UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-Q

(Mark One)

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

      FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

                                      OR

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

      FOR THE TRANSITION PERIOD FROM _____ TO _____

                       COMMISSION FILE NUMBER: 0-20724

                            WATSON WYATT & COMPANY
            (Exact name of registrant as specified in its charter)

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

                           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)



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 the number of shares outstanding of each of the issuer's classes of
common stock, as of February 10, 1997.

COMMON STOCK, $1.00 PAR VALUE                              17,056,899
-----------------------------                              ----------------
          Class                                            Number of Shares

<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

                                             Quarters Ended December 31,     Six Months Ended December 31,
                                             ---------------------------     -----------------------------
                                                1997             1996           1997               1996
                                             ----------       ----------     ----------         ----------
                                                     (Unaudited)                       (Unaudited)
<S>                                          <C>              <C>            <C>               <C>  
Fees                                         $  135,588       $  125,014     $  269,063         $  252,511

Costs of providing services:
   Salaries and employee benefits                65,460           56,966        129,667            119,630
   Occupancy and communications                  15,588           21,466         30,807             40,463
   Professional and subcontracted services       25,385           22,773         45,108             43,166
   Other                                          7,624            6,381         14,624             12,044
                                             ----------       ----------     ----------          ---------
                                                114,057          107,586        220,206            215,303

General and administrative expenses              13,330           10,621         23,708             20,533
Depreciation and amortization                     7,000            5,865         13,514             11,226
                                             ----------       ----------     ----------          ---------
                                                134,387          124,072        257,428            247,062

Income from operations                            1,201              942         11,635              5,449

Other:
   Interest income                                  237              174            486                457
   Interest expense                              (1,017)            (492)        (1,426)              (767)
   
Loss from affiliates                               (344)          (1,812)          (782)            (3,117)
                                             ----------       ----------     ----------          ---------


Income before income taxes and minority interest     77           (1,188)         9,913              2,022
 
Provision for (benefit from) income taxes:
   Current                                        1,091             (412)         5,606              1,092
   Deferred                                        (134)               -              -                  -
                                             ----------       ----------     ----------          ---------
                                                    957             (412)         5,606              1,092
                                             ----------       ----------     ----------          ---------


Income before minority interest                    (880)            (776)         4,307                930

Minority interest in net income
of consolidated subsidiaries                         (97)             (43)          (141)               (84)
                                             ----------       ----------     ----------          ---------

Net income                                   $     (977)      $     (819)    $    4,166          $     846
                                             ==========       ==========     ==========          =========


Earnings per share                           $    (0.06)      $    (0.05)    $     0.23          $    0.05
                                             ==========       ==========     ==========          =========

</TABLE>








                             See accompanying notes
                                       -2-
<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                           CONSOLIDATED BALANCE SHEETS
                           (THOUSANDS OF U.S. DOLLARS)

                                                              December 31,        June 30,
                                                                 1997               1997
                                                               ----------        ----------
                                                                       (Unaudited)
                                       Assets
<S>                                                            <C>              <C>    
Cash and cash equivalents                                      $    8,308        $   26,257
Receivables from clients:

    Billed, net of allowances of $4,748 and $2,525                 80,964            67,393
    Unbilled                                                       57,328            56,368
                                                               ----------        ----------
                                                                  138,292           123,761

Other current assets                                                9,961             7,287
                                                               ----------        ----------
    Total current assets                                          156,561           157,305

Investment in affiliates                                           59,063            52,516
Fixed assets                                                       36,433            37,045
Deferred income taxes                                              39,025            39,025
Deferred software and development costs                            30,101            32,869
Other intangible assets                                             2,683             2,661
Other assets                                                        8,970            10,357
                                                               ----------        ----------

                                                               $  332,836        $  331,778
                                                               ==========        ==========

      Liabilities, Redeemable Common Stock, and Permanent Shareholders' Equity

Accounts payable and accrued liabilities                       $   91,393        $  103,415
Note payable and book overdrafts                                   17,597               408
Income taxes payable                                                5,110             3,563
Deferred income taxes                                              28,612            28,612
                                                               ----------        ----------
    Total current liabilities                                     142,712           135,998

Accrued retirement benefits                                        88,576            86,697
Deferred rent and accrued lease losses                             12,894            14,938
Other noncurrent liabilities                                        6,870             9,908

Minority interest in subsidiaries                                     423               351

Redeemable Common Stock - $1 par value:
    25,000,000 shares authorized;
    17,528,479 and 18,130,429 issued
    and outstanding; at redemption value                           92,901            96,091

Permanent shareholders' equity:
Adjustment for redemption value 
greater than amounts paid in by shareholders                      (36,248)          (37,674)
Retained earnings                                                  26,988            24,633
Cumulative translation gain (loss)                                 (2,280)              836
Commitments and contingencies
                                                               ----------        ----------

                                                               $  332,836        $  331,778
                                                               ==========        ==========

</TABLE>




                               See accompanying notes
                                        -3-
<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (THOUSANDS OF U.S. DOLLARS)


                                                                        Six Months Ended December 31,
                                                                        -----------------------------
                                                                           1997               1996
                                                                        ----------         ----------
                                                                                 (Unaudited)
<S>                                                                    <C>                 <C>
Cash flows from operating activities:
    Net income                                                          $    4,166         $      846
    Adjustments to reconcile net income to net cash
    provided by operating activities:
        Provision for doubtful receivables from clients                      5,872              5,712
        Depreciation                                                         7,107              6,563
        Amortization of deferred software and development costs
            and other intangible assets                                      5,031              4,662
        Loss from affiliates                                                   782              3,117
        Minority interest in net income of consolidated subsidiaries           141                 84
        Other                                                                 (201)               (26)
        (Increase) decrease in assets:
            Receivables from clients                                       (20,403)           (12,493)
            Income taxes receivable                                           (145)                 -
            Other current assets                                            (2,529)            (2,723)
            Other assets                                                     1,088             (1,559)
        Increase (decrease) in liabilities:
            Accounts payable and accrued liabilities                       (12,022)            (7,966)
            Income taxes payable                                             1,547            (10,845)
            Accrued retirement benefits                                      1,879              4,429
            Deferred rent                                                   (2,044)             8,058
            Other noncurrent liabilities                                    (3,688)             2,107
                                                                        ----------         ----------
        Net cash used by operating activities                              (13,419)               (34)
                                                                        ----------         ----------

Cash flows from investing activities:
    Purchases of fixed assets                                               (5,791)            (6,782)
    Investment in software and development costs                            (1,912)            (5,272)
    Investment in affiliates                                                (7,325)            (6,500)
                                                                        ----------         ----------
        Net cash used in investing activities                              (15,028)           (18,554)
                                                                        ----------         ----------

Cash flows from financing activities:
    Net borrowings and bank overdrafts                                      17,189             13,100
    Issuances of Redeemable Common Stock                                       525                260
    Repurchases of Redeemable Common Stock                                  (4,100)            (8,111)
                                                                        ----------         ----------
        Net cash provided by financing activities                           13,614              5,249
                                                                        ----------         ----------

Cumulative translation gain (loss)                                          (3,116)               203
                                                                        ----------         ----------

Decrease in cash and cash equivalents                                      (17,949)           (13,136)

Cash and cash equivalents at beginning of period                            26,257             21,694
                                                                        ----------         ----------

Cash and cash equivalents at end of period                              $    8,308         $    8,558
                                                                        ==========         ==========

</TABLE>






                                  See accompanying notes
                                           -4-
<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
      CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY
                           (THOUSANDS OF U.S. DOLLARS)

                                                                                     Excess of Redemption
                                                                      Cumulative      Value Over Amounts
                                                     Retained         Translation         Paid in by
                                                     Earnings            Gain            Shareholders
                                                   -------------    -------------       -------------
<S>                                               <C>               <C>                 <C>
Balance at June 30, 1997                           $      24,633    $         836       $     (37,674)

Net income                                                 4,166                -                   -
Effect of repurchases of 708,203 shares of
     common stock (various prices per share)              (1,811)               -               1,811
Foreign currency translation adjustment                        -           (3,116)                  -
Adjustment of redemption value for change
     in formula book value per share                           -                -                (385)
                                                   -------------    -------------       -------------

Balance at December 31, 1997 (unaudited)           $      26,988    $      (2,280)      $     (36,248)
                                                   =============    =============       =============

</TABLE>




                             See accompanying notes
                                       -5-
<PAGE>


                            WATSON WYATT & COMPANY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)

1.  The accompanying  unaudited  consolidated  financial  statements of Watson
   Wyatt & Company  and its  subsidiaries,  (collectively,  "Watson  Wyatt" or
   "the Company"),  are presented in accordance with the rules and regulations
   of the  Securities  and Exchange  Commission  and do not include all of the
   disclosures    normally   required   by   generally   accepted   accounting
   principles.  In the opinion of  management,  these  statements  reflect all
   adjustments,  consisting only of normal  recurring  adjustments,  which are
   necessary for a fair presentation of the consolidated  financial statements
   for the interim periods.  The consolidated  financial  statements should be
   read in conjunction with the audited consolidated  financial statements and
   notes thereto  contained in the Company's Form 10-K for the year ended June
   30, 1997.

       The results of  operations  for the six months ended  December 31, 1997
   are not necessarily  indicative of the results that can be expected for the
   entire  fiscal year ending June 30, 1998.  Certain  prior year amounts have
   been reclassified to conform to the current year presentation.

2.  Under the Company's  bylaws,  the Company is obligated to  repurchase  its
   Redeemable Common Stock.  Accordingly,  the redemption value of outstanding
   shares is  classified  as  Redeemable  Common  Stock  and not as  permanent
   shareholders'  equity.  Redeemable  Common  Stock is equal to the number of
   shares  outstanding  multiplied by the Formula Book Value per share,  which
   was $5.30 per  share at  December  31,  1997 and June 30,  1997.  Permanent
   shareholders'  equity includes an adjustment for the difference between the
   redemption  value of the Redeemable  Common Stock and the amounts  actually
   paid by shareholders for the shares.

3.  During the six months ended  December 31,  1997,  the Company  repurchased
   708,203 shares of common stock at various  prices per share  depending upon
   the date of  redemption.  The  computation  of earnings  per share is based
   upon the  weighted  average  number of shares of common  stock  outstanding
   during  the  period.  The  number  of  shares  used in the  computation  is
   17,679,000  and 17,000,000 for the three months ended December 31, 1997 and
   1996, respectively,  and 17,831,000 and 17,341,000 for the six months ended
   December 31, 1997 and 1996,  respectively.  The Company has no  convertible
   debt or stock options outstanding that would dilute earnings per share.

4.  The annual sale of common stock to eligible  purchasers (as defined in the
   Company's  bylaws),  which in recent  years has been  announced in December
   and  completed in March,  was deferred  until current  important  issues of
   business strategy and financial investments are resolved.

5.  Summarized   operating  results  reported  by  the  Company's   affiliate,
   Wellspring  Resources,  LLC ("Wellspring"),  for the quarter ended December
   31, 1997,  are an after tax loss of $0.9 million  reflecting  $15.5 million
   in  revenue  and  expenses  of  $16.4  million.  For the six  months  ended
   December  31, 1997,  Wellspring  reported an after tax loss of $1.4 million
   with revenue of $28.7  million and expenses of $30.1  million.  The Company
   contributed  $9.8  million  for the six month  period to fund  Wellspring's
   cash  operating  needs.  For the six-month  period ended December 31, 1996,
   the Company  invested $4.0 million in  Wellspring.  Wellspring's  operating
   losses and additional  cash  requirements  are expected to continue for the
   foreseeable  future.  The Company and the  co-owner  of  Wellspring,  State
   Street Bank and Trust ("State  Street"),  are continuing to fund

                                      -6-
<PAGE>
   Wellspring  cash  requirements  while exploring  alternative  strategies to
   address the  unexpectedly  high levels of investment in Wellspring  and the
   future  operating losses  projected by Wellspring.

   The Company guarantees certain leases for office premises and equipment for
   Wellspring.  Minimum  rentals  under  these  leases,  which are  guaranteed
   jointly  and  severally  by the  Company  and State  Street,  the owners of
   Wellspring,  are $4.3  million  for the  remainder  of fiscal year 1998 and
   aggregate  $73.5  million for the  remaining  lease terms,  which expire at
   various dates from the present  through 2007. In addition,  the Company and
   State Street guarantee  Wellspring's  obligation to a customer in the event
   of termination  without cause.  The amount of this guarantee by the Company
   at December 31, 1997 was $5.0 million,and declines monthly through the year
   2002.

6. During fiscal year 1997, the Company recorded sublease and lease termination
   losses of $12.1 million,  of which $10.3 million related to the relocation
   of the corporate office space.  The corporate office  relocation to a less
   expensive  suburban  location results in a reduction of occupancy expense
   in future years.


ITEM 2.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

GENERAL

Watson  Wyatt  &  Company,  together  with  its  affiliates  and  consolidated
subsidiaries,  (collectively, "Watson Wyatt" or "the Company"), provides human
resource and employee  benefits  consulting  and  administrative/recordkeeping
services.  The  Company  also  provides  a broad  range  of  services  in risk
management and general insurance and investment  consulting,  and derives fees
from sales of surveys  and  licensing  of  software.  The  Company  works with
organizations  of  all  sizes,  from  the  largest  multinationals  to  public
employers and nonprofit institutions.

Founded  in  1946,  Watson  Wyatt  is  owned  almost  entirely  by its  active
employees.  The  Company  is  incorporated  in  Delaware,  and  its  principal
executive  offices  are  located at 6707  Democracy  Boulevard,  Bethesda,  MD
20817.  Together  with its  affiliates,  it operates  globally as Watson Wyatt
Worldwide.

Watson  Wyatt's fiscal year ends June 30. The financial  statements  contained
in this quarterly report reflect  consolidated balance sheets as of the end of
the second  quarter of fiscal year 1998  (December 31, 1997) and as of the end
of the prior fiscal year 1997 (June 30, 1997), and consolidated  statements of
operations,  of cash flows and of changes in  permanent  shareholders'  equity
for the three and six months ended December 31, 1997 and 1996.

RESULTS OF  OPERATIONS--SIX  MONTHS ENDED  DECEMBER  31, 1997  COMPARED TO SIX
MONTHS ENDED DECEMBER 31, 1996.

For the first six months of fiscal year 1998 the Company  produced  net income
of $4.2  million,  an increase of $3.3 million from net income of $0.8 million
for the  first six  months  of fiscal  year  1997.  Fiscal  year 1997  results
include a sublease and lease  termination  loss of $4.7 million ($10.3 million
before taxes)  associated  with the  relocation  of the  corporate  offices in
Washington,  D.C. to a less expensive suburban facility and $0.8 million ($1.8
million before taxes) in other lease losses.

Fees for the  first  six  months of fiscal  year  1998  total  $269.1  million
compared to $252.5  million  for the first six months of fiscal year 1997,  an
increase of $16.6  million,  or 7%. The  Company's  North  American  and Latin

                                      -7-
<PAGE>
American  consulting  offices  as well as the  Human  Capital  and  Retirement
practices are experiencing strong revenue growth.

Salaries and employee  benefit  expenses for the second quarter of fiscal year
1998 were $65.5  million,  an increase of $8.5 million,  from $57.0 million in
the second  quarter of fiscal year 1997.  The Company  incurred  salaries  and
employee  benefit expenses of $129.7 million in the first six months of fiscal
year 1998, an increase of $10.0 million,  or 8%, from $119.6 million the prior
fiscal year.  The increase in costs is  attributable  to normal  annual salary
increases  effective  in October and an  increase in the number of  associates
from the same period in fiscal year 1997.

Occupancy and communication  expenses during the second quarter of fiscal year
1998 totaled  $15.6  million,  a decrease of $5.9  million,  or 27%,  from the
second  quarter of the prior  year.  For the first six  months of fiscal  year
1998,  occupancy and communication  expenses totaled $30.8 million, a decrease
of $9.7 million,  or 24%, from the first six months of the prior year.  Fiscal
year 1997 includes the $12.1 million in sublease and lease termination  losses
primarily from the  relocation of the corporate  office to lower cost space in
a  suburban   location.   Excluding   these  lease   losses,   occupancy   and
communications  expenses increased by $2.4 million dollars from last year, due
primarily to facility costs of $1.3 million and other office expenses.

Professional and  subcontracted  services were $25.4 million during the second
quarter of fiscal  year 1998,  an  increase  of $2.6  million  over the second
quarter of the prior  fiscal  year.  For the first six  months of fiscal  year
1998,  professional and subcontracted services were $45.1 million, an increase
of $1.9 million,  or 4%, over $43.2 million for the first six months of fiscal
year 1997.  The increase is primarily  due to costs  charged to the Company by
Wellspring  for  servicing the retained  outsourcing  clients net of decreased
expenses from the  consulting offices.

Other costs of providing  services were $7.6 million for the second quarter of
fiscal year 1998, up $1.2 million,  or 19%, from the second  quarter of fiscal
year  1997.  For the first six  months of fiscal  year  1998,  other  costs of
providing  services  increased by $2.6 million,  or 21%, to $14.6 million from
$12.0 million the prior year. The expense growth  includes a general  increase
in  travel  expense  of  $1.0  million,  office  promotional  expense  of $1.1
million, and increased publications expense.

General and  administrative  ("G&A") expenses for the second quarter of fiscal
year 1998 were  $13.3  million,  a $2.7  million,  or 26%,  increase  from the
second  quarter of fiscal  year 1997.  For the first six months of fiscal year
1998,  G&A expenses  were $23.7  million,  a $3.2 million  increase from $20.5
million  the  prior  fiscal  year.   The  increase  in  expense  is  primarily
attributable  to  strategic  costs  associated  with  our  business   strategy
initiatives and higher corporate advertising and promotional expense.

Depreciation  and  amortization  expense  increased $1.1 million in the second
quarter  of fiscal  year 1998 over the  second  quarter  of fiscal  year 1997.
Similarly,  for the first six  months of fiscal  year 1998,  depreciation  and
amortization  increased  $2.3 million,  or 20%, over the prior year expense of
$11.2 million.  The increased  expense is primarily due to the amortization of
capitalized software and development costs.

Income  before  income  taxes and  minority  interest of $9.9  million for the
first six  months of fiscal  year 1998  resulted  in a tax  provision  of $5.6
million,  or an  effective  tax rate of 57%,  compared  to 54% in fiscal  year
1997.  The higher  effective  tax rate for the six months  ended  December 31,
1997 is due to a change in the mix of foreign and domestic income.

                                      -8-
<PAGE>
Loss from  affiliates  was $0.8 million for the six months ended  December 31,
1997  compared to $3.1  million for the six months  ended  December  31, 1996.
The  majority  of  these   losses   result  from  the   Company's   affiliate,
Wellspring.  The apparent  improvement  for the six months ended  December 31,
1997 over the same period in 1996 is due to the  commencement by Wellspring of
some  client  services  yielding  increased   operating   revenues.   However,
Wellspring does not project  operating profits in the future as they begin the
amortization of software  development costs, and the Company  anticipates that
Wellspring will continue to experience  significant  operating  losses for the
foreseeable  future.  Wellspring is also requiring cash  investments in fiscal
1998 at the same levels as fiscal 1997,  which exceed the Company's  financial
plan.

Wellspring  provides services for certain clients  ("Retained  Clients") under
contract  with the  Company.  The  costs of such  services  also  continue  to
exceed the Company's financial plan and Wellspring's budgeted amounts.

The  Company and State  Street  continue to fund  Wellspring  while  exploring
alternative  strategies to address the unexpectedly  high levels of investment
in Wellspring and the projected future  operating  losses for Wellspring.  The
strategic  alternatives  for  Wellspring  currently  being  considered  by the
Company and State Street  include the  possible  reduction or cessation of the
Company's  involvement with Wellspring.  Such alternatives could result in the
write-off of all or part of the Company's  investment  in  Wellspring  and the
Retained  Clients  and  the  incurrence  of  significant  costs  necessary  to
downsize the outsourcing business.

LIQUIDITY AND CAPITAL RESOURCES.

The  Company  relies   primarily  on  funds  from  operations  and  short-term
borrowings  as its  sources of  liquidity.  The Company  believes  that it has
access  to  ample  financial   resources  to  finance  its  growth,  meet  its
commitments  to  affiliates  as  well  as  support  ongoing  operations.   The
Company's  cash and  cash  equivalents  at  December  31,  1997  totaled  $8.3
million,  compared  to  $26.3  million  at June  30,  1997.  The  Company  had
borrowings  outstanding  under its line of credit of $12.9 million at December
31, 1997 and no borrowings at June 30, 1997.

CASH  FROM  OPERATIONS.  Cash  flows  from  operating  activities  were  $13.4
million  less for the six months  ended  December  31,  1997  compared  to the
previous  year.   Net  income  was  up  $3.3  million,   offset  by  increased
investments  in accounts  receivable  of $7.9  million and payment of accounts
payable of $4.1 million.  Receivable  increases are due to greater  consulting
input in 1997.  Greater  accounts  payable  payments in 1997 resulted from the
increased  bonus payment in 1997.  Income tax payments were greater in October
1996 for fiscal  1995 than in  October  1997 for fiscal  1996.  Deferred  rent
decreased  as sublease  losses  accrued in 1996 were paid in 1997.  Noncurrent
liabilities decreased due to decreased deferred fee income of $5.1 million.

The  Company's  ratio of  current  assets to  current  liabilities  was 1.1 at
December 31, 1997 and 1.2 at June 30, 1997.

CASH FROM  INVESTING  ACTIVITIES.  Investing  activity  cash outflow was $15.0
million for the six months of fiscal year 1998,  versus $18.6  million for the
same period in fiscal year 1997.  The  decrease in investing  activities  cash
outflows was due to increased  investment,  by $0.8 million,  in Wellspring to
fund the development  effort and operating  losses offset by lower  investment
in software and development costs by $3.4 million.

                                      -9-
<PAGE>
Anticipated  commitments  of funds  are  estimated  at $27.7  million  for the
remainder of fiscal year 1998,  including expected purchases of capital assets
and  50% of the  capital  requirements  of  Wellspring.  The  Company  expects
operating  cashflows to provide for the Company's cash needs.  However, if the
Company  proceeds with certain  strategic  alternatives  being considered with
respect to its investment in  Wellspring,  it may be necessary for the Company
to borrow under its revolving line of credit to meet cash needs.

The  Company's  revolving  credit  line  matures on  January  5,  2001.  As of
December 31, 1997,  $35.9 million  dollars of the credit line was available to
the  Company  as  revolving  credit for  operating  needs,  compared  to $37.0
million on December 31, 1996.

CASH FROM  FINANCING  ACTIVITIES.  Cash flow provided by financing  activities
was $13.6  million for the first six months of fiscal  year 1998,  versus $5.2
million in the  preceding  fiscal year.  The increase is due  primarily to the
higher level of borrowing  and bank  overdrafts of $4.1 million in fiscal year
1998 and $4.0 million less in stock repurchases.


PART II.   OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

Watson Wyatt is from time to time a defendant in various  lawsuits which arise
in the ordinary course of business.  These disputes  typically  involve claims
relating to  employment  matters or the  rendering of  professional  services.
The  management  of the  Company  does not  believe  that  any such  currently
pending or threatened  litigation is likely to have a material  adverse effect
on the business or financial condition of Watson Wyatt.

ITEM 2.     CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

Board Election

At the  fifty-first  annual meeting of  shareholders  of the Company,  held on
November 20,  1997,  the  shareholders  elected  sixteen (16)  nominees to the
Board.  Proxies  representing  14,424,198  shares were received  (total shares
outstanding  as of the Record  Date were  17,704,328)  and the  results of the
voting were as follows:

                                      -10-

<PAGE>
NOMINEES TO THE BOARD            FOR               WITHHOLD

Charles A. Clemens               13,811,345          612,854
Paul R. Daoust                   13,076,139        1,348,060
Paula A. DeLisle                 14,199,641          224,558
David B. Friend                  13,701,085          723,114
John J. Gabarro                  13,816,518          607,681
John J. Haley                    14,144,815          279,384
Gary T. Hallenbeck               12,531,961        1,892,238
Ira T. Kay                       14,147,526          276,673
Brian E. Kennedy                 14,236,877          187,322
Robert D. Masding                14,213,589          210,610
R. Michael McCullough            14,132,698          291,501
Gail E. McKee                    13,467,077          957,122
Paul V. Mee                      13,381,099        1,043,100
A.W. Smith, Jr.                  13,378,484        1,045,715
John A. Steinbrunner             14,142,998          281,201
A. Grahame Stott                 14,007,481          416,718


ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.  Exhibits

    None

b.  Reports on Form 8-K

    None

                                      -11-

<PAGE>
SIGNATURES



Pursuant to the  requirements  of the Securities and 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)




/S/ A. W. Smith, Jr.                                      February 10, 1997
--------------------                                      -----------------
Name:      A. W. Smith, Jr.                               Date
Title:     President and Chief
           Executive Officer

/S/ Barbara L. Landes                                     February 10, 1997
---------------------                                     -----------------
Name:      Barbara L. Landes                              Date
Title:     Vice President, Finance and
           Chief Financial Officer




                                      -12-
<PAGE>