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, 1998

                                       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: 33-369545

                             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 January 8, 1999.

Common Stock, $1.00 par value                                  14,079,052
-----------------------------                               ----------------
         Class                                              Number of Shares

<PAGE>
<TABLE>
                                                                                                                      
                                               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, 
                                                        ---------------------------         -----------------------------
                                                           1998             1997               1998            1997
                                                        ---------        ---------          ----------      ----------
                                                                (Unaudited)                         (Unaudited)
<S>                                                     <C>              <C>                <C>             <C>
                                                                                                                      
Fees                                                    $ 140,358        $ 127,717          $ 274,343       $ 253,270
                                                                                                                      
Costs of providing services:
    Salaries and employee benefits                         77,970           65,460            156,468         129,666
    Occupancy and communications                           15,433           15,588             29,954          30,807
    Professional and subcontracted services                13,338           14,896             22,052          26,073
    Other                                                   8,740            7,624             11,586          14,624
                                                        ---------        ---------          ---------       ---------
                                                          115,481          103,568            220,060         201,170
                                                                                                                      
General and administrative expenses                        16,692           13,330             27,852          23,707
Depreciation and amortization                               3,971            4,534              7,824           9,221
                                                        ---------        ---------          ---------       ---------
                                                          136,144          121,432            255,736         234,098
                                                                                                                      
 Income from operations                                     4,214            6,285             18,607          19,172
                                                                                                                      
Other:
    Interest income                                           404              237                528             486
    Interest expense                                       (1,168)          (1,017)            (1,721)         (1,426)
                                                                                                                      
Income (loss) from affiliates                                 865               95              1,025              (4)
                                                        ---------        ---------          ---------       ---------

Income before income taxes and minority interest            4,315            5,600             18,439          18,228
                                                                                                                      
Provision for income taxes:
    Current                                                 2,087            2,672              8,917           8,483
    Deferred                                                    -                -                  -               -  
                                                        ---------        ---------          ---------       --------- 
                                                            2,087            2,672              8,917           8,483
                                                        ---------        ---------          ---------       ---------
                                                                                                                      
Income before minority interest                             2,228            2,928              9,522           9,745
                                                                                                                      
Minority interest in income of consolidated subsidiaries      (85)             (97)               (85)           (141)
                                                        ---------        ---------          ---------       ---------
Income from continuing operations                           2,143            2,831              9,437           9,604
                                                                                                                      
Discontinued operations:
                                                                                                                      
Loss from operations of discontinued Outsourcing
    Business [less applicable income tax benefit
    of $1,715 and $2,877 respectively]                                      (3,808)                            (5,438)
                                                                                                                      
Adjustment to reduce loss on disposal of discontinued
    Outsourcing Business [less applicable income tax
    expense of $6,322 and $6,322 respectively]              8,678                               8,678
                                                        =========        =========       ============    ============
Net income (loss)                                       $  10,821        $    (977)          $ 18,115         $ 4,166
                                                        =========        =========       ============    ============


                                                                                                                      
Earnings per share, continuing operations               $    0.15        $    0.16       $       0.63    $       0.54
                                                        =========        =========       ============    ============
                                                                                                                      
Earnings/(loss) per share, discontinued operations      $    0.59        $   (0.22)      $       0.58    $      (0.31)
                                                        =========        =========       ============    ============
                                                                                                                      
Earnings/(loss) per share, net income                   $    0.74        $   (0.06)      $       1.21    $       0.23
                                                        =========        =========       ============    ============
                                                                                                                     
                                                                                                                      
                                               See accompanying notes
                                                         F-2
</TABLE>
<PAGE>
<TABLE>
                                                                                                                    
                                               WATSON WYATT & COMPANY
                                             CONSOLIDATED BALANCE SHEETS
                                             (THOUSANDS OF U.S. DOLLARS)

                                                                                DECEMBER 31,              JUNE 30,
                                                                                   1998                     1998
                                                                               --------------           --------------
                                                                                (Unaudited)
                                                       ASSETS
<S>                                                                             <C>                     <C>
Cash and cash equivalents                                                       $     11,819            $      13,405
Receivables from clients:

     Billed, net of allowances of $6,000 and $2,142                                   78,500                   69,671
     Unbilled                                                                         63,897                   59,725
                                                                               --------------           --------------
                                                                                     142,397                  129,396

Income taxes receivable                                                                    -                    2,216
Other current assets                                                                   8,845                    6,945
                                                                               --------------           --------------
     Total current assets                                                            163,061                  151,962

Investment in affiliates                                                              16,416                   17,666
Fixed assets                                                                          36,722                   37,368
Deferred income taxes                                                                 48,911                   48,911
Other intangible assets                                                                8,051                    2,412
Other assets                                                                           8,858                    9,991
                                                                               --------------           --------------

                                                                                $    282,019             $    268,310
                                                                               ==============           ==============

                       LIABILITIES, REDEEMABLE COMMON STOCK AND PERMANENT SHAREHOLDERS' EQUITY


Accounts payable and accrued liabilities                                        $     95,811            $     116,548
Note payable and book overdrafts                                                      36,572                   11,666
Income taxes payable                                                                  11,499                        -
                                                                               --------------           --------------
     Total current liabilities                                                       143,882                  128,214

Accrued retirement benefits                                                           84,311                   82,528
Deferred rent and accrued lease losses                                                11,178                   12,676
Other noncurrent liabilities                                                          22,434                   32,784

Minority interest in subsidiaries                                                        530                      322

Redeemable Common Stock - $1 par value:
     25,000,000 shares authorized;
     14,305,484 and 15,916,757 issued
     and outstanding; at redemption value                                             86,548                   96,296

Permanent shareholders' equity:
Adjustment for redemption value less
     than amounts paid in by shareholders                                             22,684                   25,240
Accumulated deficit                                                                  (86,999)                (106,834)
Cumulative translation loss                                                           (2,549)                  (2,916)

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

                                                                                $    282,019             $    268,310
                                                                               ==============           ==============


                                               See accompanying notes
                                                         F-3
</TABLE>
<PAGE>
<TABLE>

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


                                                                                              SIX MONTHS ENDED DECEMBER 31,
                                                                                           -------------------------------------
                                                                                               1998                   1997
                                                                                           --------------        ---------------
                                                                                                        (Unaudited)
<S>                                                                                        <C>                   <C>

Cash flows from operating activities:
     Net income                                                                            $      18,115         $        4,166
     Adjustments to reconcile net income to net cash
       provided by operating activities:

         Net (income) loss from discontinued operations                                           (8,678)                 5,438
         Provision for doubtful receivables from clients                                           6,423                  5,872
         Depreciation                                                                              7,184                  7,107
         Amortization of deferred software and development costs
             and other intangible assets                                                             641                  2,114
         (Income) loss from affiliates                                                            (1,025)                     3
         Minority interest in income of consolidated subsidiaries                                     85                    141
         (Increase) decrease in assets (net of discontinued operations):
             Receivables from clients                                                            (27,822)               (20,387)
             Income taxes receivable                                                               2,216                   (145)
             Other current assets                                                                 (1,900)                (2,529)
             Other assets                                                                          1,133                  1,088
         (Decrease) increase in liabilities (net of discontinued operations):
             Accounts payable and accrued liabilities                                             (4,093)               (13,814)
             Income taxes payable                                                                  5,177                  4,424
             Accrued retirement benefits                                                           1,783                  1,879
             Deferred rent and accrued lease losses                                               (1,498)                (2,044)
             Other noncurrent liabilities                                                            870                 (1,325)
         Other, net                                                                                 (138)                  (201)
         Discontinued operations, net                                                             (4,466)                (5,206)
                                                                                           --------------        ---------------
         Net cash used by operating activities                                                    (5,993)               (13,419)
                                                                                           --------------        ---------------

Cash flows from investing activities:
     Purchases of fixed assets                                                                    (6,297)                (5,791)
     Acquisitions                                                                                 (6,158)                     -
     Investment in software and development costs                                                      -                 (1,912)
     Investment in affiliates                                                                      2,257                  2,425
     Discontinued operations                                                                           -                 (9,750)
                                                                                           --------------        ---------------
         Net cash used in investing activities                                                   (10,198)               (15,028)
                                                                                           --------------        ---------------

Cash flows from financing activities:
     Net borrowings and bank overdrafts                                                           24,906                 17,189
     Issuances of Redeemable Common Stock                                                              -                    525
     Repurchases of Redeemable Common Stock                                                      (10,584)                (4,100)
                                                                                           --------------        ---------------
         Net cash provided by financing activities                                                14,322                 13,614
                                                                                           --------------        ---------------

Effect of exchange rates on cash                                                                     283                 (3,116)
                                                                                           --------------        ---------------

Decrease in cash and cash equivalents                                                             (1,586)               (17,949)

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

Cash and cash equivalents at end of period                                                 $      11,819         $        8,308
                                                                                           ==============        ===============



                                                    See accompanying notes
                                                              F-4
</TABLE>
<PAGE>
<TABLE>

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


                                                                                    ADJUSTMENT FOR
                                                                                   REDEMPTION VALUE
                                                                    CUMULATIVE     LESS THAN AMOUNTS
                                                   ACCUMULATED      TRANSLATION       PAID IN BY
                                                     DEFICIT           LOSS          SHAREHOLDERS
                                                   ----------       ----------       ------------
                                                
<S>                                                <C>              <C>              <C>
Balance at June 30, 1998                           $ (106,834)      $   (2,916)      $   25,240

Comprehensive income:
Net income                                             18,115                -                -
Foreign currency translation adjustment                     -              367                -
                                                   ----------       ----------       ----------
Total comprehensive income                             18,115              367                -
Effect of repurchases of 1,611,273 shares of
     common stock (various prices per share)            1,720                -           (1,720)
Adjustment of redemption value for change
     in Formula Book Value per share                        -                -             (836)
                                                   ----------       ----------       ----------
Balance at December 31, 1998                       $  (86,999)      $   (2,549)      $   22,684
                                                   ==========       ==========       ==========













                                                 See accompanying notes
                                                          F-5

</TABLE>
<PAGE>

                            WATSON WYATT & COMPANY

                NOTES TO THE 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  ("SEC") 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, 1998.

   The results of operations  for the six months ended  December 31,  1998 are
   not  necessarily  indicative  of the results  that can be expected  for the
   entire  fiscal year ending  June 30,  1999.  The  results  reflect  prorata
   growth in share value,  anticipated  tax rates and potential  distributions
   at the discretion of the Company's  Board of Directors.  Certain prior year
   amounts   have  been   reclassified   to  conform  to  the   current   year
   presentation,  including the  Consolidated  Statements of Operations and of
   Cash Flows for  December 31,  1997, which have been restated to reflect the
   Company's discontinued operations.

2.    Under the Company's  Bylaws,  the Company is obligated to repurchase its
   Redeemable  Common  Stock,  except in certain  circumstances.  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 $6.05 per share at  December 31,
   1998  and  June  30,  1998.  Permanent  shareholders'  equity  includes  an
   adjustment  for  the  difference   between  the  redemption  value  of  the
   Redeemable  Common  Stock and the amounts  actually  paid or deemed paid by
   shareholders for the shares.

3.    During the six months ended December 31,  1998, the Company  repurchased
   1,611,273  shares of Redeemable  Common Stock, at various prices per share.
   The  computation  of earnings per share is based upon the weighted  average
   number  of  shares  of  Redeemable  Common  Stock  outstanding  during  the
   period.  The number of shares (in  thousands)  used in the  computation  is
   14,587 and 17,679 for the three  months  ended  December 31, 1998 and 1997,
   respectively,  and 14,977 and 17,831 for the six months ended  December 31,
   1998 and 1997, respectively.

4.    During   fiscal   1998,   the   Company    discontinued   its   Benefits
   Administration   Outsourcing  Business  including  its  investment  in  its
   affiliate Wellspring  Resources,  LLC ("Wellspring").  The Company recorded
   a loss on  discontinuation  net of taxes of $69.9  million,  which included
   the write-off of its investment in  Wellspring,  net  capitalized  software
   development  costs for the Retained  Clients and a provision for completion
   of any obligations to clients,  vendors or its former venture  partner.  In
   October  1998,  the  Company  consummated  agreements  with  the  remaining
   Retained  Clients,  Wellspring,  and its 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 million  compared  with  initial
   estimates  made in the third  quarter of fiscal 1998 and $15  million  from
   the amount  provided at June 30, 1998 will be realized  from these  events.
   The Company  reduced the amount of its  provision  for losses from disposal
   of the  Outsourcing  Business in the second  quarter of fiscal year 1999. A
   credit to income of $15.0 million,  less the associated tax expense of $6.3
   million is reflected in the  Consolidated  Statement of  Operations  in the
   line  "Adjustment  to reduce loss on disposal of  discontinued  Outsourcing
   Business".

                                      -6-
<PAGE>
5.    On  September 30,  1998,  the Company  adopted  SFAS No. 130  "Reporting
   Comprehensive   Income."  Comprehensive  income  includes  net  income  and
   changes in the  cumulative  translation  gain or loss. For the three months
   ended  December 31,   1998,  comprehensive  income  totaled  $11.2  million
   compared  with a  comprehensive  loss of $2.7  million for the three months
   ended  December 31,  1997.  For the six months ended  December 31, 1998 and
   1997,   comprehensive  income  totaled  $18.5  million  and  $1.1  million,
   respectively.


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,  provides employee benefits, human resources and human resources
systems technology  consulting.  The Company and its alliance partner,  Watson
Wyatt  Partners,  a United  Kingdom  partnership,  operate  globally as Watson
Wyatt  Worldwide.  The  Company  works  primarily  with  large  and  mid-sized
organizations.

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,  Suite  800,
Bethesda, MD 20817.

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 1999  (December 31,  1998) and as of the end
of the prior fiscal year 1998 (June 30,  1998), and Consolidated Statements of
Operations,  of Cash Flows and of Changes in  Permanent  Shareholders'  Equity
for the three and six months ended December 31, 1998 and 1997.


RESULTS OF  OPERATIONS - SIX MONTHS ENDED  DECEMBER 31,  1998  COMPARED TO SIX
MONTHS ENDED DECEMBER 31, 1997.

For the first six months of fiscal year 1999 the Company  produced  net income
of $18.1  million,  an  increase  of $13.9  million  from net  income  of $4.2
million  for the  first  six  months of fiscal  year  1998.  Fiscal  year 1998
income  reflects a loss of $5.4  million from the  operation of the  Company's
former  Benefits  Administration  Outsourcing  Business,  while  current  year
results  include the reversal of the  estimated  loss from the disposal of the
Company's  Benefits  Administration  Outsourcing  Business  of  $8.7  million.
Continuing  operations  generated income of $9.4 million for the first half of
the year,  a decrease  of $0.2  million  from the 1998 level of $9.6  million.
Increased  revenues  are largely  offset by  increased  salaries  and employee
benefits.

Fees for the  first  six  months of fiscal  year  1999  total  $274.3  million
compared to $253.3  million  for the first six months of fiscal year 1998,  an
increase of $21.1  million,  or 8%. Second  quarter fees were $140.4  million,
up 10% from  $127.7  million  in  fiscal  1998.  The  revenue  growth  in both
periods  is  attributable  to  improved  performance  in the  Company's  North
American Benefits Consulting Group and Human Resource Technologies,  primarily
from  increased  billable  hours,  as well as an  improvement in the Company's
Asia/Pacific operations.

Salaries and employee  benefit  expenses for the second quarter of fiscal year
1999 were $78.0  million,  an increase of $12.5  million,  or 19%,  from $65.5
million  in the second  quarter of fiscal  year  1998.  The  Company  incurred
salaries  and  employee  benefit  expenses of $156.5  million in the first six
months  of the

                                      -7-
<PAGE>

year,  up  $26.8  million  or 21%  from the  prior  year.  The
increase is  attributable  to increased  compensation  to  associates of $18.7
million, partly the result of a 5% increase in headcount.  Further,  personnel
restructuring   expenses  and  retirement  benefits  expenses  increased  $5.7
million.  The remaining $2.4 million  increase is due to higher related fringe
benefits expenses.

Occupancy and communication  expenses during the second quarter of fiscal year
1999  totaled  $15.4  million,  a decrease  of $0.2  million,  or 1%, from the
second  quarter  of  the  prior  year.  The  Company  incurred  occupancy  and
communications  expenses of $30.0 million in the first six months of the year,
down 3% from the prior year.  The change is related to a general  reduction of
expense due to the relocation of offices to lower cost space.

Professional and  subcontracted  services  decreased by $1.6 million,  or 10%,
from  the  second   quarter  of  fiscal   year  1998.   For  the  six  months,
professional and  subcontracted  services  decreased 15%, or $4.0 million from
last year, reflecting decreased legal and general corporate expenses.

Other costs of providing  services were $8.7 million for the second quarter of
fiscal  year  1999,  an  increase  of $1.1  million,  or 15%,  from the second
quarter  of fiscal  year 1998.  For the first six months of fiscal  year 1999,
other costs of providing services  decreased $3.0 million,  or 21%, from $14.6
million  in fiscal  1998.  The  decrease  is  primarily  the  result of a $3.7
million  gain  from  the sale of  defined  contribution  daily  record-keeping
software to a third party in the first quarter of fiscal year 1999.

General and  administrative  ("G&A") expenses for the second quarter of fiscal
year 1999 were  $16.7  million,  a $3.4  million,  or 25%,  increase  from the
second  quarter of fiscal  year 1998.  For the first six months of fiscal year
1999, G&A increased  $4.1 million,  or 17%, from $23.7 million in fiscal 1998,
reflecting increased advertising  expenditures,  human resource activities and
other support of core consulting areas.

Depreciation and  amortization  expense of $4.0 million for the second quarter
of fiscal  year 1999  represents  a decrease of $0.6  million  from the second
quarter  of fiscal  year 1998.  For the first six months of fiscal  year 1999,
depreciation  and  amortization  decreased  $1.4  million,  or 15%,  from $9.2
million  in fiscal  1998.  The  decrease  is  attributable  to the  absence of
amortization  expense for deferred  software in 1999, as the Company had fully
amortized such balances at June 30, 1998.

Income before income taxes and minority interest for continuing  operations of
$4.3  million in the  second  quarter of fiscal  year 1999  resulted  in a tax
provision  of $2.1  million.  This  compares to a provision of $2.7 million on
$5.6 million of continuing  operations pre-tax income in the second quarter of
fiscal  year 1998.  For the first six  months of fiscal  1999,  income  before
income  taxes  and  minority  interest  from  continuing  operations  of $18.4
million  resulted  in a tax  provision  of $8.9  million.  This  compares to a
provision  of $8.5 million on $18.2  million of pre-tax  income in fiscal year
1998.  The  effective tax rate for the first six months of fiscal year 1999 is
48%  compared to 47% for the same period in fiscal year 1998.  The increase in
the  effective  tax rate is due to changes in income in various  jurisdictions
with differing tax rates, particularly foreign jurisdictions.


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 and support ongoing  operations.  The Company's cash
and cash equivalents at December 31,  1998 totaled $11.8 million,  compared to
$13.4 million at June 30,  1998. The Company had

                                      -8-
<PAGE>
borrowings  outstanding under
its line of credit of $28.0 million at  December 31,  1998 and $9.0 million at
June 30, 1998.

CASH FROM  OPERATIONS.  For the first six  months  of fiscal  year  1999,  the
Company  had cash  outflows  from  operations  of $6.0  million,  compared  to
outflows  from  operations of $13.4 million for the first six months of fiscal
year 1998. The decrease in cash outflows  results mainly from higher  accrued,
but unpaid, compensation in fiscal 1999 compared to the prior year.
 
The  Company's  ratio of  current  assets to  current  liabilities  of 1.13 at
December 31, 1998 was down slightly from the 1.19 figure on June 30, 1998.

CASH FROM INVESTING  ACTIVITIES.  Cash used in investing  activities was $10.2
million for the first six months of fiscal  year 1999,  versus  $15.0  million
for the same  period in fiscal year 1998.  The overall  decrease in cash usage
results from the lack of investment in the  Company's  discontinued  operation
in  1999  compared  with  $9.8  million  in  1998,  net  of the  $6.2  million
acquisition in 1999.

The Company has  commitments  to spend cash of $13.3 million for the remainder
of fiscal year 1999, mostly for capital assets.
 
CASH FROM FINANCING  ACTIVITIES.  Cash flows provided by financing  activities
were $14.3 million for the first six months of fiscal year 1999,  versus $13.6
million  in the  preceding  fiscal  year.  The  increase  is due to the higher
level of borrowings and book overdrafts of $7.7 million,  partially  offset by
$6.5 million more in  repurchases  of  Redeemable  Common Stock in fiscal year
1999 compared to 1998.

The  Company's  revolving  credit  line  matures  on  June 30,   2003.  As  of
December 31,  1998,  $64.8  million of the credit  line was  available  to the
Company as revolving credit for operating needs,  compared to $35.9 million on
December 31, 1997.

YEAR 2000 ISSUE

The Company has  continued  to address the Year 2000 problem as it affects the
Company's business.

Based on the  review  conducted  to date,  management  believes  that the most
significant  risk  facing the  Company  in  connection  with Year 2000  issues
relates to  software  provided  by the  Company for use by or on behalf of its
clients.  This  software has been  provided  principally  by the HR Technology
practice  (including  defined  contribution   recordkeeping  and  call  center
services) and the Retirement practice (principally  spreadsheet-based  benefit
calculators).  The  risks  presented  include  the  possibility  of  errors or
contractual liability caused by non-compliant  software that is not identified
or  corrected,  the  possibility  that  remediation  will not be  accomplished
according to the  timetable  identified  below,  and the costs of replacing or
repairing client systems.

Other risks identified by the Company include:

*     Risks from operations outside the United States
*     Risk of a general economic downturn as a result of the Year 2000 problem
*     Risk arising  from the failure of  infrastructure,  including  power and
      telecommunications services
*     Liabilities  as a  result  of Year  2000  warranties  provided  to third
      parties

The Company's  Year 2000  compliance  plan relies on  geographic  and practice
leaders to assess and oversee  repair or replacement of software used in their
domain.  Management  believes  that  this  plan is  appropriate  for the risks
presented,  but this  conclusion is subject to reassessment as a result of the
Company's on-going

                                      -9-
<PAGE>
compliance  efforts.  Since the Year 2000 problem is likely
to have  unpredictable  effects,  including effects that have not been planned
for,  management  does not  expect  that the  Company's  Year 2000  compliance
program will eliminate all risk to the Company  associated  with the Year 2000
problem.

Management  believes  that the  Year  2000  problem  is not  likely  to have a
material  effect  on  the  Company's  business,   results  of  operations,  or
financial   condition.   Management  believes  its  plan  will  enable  it  to
appropriately  address Year 2000 issues on a timely basis.  In the case of the
Company's internal systems,  management believes that the Company is likely to
meet its  forthcoming  deadlines  for Year 2000  compliance  activity.  In the
case of software  provided to clients,  the Company is somewhat  behind in its
schedule for  compliance  activity.  Management  believes  that a  substantial
effort  will be required to address  Year 2000 issues in client  software.  If
the Company  fails to meet its schedule for  addressing  Year 2000 problems in
client  software,   it  may  incur  additional  costs.  Because  of  the  wide
diversity  of  systems  involved,  the  Company  is unable to  estimate  costs
associated with remediation of client software,  revenue that may be lost as a
result of  non-compensated  activities  related to remediation,  or costs that
may arise from  delays in  remediation.  The Company  will  continue to assess
the  materiality of the Year 2000 problem as part of its on-going  remediation
efforts.

The  Company is  substantially  on  schedule  to repair or  replace  its major
internal  systems,   including  WyVal,  the  Company's   actuarial   valuation
software.  The Company has also completed local office  assessment,  except in
offices  in Asia  and  Latin  America,  where  no  completion  date  has  been
scheduled.  The Company has  completed  an  inventory  of its vendors and will
seek  appropriate  confirmation  of Year 2000  compliance  efforts by material
vendors.  Because  of  the  nature  of  the  Company's  business,   management
believes  that the  Company  does not face  significant  risks  from Year 2000
failures in systems  relied upon by its  vendors.  Nevertheless,  it is likely
that some vendor  systems  will fail  (particularly  those  outside the United
States or Canada) and the Company  cannot  predict the effect of such  failure
upon its operations.  The Company has established some contingency  procedures
to  address   interruptions  in  its  operations  and  will  adopt  additional
contingency  procedures to deal with risks presented  specifically by the Year
2000 situation.  The Company has not reviewed the Year 2000 compliance  status
of its  clients.  It is likely  that the Year 2000 will affect  operations  of
some clients.  Management  is unable to predict the effect of client  problems
on the  Company's  own  operations,  but  believes  these are not likely to be
material  because of the broad,  diversified  nature of the  Company's  client
base.
 
The Company  estimates  that its cost to address Year 2000  compliance  issues
will  exceed  $2  million  for  fiscal  year  1999.  The  Company  has not yet
estimated  compliance  costs for fiscal  year 2000.  These  costs  include the
fees of outside  consultants  and remediation  costs  associated with software
and  hardware  used  internally  by the Company  that exceed  costs  otherwise
budgeted  for  repair and  replacement.  Funds for costs  associated  with the
Company's  Year 2000  compliance  efforts will come from general  revenues for
all  areas of the  Company's  operations.  These  costs  will be  expensed  as
incurred.

The Company has established the following  revised schedule for key activities
relating to Year 2000 compliance:

*     The target date to complete  practice  inventory and assessment is March
      30, 1999.
*     The target date to complete  testing for major internal systems is March
      30, 1999.
*     The target date for all systems to be  compliant,  retired,  or replaced
      is July 1,1999.

It is likely that the Company will revise this  schedule  again as a result of
its  compliance  efforts.   It  is  likely  that  some  remediation   efforts,
particularly  for software  developed for clients,  will be delayed beyond the
target dates identified above.

                                      -10-
<PAGE>
The  following  table  summarizes  the  approximate  percentage of work in the
stages specified which as been completed as of January 31, 1999:

                              ASSESSMENT        REMEDIATION         TESTING
                              ----------        -----------         -------
INTERNAL SYSTEMS
   Major Systems               Completed         Completed            90%
   Other Systems                  80%               50%               30%
SYSTEMS DEVELOPED FOR CLIENTS
   HR Technology                  70%               20%               10%
   Retirement                     10%                *                 *
   Other                          20%                *                 *
   *  Less than 10%

The Company's principal  Retirement valuation software systems are included in
"Internal  Systems - Major  Systems".  In the case of  systems  developed  for
clients,  the  figures  are  subject  to  adjustment  as a result of  on-going
efforts to inventory systems.

The information  concerning the Company's Year 2000 compliance effort includes
"forward-looking  statements"  within the  meaning of the  Private  Securities
Litigation Reform Act of 1995. Such  forward-looking  statements involve known
and unknown  risks,  uncertainties,  and other  factors  that may cause actual
events  or  costs  to  be  materially   different   than   indicated  by  such
forward-looking    statements.    These   factors   include,   among   others,
unanticipated  costs of remediation and replacement,  the Company's  inability
to  meet  its  targeted   dates  as  scheduled  and   extensive   failures  of
governmental  and municipal  infrastructures.  Any  estimates and  projections
described  have been  developed by the management of the Company and are based
on the  Company's  best  judgments  together  with  the  information  that  is
available to date.  Due to the many  uncertainties  surrounding  the Year 2000
problem,  the  shareholders  of the Company are  cautioned  not to place undue
reliance on such forward-looking statements.


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.

                                      -11-
<PAGE>

ITEM 2.     CHANGES IN SECURITIES

On the dates below,  unregistered  shares of the Company's  Redeemable  Common
Stock were sold to  certain  eligible  purchasers  (as that term is defined in
the  Company's  Bylaws) in  transactions  not  involving a public  offering in
reliance  on  Section  4(2)  of the  Securities  Act of  1933.  The  aggregate
offering price was $620,197.94.  The table below summarizes the sales.
                                                                 AGGREGATE
      DATE                 SHARES ISSUED        SHARE PRICE    OFFERING PRICE
----------------------------------------------------------------------------- 
April 1, 1997                   2,075               $ 4.94       $ 10,250.50
June 24, 1997                  25,000               $ 4.94       $123,500.00
June 27, 1997                   1,376               $ 4.94       $  6,797.44
June 24, 1998                  90,500               $ 5.30       $479,650.00
----------------------------------------------------------------------------
TOTAL                         118,951                            $620,197.94
============================================================================

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

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

At the  fifty-second  annual meeting of shareholders  of the Company,  held on
November 19, 1998,  the  shareholders  elected  fourteen  (14) nominees to the
Board.  Proxies  representing  12,620,286  shares were received  (total shares
outstanding  as of the Record  Date were  14,683,417)  and the  results of the
voting were as follows:

        NOMINEES TO THE BOARD     FOR        WITHHOLD
        ----------------------------------------------
        Thomas W. Barratt       11,625,867     994,419
        Paula A. DeLisle        11,966,821     653,465
        David B. Friend          9,937,060   2,683,226
        John J. Haley           11,875,632     744,654
        Ira T. Kay              10,384,413   2,235,873
        Brian E. Kennedy        11,776,935     843,351
        Eric P. Lofgren         11,833,154     787,132
        Robert D. Masding       11,989,818     630,468
        R. Michael McCullough   10,871,064   1,749,222
        Gail E. McKee           10,549,638   2,070,648
        Paul V. Mee              9,905,959   2,714,327
        A. W. Smith, Jr.         9,431,415   3,188,871
        John A. Steinbrunner    12,080,126     540,160
        A. Grahame Stott        12,009,772     610,514

An  amendment  to Section  9.4 of the  Company's  Bylaws to more  specifically
describe permitted liens arising in connection with loan programs  established
by the Board of Directors was also voted upon by the shareholders.

The amendment was approved by the  affirmative  vote of  shareholders  of more
than 80% of the Company's  outstanding stock (as required per Section 9 of the
Bylaws) as follows:

For:          12,490,243
Against:         130,043

                                      -12-
<PAGE>
ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K
 
a.    Exhibits

      3.1   Restated Certificate of Incorporation of Watson Wyatt & Company2
      3.2   Restated Bylaws (as amended through December 23, 1998)4
      4     Form of Certificate Representing Common Stock1
      10    Credit Agreement Among NationsBank, N.A. and Others dated June
            30, 19983

b.    Reports on Form 8-K

      None.



--------
1   Incorporated by reference from Registrant's Initial Statement on Form 10
    (File No. 33-369545), filed on October 13, 1992
2   Incorporated by reference from Registrant's Annual Report on Form 10-K for
    the fiscal year ended June 30, 1996 (file no. 33-369545), filed on
    September 16, 1996
3   Incorporated by reference from Registrant's Annual Report on Form 10-K for
    the fiscal year ended June 30, 1998 (file no. 33-369545), filed on
    September 24, 1998
4   Incorporated by reference from Registrant's Report on Form S-8 
    (file no. 33-369545), filed on December 23, 1998

                                      -13-
<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/ JOHN J. HALEY                                      FEBRUARY 9, 1998
------------------------------                         ----------------
Name:  John J. Haley                                   Date
Title: President and Chief
       Executive Officer


/S/ CARL D. MAUTZ                                      FEBRUARY 9, 1998
------------------------------                         ----------------
Name:  Carl D. Mautz                                   Date
Title: Controller and Acting
       Chief Financial Officer










                                      -14-
<PAGE>