management of the scope of projects, resulting in $12.2
million less net fee markdowns in fiscal year 2000 than in fiscal year 1999. In
addition, our Asia/Pacific region generated $11.0 million, or 23% higher revenue
than in the previous fiscal year and our Latin American region generated $1.0
million, or 14% higher revenue than in the previous fiscal year. Within North
America the following individual lines of business, not all inclusive, showed
the following trends: revenue for our Benefits Group was $334.3 million in
fiscal year 2000, compared to $307.1 million in fiscal year 1999, an increase of
$27.2 million, or 9%; revenue for our HR Technologies Group was $79.7 million in
fiscal year 2000, compared to $66.3 million in fiscal year 1999, an increase of
$13.4 million, or 20%; and revenue for our Human Capital Group was $49.7 million
in fiscal year 2000, compared to $41.0 million in fiscal year 1999, an increase
of $8.7 million, or 21%.

SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses for
fiscal year 2000 were $332.3 million, compared to $298.9 million for the
previous fiscal year, an increase of $33.4 million, or 11%. The increase was
mainly due to a $22.4 million increase in compensation expenses, which is partly
the result of annual salary increases averaging 5% and a 5% increase in
headcount. The remainder of the difference was attributable to $7.5 million
higher fiscal year-end bonuses and a $3.2 million increase in other employee
benefits. As a percentage of revenue, salaries and employee benefits decreased
to 53.2% from 53.7%. This decrease reflects the overall utilization of our
operating personnel.

STOCK INCENTIVE BONUS PLAN. The accrued bonus under our stock incentive bonus
plan for fiscal year 2000 was $30.3 million, compared to $22.6 million for
fiscal year 1999, an increase of $7.7 million, or 34%. As a percentage of
revenue, the accrued bonus under our stock incentive bonus plan increased to
4.9% from 4.1%. The amount of the bonus is at the discretion of our board of
directors.

PROFESSIONAL AND SUBCONTRACTED SERVICES. Professional and subcontracted services
used in consulting operations were $49.6 million for fiscal year 2000, compared
to $47.9 million for fiscal year 1999, an increase of $1.7 million or 4%. The
increase was mainly due to a $2.5 million increase in international professional
services, a $1.2 million actuarial and strategic consulting expense from a
sub-contractor, and $0.9 million in non-compete payments, partially offset by
lower reimbursable expenses incurred on behalf of clients of $2.3 million and a
$1.0 million insurance claim. As a percentage of revenue, professional services
decreased to 7.9% from 8.6%, due primarily to a reduction in the level of
outside services specifically incurred for and reimbursed by clients.

OCCUPANCY, COMMUNICATIONS AND OTHER. Occupancy, communications and other
expenses were $100.1 million for fiscal year 2000, compared to $92.7 million for
fiscal year 1999, an increase of $7.4 million, or 8%. The increase was mainly
attributable to the $3.0 million net gain from the sale of our defined
contribution daily record-keeping software recognized in fiscal year 1999 which
reduced expense, a $2.1 million increase in non-reimbursable travel expenses, an
increase in rent expense of $1.0 million and a $0.5 million increase in
telephone expenses. As a percentage of revenue, occupancy, communications and
other expenses decreased to 16.0% from 16.7%, as we leveraged these
expenses over a larger revenue base.


                                       11
<PAGE>


GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
fiscal year 2000 were $63.6 million, compared to $56.6 million for fiscal year
1999, an increase of $7.0 million, or 12%. The increase was mainly attributable
to increased legal expenses of $2.2 million, increased professional services of
$2.2 million, a $1.1 million, or 5% increase in base salaries and $1.2 million
in higher non-client related travel expenses. As a percentage of revenue,
general and administrative expenses increased slightly to 10.2% from 10.1%.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
fiscal year 2000 was $17.9 million, compared to $15.2 million for fiscal year
1999, an increase of $2.7 million, or 18%. The increase was mainly due to a
$1.4 million increase in computer hardware depreciation. The remaining
increase was due primarily to higher computer software and furniture,
fixtures and equipment purchases during fiscal year 2000, which account for
$0.8 million of the increase, and an increase in amortization of intangibles
of $0.3 million. As a percentage of revenue, depreciation and amortization
expenses increased to 2.9% from 2.7%.

INTEREST INCOME. Interest income for fiscal year 2000 was $1.8 million, compared
to $0.9 million for fiscal year 1999, an increase of $0.9 million, or 100%. The
increase was attributable to the receipt of interest of $0.5 million related to
a federal tax refund and to additional interest income of $0.4 million earned
during the year on a higher average investment balance.

INTEREST EXPENSE. Interest expense for fiscal year 2000 was $1.9 million,
compared to $2.6 million for fiscal year 1999, a decrease of $0.7 million, or
27%. On average, we borrowed less money against our revolving line of credit
during fiscal year 2000 than in fiscal year 1999.

INCOME FROM AFFILIATES. Income from affiliates for fiscal year 2000 was $3.1
million, compared to $2.5 million for fiscal year 1999, an increase of $0.6
million, or 24%. The increase reflects improvement in business operations by our
affiliates in Continental Europe and strong business performance by our United
Kingdom affiliate.

PROVISION FOR INCOME TAXES. Income taxes for fiscal year 2000 were $15.2
million, compared to $11.4 million for fiscal year 1999. Our effective tax rate
was 44.9% for fiscal year 2000, compared to 48.1% for fiscal year 1999. The
change was due to the utilization of federal and state tax credits, a decrease
in operating losses of certain foreign affiliates and the utilization of tax
benefits related to foreign operating loss carryovers of certain foreign
affiliates. Our effective tax rate was also affected by differing foreign tax
rates in various jurisdictions. We record a tax benefit on foreign net operating
loss carryovers and foreign deferred expenses only if it is more likely than not
that a benefit will be realized.

DISCONTINUED OPERATIONS. During fiscal year 1999, we further resolved our future
obligations related to the discontinuation of our benefits administration
outsourcing business and reduced the expected loss on disposal by $8.7 million,
net of tax. The discontinuation is essentially completed, with contingencies
remaining only on guaranteed leases for real estate and equipment. We believe
that we have adequate provisions for any remaining costs related to the
discontinuation. (See Notes 14 and 15 of Notes to the Consolidated Financial
Statements, included in Item 14 of this report, for further discussion of
discontinued operations.)

NET INCOME. Net income for fiscal year 2000 was $18.5 million, compared to $20.8
million in fiscal year 1999, a decrease of $2.3 million, or 11%. As a percentage
of revenue, net income decreased to 3.0% from 3.7%. However, income from
continuing operations in fiscal year 2000 was $6.4 million higher than in fiscal
year 1999, reflecting improved operating performance. This increase was more
than offset by the $8.7 million after-tax adjustment to reduce the loss on
disposal of the discontinued benefits administration outsourcing business
recorded in fiscal year 1999. Income from continuing operations for fiscal year
2000 and 1999 also reflect the stock incentive bonus plan accruals discussed
above.


                                       12
<PAGE>


FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998.

REVENUE. Revenue from continuing operations reached $556.9 million in fiscal
year 1999, an increase of $44.2 million from $512.7 million in fiscal year 1998.
This represents 9% growth in revenue. This increase is mainly attributable to
increases in our North American regions totaling $36.4 million and a further
$6.3 million, or 15%, increase in our Asia/Pacific region. The individual
regions within North America showed the following trends: U.S. East, a $31.2
million, or 20% increase; U.S. Central, a $14.0 million, or 10% increase; and
U.S. West, an $8.8 million, or 11% decline. The net revenue increase in these
regions can be attributed to the realization of net billing rate increases
accounting for $43.3 million, increased chargeable hours accounting for
approximately $22.9 million, offset by net fee markdowns of $19.3 million, and
contract losses of approximately $10.5 million. Within North America the
following individual lines of business, not all inclusive, showed the following
trends: revenue for our Benefits Group was $307.1 million in fiscal year 1999,
compared to $271.9 million in fiscal year 1998, an increase of $35.2 million, or
13%, including $11.5 million of additional revenue from the first fiscal quarter
acquisition of selected units of KPMG's benefits consulting business; revenue
for our Human Capital Group was $41.0 million in fiscal year 1999, compared to
$44.5 million in fiscal year 1998, a decrease of $3.5 million, or 8%, amid a
reorganization of the practice; revenue for our HR Technologies Group was $66.3
million in fiscal year 1999, compared to $53.6 million in fiscal year 1998, an
increase of $12.7 million, or 24%, despite the sale in early fiscal year 1999 of
the defined contribution record-keeping business which had generated revenue in
fiscal year 1998 of $6.0 million; and, no risk and insurance consulting revenue
due to the sale of this practice in late fiscal year 1998, which had generated
$9.2 million in fiscal year 1998 revenue.

SALARIES AND EMPLOYEE BENEFITS. For fiscal year 1999, salaries and employee
benefit expenses were $298.9 million, an increase of $30.3 million, or 11% from
fiscal year 1998. This increase is due primarily to a 6% increase in headcount,
and increases in compensation and benefits. As a percentage of revenue, salaries
and employee benefits increased to 53.7% from 52.4%. The increase was primarily
driven by the accrual of relatively higher fiscal year-end incentive bonuses in
fiscal year 1999.

STOCK INCENTIVE BONUS PLAN. In fiscal year 1999, we accrued, for the first time,
a supplemental bonus under our stock incentive bonus plan of $22.6 million,
which amounts were paid in January, 2000.

PROFESSIONAL AND SUBCONTRACTED SERVICES. Professional and subcontracted services
were $47.9 million for fiscal year 1999, a decrease of $2.0 million, or 4%, from
fiscal year 1998 due to reduced corporate expenses. As a percentage of revenue,
professional services decreased to 8.6% from 9.7%.

OCCUPANCY, COMMUNICATIONS AND OTHER. Occupancy, communications and other
expenses increased $3.8 million, or 4.3% from fiscal year 1998. The increase is
primarily due to increased travel, net of savings achieved through the adoption
of an office size standard as well as our success in negotiating advantageous
leases of office space. As a percentage of revenue, occupancy, communications
and other expenses decreased to 16.7% from 17.3%, reflecting the relatively
fixed nature of these costs.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
fiscal year 1999 were $56.6 million, an increase of $4.8 million, or 9%, from
fiscal year 1998. The increase was attributable to $4.8 million for providing
technology support to core consulting areas and $1.6 million for Year 2000
readiness. These increases were offset by a $1.6 million decrease in marketing
expenses for business strategy initiatives from fiscal year 1998. As a
percentage of revenue, general and administrative expenses remained unchanged
from fiscal year 1998 at 10.1%.


                                       13
<PAGE>


DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased $9.7
million in fiscal year 1999 to $15.2 million. This decrease is due to higher
amortization of internally developed software in fiscal year 1998 of $11.6
million, primarily due to a re-evaluation and subsequent reduction of the useful
lives of the related products. Without this item in fiscal year 1998,
depreciation and amortization expense increased $1.9 million in fiscal year 1999
related to purchases of capital assets. As a percentage of revenue, depreciation
and amortization expenses decreased to 2.7% from 4.9%, reflecting the higher
amortization on internally developed software in fiscal year 1998 mentioned
above.

INCOME FROM AFFILIATES. Income from affiliates was $2.5 million in fiscal year
1999 compared to $0.3 million in fiscal year 1998. The increase reflects
heightened synergies and focus within our affiliated European operations as well
as improved business operations in the United Kingdom.

PROVISION FOR INCOME TAXES. Income before income taxes, minority interest and
discontinued operations was $23.8 million in fiscal year 1999, which,
considering taxes of $11.4 million, reflects an effective tax rate of 48%.
Income tax expense of $13.1 million in fiscal year 1998 relates to a loss before
taxes, minority interest and discontinued operations of $43.0 million, for an
effective tax rate of (30.6)%. The reason for reporting a tax expense when we
had a pretax loss and the disparity in effective tax rates is the non-recurring
compensation charge of $69.9 million in fiscal year 1998, included in the loss
before taxes of $43.0 million, which is permanently non-deductible for tax
purposes.

DISCONTINUED OPERATIONS. In fiscal year 1999, we further resolved our future
obligations related to the discontinuation of our benefits administration
outsourcing business and reduced the expected loss on disposal by $8.7 million,
net of taxes. We believe we have adequate provisions for any remaining costs
related to the discontinuation.

NET INCOME (LOSS). We generated net income in fiscal year 1999 of $20.8 million
compared to a net loss in fiscal year 1998 of $126.1 million. As a percentage of
revenue, net income was 3.7%, compared to a net loss of (24.6)% in fiscal year
1998. Continuing operations income before income taxes and minority interest of
$23.8 million in fiscal year 1999 compares to the loss of $43.0 million in
fiscal year 1998, which includes the $69.9 million non-recurring compensation
charge related to the change in formula book value for stock sales and
repurchases. The fiscal year 1999 results reflect significantly improved
operating performance and the accrual of bonuses under the stock incentive bonus
plan, at the discretion of our board of directors.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents at June 30, 2000 totaled $41.4 million,
compared to $36.0 million at June 30, 1999. The $5.4 million increase in cash
from June 30, 1999 to June 30, 2000 was mainly attributable to cash from
operations of $138.0 million, net of bonus payouts of $67.2 million, tax
payments of $21.7 million, capital asset purchases of $20.2 million, payments
to retirees of $11.9 million and repurchases of redeemable common stock of
$9.3 million.

CASH FROM OPERATING ACTIVITIES. Cash from operating activities for fiscal year
2000 was $36.9 million, compared to cash from operating activities of $52.1
million for fiscal year 1999. However, cash received from our operations
increased $36.4 million in fiscal year 2000. This increase was more than offset
by higher bonus payments of $29.8 million, higher tax payments of $16.3 million,
and higher payments to retirees of $5.5 million.


                                       14
<PAGE>


Cash from operating activities increased in 1999 compared to 1998 by $28.6
million. The increase was primarily due to the $38.6 million increase in
accounts payable and accrued liabilities from fiscal year 1999 operating
expenses that will be paid in fiscal year 2000. This increase was augmented by
the $13.0 million decrease in the cash needed in the closedown of discontinued
operations. The increase in receivables from clients of $13.4 million decreased
cash that would have been provided by operations. The deferred income tax asset
increased $7.3 million in fiscal year 1999 in conjunction with the increase in
accounts payable and accrued liabilities, compared with a $2.0 million increase
in fiscal year 1998.

CASH USED IN INVESTING ACTIVITIES. Cash used in investing activities for fiscal
year 2000 was $21.6 million, compared to $21.4 million for fiscal year 1999. The
increase in cash usage was due to $3.0 million in lower distributions from
affiliates and $0.6 million in higher current year fixed asset purchases,
partially offset by $3.1 million in lower contingent consideration payments
associated with acquisitions and higher proceeds from the sale of fixed assets
and investments of $0.3 million.

In fiscal year 1999, cash used in investing activities decreased $8.7 million
from fiscal year 1998, principally due to reduced cash needs of the discontinued
operations.

CASH USED IN FINANCING ACTIVITIES. Cash used in financing activities were $9.2
million for fiscal year 2000, compared to $8.7 million for fiscal year 1999.
This change reflects the net repayments of $9.0 million against our revolving
line of credit and a $5.8 million decrease in repurchases of redeemable common
stock, partially offset by a $15.3 million decrease in issuances of redeemable
common stock. The decrease in issuances occurred because we completed a formal
stock sale during fiscal year 1999 but did not have a formal stock sale during
fiscal year 2000.

We used more cash in fiscal year 1999 compared to fiscal year 1998 as we paid
down our outstanding debt. Our net stock activity had virtually no impact on
cash used by financing activities in fiscal year 1999.

We have a $120.0 million senior secured revolving credit facility that matures
on June 30, 2003. Of the $95.0 million of the credit line that is allocated for
operating needs, $2.2 million is unavailable as a result of support required for
letters of credit issued under the credit line. We had no borrowings outstanding
at June 30, 2000 or June 30, 1999. However, during fiscal year 2000, we made
drawings and repayments against our revolving credit facility for cyclical
working capital needs.

We rely primarily on funds from operations and short-term borrowings for
liquidity. We believe that we have access to ample financial resources to
finance anticipated growth, meet commitments to affiliates, as well as support
ongoing operations. Anticipated commitments of funds are estimated at $46.6
million for fiscal year 2001, mainly for computer hardware purchases, office
relocations and renovations, development and upgrade of financial and knowledge
management systems, acquisition related payments, and repurchases of redeemable
common stock. We expect operating cash flows to provide for these cash needs. In
future fiscal years, we would expect that our capital needs would be similar in
nature to what we have incurred in the past. Capital expenditures will be
required in conjunction with office lease renewals and relocations required to
support management's growth strategy. Additionally, our consultants will require
access to hardware and software that will support servicing our clients. In a
rapidly changing technological environment, management anticipates we will need
to make continued investments in our knowledge sharing and financial systems
infrastructure. We would expect cash from operations in conjunction with the
anticipated net proceeds from the proposed public offering and our existing
credit facility to adequately provide for these cash needs.

Our foreign operations do not materially impact liquidity or capital resources.
At June 30, 2000, $15.8 million of the total cash balance of $41.4 million was
held outside of North America, which we have the ability to readily utilize, if
necessary. There are no significant repatriation restrictions other than local
or

                                       15
<PAGE>


U.S. taxes associated with repatriation. Our foreign operations in total are
substantially self-sufficient for their working capital needs.

MARKET RISK

We are exposed to market risks in the ordinary course of business. These risks
include interest rate risk and foreign currency exchange risk. We have examined
our exposure to these risks and concluded that none of our exposures in these
areas are material to fair values, cash flows or earnings.

YEAR 2000 ISSUE

We have completed a program to ensure that our systems are Year 2000 compliant.
To date, the change of our computer systems to the Year 2000 has not had a
material adverse effect on our business, results of operations, or financial
condition. Nevertheless, since the effects of the Year 2000 issue are
unpredictable, we do not expect that our Year 2000 compliance program will
eliminate all risk to us associated with the Year 2000 issue.

We believe that the most significant risk facing us in connection with the Year
2000 issue relates to software provided by us to our clients. This software has
been provided to clients principally by the HR Technologies Group, including
benefit administration software and call center services, and the retirement
practice, principally spreadsheet-based benefit calculators. The risks presented
include the possibility of client errors using our software or contractual
liability to us caused by non-compliant software that is not identified or
corrected and the costs of replacing or repairing client systems, none of which
we expect to have a material effect on our business.

Our overall cost to address Year 2000 compliance issues exceeded $4.0 million,
most of which was spent in fiscal year 1999. Our principal expenditures were for
repair and testing of internal and client software, costs associated with our
Year 2000 compliance program and costs of outside consultants. We anticipate no
material cost associated with Year 2000 compliance in fiscal year 2001.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Forward-looking statements regarding substantial risks and uncertainties are
contained in the following sections of this report: In Item 1 ("Business") pages
2 and 3 regarding our competition; the first paragraph of Item 2 ("Properties")
on page 4; the first paragraph of Item 3 ("Legal Proceedings") on page 4; Item 4
("Submission of Matters to a Vote of Security Holders") on page 5; in Item 5
("Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters") under Dividends on page 6; in Item 7 ("Management's
Discussion and Analysis of Financial Condition and Results of Operations") pages
12 and 14 under Discontinued Operations, the last paragraph on page 15 under
Liquidity and Capital Resources, and page 16 under Year 2000 Issue. You can
identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "plan," "intend," "continue" or
similar words. You should read these statements carefully because they contain
projections of our future results of operations or financial condition, or state
other "forward-looking" information.


                                       16
<PAGE>

PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the names, ages and positions of our directors,
executive officers and director nominees as of September 28, 2000:

<TABLE>
<CAPTION>
                 Name                      Age                                    Position
                 ----                      ---                                    --------
<S>                                        <C>     <C>
John J. Haley......................         50      President, Chief Executive Officer and Director
Walter W. Bardenwerper.............         49      Vice President, General Counsel and Secretary
Thomas W. Barratt..................         58      Vice President, Regional Manager (U.S. Central) and Director
Jorge V. Bou ......................         57      Vice President, Regional Manager (Latin America)
Paula A. DeLisle...................         46      Vice President and Director
David B. Friend, M.D...............         44      Vice President, Regional Manager (U.S. East) and Director
James A. Gargiulo .................         41      Vice President, Human Resources
Ira T. Kay ........................         50      Vice President, Director -- U.S. Compensation Practice and Director*
Brian E. Kennedy...................         57      Vice President, Regional Manager (Canada) and Director*
Eric P. Lofgren....................         49      Vice President, Global Director -- Benefits Consulting Group and
                                                    Director
David P. Marini....................         44      Vice President, Global Director -- H.R. Technologies Group and Director
                                                    Nominee
Carl D. Mautz......................         53      Vice President, Chief Financial Officer
Gail E. McKee......................         41      Vice President and Director
Kevin L. Meehan....................         55      Vice President and Director
J.P. Orbeta .......................         39      Vice President, Global Director -- Human Capital Group and Director
                                                    Nominee
Sylvester J. Schieber .............         54      Vice President, Director of Research and Information
John A. Steinbrunner...............         50      Vice President and Director*
A. Grahame Stott...................         46      Vice President, Regional Manager (Asia-Pacific) and Director*
Charles P. Wood, Jr................         56      Vice President, Regional Manager (U.S. West) and Director
Barbara H. Franklin................         60      Director
John J. Gabarro....................         61      Director
Robert D. Masding .................         56      Director*
R. Michael McCullough..............         61      Director
Gilbert T. Ray ....................         56      Director
Elizabeth M. Caflisch..............         45      Director Nominee
Paul N. Thornton...................         50      Director Nominee
</TABLE>


                                       17
<PAGE>

*        Under our board rotation policy, Messrs. Kay, Kennedy, Steinbrunner and
         Stott will not be standing for reelection at the next annual meeting of
         stockholders. In addition, Mr. Masding has announced his retirement
         from Watson Wyatt Partners effective April 30, 2001 and will not be
         standing for reelection at the next annual meeting of stockholders. The
         associates listed above as director nominees have been nominated to
         stand for election at the next annual meeting of stockholders.

JOHN J. HALEY has served as President and Chief Executive Officer since
January 1, 1999 and as a Director since 1992, and is a member of the
Partnership Board of Watson Wyatt Partners. Mr. Haley joined Watson Wyatt in
1977. Prior to becoming President and Chief Executive Officer, he was the
Global Director of the Benefits Consulting Group. Mr. Haley is a Fellow of
the Society of Actuaries and is a co-author OF FUNDAMENTALS OF PRIVATE
PENSIONS (University of Pennsylvania Press). He has an A.B. in Mathematics
from Rutgers College and studied under a Fellowship at the Graduate School of
Mathematics at Yale University.

WALTER W. BARDENWERPER has served as Vice President and General Counsel since
joining Watson Wyatt in 1987 and has served as Secretary since 1992. Mr.
Bardenwerper was a Director of Watson Wyatt from 1992 to 1997. He serves as
chairman of the Global Quality Committee of Watson Wyatt Worldwide, and is
President and a director of Professional Consultants Insurance Company. He has a
B.A. in Economics from the University of Virginia and a J.D.
from the University of Virginia Law School.

THOMAS W. BARRATT has served as Vice President and Regional Manager (U.S.
Central) since 1997 and has served as a Director since 1998. Mr. Barratt
rejoined Watson Wyatt in 1994 after serving as the Managing Consultant of the
Detroit office of Towers Perrin, a competing human resources consulting firm,
from 1987 through 1993. He began his career with Watson Wyatt in 1976 and was a
consultant with the Company through 1986. He has a B.B.A. from Western Michigan
University and was graduated from Northwestern University's National Trust
School in 1966.

JORGE V. BOU has served as Vice President since 1998 and Regional Manager (Latin
America) since 1994. Prior to joining Watson Wyatt in 1986, Mr. Bou was a Vice
President with the Martin E. Segal Company, an actuarial and benefits consulting
firm, and was previously with the American International Group, an insurance
organization. He has been providing consulting services to various clients in
Latin America since 1969. Mr. Bou is an Associate of the Society of Actuaries.
He has a B.S. in Mathematics from Georgia State University.

PAULA A. DELISLE has served as Vice President and as a Director since 1997. Ms.
DeLisle joined Watson Wyatt in 1982 and is the Managing Consultant of our Hong
Kong office. Ms. DeLisle is responsible for Watson Wyatt's China operations, for
the Asia-Pacific operations of Watson Wyatt Data Services, and is a frequent
speaker at international conferences on human resources issues in the
Asia-Pacific region. She is the Vice-Chairman of the American Chamber of
Commerce in Hong Kong and is the Hong Kong representative to the Pacific
Economic Cooperation Council's Human Resources Development Task Force. She has a
B.A. from Saint Mary's College and a Master's degree from Loyola University of
Chicago.

DAVID B. FRIEND, M.D. has served as Vice President and Regional Manager (U.S.
East) since 1997 and has served as a Director since 1997. He formerly was the
Practice Director of Watson Wyatt's Group and Health Care Practice. Prior to
joining Watson Wyatt in 1995, Dr. Friend served on the medical staff at Malden
Hospital in Malden, Massachusetts. Prior to attending medical school, Dr. Friend
was an Executive Vice President with High Voltage Engineering, a specialty
industrial manufacturing conglomerate. Dr. Friend is the author of
HEALTHCARE.COM: RX FOR REFORM (St. Lucie Press), and also serves on the Advisory
Board of the Schneider Institute for Health Policy at Brandeis University. He
has


                                       18
<PAGE>

an A.B. in Economics from Brandeis University, an M.D. from the University
of Connecticut and an M.B.A. from The Wharton School of the University of
Pennsylvania.

JAMES A. GARGIULO has served as Vice President, Human Resources since 1999. Mr.
Gargiulo has been an Account Manager in the Eastern Region for the past two
years. Prior to joining Watson Wyatt in 1997, he was the Regional Director for
the Compensation practice at Aon Corporation, an insurance and consulting
organization, and has held various human resources positions for the investment
banking firm of Salomon Brothers, The Gap, retailer, and Banque Paribas. Mr.
Gargiulo has a B.A. in Business Administration from Bernard Baruch College in
New York.

IRA T. KAY has served as Vice President since 1996. He was appointed Director
of the U.S. Compensation Practice in September 2000. Prior to assuming his
current responsibilities he was North America Practice Director of the Human
Capital Group since 1998 and as a Director since 1996. Prior to joining
Watson Wyatt in 1993, Mr. Kay was a Managing Director and served on the
Partnership Management Committee of The Hay Group, a competing human
resources consulting firm, and prior to that, he was a Managing Director in
the Human Resources Department of the investment banking firm Kidder Peabody.
Mr. Kay is the author of CEO PAY AND SHAREHOLDER VALUE (St. Lucie Press). Mr.
Kay has a B.S. in Industrial and Labor Relations from Cornell University and
a Ph.D. in Economics from Wayne State University.

BRIAN E. KENNEDY has served as Vice President and Regional Manager (Canada)
since 1995 and as a Director since 1996. Prior to joining Watson Wyatt in 1995,
Mr. Kennedy spent 18 years with the Alexander Consulting Group, an insurance and
benefits consulting firm, most recently as Chairman and Chief Executive Officer
of Alexander Clay, their U.K. and European operations.

ERIC P. LOFGREN has served as Vice President, Global Director--Benefits
Consulting Group and as a Director since 1998. Prior to joining Watson Wyatt in
1989, Mr. Lofgren spent seven years with William M. Mercer, a competing human
resources consulting firm, and seven years at The Mutual of New York Insurance
Company. Mr. Lofgren is a recognized authority in the areas of retirement plan
design, the effects of demographics on benefit systems and asset liability
management. He is widely credited with developing the Pension Equity Plan (PEP),
one of the three primary families of defined benefit pension design. Mr. Lofgren
is a Fellow of the Society of Actuaries, and holds a B.A. in Mathematics from
New College in Sarasota, Florida and studied at the Graduate School of Logic at
the University of California at Berkeley.

DAVID P. MARINI has served as Vice President since 1998 and Global Director--HR
Technologies Group since 1997. Prior to assuming his current responsibilities,
he led several of the firm's technology projects involving reengineering
administrative client services. Prior to joining Watson Wyatt in 1994, Mr.
Marini spent 13 years at the insurance company CIGNA Corporation, most recently
as the President of the Iowa division of Trilog Inc., a wholly-owned 401(k)
recordkeeping subsidiary, and he was previously a CPA with the accounting firm
Coopers & Lybrand. He has a B.S. in business administration from Western New
England College.

CARL D. MAUTZ has served as Vice President and Chief Financial Officer since
February 1999 and previously served as Controller. Prior to joining Watson Wyatt
in 1997, Mr. Mautz served as the Controller for Tactical Defense Systems, Loral
Corporation, which merged into defense contractor Lockheed Martin Corporation.
From 1990 to 1994, Mr. Mautz held operating and corporate finance positions at
the computer firm Unisys Corporation and from 1972 to 1984 was a CPA with the
accounting firm of KPMG Peat Marwick. Mr. Mautz has a B.S. and an M.A.S. in
accounting from the University of Illinois.

GAIL E. MCKEE has served as Vice President and as a Director since 1997. Prior
to joining Watson Wyatt in 1992, Ms. McKee was with the Walt Disney Company, an
entertainment conglomerate, where she served as the Manager of International
Compensation and Benefits from 1991 to 1992. From 1982 to


                                       19
<PAGE>

1990, she was an Account Manager with Hewitt Associates, a competing human
resources consulting firm, in New York and Los Angeles. She has a B.A. from
the University of Washington.

KEVIN L. MEEHAN has served as Vice President since 1994 and as a Director since
1999. Mr. Meehan joined Watson Wyatt in 1983, and has been instrumental in
developing our flexible benefits operations, our Human Resources Technologies
Group and our Account Management system. Mr. Meehan is a frequent speaker on
employee benefits tax and legal issues, and regularly testifies before the IRS,
the Department of Labor and Committees of Congress on employee benefit plan
issues. Mr. Meehan has a B.A. from the College of the Holy Cross and a J.D. from
St. John's University Law School.

J.P. ORBETA has served as Vice President since 1998 and as Global Practice
Leader--Human Capital Group since 1998. Prior to joining Watson Wyatt in
April 1986, Mr. Orbeta was a faculty member of the Mathematics Department and
director of Computer Education and Services at the Ateneo de Manila
University. Mr. Orbeta is a member and Certified Compensation Professional
(CCP) of the American Compensation Association and is the first practitioner
in the Philippines to have earned this designation. He is a member of the
Industrial Relations Committees of the American Chamber of Commerce of the
Philippines, the Personnel Management Association of the Philippines and is
currently the President of the Compensation Management Society of the
Philippines. Mr. Orbeta has a B.S. in Economics from Ateneo de Manila
University in the Philippines.

SYLVESTER J. SCHIEBER has served as Vice President and Director of the Watson
Wyatt Research and Information Center (RIC) since 1983, and as a Director of
Watson Wyatt from 1989 to 1996. Mr. Schieber joined Watson Wyatt in 1983 as
Director of RIC, and from 1994-1996, he served on the Advisory Council on Social
Security for the Clinton Administration. He is currently serving a six-year term
on the Social Security Advisory Board, for which he was appointed by the U.S.
Senate Majority Leader. Mr. Schieber has served on the Board of the Pension
Research Council of the Wharton School, University of Pennsylvania since 1985.
He has authored or co-authored four books on retirement issues, including
FUNDAMENTALS OF PRIVATE PENSIONS (University of Pennsylvania Press), THE REAL
DEAL: THE HISTORY AND FUTURE OF SOCIAL SECURITY (Yale University Press, 1999),
and he has co-edited four other volumes on a broad range of human resources
issues. Mr. Schieber is a frequent speaker on pension and Social Security policy
issues throughout the world. He has a Ph.D. in Economics from the University of
Notre Dame.

JOHN A. STEINBRUNNER has served as Vice President since 1996 and a Director
since 1996. Mr. Steinbrunner joined Watson Wyatt in 1974 and was formerly the
Retirement Practice Director of the Benefits Consulting Group. Mr. Steinbrunner
continues to consult with major corporate clients on a variety of strategic
benefits issues. He is a Fellow of the Society of Actuaries and has an M.S. in
Mathematics from Case Western Reserve University.

A. GRAHAME STOTT has served as Vice President since 1995 and Regional Manager
(Asia-Pacific) since 1995 and as a Director since 1995. Mr. Stott joined Watson
Wyatt in 1982 and is a member of the Hang Seng Index Advisory Committee, a past
President of the Actuarial Association of Hong Kong and has been a member of a
number of Hong Kong Government working parties in the areas of Social Security
and pension legislation. Mr. Stott, a Fellow of the Faculty of Actuaries, has a
B.Sc. in Mathematics from the University of Manchester Institute of Science and
Technology.

CHARLES P. WOOD, JR. has served as Vice President since 1998, as Regional
Manager (U.S. West) since 1999 and as a Director since 1999. Mr. Wood joined
Watson Wyatt in 1975 and is a specialist in matters relating to Retirement,
Group and Health Care, and Compensation consulting. Mr. Wood, a Fellow of the
Society of Actuaries and the Casualty Actuarial Society, has a B.S. in
Engineering Science and Mathematics from the U.S. Air Force Academy and an S.M.
in Applied Mathematics from Harvard University.


                                       20
<PAGE>

BARBARA H. FRANKLIN was appointed as a Director in May, 2000. Ms. Franklin has
been President and Chief Executive Officer of Barbara Franklin Enterprises, an
international trade consulting and investment firm, since 1995. Ms. Franklin
previously served as U.S. Secretary of Commerce in the Bush Administration. Ms.
Franklin is a director of four companies--Aetna, Inc., a health insurance
provider, The Dow Chemical Company, a chemical manufacturer, Milacron, Inc., a
manufacturing technologies company, and MedImmune, Inc., a biotechnology
company. Ms. Franklin is currently a distinguished visiting fellow at the
Heritage Foundation, vice chair of the Atlantic Council, a director of the
National Committee on United States-China Relations. She is also a trustee of
the Economic Club of New York and a member of the Board of Directors of the
Associates of the Harvard Business School.

JOHN J. GABARRO has served as a Director since 1999 and was previously a
director from 1995 to 1998. Mr. Gabarro has been a professor at the Harvard
Business School since 1972. Mr. Gabarro is the UPS Foundation Professor of
Human Resource Management at the Harvard Business School, where he has taught
in Harvard's M.B.A., Advanced Management, and Owner-President Management
Programs. He has also served as faculty chairman of Harvard's International
Senior Management Program and as chairman of its Organization Behavior and
Human Resource Management faculty. Mr. Gabarro is the author of six books,
the most recent of which include BREAKING THROUGH: THE MAKING OF MINORITY
EXECUTIVES IN CORPORATE AMERICA (Harvard, 1999), MANAGING PEOPLE IN
ORGANIZATIONS (Harvard, 1992) and THE DYNAMICS OF TAKING CHARGE (Harvard,
1987), which won the 1988 New Directions in Leadership Award and was named
one of the best business books of the year by THE WALL STREET JOURNAL. Mr.
Gabarro is also a recipient of the 1980 McKinsey Foundation Prize, the 1986
Center for Creative Leadership Distinguished Scholar Colloquium and the 1988
Johnson Smith and Knisely Award for research on leadership. Mr. Gabarro has
an M.B.A. and a Ph.D. from Harvard University.

ROBERT D. MASDING has served as the Senior Partner of Watson Wyatt Partners, our
global alliance partner, since 1995 and as a Director since 1995 upon the
establishment of the global alliance. He joined Watson Wyatt Partners in 1969
and became a partner in 1972. Mr. Masding is a former Chairman of the
International Association of Consulting Actuaries and is a member of the
Professional Affairs Board of the Institute of Actuaries. Mr. Masding, a Fellow
of the Institute of Actuaries, has an M.A. in Mathematics from Cambridge
University.

R. MICHAEL MCCULLOUGH has served as a Director since 1996. Mr. McCullough is the
retired Chairman of the management consulting firm of Booz, Allen & Hamilton. He
joined Booz, Allen & Hamilton in 1965 as a consultant, was elected a Partner in
the firm in 1971, became Managing Partner of the firm's Technology Center and
was elected to the position of Chairman in 1984. Mr. McCullough is a member of
the Boards of Capital Auto Real Estate Investment Trust, an automobile property
real estate investment trust, Charles E. Smith Residential Real Estate Trust, a
residential property real estate investment trust and is Chairman of Ecutel,
Inc., a private Internet communications products and services firm.

GILBERT T. RAY was appointed a Director in March, 2000. Mr. Ray is senior
counsel of the law firm O'Melveny & Myers LLP. He joined O'Melveny & Myers in
1972, and was named a partner in 1981. After practicing corporate law for over
28 years, Mr. Ray retired from active practice in January, 2000. Mr. Ray is a
member of the boards of Host Marriott Services Corporation, a concessions
provider, Automobile Club of Southern California, a provider of emergency road
and travel services and insurance, and is Chair of the Board of Sierra
Monolithics, Inc. a high speed communications systems company. Mr. Ray is also
the recipient of the Fred Snowden Humanitarian Award--Greater Los Angeles
African American Chamber of Commerce, the Outstanding Alumni Award--Ashland
University, the NAACP Legal Defense Fund--Civil Rights Advocate of the Year, and
the Central City Association--Leadership and Achievement Award.

ELIZABETH M. CAFLISCH is a nominee to Watson Wyatt's Board of Directors. Ms.
Caflisch joined Watson Wyatt in 1979 and is currently a consulting actuary and
the Retirement Practice Leader in our Washington, D.C. office. Ms. Caflisch has
served on the Finance Committee since 1997. Ms. Caflisch is a


                                       21
<PAGE>

Fellow of the Society of Actuaries and an Enrolled Actuary under ERISA. She
holds a B.A. degree in mathematics and economics from Trinity College.

PAUL N. THORNTON is a nominee to the Board of Directors. He joined Watson
Wyatt Partners in 1974, qualified as a Fellow of the Institute of Actuaries
in 1975 and became a Partner of the firm in 1977. Mr. Thornton has been
elected to the position of Senior Partner of Watson Wyatt Partners effective
May 1, 2001. He was a Chairman of the Pensions Board of the Faculty and
Institute of Actuaries in the U.K. from 1994 to 1996, Chairman of the
Association of Consulting Actuaries from June 1997 until June 1998 and
President of the Institute of Actuaries from July 1998 to July 2000. Mr.
Thornton is a member of the Executive Committee of the International
Actuarial Association, Chairman of the Pensions Committee of the Groupe
Consultatif of European Actuaries, Chairman of the Committee of the
International Actuarial Association dealing with the International Accounting
Standard on Employee Benefits and a member of the Committee of the
International Association of Consulting Actuaries. He holds an honours degree
in Mathematics from Oxford University.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon a review of Forms 3, 4 and 5 furnished to us, all Section
16(a) filing requirements applicable to such officers and directors have been
complied with.

ITEM 11.  EXECUTIVE COMPENSATION.



<TABLE>
<CAPTION>
                                            Summary Compensation Table

                                           Fiscal                                       Total             All Other
              Name and Principal Position   Year   Salary     Bonus    SIBP       Salary/Bonus/SIBP    Compensation(a)
              ---------------------------  ------  ------     -----    -------    -----------------    ---------------

<S>                                         <C>    <C>       <C>       <C>        <C>                  <C>
              John J. Haley                 2000   $612,500  $570,000 $725,514        $1,908,014           $54,932
                President,                  1999    543,750   422,625  491,000         1,457,375            25,255
                Chief Executive             1998    440,000   320,000       --           760,000            19,300
                Officer and Director

              Eric P. Lofgren               2000   430,000   350,000   367,736         1,147,736            23,107
                Vice President,             1999   390,000   290,000   260,960           940,960            19,170
                Global Director,            1998   331,500   250,000        --           581,500            15,035
                Benefits Consulting
                Group and Director

              Charles P. Wood, Jr.          2000   390,000   250,000   413,750         1,053,750            22,969
                Vice President, Western     1999   290,000   190,000   325,351           805,351            12,476
                Regional Manager and        1998   246,750   125,000        --           371,750            12,760
                Director

              Kevin L. Meehan               2000   350,500   318,600  379,243          1,048,343            21,146
                Vice President and          1999   326,250   300,000  290,425            916,675            17,690
                Director                    1998   280,150   250,000       --            530,150             5,110

              David B. Friend, M.D.         2000   435,000   325,000  239,704            999,704            32,746
                Vice President,             1999   415,000   315,000  175,270            905,270            21,380
                Eastern Regional            1998   387,500   270,000       --            657,500            17,125
                Manager and
                Director
</TABLE>





                                       22
<PAGE>


(a)   "All Other Compensation" consists of the following: (1) company matching
      contributions of 50% of the first 6% of total compensation contributed to
      our 401(k) plan as a 401(k) salary deferral by the named executive up to
      the IRS maximum; (2) an additional company matching contribution to a
      non-qualified savings plan of 3% of total compensation above the IRS
      compensation limit of $160,000 if individual 401(k) contributions equal
      the IRS maximum; and (3) payment for the annual cash out of excess unused
      vacation, as required by our paid time off policy, as amended in 1999. All
      Associates were subject to the same accrued vacation limits.


DEFINED BENEFIT PLANS


PENSION PLAN FOR U.S. ASSOCIATES. The following table sets forth the estimated
annual benefits payable on a five-year certain and life basis under the
Company's qualified pension plan and non-qualified excess pension plans to a
U.S. associate who qualifies for normal retirement in 2000 with the specified
average compensation equal to the average of the highest 36 consecutive months
of compensation prior to retirement and the specified years of continuous
service:



<TABLE>
<CAPTION>
                                             Annual Benefit Amounts(a)


  Average Annual Compensation                          Years of Continuous Service
   for 36 Consecutive Months     --------------------------------------------------------------------
  with the Highest Average
      Preceding Retirement(b)           10               15                20               25
-------------------------------- ---------------- ----------------  ---------------- ----------------
<S>                              <C>               <C>              <C>               <C>
             $ 150,000                 30,096            45,144           60,192            75,240
               250,000                 51,096            76,644          102,192           127,740
               350,000                 72,096           108,144          144,192           180,240
               450,000                 93,096           139,644          186,192           232,740
               550,000                114,096           171,144          228,192           285,240
               650,000                135,096           202,644          270,192           337,740
               750,000                156,096           234,144          312,192           390,240
               850,000                177,096           265,644          354,192           442,740
               950,000                198,096           297,144          396,192           495,240
             1,050,000                219,096           328,644          438,192           547,740
             1,150,000                240,096           360,144          480,192           600,240
             1,250,000                261,096           391,644          522,192           652,740
</TABLE>



(a)  The annual benefit at normal retirement (age 65) under the qualified plan
     is equal to 1.7% times the associate's average compensation for the 36
     consecutive months with the highest compensation plus 0.4% times the
     associate's average compensation for the 36 consecutive months with the
     highest compensation that exceeds Social Security Covered Compensation, all
     times the number of completed years and months of continuous service up to
     25 years. The annual benefit is not subject to reduction for social
     security benefits or other offset amounts.


(b)  As required by Section 415 of the IRC, qualified plan payments may not
     provide annual benefits exceeding a maximum amount, currently $135,000. For
     those associates who are covered under the excess plans, amounts above this
     maximum will be paid under the terms of the excess plans, up to the amounts
     shown in the table above. Pursuant to Section 401(a)(17) of the IRC, annual
     compensation in excess of $170,000 cannot be taken into account in
     determining qualified plan benefits.

The years of credited service for the associates named in the cash compensation
table as of June 30, 2000 are: Mr. Haley - 23.17 years; Mr. Lofgren - 11.00
years; Mr. Wood 24.75 years; Mr. Meehan 17.17 years; and Mr. Friend - 5.00
years. Benefits are based solely on the compensation shown in the "Salary" and
in the "Bonus" columns of the Summary Compensation Table.


                                       23
<PAGE>

SUPPLEMENTAL RETIREMENT PROGRAM FOR U.S. ASSOCIATES. This non-qualified program
provides additional retirement benefits to eligible associates who retire from
active employment with the Company. Prior to January 1, 1997, the qualified
pension plan recognized base pay only, with this Supplemental Retirement Program
("SRP") recognizing total pay. Associates eligible for benefits under this
program were those who had total annual average compensation in excess of a
minimum compensation level ($125,948 as of June 30, 2000 and indexed in the
future) and who had attained age 50 with 10 or more years of service.

Effective January 1, 1997, the qualified pension plan was amended to recognize
salary and bonus; therefore, the SRP will be phased out over a transition period
that will extend for five years through December 31, 2001. Associates eligible
for transition benefits must meet all of the following criteria: total pay
exceeds the minimum compensation level described previously; age 45 or older
with 10 years or more of service as of December 31, 1996 and 60 or more "points"
as of December 31, 1996 (sum of age and service is 60 or greater).

For purposes of the SRP, annual compensation refers to compensation amounts
shown in the "Salary" and in the "Bonus" columns of the Summary Compensation
Table. Transition benefits will equal the amount of total retirement benefits
that would have been paid under the qualified plan, excess plans and SRP
formulas in effect prior to January 1, 1997, less any benefits paid under the
qualified and excess plans in effect after that date. Prior to January 1, 1997,
the qualified plan provided a benefit equal to 2.5% times the participant's
average salary (base pay only) for the three consecutive years with the highest
annual salaries for each completed year and month of continuous service up to 20
years, plus 2% of such compensation for each completed year and month of
continuous service over 20 years, up to a maximum of 8-1/3 years, less 30/17% of
the participant's estimated Social Security benefit for each completed year and
month of continuous service, up to a maximum of 28-1/3 years. Prior to January
1, 1997, the SRP formula was approximately the same as the qualified plan,
except bonus compensation was also recognized. For determining benefits under
the prior plans, no pay increases after December 31, 1996 will be recognized.
The form of benefit under the SRP is a temporary annuity from the retirement
date until the eligible associate reaches age 65. Any pension effect related to
this program has not been considered in the preceding table, which assumes
normal retirement (age 65).

OTHER PENSION PLANS. The Company also has other pension plans that have been
established in various countries for the benefit of eligible associates in those
jurisdictions.

PENSION ARRANGEMENTS WITH NAMED EXECUTIVE OFFICER. The Company has an agreement
with Dr. Friend to provide a supplemental pension benefit. At the time of his
retirement, Dr. Friend will receive an additional service credit (for the
purposes of calculating benefits only) so that his total service credit will be
calculated as follows: (actual years of service + 1) multiplied by 1.5. In
addition, if, prior to the date on which Dr. Friend would be entitled to receive
an early retirement benefit, there is a change in control of the Company and Dr.
Friend leaves the employ of the Company within six months of the change in
control, his pension will be calculated as if he had reached early retirement.

GENERAL EMPLOYMENT ARRANGEMENTS. Generally, executive officers are not parties
to employment agreements with us. Non-employee directors are paid pursuant to a
compensation plan approved on an annual basis. Executives and other associates
in salary bands 4, 5, 6 and higher are required to sign non-competition and
confidentiality agreements to protect our proprietary information.

COMPENSATION OF DIRECTORS. Outside Directors in fiscal 2000 were paid a
quarterly retainer of $6,250 plus $1,500 per day for Board meetings, $1,000 per
day for regular Committee meetings ($750 if held in conjunction with a Board
meeting), and $2,000 per day for Committee meetings if the outside Director
chaired that Committee ($1,000 if held in conjunction with a Board meeting).
Telephone meetings of less than four hours duration were compensated at 50% of
the applicable per day fee. These fees are paid in shares of the Company's
Common Stock (up to 7,500 shares), and the balance is paid in cash. The Company
has established the Voluntary Deferred Compensation Plan to enable outside
Directors, at their


                                       24
<PAGE>

election, to defer receipt of any or all of their Director's
fees until they are no longer serving as a Director of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of our Compensation and Stock Committee, predecessor to the current
Compensation Committee, for the last completed fiscal year were: Thomas W.
Barratt, Paula A. DeLisle, Ira T. Kay, Kevin L. Meehan and John A. Steinbrunner.
All are officers of the company. The committee members did not participate in
decisions regarding their own compensation. No interlocking relationship exists
between our board of directors or our Compensation Committee and any member of
any other company's board of directors or their compensation committee, nor has
any interlocking relationship existed in the past.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS.

The following table sets forth information known to us with respect to
beneficial ownership of common stock as of September 28, 2000, without giving
effect to our proposed corporate reorganization, of all directors, director
nominees, named executive officers and directors and executive officers as a
group. To our knowledge, no person beneficially owns 5% or more of our common
stock.

<TABLE>
<CAPTION>
                                                                                           Shares Beneficially
                                                                                          Owned Before Offering
                                                                                         -----------------------
Name of Beneficial Owner (a)                                                             Number          Percent
----------------------------                                                             ------          -------

<S>                                                                                   <C>               <C>
John J. Haley...................................................................         227,749             1.5%
Charles P. Wood, Jr.............................................................         200,934             1.4
A. Grahame Stott................................................................         134,000             *
Eric P. Lofgren.................................................................         109,365             *
John A. Steinbrunner............................................................         103,191             *
Kevin L. Meehan.................................................................         100,011             *
Thomas W. Barratt ..............................................................          89,000             *
Ira T. Kay......................................................................          80,525             *
David B. Friend, M.D............................................................          71,000             *
Paula A. DeLisle................................................................          53,900             *
Brian E. Kennedy................................................................          50,000             *
Gail E. McKee...................................................................          27,375             *
Barbara H. Franklin.............................................................               0(b)
John J. Gabarro.................................................................           7,500             *
R. Michael McCullough...........................................................           7,500             *
Robert D. Masding...............................................................         363,000(c)          2.5
Gilbert T. Ray..................................................................               0(b)
Elizabeth M. Caflisch...........................................................          53,756             *
David P. Marini.................................................................          38,000             *
J. P. Orbeta....................................................................          26,755             *
Paul N. Thornton................................................................         363,000(c)          2.5
All current directors and executive officers as a group (24)....................       2,030,992            13.7%
-----------------------
</TABLE>

*    Beneficial ownership of 1% or less of all of the outstanding common stock
     is indicated with an asterisk.


                                       25
<PAGE>

(a)  Unless noted otherwise, the address for each of the beneficial owners
     identified in this table is c/o of Watson Wyatt & Company Holdings, 6707
     Democracy Boulevard, Suite 800, Bethesda, Maryland 20817.

(b)  Ms. Franklin and Mr. Ray were appointed as directors recently and do not
     own any shares.

(c)  Watson Wyatt Partners, in which Messrs. Masding and Thornton are partners,
     beneficially owns 363,000 shares (2.5%) of our common stock. Messrs.
     Masding and Thornton do not own any shares in their individual capacities
     and disclaim beneficial ownership of these shares. Pursuant to our
     alliance agreement, if Watson Wyatt Partners holds more than 400,000 shares
     of our common stock, it has an option to sell to us any number of shares
     that exceed 300,000. We, in turn, have an option to purchase from Watson
     Wyatt Partners any number of shares of our common stock in excess of
     400,000 shares if Watson Wyatt Partners holds more than 500,000 shares of
     our common stock.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On April 1, 1995, the Company transferred its United Kingdom operations to R
Watson & Sons (subsequently renamed Watson Wyatt Partners) and received a
beneficial interest and a 10% interest in a defined profit pool of the
partnership. We also transferred our Continental European operations to a newly
formed holding company owned by our company and Watson Wyatt Partners in
exchange for 50.1% of its share. Effective July 1, 1998, we sold one-half of our
investment in the holding company to Watson Wyatt Partners. Mr. Robert D.
Masding, Senior Partner of Watson Wyatt Partners, is a member of our Board of
Directors. Mr. Paul N. Thornton, also a partner of Watson Wyatt Partners, is a
nominee to our board of directors, and Mr. Haley is a member of the Watson Wyatt
Partners Partnership Board. Watson Wyatt Partners and Watson Wyatt & Company
provide various services to and on behalf of each other in the ordinary course
of business.


                                       26
<PAGE>

PART IV

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

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                             <C>
a)       Financial Information

(1)      Consolidated Financial Statements of Watson Wyatt & Company

         Report of Independent Accountants                                                               F-1

         Financial Statements:
             Consolidated Statements of Operations for each of the three years in the
             period ended June 30, 2000                                                                  F-2

             Consolidated Balance Sheets at June 30, 2000 and 1999                                       F-3

             Consolidated Statements of Cash Flows for each of the three years in the
             period ended June 30, 2000                                                                  F-4

             Consolidated Statements of Changes in Permanent Shareholders'
             Equity for each of the three years in the period ended June 30,
             2000                                                                                        F-5

             Notes to the Consolidated Financial Statements                                      F-6 to F-26

(2)      Consolidated Financial Statement Schedule for each of the three years
         ended June 30, 2000

         Valuation and Qualifying Accounts and Reserves (Schedule II)                                   F-27

         All other schedules are omitted because they are not applicable or the
         required information is shown in the financial statements or notes
         thereto.

(3)      Unaudited Supplementary Data

         Not required.

b)       Reports on Form 8-K

         None.

</TABLE>

                                       27
<PAGE>


c)       Exhibits

2        Agreement and Plan of Merger(1)

3.1      Restated Certificate of Incorporation of Watson Wyatt & Company(2)

3.2      Restated Bylaws (as amended through June 26, 2000)(7)

4        Form of Certificate Representing Common Stock(4)

10.1     Amended and Restated Credit Agreement between Watson Wyatt & Company
         and NationsBank, N.A. dated June 30, 1998(5)

10.2     Agreement with David B. Friend, M.D., dated October 22, 1999(6)

10.3     Lease between Watson Wyatt & Company and Marvin M. Robertson, et. al.,
         dated January 9, 1998(6)

10.4     First Amendment to Lease between Watson Wyatt & Company and Marvin M.
         Robertson, et. al., dated July 13, 2000(7)

21       Subsidiaries of Watson Wyatt & Company(7)

23       Consent of the Company's Independent Accountants(3)


--------------------------------
1    Incorporated by reference from Registrant's Definitive Proxy Statement
     (File No. 0-20724) filed on May 24, 2000

2    Incorporated by reference from Registrant's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1996 (File No. 0-20724), filed on September
     16, 1996

3    Filed with this Form 10-K/A

4    Incorporated by reference from Registrant's Initial Statement on Form 10
     (File No. 0-20742), filed on October 13, 1992

5    Incorporated by reference from Registrant's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1998 (File No. 0-20724), filed on September
     24, 1998

6    Incorporated by reference to Watson Wyatt & Company Holding's Registration
     Statement on Form S-4, Amendment No 1. (File No. 33-94975), filed on March
     17, 2000

7    Incorporated by reference from Registrant's Annual Report on Form 10-K
     for the fiscal year ended June 30, 2000 (File No. 0-20724), filed on
     August 25, 2000

                                       28
<PAGE>


SIGNATURES

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

                                      WATSON WYATT & COMPANY
                                      (Registrant)


Date:    September 28, 2000            By:  /s/ John J. Haley
                                           ----------------------------------
                                           John J. Haley
                                           President and Chief Executive Officer



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


<TABLE>
<CAPTION>
Signature                               Title                                         Date
---------                               -----                                         ----
<S>                              <C>                                                 <C>
/s/ John J. Haley                President, Chief Executive Officer 8/25/00         9/28/00
John J. Haley                    and Director

/s/ Carl D. Mautz                Vice President and Chief                           9/28/00
Carl D. Mautz                    Financial Officer

/s/ Peter L. Childs              Controller                                         9/28/00
Peter L. Childs

/s/ Thomas W. Barratt            Vice President and Director                        9/28/00
Thomas W. Barratt

/s/ Paula A. Delisle             Vice President and Director                        9/28/00
Paula A. DeLisle

/s/ Barbara H. Franklin          Director                                           9/28/00
Barbara H. Franklin

/s/ David B. Friend              Vice President and Director                        9/28/00
David B. Friend

/s/ John J. Gabarro              Director                                           9/28/00
John J. Gabarro

</TABLE>


                                       29
<PAGE>


<TABLE>
<CAPTION>
SIGNATURE                        TITLE                                              DATE
<S>                              <C>                                               <C>
/s/ Ira T. Kay                   Vice President and Director                        9/28/00
Ira T. Kay

/s/ Brian E. Kennedy             Vice President and Director                        9/28/00
Brian E. Kennedy

/s/ Eric P. Lofgren              Vice President and Director                        9/28/00
Eric P. Lofgren

/s/ Robert D. Masding            Director                                           9/28/00
Robert D. Masding

/s/ R. Michael McCullough        Director                                           9/28/00
R. Michael McCullough

/s/ Gail E. McKee                Vice President and Director                        9/28/00
Gail E. McKee

/s/ Kevin L. Meehan              Vice President and Director                        9/28/00
Kevin L. Meehan

/s/ Gilbert T. Ray               Director                                           9/28/00
Gilbert T. Ray

/s/ John A. Steinbrunner         Vice President and Director                        9/28/00
John A. Steinbrunner

/s/ A. Grahame Stott             Vice President and Director                        9/28/00
A. Grahame Stott

/s/ Charles P. Wood, Jr          Vice President and Director                        9/28/00
Charles P. Wood, Jr

</TABLE>



                                       30
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Shareholders of Watson Wyatt & Company

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 27 of this Form 10-K/A present fairly, in
all material respects, the financial position of Watson Wyatt & Company and its
subsidiaries at June 30, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000,
in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 27 of this Form 10-K/A presents
fairly, in all material respects, the information, set forth therein when read
in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinions expressed
above.


PricewaterhouseCoopers LLP


Washington, D.C.
August 4, 2000


                                      F-1
<PAGE>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Thousands of U.S. Dollars, Except Per Share Amounts)


<TABLE>
<CAPTION>

                                                                                              Year Ended June 30,
                                                                                   ---------------------------------------
                                                                                     2000           1999           1998
                                                                                   ---------      ---------      ---------
<S>                                                                                <C>            <C>            <C>
Revenue                                                                            $ 624,583      $ 556,860      $ 512,660
                                                                                   ---------      ---------      ---------

Costs of providing services:
     Salaries and employee benefits                                                  332,339        298,915        268,611
     Stock incentive bonus plan                                                       30,283         22,610              -
     Non-recurring compensation charge (see Note 12)                                       -              -         69,906
     Professional and subcontracted services                                          49,608         47,863         49,907
     Occupancy, communications and other                                             100,099         92,668         88,840
     General and administrative expenses                                              63,596         56,578         51,759
     Depreciation and amortization                                                    17,878         15,248         24,994
                                                                                   ---------      ---------      ---------
                                                                                     593,803        533,882        554,017
                                                                                   ---------      ---------      ---------

Income (loss) from operations (see Note 12)                                           30,780         22,978        (41,357)

Other:
     Interest income                                                                   1,823            944            901
     Interest expense                                                                 (1,876)        (2,646)        (2,768)

Income from affiliates                                                                 3,116          2,524            258
                                                                                   ---------      ---------      ---------


Income (loss) before income taxes and minority interest (see Note 12)                 33,843         23,800        (42,966)
                                                                                   ---------      ---------      ---------

Provision for income taxes:
     Current                                                                          12,344         18,744         15,116
     Deferred                                                                          2,851         (7,296)        (1,982)
                                                                                   ---------      ---------      ---------
                                                                                      15,195         11,448         13,134
                                                                                   ---------      ---------      ---------


Income (loss) before minority interest (see Note 12)                                  18,648         12,352        (56,100)


Minority interest in net income of consolidated subsidiaries                            (115)          (217)          (112)
                                                                                   ---------      ---------      ---------

Income (loss) from continuing operations (see Note 12)                                18,533         12,135        (56,212)

Discontinued operations:

Loss from operations of discontinued Outsourcing Business (less
     applicable income tax benefit of $5,053 for the year ended June 30, 1998)             -              -         (6,821)

Adjustment (loss) on disposal of discontinued Outsourcing Business (1999
     adjustment is net of applicable income tax expense of $6,322;
     1998 loss is net of applicable income tax benefit of $46,715)                         -          8,678        (63,085)
                                                                                   ---------      ---------      ---------
Net income (loss) (see Note 12)                                                    $  18,533      $  20,813      $(126,118)
                                                                                   =========      =========      =========



Earnings (loss) per share, continuing operations, basic and fully diluted          $    1.24      $    0.80      $   (3.27)
                                                                                   =========      =========      =========

Earnings (loss)  per share, discontinued operations, basic and fully diluted       $       -      $    0.57      $   (4.07)
                                                                                   =========      =========      =========

Earnings (loss) per share, net income (loss), basic and fully diluted              $    1.24      $    1.37      $   (7.34)
                                                                                   =========      =========      =========

</TABLE>


                             See accompanying notes
                                      F-2
<PAGE>

                             WATSON WYATT & COMPANY
                           CONSOLIDATED BALANCE SHEETS
                           (Thousands of U.S. Dollars)

<TABLE>
<CAPTION>

                                                                                  June 30,       June 30,
                                                                                    2000           1999
                                                                                  ---------      ---------
<S>                                                                               <C>            <C>
                                      ASSETS

Cash and cash equivalents                                                         $  41,410      $  35,985
Receivables from clients:
     Billed, net of allowances of $2,832 and $3,701                                  76,729         72,798
     Unbilled, net of allowances of $676 and $796                                    66,009         63,068
                                                                                  ---------      ---------
                                                                                    142,738        135,866

Other current assets                                                                 11,705         10,834
                                                                                  ---------      ---------
     Total current assets                                                           195,853        182,685

Investment in affiliates                                                             16,615         15,306
Fixed assets, net of accumulated depreciation of $83,211 and $80,368                 45,237         42,797
Deferred income taxes                                                                53,355         56,206
Intangible assets, net of accumulated amortization of $15,288 and $13,904             8,721          7,455
Other assets                                                                         10,179          9,511
                                                                                  ---------      ---------

Total Assets                                                                      $ 329,960      $ 313,960
                                                                                  =========      =========

     LIABILITIES, REDEEMABLE COMMON STOCK AND PERMANENT SHAREHOLDERS' EQUITY

Accounts payable and accrued liabilities                                          $ 167,833      $ 152,619
Income taxes payable                                                                 11,843         18,374
                                                                                  ---------      ---------
     Total current liabilities                                                      179,676        170,993

Accrued retirement benefits                                                          79,462         77,140
Deferred rent and accrued lease losses                                                5,456          9,270
Other noncurrent liabilities                                                         23,657         22,608

Minority interest in subsidiaries                                                       498            669

Redeemable Common Stock - $1 par value:
     25,000,000 shares authorized;
     14,805,145 and 16,112,416 issued
     and outstanding; at redemption value                                           115,480        107,631

Permanent shareholders' equity:
Adjustment for redemption value (greater)/less
     than amounts paid in by shareholders                                            (6,097)        11,420
Retained deficit                                                                    (64,223)       (83,209)

Cumulative translation adjustment (accumulated other
     comprehensive loss)                                                             (3,949)        (2,562)

Commitments and contingencies
                                                                                  ---------      ---------

Total Liabilities, Redeemable Common Stock and Permanent Shareholders' Equity     $ 329,960      $ 313,960
                                                                                  =========      =========

</TABLE>


                             See accompanying notes
                                      F-3
<PAGE>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Thousands of U.S. Dollars)

<TABLE>
<CAPTION>

                                                                                             Year Ended June 30,
                                                                                   ---------------------------------------
                                                                                     2000            1999          1998
                                                                                   ---------      ---------      ---------
<S>                                                                                <C>            <C>            <C>
Cash flows from operating activities:
     Net income (loss)                                                             $  18,533      $  20,813      $(126,118)
     Adjustments to reconcile net income (loss) to net cash
       provided by operating activities:
         Non-cash non-recurring compensation charge                                        -              -         69,906
         Net (adjustment) loss from Discontinued Operations                                -         (8,678)        69,906
         Provision for doubtful receivables from clients                               6,338          9,086          6,158
         Depreciation                                                                 16,025         13,680         12,849
         Amortization of deferred software and development costs
             and other intangible assets                                               1,852          1,568         12,143
         Provision for (benefit from) deferred income taxes                            2,851         (7,295)        (1,982)
         Income from affiliates                                                       (3,116)        (2,524)          (258)
         Minority interest in net income of consolidated subsidiaries                    115            217            112
         (Increase) decrease in assets (net of discontinued operations):
             Receivables from clients                                                (13,210)       (25,071)       (11,660)
             Income taxes receivable                                                       -          2,216          4,558
             Other current assets                                                       (871)        (3,889)           342
             Other assets                                                               (717)           480             76
          Increase (decrease) in liabilities (net of discontinued operations):
             Accounts payable and accrued liabilities                                 15,871         52,149         13,576
             Income taxes payable                                                     (6,531)        12,052         (3,563)
             Accrued retirement benefits                                               2,322         (5,388)        (4,169)
             Deferred rent and accrued lease losses                                   (3,814)        (3,406)        (2,262)
             Other noncurrent liabilities                                              1,810          1,132            840
         Other, net                                                                      563            514          1,603
         Discontinued operations, net                                                 (1,090)        (5,537)       (18,554)
                                                                                   ---------      ---------      ---------
         Net cash from operating activities                                           36,931         52,119         23,503
                                                                                   ---------      ---------      ---------

Cash flows used in investing activities:
     Purchases of fixed assets                                                       (20,235)       (19,684)       (16,034)
     Proceeds from sales of fixed assets                                                 495            237            623
     Acquisitions                                                                     (3,069)        (6,207)             -
     Investment in software and development costs                                          -              -         (3,000)
     Distributions from affiliates                                                     1,187          4,220          3,076
     Discontinued operations                                                               -              -        (14,750)
                                                                                   ---------      ---------      ---------
         Net cash used in investing activities                                       (21,622)       (21,434)       (30,085)
                                                                                   ---------      ---------      ---------

Cash flows used in financing activities:
     Net borrowings (repayments) on line of credit                                         -         (9,000)         9,000
     Issuances of Redeemable Common Stock                                                132         15,451          1,005
     Repurchases of Redeemable Common Stock                                           (9,347)       (15,124)       (13,141)
                                                                                   ---------      ---------      ---------
         Net cash used in financing activities                                        (9,215)        (8,673)        (3,136)
                                                                                   ---------      ---------      ---------

Effect of exchange rates on cash                                                        (669)           568         (3,134)
                                                                                   ---------      ---------      ---------

Increase (decrease) in cash and cash equivalents                                       5,425         22,580        (12,852)

Cash and cash equivalents at beginning of period                                      35,985         13,405         26,257
                                                                                   ---------      ---------      ---------

Cash and cash equivalents at end of period                                         $  41,410      $  35,985      $  13,405
                                                                                   =========      =========      =========

</TABLE>


                             See accompanying notes
                                      F-4
<PAGE>

                             WATSON WYATT & COMPANY
      CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY
                           (Thousands of U.S. Dollars)

<TABLE>
<CAPTION>

                                                                                                Adjustment for
                                                                                               Redemption Value
                                                                             Cumulative      (Greater)/Less Than
                                                          Retained           Translation      Amounts Paid in by
                                                           Deficit              Loss            Shareholders            Total
                                                         -----------        -------------    -------------------     -----------
<S>                                                       <C>                 <C>                 <C>                <C>
Balance at June 30, 1997                                  $  24,633           $     836           $ (37,674)          $ (12,205)

Comprehensive Loss:
     Net loss                                              (126,118)                  -                   -            (126,118)
     Foreign currency translation adjustment                      -              (3,752)                  -              (3,752)
                                                                                                                      ---------
Total Comprehensive Loss                                                                                               (129,870)
Effect of repurchases of 2,410,425 shares of
     common stock (various prices per share)                 (5,349)                  -               5,349                   -
Adjustment of redemption value for change
     in formula book value per share                              -                   -             (12,341)            (12,341)
Adjustment of redemption value for non-recurring
     compensation charge (see Note 12)                            -                   -              69,906              69,906
                                                          ---------           ---------           ---------           ---------

Balance at June 30, 1998                                   (106,834)             (2,916)             25,240             (84,510)

Comprehensive Income:
     Net income                                              20,813                   -                   -              20,813
     Foreign currency translation adjustment                      -                 354                   -                 354
                                                                                                                      ---------
Total Comprehensive Income                                                                                               21,167
Effect of repurchases of 2,361,542 shares of
     common stock (various prices per share)                  2,812                   -              (2,812)                  -
Adjustment of redemption value for change
     in Formula Book Value per share                              -                   -             (11,008)            (11,008)
                                                          ---------           ---------           ---------           ---------

Balance at June 30, 1999                                    (83,209)             (2,562)             11,420             (74,351)

Comprehensive Income:
     Net income                                              18,533                   -                   -              18,533
     Foreign currency translation adjustment                      -              (1,387)                  -              (1,387)
                                                                                                                      ---------
Total Comprehensive Income                                                                                               17,146
Effect of repurchases of 1,326,971 shares of
     common stock (various prices per share)                    453                   -                (453)                  -
Adjustment of redemption value for change
     in Formula Book Value per share                              -                   -             (17,064)            (17,064)
                                                          ---------           ---------           ---------           ---------

Balance at June 30, 2000                                  $ (64,223)          $  (3,949)          $  (6,097)          $ (74,269)
                                                          =========           =========           =========           =========

</TABLE>


                             See accompanying notes
                                      F-5
<PAGE>

                             WATSON WYATT & COMPANY

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   (TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS - Watson Wyatt & Company (collectively referred to as
"we", "Watson Wyatt" or the "Company"), together with its subsidiaries, is an
international company engaged in the business of providing professional
consultative services on a fee basis, primarily in the human resource areas of
employee benefits and compensation, but also in other areas of specialization
such as human capital consulting and human resource related technology
consulting. Substantially all of our stock is held by or for the benefit of
employees.

In 1998, the Company discontinued its benefits administration outsourcing
business as further described in Note 14. The Consolidated Statements of
Operations in 1999 and 1998 reflect the charges recorded for that
discontinuation as well as for the operating results of the discontinued
operations in 1998 prior to discontinuation.

USE OF ESTIMATES - 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,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used
when accounting for revenue, allowances for uncollectible receivables,
investments in affiliates, depreciation and amortization, profits on long-term
contracts, asset write-downs, employee benefit plans, taxes and discontinued
operations.

PRINCIPLES OF CONSOLIDATION - Our consolidated financial statements include the
accounts of the Company and our majority-owned and controlled subsidiaries after
elimination of intercompany accounts and transactions. Investments in affiliated
companies over which we have the ability to exercise significant influence are
accounted for using the equity method.

RECLASSIFICATIONS - Certain amounts previously presented have been reclassified
to conform to the current presentation.

CASH AND CASH EQUIVALENTS - We consider short-term, highly liquid investments
with original maturities of 90 days or less to be cash equivalents. Such
investments were $23,500,000 at June 30, 2000, and $21,700,000 at June 30, 1999.


RECEIVABLES FROM CLIENTS - Billed receivables from clients are presented at
their billed amount less an allowance for doubtful accounts. Unbilled
receivables are stated at full billing rates less an allowance for
uncollectible amounts.

REVENUE RECOGNITION - For consulting services, revenue from clients are
recorded as services are performed and are presented net of write-offs and
estimated uncollectible amounts. Services rendered are generally billed on a
monthly basis using fee arrangements defined at the inception of the project.
Revenue from long-term contracts is recognized on the percentage of
completion basis. Anticipated contract losses are recognized as they become
known. We recognize revenue for administrative and record-keeping operations
as earned.


                                      F-6
<PAGE>

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" (SAB 101) which summarizes certain of the
staff's views on revenue recognition. Our revenue recognition policies have been
and continue to be in accordance with SAB 101.

INTANGIBLE ASSETS - Intangible assets consist primarily of goodwill related to
the excess cost over net assets of purchased companies. Goodwill is generally
amortized on a straight-line basis over seven to fifteen years. We regularly
assess the recoverability of unamortized goodwill and other long-lived assets by
comparing the probable future cash flows with the net book value of the
underlying assets. Losses so identified are then measured as the difference
between the net book value of the asset and the discounted present value of the
cash flows and are recorded as identified.

EMPLOYEE RECEIVABLES - We had outstanding employee receivables included in other
current and noncurrent assets of $2,173,000 and $2,440,000 at June 30, 2000 and
June 30, 1999, respectively, related primarily to employee relocations.

FOREIGN CURRENCY TRANSLATION - Gains and losses on foreign currency transactions
are recognized currently in the consolidated statements of operations. Assets
and liabilities of our subsidiaries outside the United States are translated
into the reporting currency, the U.S. dollar, based on exchange rates at the
balance sheet date. Revenue and expenses of our subsidiaries outside the United
States are translated into U.S. dollars at the average exchange rates during the
year. Gains and losses on translation of our equity interests in our
subsidiaries outside the United States are not included in the consolidated
statements of operations but are reported separately and accumulated as the
cumulative translation gain or loss within permanent shareholders' equity in the
consolidated balance sheets. Foreign currency translation gains or losses on
intercompany receivables and payables are not recognized because such amounts
are considered to be permanent and are not expected to be liquidated.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of our cash and cash
equivalents, short-term investments, receivables from clients and notes and
accounts payable and accrued liabilities approximates fair value because of the
short maturity and ready liquidity of those instruments. We had no borrowings
outstanding under our revolving credit agreement at June 30, 2000 and June 30,
1999. We know of no event of default that would require us to satisfy the
guarantees described in Notes 9 and 16 other than as reflected in the
Consolidated Financial Statements.

CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of certain cash
and cash equivalents, short-term investments and receivables from clients. We
invest our excess cash with high quality financial institutions. Concentrations
of credit risk with respect to receivables from clients are limited due to our
large number of customers and their dispersion across many industries and
geographic regions.

STOCK-BASED COMPENSATION - We have elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, for the stock
option plan adopted in fiscal year 2000. See Note 17. Compensation expense,
if any, would be recorded and measured as the difference between the fair market
value of the stock at the date of the grant and the option price. The
compensation expense would be recognized over the five-year vesting period
identified in the plan. For any cash based, non-stock awards, such as stock
appreciation rights, compensation expense will be recognized over the vesting
period to the extent that the market price of the stock increases. We have
elected the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. Management expects
any compensation expense recognized under the stock option plan to be immaterial
to our financial statements.


                                      F-7
<PAGE>

EARNINGS PER SHARE - The computation of earnings per share is based upon the
weighted average number of shares of redeemable common stock outstanding. The
number of shares (in thousands) used in the computation is 15,000 in fiscal year
2000, 15,215 in fiscal year 1999, and 17,170 in fiscal year 1998.

COMPREHENSIVE INCOME - In fiscal year 1999, we adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income."
Comprehensive income includes net income and changes in the cumulative foreign
currency translation gain or loss. For the years ended June 30, 2000, 1999 and
1998, comprehensive income (loss) totaled $17,146,000, $21,167,000 and
$(129,870,000), respectively.

NOTE 2 - CASH FLOW INFORMATION

Net cash from operating activities in the consolidated statements of cash flows
includes cash payments for:

<TABLE>
<CAPTION>

                                                                                 YEAR ENDED JUNE 30
                                                                    -------------------------------------------

                                                                       2000            1999              1998
                                                                       ----            ----              ----
<S>                                                                 <C>            <C>                <C>
Interest expense                                                    $     1,879    $     1,889        $   2,639
Income taxes                                                        $    21,707    $     5,462        $  18,679

</TABLE>

NOTE 3 - INVESTMENTS IN AFFILIATES

Entities accounted for under the equity method are:

<TABLE>
<CAPTION>

                                                                                              June 30
                                                                    Ownership       ---------------------------
                                                                    Interest            2000            1999
                                                                    --------            ----            ----
<S>                                                                    <C>          <C>             <C>
Watson Wyatt Partners                                                  10.0%        $   11,113      $   9,265
Watson Wyatt Holdings (Europe) Limited                                 25.0%             5,502          6,041
                                                                                    ----------      ---------

Total Investment in Affiliates                                                      $   16,615      $  15,306
                                                                                    ==========      =========

</TABLE>

On April 1, 1995, we transferred our United Kingdom ("U.K.") operations to
Watson Wyatt Partners, formerly R. Watson & Sons ("Watsons"), an actuarial
partnership based in the U.K., and received a beneficial interest in Watsons and
a 10% interest in a defined profit pool of Watsons. We also transferred our
Continental European operations to a newly-formed holding company, Watson Wyatt
Holdings (Europe) Limited ("WWHE"), jointly owned and controlled by us and
Watsons, in exchange for 50.1% of its shares. The Company's historical basis in
the assets and liabilities carried over. Effective July 1, 1998, we sold one
half of our investment in WWHE to Watsons; no gain or loss was recognized on the
transaction.

Our interest in Watsons is an investment in a general partnership. We retain the
ability to exercise significant influence over WWHE. As a result, both
investments are accounted for under the equity method.

At June 30, 2000, our investments in WWHE and Watsons exceeded our share of the
underlying net assets by $2,047,000 due primarily to the capitalization of
external transaction costs incurred by us. This basis differential is being
amortized over periods of 10 to 15 years.


                                      F-8
<PAGE>

The Company's pre-tax income from affiliates includes the following:

<TABLE>
<CAPTION>

                                                                         Year Ended June 30
                                                                ------------------------------------
                                                                   2000        1999           1998
<S>                                                             <C>          <C>            <C>
Equity in income from affiliates                                $  3,326     $  2,760       $    724
Amortization of basis differential                                  (210)        (236)          (466)
                                                                --------     --------       --------

Income from affiliates                                          $  3,116     $  2,524       $    258
                                                                ========     ========       ========

</TABLE>

Combined summarized balance sheet information at June 30 for the Company's
affiliates follows:

<TABLE>
<CAPTION>

                                                                  2000          1999
                                                                  ----          ----
<S>                                                             <C>          <C>
Current assets                                                  $ 155,980    $ 117,717
Noncurrent assets                                                  17,920       17,286
                                                                ---------    ---------

       Total assets                                             $ 173,900    $ 135,003
                                                                =========    =========

Current liabilities                                             $  64,640    $  65,171
Noncurrent liabilities                                             52,283       30,810
Shareholders' equity                                               56,977       39,022
                                                                ---------    ---------

       Total liabilities & shareholders' equity                 $ 173,900    $ 135,003
                                                                =========    =========

</TABLE>

Our operating results include our proportionate share of income from equity
investments from the dates of investment. Combined summarized operating results
for the years ended June 30, reported by the affiliates follow:

<TABLE>
<CAPTION>

                                                                    2000          1999           1998
                                                                    ----          ----           ----
<S>                                                             <C>           <C>            <C>
Revenue                                                         $   224,507   $   206,463    $   173,012
Operating expenses                                                  166,265       155,330        135,577
                                                                -----------   -----------    -----------

Income before tax                                               $    58,242   $    51,133    $    37,435
                                                                ===========   ===========    ===========

Net income                                                      $    58,312   $    51,116    $    38,176
                                                                ===========   ===========    ===========

</TABLE>



                                      F-9
<PAGE>

NOTE 4 - FIXED ASSETS

Furniture, fixtures, equipment and leasehold improvements are recorded at cost,
and presented net of accumulated depreciation or amortization. Furniture,
fixtures and equipment are depreciated using straight-line and accelerated
methods over lives ranging from three to seven years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the assets' lives or
lease terms.

The components of fixed assets are:

<TABLE>
<CAPTION>

                                                                                     June 30
                                                                      -------------------------------
                                                                           2000                1999
                                                                           ----                ----
<S>                                                                   <C>               <C>
Furniture, fixtures and equipment                                     $       98,578    $      96,096
Leasehold improvements                                                        29,870           27,069
                                                                      --------------    -------------
                                                                             128,448          123,165
Less: accumulated depreciation
     and amortization                                                        (83,211)         (80,368)

     Net fixed assets                                                 $       45,237    $      42,797
                                                                      ==============    =============

</TABLE>

NOTE 5 - PENSION AND SAVINGS PLANS

In fiscal year 1999, we adopted the revised disclosure requirements of SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
SFAS 132 standardized the disclosure of pensions and other postretirement
benefits but did not change the accounting for these benefits. Prior years'
information has been reclassified to conform to the 1999 disclosure format.

The noncurrent portions of accrued costs related to our principal retirement
plans are:

<TABLE>
<CAPTION>

                                                                                   June 30
                                                                      --------------------------------
                                                                           2000               1999
                                                                           ----               ----
<S>                                                                   <C>               <C>
Defined benefit retirement plans                                      $      27,905     $       28,149
Canadian Separation Allowance Plan                                            6,116              5,953
Postretirement benefits other than pensions                                  45,441             43,038
                                                                      -------------     --------------

Accrued retirement benefits                                           $      79,462     $       77,140
                                                                      =============     ==============

</TABLE>

DEFINED BENEFIT PLANS

We sponsor both qualified and non-qualified non-contributory defined benefit
pension plans covering substantially all of our associates. Under our principal
plans (U.S., Canada, and Hong Kong), benefits are based on the number of years
of service and the associate's compensation during the three highest paid
consecutive years of service.

Contributions are limited to amounts that are currently deductible for tax
purposes, and the excess of expense over such contributions and direct payments
under non-qualified plan provisions is accrued.



                                      F-10
<PAGE>

Net periodic pension cost consists of the following components:

<TABLE>
<CAPTION>

                                                    Year Ended June 30
                                           -------------------------------------

                                             2000          1999          1998
                                             ----          ----          ----
<S>                                        <C>           <C>           <C>
Service cost                               $ 23,968      $ 22,976      $ 18,340
Interest cost                                26,163        23,909        22,302
Expected return on plan assets              (40,138)      (37,437)      (31,910)
Amortization of transition obligation           201           201           201
Amortization of net unrecognized gains       (6,188)       (5,979)       (6,316)
Amortization of prior service cost            2,012         1,841         1,794
                                           --------      --------      --------

Net periodic pension cost                  $  6,018      $  5,511      $  4,411
                                           ========      ========      ========

</TABLE>

During fiscal year 1999, we acquired a portion of KPMG's actuarial consulting
services. In connection with this transaction, we recognized additional pension
expense of $665,000.

The following tables set forth the changes in the projected pension benefit
obligation and fair value of the pension plan assets:

<TABLE>
<CAPTION>

                                                           June 30
                                                  ------------------------
                                                     2000           1999
<S>                                               <C>            <C>
Benefit obligation at beginning of year           $ 377,407      $ 353,658
Service cost                                         23,968         22,976
Interest cost                                        26,163         23,909
Actuarial gains                                     (13,959)        (8,503)
Benefit payments                                    (21,352)       (14,539)
Plan amendments                                       1,948             --
Foreign currency adjustment                            (151)           (94)
                                                  ---------      ---------
Benefit obligation at end of year                 $ 394,024      $ 377,407
                                                  =========      =========

</TABLE>


<TABLE>
<CAPTION>

                                                            June 30
                                                   ------------------------
                                                      2000          1999
                                                      ----          ----
<S>                                                <C>            <C>
Fair value of plan assets at beginning of year     $ 411,102      $ 381,398
Actual return on plan assets                          58,077         36,473
Divestitures                                            (254)            --
Company contributions                                 12,786          7,889
Benefit payments                                     (21,352)       (14,539)
Foreign currency adjustment                             (205)          (119)
                                                   ---------      ---------
Fair value of plan assets at end of year           $ 460,154      $ 411,102
                                                   =========      =========

</TABLE>

Pension plan assets consist of domestic equity, international equity and fixed
income securities.


                                      F-11
<PAGE>

The following table sets forth selected information for plans with accumulated
benefit obligations in excess of plan assets:

<TABLE>
<CAPTION>

                                                     June 30
                                           ----------------------------
                                                  2000       1999
                                                  ----       ----
<S>                                         <C>            <C>
Projected benefit obligation                $    86,620    $    86,703
Accumulated benefit obligation                   46,892         42,740
Fair value of plan assets                            --             --

</TABLE>

The accrued pension benefit cost recognized in the Company's consolidated
balance sheets is computed as follows:

<TABLE>
<CAPTION>

                                                     June 30
                                           -------------------------
                                              2000           1999
                                              ----           ----
<S>                                        <C>            <C>
Funded status at end of year               $  66,384      $  33,695
Unrecognized prior service cost                9,187          9,255
Unrecognized net gain                       (101,248)       (75,579)
Unrecognized transition obligation               592            793
                                           ---------      ---------
Net accrued pension liability              $ (25,085)     $ (31,836)
                                           =========      =========

Prepaid pension benefit cost               $  38,918      $  26,691
Accrued pension benefit liability            (64,003)       (58,527)
Intangible assets                                 --             --
Accumulated other comprehensive income            --             --
                                           ---------      ---------
Net accrued pension liability              $ (25,085)     $ (31,836)
                                           =========      =========

</TABLE>

Assumptions used in the valuation for the U.S. plan, which comprises the
majority of the principal defined benefit pension plans, include:

<TABLE>
<CAPTION>

                                                                    June 30
                                                      -------------------------------------
                                                        2000           1999          1998
                                                        ----           ----          ----
<S>                                                   <C>            <C>           <C>
Discount rate, projected benefit obligation             7.25%          7.00%         6.75%
Discount rate, net periodic pension cost                7.00%          6.75%         7.50%
Expected long-term rate of return on assets            10.00%         10.00%        10.00%
Rate of increase in compensation levels                 5.34%          5.34%         5.80%

</TABLE>

DEFINED CONTRIBUTION PLANS

We sponsor a savings plan which provides benefits to substantially all U.S.
associates and under which we match employee contributions at 50% of the first
6% of total pay, which includes base salary, overtime and annual
performance-based bonuses. Vesting of the Company match occurs after three years
for new employees and is 100% for all employees hired before January 1, 1997.
The expense in fiscal years 2000, 1999 and 1998 for the match was $5.6 million,
$4.5 million and $5.1 million, respectively. Under the plan, we also have the
ability to make discretionary profit-sharing contributions. We made no



                                      F-12
<PAGE>

profit sharing contributions during fiscal years 2000, 1999 or 1998. We also
sponsor a Canadian Separation Allowance Plan (CSAP) which provides benefits to
substantially all Canadian associates. The CSAP is an unfunded book reserve
arrangement; as such, the amounts due to associates are recorded as a liability
in the consolidated balance sheets of the Company. CSAP expense for fiscal years
2000, 1999 and 1998 amounted to $372,000, $377,000 and $293,000, respectively.

NOTE 6 - BENEFITS OTHER THAN PENSIONS

HEALTH CARE BENEFITS

We sponsor a contributory health care plan that provides hospitalization,
medical and dental benefits to substantially all U.S. associates. We accrue a
liability for estimated incurred but unreported claims based on projected use of
the plan as well as paid claims of prior periods. The liability totaled
$2,483,000 at June 30, 2000 and $2,495,000 at June 30, 1999, and is included in
accounts payable and accrued liabilities in the consolidated balance sheets.

POSTRETIREMENT BENEFITS

We provide certain health care and life insurance benefits for retired
associates. The principal plans cover associates in the U.S. and Canada who have
met certain eligibility requirements. Our principal plans are unfunded.

Net periodic postretirement benefit cost consists of the following components:

<TABLE>
<CAPTION>

                                                      Year Ended June 30
                                             ---------------------------------
                                               2000         1999         1998
                                               ----         ----         ----
<S>                                          <C>          <C>          <C>
Service cost                                 $ 1,877      $ 1,898      $ 1,848
Interest cost                                  2,216        2,178        2,133
Amortization of transition obligation             46           46           46
Amortization of net unrecognized gains          (683)        (488)        (584)
Amortization of prior service cost              (127)        (127)        (127)
                                             -------      -------      -------

Net periodic postretirement benefit cost     $ 3,329      $ 3,507      $ 3,316
                                             =======      =======      =======

</TABLE>



                                      F-13
<PAGE>


The following tables set forth the changes in the accumulated postretirement
benefit obligation, Company contributions and benefit payments. Actuarial gains
primarily relate to a 0.25% increase in the discount rate used in the valuation
of the U.S. plan.

<TABLE>
<CAPTION>

                                                           June 30
                                                   ----------------------
                                                     2000         1999
                                                     ----         ----
<S>                                                <C>          <C>
Benefit obligation at beginning of year            $ 34,981     $ 32,326
Service cost                                          1,877        1,898
Interest cost                                         2,216        2,178
Participant contributions                               267          175
Actuarial gains                                      (3,102)        (563)
Acquisitions                                             --          245
Benefit payments                                     (1,413)      (1,267)
Foreign currency adjustment                             (16)         (11)
                                                   --------     --------
Benefit obligation at end of year                  $ 34,810     $ 34,981
                                                   ========     ========

</TABLE>

<TABLE>
<CAPTION>

                                                          June 30
                                                   --------------------
                                                     2000         1999
                                                     ----         ----
<S>                                                <C>          <C>
Fair value of plan assets at beginning of          $    --      $    --
Company contributions                                1,146        1,092
Participant contributions                              267          175
Benefit payments                                    (1,413)      (1,267)
                                                   -------      -------
Fair value of plan assets at end of year           $    --      $    --
                                                   =======      =======

</TABLE>

The accrued other postretirement benefit cost recognized in the Company's
consolidated balance sheets is computed as follows:

<TABLE>
<CAPTION>

                                                            June 30
                                                   ----------------------
                                                     2000         1999
                                                     -----        ----
<S>                                                <C>          <C>
Funded status at end of year                       $(34,810)    $(34,981)
Unrecognized prior service cost                      (1,198)      (1,325)
Unrecognized net gain                               (11,163)      (8,763)
Unrecognized transition obligation                      604          650
                                                   --------     --------
Net accrued postretirement liability               $(46,567)    $(44,419)
                                                   ========     ========

Prepaid postretirement benefit cost                    $ --         $ --
Accrued postretirement benefit liability            (46,567)     (44,419)
Intangible assets                                        --           --
Accumulated other comprehensive income                   --           --
                                                   --------     --------
Net accrued postretirement liability               $(46,567)    $(44,419)
                                                   ========     ========

</TABLE>



                                      F-14
<PAGE>

Assumptions used in the valuation for the U.S. plan, which comprises the
majority of the principal postretirement plans, include:

<TABLE>
<CAPTION>

                                                                                       June 30
                                                                            ------------------------------
                                                                             2000        1999        1998
                                                                             ----        ----        ----
<S>                                                                         <C>         <C>         <C>
Health care cost trend, accumulated benefit obligation:
Pre-65 benefits
       (decreasing to 5.00% for 2005 and thereafter)                         8.00%       7.70%       8.40%
Post-65 benefits
       (decreasing to 5.00% for 2008 and thereafter)                         9.00%       7.10%       7.70%
Discount rate, accumulated benefit obligation
postretirement benefit                                                       7.25%       7.00%       6.75%
Discount rate, net periodic cost                                             7.00%       6.75%       7.50%

</TABLE>

A one percentage point change in the assumed health care cost trend rates would
have the following effect:

<TABLE>
<CAPTION>

                                                    1% Increase      1% Decrease
                                                    -----------      -----------
<S>                                                 <C>              <C>
Effect on net periodic postretirement benefit
   cost in fiscal year 2000                         $      266       $     (76)
Effect on accumulated postretirement benefit
   obligation as of June 30, 2000                        1,651          (1,714)

</TABLE>

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of:

<TABLE>
<CAPTION>

                                                                             June 30
                                                                 -----------------------------
                                                                     2000              1999
                                                                     ----              ----
<S>                                                              <C>                <C>
Accounts payable and accrued liabilities                         $   58,653         $   53,834
Accrued salaries and bonuses                                         83,357             68,405
Current portion of defined benefit retirement plans
    and postretirement benefits other than pensions                   2,491              9,948
Accrued vacation                                                     14,840             13,578
Advance billings                                                      8,492              6,854
                                                                 ----------         ----------
Total accounts payable and accrued liabilities                   $  167,833         $  152,619
                                                                 ===========        ==========

</TABLE>

NOTE 8 - LEASES

We lease office space, furniture and selected computer equipment under operating
lease agreements with terms generally ranging from one to ten years. We have
entered into sublease agreements for some of our excess leased space. The rental
expense was $44,563,000, $43,631,000 and $43,133,000 for fiscal years 2000, 1999
and 1998, respectively. Sublease income was $3,534,000, $4,208,000 and
$3,905,000 for fiscal years 2000, 1999 and 1998, respectively.



                                      F-15
<PAGE>

Future cash outlays for operating lease commitments and cash inflows for
sublease income are:

<TABLE>
<CAPTION>

                                                Lease                Sublease
                                             Commitments              Income
                                             -----------              ------
<S>             <C>                        <C>                     <C>
                      2001                 $       46,633          $      4,537
                      2002                         39,908                 3,866
                      2003                         28,113                   116
                      2004                         21,593                    --
                      2005                         16,512                    --
                Thereafter                         36,310                    --
                                           --------------          ------------
                                           $      189,069          $      8,519
                                           ==============          ============

</TABLE>

As a result of relocations and the subleasing of excess office space, we
recognized lease termination losses of $0, $341,000 and $790,000 in fiscal years
2000, 1999 and 1998, respectively.


NOTE 9 - NOTE PAYABLE

We have a $120,000,000 credit facility with a group of banks at an interest rate
that varies with LIBOR and/or the Prime Rate, plus an annual commitment fee that
varies with our financial leverage and is paid on the unused portion of the
credit facility. No amounts were outstanding under the revolving portion of the
credit facility as of June 30, 2000 or 1999. The credit facility requires us to
observe certain covenants (including requirements as to minimum net worth and
other financial and restrictive covenants) and is secured by a blanket lien on
all assets. At June 30, 2000 we were in compliance with all covenants under the
credit facility. The revolving portion of the credit facility is scheduled to
mature on June 30, 2003.

Of the total credit line, $95,000,000 is available to us as revolving credit for
operating needs, $2,225,000 of which is unavailable as a result of support
required for letters of credit issued under the credit line. The remaining
$25,000,000 is available to secure loans to associates for the purchase of
redeemable common stock made available under our Stock Purchase Program. We
guarantee these loans to our shareholders, the aggregate outstanding balances of
which totaled $14,385,000 and $20,316,000 at June 30, 2000 and 1999,
respectively. Shares totaling 3,273,000 and 4,735,000 of the Company's
redeemable common stock were pledged by shareholders to secure these loans at
June 30, 2000 and 1999, respectively.

NOTE 10 - REDEEMABLE COMMON STOCK

Substantially all of our redeemable common stock is held by or for the benefit
of our employees and, pursuant to our bylaws, is subject to certain
restrictions. In connection with these restrictions, we have the following
rights and obligations regarding purchases and sales of our common stock:

    a)    The Company has the first option to purchase, or to designate
          associates who are eligible to purchase, any shares offered for sale
          by a shareholder. Shares not purchased by the Company or its designees
          may be sold to identified transferees, subject to the restrictions
          contained in the bylaws.

    b)    Upon the termination of employment, bankruptcy of a shareholder, or
          the imposition of a lien or attachment on any stock, the shares held
          by the shareholder or subject to attachment are considered to be
          offered for sale. In these circumstances, the Company is obligated to
          purchase any such shares.




                                      F-16
<PAGE>

Pursuant to our bylaws, the price for all sales by the Company of redeemable
common stock is the formula book value per share (defined in the bylaws as
"Formula Book Value") of such stock as of the last day of the preceding year.
Amounts paid by the Company to repurchase redeemable common stock are equal to
the formula book value as of the prior year end, adjusted to reflect the pro
rata appreciation in the formula book value per share from the last day of the
preceding year to the end of the current year and pro rata dividends paid during
the year.

Formula book value as used herein means the net book value of our redeemable
common stock as of June 30, 1996, increased or decreased by net income or
losses, and all other Generally Accepted Accounting Principles ("GAAP") basis
increases or decreases to net book value occurring after June 30, 1996, adjusted
to (i) spread the economic impact of certain real estate sublease losses over
the remaining life of the sublease, (ii) eliminate annual changes in the
currency translation adjustment occurring after June 30, 1996, and (iii)
eliminate the after tax increases or decreases in net book value recorded in
accordance with GAAP as a result of the discontinuation of the benefits
administration outsourcing business. The formula book value was $7.80 at June
30, 2000 and $6.68 at June 30, 1999.

The following schedule computes the formula book value per share at June 30:

<TABLE>
<CAPTION>
                                                                2000         1999
                                                                ----         ----
<S>                                                         <C>           <C>
Consolidated net worth (1)                                   $ 46,200     $ 36,882
Adjustment for the compensation survey items:
       50% of consolidated income received
       from compensation survey business                        5,915        5,915

Add:  Adjustment for after-tax effect of discontinuation
         of benefits administration outsourcing business       61,228       61,228

Add:  Adjustment for after-tax effect of lease losses           2,137        3,606
                                                             --------     --------

Formula book value of redeemable common stock                $115,480     $107,631
                                                             ========     ========

Number of shares of redeemable common stock outstanding        14,805       16,112
                                                               ======       ======

Formula book value per share of redeemable common stock      $   7.80     $   6.68
                                                             ========     ========

</TABLE>

     (1)  After adjusting for currency translation as specified in the Company's
          bylaws of $4,989 in 2000 and $3,602 in 1999 and redemption value of
          redeemable common stock of $115,480 at June 30, 2000, and $107,631 at
          June 30, 1999.


                                      F-17
<PAGE>


In view of our obligation to repurchase our redeemable common stock, the
Securities and Exchange Commission requires that the redemption value of
outstanding shares be classified as redeemable common stock and not be portrayed
as permanent capital. The amount presented as redeemable common stock outside
the permanent shareholders' equity section is stated as the amount at which we
would be required to repurchase shares at the most recent fiscal year end
formula book value per share. In the permanent shareholders' equity section, the
"adjustment for redemption value less (greater) than amounts paid/deemed paid in
by shareholders" represents the amount that the redeemable value is less than
(exceeds) the cost of the stock.

<TABLE>
<CAPTION>
                                                 Number of          Redeemable
                                                  Shares           Common Stock
                                                  ------           ------------
<S>                                           <C>               <C>
Balance at June 30, 1997                        18,130,430        $    96,091

Redemption of shares                            (2,410,425)           (13,141)

Issuance of shares                                 196,752              1,005

Adjustment of redemption value for
  change in formula book value per share              --               12,341

Balance at June 30, 1998                        15,916,757        $    96,296

Redemption of shares                            (2,361,542)           (15,124)

Issuance of shares                               2,557,201             15,451

Adjustment of redemption value for
  change in formula book value per share              --               11,008

Balance at June 30, 1999                        16,112,416        $   107,631

Redemption of shares                            (1,326,971)            (9,347)

Issuance of shares                                  19,700                132

Adjustment of redemption value for
  change in formula book value per share              --               17,064

Balance at June 30, 2000                        14,805,145        $   115,480

</TABLE>

We sponsor a Stock Purchase Plan ("SPP") which allows virtually all associates
to become shareholders. There was no formal stock sale under the SPP in fiscal
year 2000, although during this period we received $132,000 from four private
placements of an aggregate of 19,700 shares of stock under Section 4(2) of the
Securities Act. During the fiscal year ended June 30, 1999, we received
$15,451,000 from the sale of 2,557,201 shares of stock under the SPP.


                                      F-18
<PAGE>


NOTE 11 - INCOME TAXES

The provision for income taxes is based upon reported income before income
taxes. Deferred income tax assets and liabilities reflect the effect of
temporary differences between the assets and liabilities recognized for
financial reporting purposes and the amounts recognized for income tax purposes.
The Company recognizes deferred tax assets if it is more likely than not that a
benefit will be realized.

The components of the continuing operations income tax provision before minority
interest and discontinued operations include:

<TABLE>
<CAPTION>
                                                     Year Ended June 30
                                                     ------------------
                                           2000             1999             1998
                                           ----             ----             ----
<S>                                   <C>               <C>              <C>
Current tax expense:
        U.S                             $  5,276         $ 10,817         $  9,972
        State and local                      438            4,050            3,324
        Foreign                            6,630            3,877            1,820
                                           -----            -----            -----
                                          12,344           18,744           15,116
                                          ------           ------           ------

Deferred tax (benefit) expense:
        U.S                                1,601           (5,776)            (337)
        State and local                    3,231           (1,407)          (1,706)
        Foreign                           (1,981)            (113)              61
                                          ------             ----               --
                                           2,851           (7,296)          (1,982)
                                           -----           ------           ------
Total provision for income taxes        $ 15,195         $ 11,448         $ 13,134
                                        ========         ========         ========

</TABLE>

Current foreign tax expense attributable to income from continuing operations
was net of approximately $180,000, representing the tax benefit of a net
operating loss carryover for the year ended June 30, 2000. There was no such
benefit in the years ended June 30, 1999 and 1998.

Deferred income tax assets (liabilities) included in the consolidated balance
sheets at June 30, 2000 and June 30, 1999 are comprised of the following:

<TABLE>
<CAPTION>
                                                              June 30
                                                              -------
                                                       2000              1999
                                                       ----              ----
<S>                                                <C>              <C>
Foreign temporary differences                       $   (722)        $ (2,595)
                                                    --------         --------
     Gross deferred tax liabilities                     (722)          (2,595)
                                                        ----           ------
Cash method of accounting for U.S. income
     tax purposes                                      2,475            3,744
Difference between book and tax depreciation           4,573            3,202
Accrued retirement benefits                           33,817           37,137
Amortization of deferred rent                          3,804            5,697
Foreign temporary differences                          5,125            6,367
Foreign net operating loss carryforwards               1,617            1,989
Discontinued operations exit costs                     6,562            7,230
Tax credit carryforwards                               1,042             --
Other                                                    241              317
                                                         ---              ---

     Gross deferred tax assets                        59,256           65,683
                                                      ------           ------
     Deferred tax assets valuation allowance          (5,179)          (6,882)
                                                      ------           ------
     Net deferred tax asset                         $ 53,355         $ 56,206
                                                    ========         ========

</TABLE>


                                      F-19
<PAGE>


At June 30, 2000 we had foreign tax credit carryforwards for U.S. tax purposes
of $393,000, which expire in 2002 through 2005. At June 30, 2000, we had unused
loss carryforwards for tax purposes in various jurisdictions outside the U.S.
amounting to $5,749,000, of which $4,171,000 can be indefinitely carried forward
under local statutes. The remaining foreign loss carryforwards will expire, if
unused, in varying amounts from 2001 through 2008. The valuation allowance
applies to the tax effect of the foreign net operating loss carryforwards
$(1,617,000), the tax effect of certain foreign temporary expenses $(3,169,000)
and foreign tax credit carryovers $(393,000) for which realizability is
considered uncertain.

The net change in the valuation allowance of $1,703,000 in fiscal year 2000 and
$611,000 in fiscal year 1999 is due primarily to the tax effect of the change in
realizable foreign net
operating losses, foreign tax credits and non-deductible foreign expenses.

Domestic and foreign components of income (loss) before taxes, minority interest
and discontinued operations for each of the three years ended June 30 are as
follows:

<TABLE>
<CAPTION>
                           2000             1999              1998
                           ----             ----              ----
<S>                       <C>            <C>              <C>
          Domestic        $ 22,581        $ 15,203         $(47,435)
          Foreign           11,262           8,597            4,469
                          --------        --------         --------

                          $ 33,843        $ 23,800         $(42,966)
                          ========        ========         ========

</TABLE>

The reported income tax provision for continuing operations differs from the
amounts that would have resulted had the reported income before income taxes
been taxed at the U.S. federal statutory rate. The principal reasons for the
differences between the actual amounts provided and those which would have
resulted from the application of the U.S. federal statutory tax rate are as
follows:

<TABLE>
<CAPTION>
                                                                          Year Ended June 30
                                                                          ------------------
                                                              2000               1999              1998
                                                              ----               ----              ----
<S>                                                         <C>               <C>             <C>
Tax provision (benefit) at U.S. federal statutory
        tax rate of 35%                                      $ 11,845         $  8,330         $(15,038)
Increase (reduction) resulting from:
        Non-deductible compensation expense                      --               --             24,467
        Foreign income subject to higher (lower)
             foreign tax rates                                    432             (377)            (324)
        Tax benefit of foreign losses reserved, net               275              881              852
        State income taxes, net of federal tax effect           2,384            1,207            1,618
        Non-deductible amortization and other
              expenses                                          1,323              849              758
        Tax credits                                            (1,282)            --               (353)
        Other                                                     218              558            1,154
                                                                  ---              ---            -----

Income tax provision                                         $ 15,195         $ 11,448         $ 13,134
                                                             ========         ========         ========

</TABLE>


                                      F-20
<PAGE>


NOTE 12 - NON-RECURRING COMPENSATION CHARGE

In accordance with generally accepted accounting principles, we recorded a
charge against operating results of $69,906,000 in fiscal year 1998 as
compensation expense. This charge arises because we changed the method of
calculation of our formula book value during fiscal year 1998, through a
shareholder vote, to eliminate from the formula book value calculation the
effect of the charge taken for discontinued operations resulting from the
discontinuation of our benefits administration outsourcing business.

The non-recurring compensation charge does not represent a call against Company
resources and will not recur unless we modify our formula book value calculation
again. We have separately disclosed in the Statement of Operations the amount of
the charge so that readers of the financial statements may consider its effect
on earnings and its infrequent nature.

NOTE 13 - SEGMENT INFORMATION

We are primarily organized geographically and have seven reportable segments:

          (1) U.S. East
          (2) U.S. Central
          (3) U.S. West
          (4) Asia/Pacific
          (5) Canada
          (6) Latin America
          (7) Data Services

We evaluated the performance of the segments and allocated resources to them
based on net operating income. Prior year data has been restated to be
consistent with current year classifications for comparative purposes.


                                      F-21
<PAGE>


The table below presents specified information about reported segments as of and
for the year ended June 30, 2000 (in thousands):

<TABLE>
<CAPTION>
                       U.S.          U.S.        U.S.        Asia/                      Latin         Data
                       East        Central       West       Pacific       Canada       America       Services    Total
                       ----        -------       ----       -------       ------       -------       --------    -----
<S>                  <C>          <C>         <C>          <C>          <C>          <C>          <C>           <C>
Revenue (net of
   reimbursable
   expenses)         $214,223     $176,135     $ 79,127     $ 59,747     $ 43,975     $  8,082     $ 12,337     $593,626

Net operating
   income              56,806       34,517        9,058       10,187        3,739          460        4,318      119,085
Interest expense        1,307        1,027          205         --            229          152         --          2,920
Depreciation &
   amortization         6,123        4,796        3,483        1,444        1,389          214          148       17,597
Receivables            48,287       44,668       14,811       15,259       11,723        2,979         --        137,727
Income from
   affiliates            --           --           --           --           --           --           --          3,116

</TABLE>

The table below presents specified information about reported segments as of and
for the year ended June 30, 1999 (in thousands):

<TABLE>
<CAPTION>
                        U.S.        U.S.          U.S.        Asia/                     Latin         Data
                        East       Central        West       Pacific      Canada       America      Services      Total
                        ----       -------        ----       -------      ------       -------      --------      -----
<S>                  <C>         <C>          <C>           <C>          <C>          <C>         <C>          <C>
Revenue (net of
   reimbursable
   expenses)         $188,697     $154,937     $ 73,453     $ 48,688     $ 41,525     $  7,115     $ 12,593     $527,008
Net operating
   income              45,522       27,351        1,382        6,258        2,772          141        4,241       87,667
Interest expense        1,158          856          471           17          300           98         --          2,900
Depreciation &
   amortization         5,950        4,414        3,351        1,281        1,186          143          177       16,502
Receivables            47,198       39,905       18,730       12,729       12,491        2,527         --        133,580
Income from
   affiliates            --           --           --           --           --           --           --          2,524

</TABLE>

The table below presents specified information about reported segments as of and
for the year ended June 30, 1998 (in thousands):

<TABLE>
<CAPTION>
                       U.S.          U.S.         U.S.        Asia/                     Latin         Data
                       East        Central        West       Pacific      Canada       America      Services      Total
                       ----        -------        ----       -------      ------       -------      --------      -----
<S>                <C>           <C>          <C>          <C>          <C>          <C>          <C>         <C>
Revenue (net of
   reimbursable
   expenses)         $157,524     $140,935     $ 82,286     $ 42,374     $ 40,664     $  7,215     $ 13,253     $484,251

Net operating
   income              28,286       25,127       10,476           65        4,315          574        3,742       72,585
Interest expense          963          710          494           33          314           68           14        2,596
Depreciation &
   amortization         5,801        3,758        2,822        1,458        1,077          149          166       15,231
Receivables            36,044       33,113       21,375       11,719       11,992        2,097         --        116,340

Income from
   affiliates            --           --           --           --           --           --           --            258


</TABLE>

Information about interest income and tax expense is not presented as a segment
expense because it is not considered a responsibility of the segment's operating
management.


                                      F-22
<PAGE>


A reconciliation of the information reported by segment to the consolidated
amounts follows for the years ended June 30:

<TABLE>
<CAPTION>
                                                                           2000          1999          1998
                                                                           ----          ----          ----
<S>                                                                    <C>           <C>           <C>
REVENUE:

Total segment revenue                                                   $ 593,626     $ 527,008     $ 484,251
Reimbursable expenses not included in segment revenue                      30,829        30,426        28,686

Other, net                                                                    128          (574)         (277)
                                                                              ---          ----          ----
Consolidated revenue                                                    $ 624,583     $ 556,860     $ 512,660
                                                                        =========     =========     =========

NET OPERATING INCOME:
Total segment income                                                    $ 119,085     $  87,667     $  72,585
Non-recurring compensation charge                                            --            --         (69,906)
Sublease loss                                                                --            (341)         (790)
Income from affiliates                                                      3,116         2,524           258
Differences in allocation methods for depreciation,
   G&A and pension costs                                                   (3,218)        1,277        (6,208)
Gain on sale of business units                                                583         2,723         3,093
Bonuses and stock incentive bonus plan                                    (81,560)      (67,194)      (37,400)
Other, net                                                                 (4,163)       (2,856)       (4,598)
                                                                           ------        ------        ------
Consolidated pretax income (loss) from continuing operations            $  33,843     $  23,800     $ (42,966)
                                                                        =========     =========     =========

INTEREST EXPENSE:
Total segment expense                                                   $   2,920     $   2,900     $   2,596
Differences in allocation method                                           (1,044)         (254)          172
                                                                           ------          ----           ---
Consolidated interest expense                                           $   1,876     $   2,646     $   2,768
                                                                        =========     =========     =========

DEPRECIATION & AMORTIZATION:
Total segment expense                                                   $  17,597     $  16,502     $  15,231
Capitalized software amortization, not allocated to segments                 --            --          12,267
Goodwill amortization, not allocated to segments                            1,852         1,568           549
Differences in allocation method and other                                 (1,571)       (2,822)       (3,053)
                                                                           ------        ------        ------
Consolidated depreciation and amortization expense                      $  17,878     $  15,248     $  24,994
                                                                        =========     =========     =========

RECEIVABLES:
Total segment receivables - billed and unbilled                         $ 137,727     $ 133,580     $ 116,340
Net valuation differences and receivables of discontinued operations        5,011         2,286        13,056
                                                                            -----         -----        ------
Total billed and unbilled receivables                                     142,738       135,866       129,396
Assets not reported by segment                                            187,222       178,094       138,914
                                                                          -------       -------       -------
Consolidated assets                                                     $ 329,960     $ 313,960     $ 268,310
                                                                        =========     =========     =========

</TABLE>


                                      F-23
<PAGE>


The following represents total revenue and long lived assets information by
geographic area as of and for the years ended June 30:

<TABLE>
<CAPTION>
                                        Revenue                               Long Lived Assets
                                        -------                               -----------------
                      2000          1999         1998                    2000          1999          1998
                      ----          ----         ----                    ----          ----          ----
<S>               <C>           <C>           <C>                    <C>           <C>           <C>
United States      $512,826      $464,521      $424,246               $ 50,772      $ 53,618      $ 48,108
Foreign             111,757        92,339        88,414                 29,980        21,451        19,882
                   $624,583      $556,860      $512,660               $ 80,752      $ 75,069      $ 67,990
                   ========      ========      ========               ========      ========      ========

</TABLE>

Revenue is based on the country of domicile for the legal entity that originated
the revenue. Exclusive of the United States, revenue from no single country
constituted more than 10% of consolidated revenue. Revenue from no single
customer constituted more than 4% of consolidated revenue.

NOTE 14 - DISCONTINUED OPERATIONS

During fiscal year 1998, we discontinued our benefits administration outsourcing
business, including our investment in our affiliate, Wellspring Resources LLC
("Wellspring"), pursuant to a Redemption, Restructuring, and Indemnity Agreement
("the Restructuring Agreement") by which Wellspring redeemed our 50% interest in
Wellspring effective April 1, 1998. The restructuring effected, pursuant to the
Restructuring Agreement, the implementation of a discontinuation plan approved
by our Board of Directors on February 18, 1998. Under the Restructuring
Agreement, certain outsourcing contracts retained by us when Wellspring was
initially formed in 1996 ("Retained Clients") continued to be performed until
their respective contract expirations.

In connection with the restructuring, we agreed to indemnify Wellspring for
certain costs and losses as a result of services provided by Wellspring on our
behalf. Further, we were released from certain liabilities relating to the
Wellspring business in connection with the redemption.

In 1998, we recorded a pre-tax loss on discontinuation of $109,800,000, which
included the $45,200,000 write-off of our investment in Wellspring, a
$14,000,000 write-off of net capitalized software development costs for the
retained clients and a $50,600,000 provision for completion of any obligations
to clients, vendors or our former venture partner.

In October 1998, we consummated agreements with the remaining retained clients,
Wellspring, and our former venture partner to transfer operating responsibility
for these clients to Wellspring, clarifying the remaining future obligations and
costs related to the discontinuation. Management believes that savings of
$25,000,000 compared with initial estimates made in the third quarter of fiscal
1998 and $15,000,000 from the amount provided at June 30, 1998 will be realized
from these events. We reduced the amount of our provision for losses from
disposal of the benefits administration outsourcing business in the second
quarter of fiscal year 1999. A credit to income of $15,000,000, less the
associated tax expense of $6,322,000, is reflected in the Consolidated Statement
of Operations for fiscal year 1999 in the line "Adjustment (loss) on disposal of
discontinued outsourcing business."


                                      F-24
<PAGE>


NOTE 15 - RELATED PARTY TRANSACTIONS

In connection with the contractual servicing of the retained clients (as defined
in Note 16 of this report) which continued through September 1998, Wellspring
provided the services to those clients on our behalf. Expenses charged to us by
Wellspring for such services for fiscal 1999 and 1998 were $11,600,000 and
$41,811,000, respectively. Our obligation to service the retained clients ceased
during fiscal year 1999 and there were no amounts due to Wellspring at either
June 30, 2000 or 1999.

NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES

We are a defendant in certain lawsuits arising in the normal course of
business, some of which are in their earliest stages. There are no such
matters that management believes will have a material impact on our financial
statements.

As of June 30, 2000 and 1999, we and our affiliates had outstanding letters of
credit of $2,225,000.

We continue to guarantee certain leases for office premises and equipment for
Wellspring. Minimum remaining payments guaranteed under these leases at June 30,
2000 total $49,300,000, which expire at various dates through 2007. These leases
are also jointly and severally guaranteed by our former partner in Wellspring,
State Street Bank and Trust Company. The estimated loss from the potential
exercise of these guarantees has been included in the loss on disposal of the
benefits administration outsourcing business.

NOTE 17 - COMPANY REORGANIZATION AND LONG TERM INCENTIVE PLAN

On June 26, 2000, at a special meeting of the shareholders of Watson Wyatt &
Company, the shareholders approved the following two proposals.

The first proposal was to adopt an Agreement and Plan of Merger among Watson
Wyatt & Company, Watson Wyatt & Company Holdings and WW Merger Subsidiary,
Inc. Under the merger agreement, among other things, the merger subsidiary
will merge into Watson Wyatt & Company, and each share of Watson Wyatt &
Company's currently outstanding common stock will be converted into one share
of class B-1 and one share of class B-2 common stock of Watson Wyatt &
Company Holdings, contingent on the consummation of the public offering of
class A common stock of Watson Wyatt & Company Holdings.

The second proposal was to adopt the 2000 Long Term Incentive Plan. The Plan
provides for grants of stock options and stock appreciation rights to be made
by Watson Wyatt & Company Holdings to eligible employees of Watson Wyatt &
Company Holdings and its subsidiaries, including Watson Wyatt & Company. This
proposal is contingent on the approval of the merger, the consummation of the
merger and the completion of the public offering. The Plan provides for the
grant of options to employees and directors to purchase up to 4,500,000
shares of class A common stock at fair value at the date of grant. The
options will expire seven years after the date of grant, subject to early
termination in specific circumstances, and will vest on a pro-rata basis over
five years.


                                      F-25
<PAGE>


Because the Plan provides for stock options with an exercise price that is
equal to fair market value of the common stock at the date of grant and
because there are no uncertainties that would require variable accounting, no
compensation expense will result. In a few foreign jurisdictions where option
grants are impractical, we will issue stock appreciation rights, which will
result in the recognition of compensation expense over a vesting period to
the extent that the market price of the stock increases. Management believes
that any compensation expense resulting from the issuance of stock
appreciation rights will be immaterial.

At June 30, 2000, no options had been granted.

                                      F-26

<PAGE>


                             WATSON WYATT & COMPANY
                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                             (Thousands of Dollars)

<TABLE>
<CAPTION>

                                                      Additions      Additions Charged                              Balance at
                                 Balance at            Charged             to                                         End of
      Description             Beginning of Year    Against Revenue    Other Accounts          Deductions               Year
      -----------             -----------------    ---------------    --------------          ----------               ----
                                                         Year Ended June 30, 2000
                                                         ------------------------
<S>                              <C>                <C>                 <C>                    <C>                 <C>
     Allowance for
   doubtful accounts               $ 3,701            $ 6,458            $  --                  $(7,327)            $ 2,832

  Valuation allowance
for deferred tax assets              6,882               --               (1,703)(1)               --                 5,179

</TABLE>

<TABLE>
<CAPTION>
                                                         Year Ended June 30, 1999
                                                         ------------------------
<S>                              <C>                <C>                 <C>                    <C>                 <C>
     Allowance for
   doubtful accounts               $ 2,142            $ 9,503            $  --                 $(7,944)            $ 3,701

  Valuation allowance
for deferred tax assets              6,271               --                  611(2)               --                 6,882

</TABLE>

<TABLE>
<CAPTION>
                                                         Year Ended June 30, 1998
                                                         ------------------------
<S>                              <C>                <C>                 <C>                    <C>                 <C>
     Allowance for
   doubtful accounts               $ 2,525            $ 5,613            $  --                 $(5,996)            $ 2,142

  Valuation allowance
for deferred tax assets              3,702               --                2,569(2)               --                 6,271

</TABLE>

(1)  The net decrease in the valuation allowance is primarily due to the tax
     effect of the change in realizable foreign net operating losses, foreign
     tax credits, and other foreign temporary differences.

(2)  Represents current year net operating loss carryforwards and the
     nondeductible foreign expenses for which realizability is considered
     uncertain.

                                      F-27