SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  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, 1999
                                                        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)

             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                                         OUTSTANDING AT
     PAR VALUE                                             SEPTEMBER 28, 1999
 (TITLE OF CLASS)                                           15,012,350 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.

The aggregate  market value of the voting and non-voting  common equity held by
non-affiliates of the Registrant is $97,871,018. The aggregate market value was
computed by using the formula book value of the stock (calculated in accordance
with the bylaws) as of September 28, 1999.

                    Documents Incorporated by Reference

The  registrant's  definitive  proxy  statement for its 1999 annual  meeting of
shareholders  (which is to be filed  pursuant to General  Instruction G of Form
10-K not later than October 28, 1999),  is  incorporated by reference into Part
III of this Form 10-K.

<PAGE>

PART I
------

ITEM 1.  BUSINESS.

GENERAL

Watson Wyatt & Company,  including  its  subsidiaries,  (collectively,  "Watson
Wyatt" or the  "Company")  is a global  provider  of human  capital  consulting
services.  The Company  operates on a geographical  basis from 59 offices in 18
countries throughout North America, Asia-Pacific and Latin America. The Company
provides services in three principal practice areas:  employee benefits,  human
resources   technologies   and  human   capital   consulting. The  Company  was
incorporated  in Delaware on February 17,  1958.  Including  predecessors,  the
Company has been in business since 1946. The Company conducted  business as The
Wyatt  Company until  changing its corporate  name to Watson Wyatt & Company in
connection with the  establishment of the Watson Wyatt Worldwide  alliance.  In
1995, the Company 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,  the
Company has  marketed its 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.  The Company's
principal executive offices are located at 6707 Democracy Boulevard, Suite 800,
Bethesda, MD 20817.

GLOBAL OPERATIONS

Watson Wyatt Worldwide employs approximately 5,300 associates in offices in the
United  States,  Canada,  Asia and the South  Pacific,  Europe,  Africa,  Latin
America and the U.S. Caribbean.

Watson Wyatt & Company is primarily organized based on the following geographic
regions:  U.S. East, U.S. Central, U.S. West,  Asia/Pacific,  Canada, and Latin
America. The Company employs approximately 3,850 associates as follows:

         U.S. East                     950
         U.S. Central                  975
         U.S. West                     450
         Asia/Pacific                  625
         Canada                        425
         Latin America                  80
         Data Services                  60
         Corporate/Other               285
                                     -----
                                     3,850
                                     =====

None  of  the  Company's  associates  are  subject  to  collective   bargaining
agreements. The Company believes relations with associates are good.

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

                                      -1-

<PAGE>

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

                       1999          1998          1997
                       ----          ----          ----
     U.S. East          36%           32%           32%
     U.S. Central       29            29            30
     U.S. West          14            17            16
     Asia/Pacific        9             9            10
     Canada              8             8             8
     Latin America       1             2             1
     Data Services       3             3             3
                       ----          ----          ----
     Total             100%          100%          100%
                       ====          ====          ====

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

Watson Wyatt focuses its services in four principal areas:

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 its surveys and its services
include over seventy remuneration, benefits and employment practices references
utilized by global and local companies in fifty countries.

Within  the  past  two  years,  Watson  Wyatt  has  divested  several  non-core
businesses   -   including   benefits   administration   outsourcing,   defined
contribution recordkeeping,  and risk management consulting services - in order
to focus on these core consulting areas.

While the  company  groups  services  into  functional  categories,  management
believes its primary  strength is the ability to deliver its  services  without
boundaries to meet the requirements of its clients.

                                      -2-

<PAGE>

COMPETITION

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

Current and anticipated competitors include:

-    major human resources  consulting  firms,  such  as  William M. Mercer and
     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 HR  consulting  companies  from the
1998 Kennedy Information  Research Group report, June 1999 Consultants News and
December 1999 Business Insurance rankings.

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

AFFILIATES

Watson Wyatt  Worldwide  Alliance:  Recognizing  that a global  organization is
essential  to  service  the  needs  of its  clients,  the  Company  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,  the Company made a strategic decision in 1995 to strengthen its
European  capabilities  significantly  and extend its 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, the Company has marketed its
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 31 countries
and employs over 5,300 employees. Watson Wyatt & Company operates 59 offices in
18 countries in North  America,  Latin America and  Asia-Pacific.  Watson Wyatt
Partners  operates 12 offices in the United  Kingdom,  Ireland,  Africa and the
Caribbean. The alliance operates 14 offices in 9 continental European countries

                                      -3-
<PAGE>

principally  through a jointly owned  holding  company,  Watson Wyatt  Holdings
(Europe)  Limited,  which is 25% owned by the  Company  and 75% owned by Watson
Wyatt Partners.

WELLSPRING:  In 1996,  the  Company  and State  Street  Bank and Trust  Company
("State Street") formed a limited liability company,  Wellspring  Resources LLC
("Wellspring"),  to provide outsourced benefits administration services. During
the third quarter of fiscal year 1998,  the Company  discontinued  its benefits
administration  outsourcing  business,  including its investment in Wellspring,
pursuant  to  a  Restructuring  Agreement  by  which  Wellspring  redeemed  the
Company's 50% interest in  Wellspring  effective  April 1, 1998.  Pursuant to a
discontinuation  plan approved by the Company's  Board of Directors on February
18, 1998, in fiscal year 1998,  the Company  recorded a charge of $69.9 million
net  of  taxes,  for  the   discontinuation  of  its  benefits   administration
outsourcing  business.  In fiscal year 1999, the Company further  clarified its
future  obligations  under the  restructuring  and reduced its  discontinuation
liability  by  $8.7  million  net  of  taxes.  (See  Note  16 of  Notes  to the
Consolidated Financial Statements, included in Item 14 of this report.)


ITEM 2.  PROPERTIES.

Watson Wyatt & Company operates in 59 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.  The  Company  does not
anticipate  difficulty  in meeting  its space needs at lease  expiration  or if
additional  space is  required  earlier.  The  Company  also  evaluates  office
relocation  on an ongoing  basis to meet  changing  needs in its markets  while
minimizing its occupancy expense.

The fixed assets owned by Watson Wyatt  represented  approximately 14% of total
assets at June 30,  1999 and consisted primarily of computer equipment,  office
furniture and leasehold improvements.


ITEM 3.  LEGAL PROCEEDINGS.

Watson Wyatt is from time to time a defendant in various lawsuits that arise in
the ordinary  course of  business.  These  disputes  typically  involve  claims
relating to employment matters or the rendering of professional  services.  The
Company carries appropriate  professional  liability insurance,  and management
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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during the fourth
fiscal quarter.


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, nor is any
likely to develop,  since the  transferability  of all shares of the  Company's
common  stock  is  restricted.  Ownership  of the  Company's  common  stock  is
generally limited to directors,  full-time and certain part-time  associates of

                                      -4-
<PAGE>

the Company, its subsidiaries and affiliates,  and corporations,  partnerships,
associations or other entities  designated by the Board of Directors with which
the Company has a business  affiliation and the employees thereof. In addition,
all  shareholders of the Company,  prior to selling any shares of the Company's
common stock to a third party, must first offer such shares to the Company.  As
of September  28, 1999,  there were 1,954  registered  holders of the Company's
common stock.  Transfers of the Company's common stock are made at formula book
value, as defined in the Company's  bylaws,  and the current formula book value
per share is calculated  pursuant to the Company's bylaws to be $6.68 per share
at June 30,  1999, 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  10% from the formula book value of
$6.05 per share at June 30, 1998.

DIVIDENDS

Under the Company's  credit  facility (see Note 9 of Notes to the  Consolidated
Financial  Statements,  included  in Item 14 of this  report),  the  Company is
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 $20.3
million  was  available  for the  declaration  or  payment of  dividends  as of
June 30,  1999. The  declaration  and payment of dividends by the Company is at
the  discretion  of the  Company's  Board of Directors  and depends on numerous
factors, including,  without limitation, the Company's net earnings,  financial
condition,  availability  of  capital,  debt  covenant  limitations,  and other
business   needs  of  the  Company  and  its   subsidiaries   and   affiliates.
Historically,  while the Company's performance would have permitted the payment
of dividends,  the Company has chosen not to declare dividends every year since
fiscal year 1991.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

The following  table sets forth  selected  consolidated  financial  data of the
Company as of and for each of the years in the five year period  ended June 30,
1999. The selected consolidated financial data as of June 30, 1999 and 1998 and
for each of the years in the three year period  ended June 30, 1999 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, 1997,
1996,  1995,  and for each of the years  ended June 30, 1996 and 1995 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 the  Company's
discontinued operations.

The  consolidated  financial  data  should be read in  conjunction  with Watson
Wyatt's  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.

                                      -5-
<PAGE>
<TABLE>
<CAPTION>


                                                                                     Year Ended June 30,
                                                              --------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:                                    1999          1998         1997          1996        1995
(amounts are in thousands, except per share data)                 ----          ----         ----          ----        ----
<S>                                                           <C>            <C>          <C>           <C>         <C>
Fees                                                          $ 556,860      $ 512,660    $ 486,502     $ 475,298    $ 465,788
Operating expenses:
  Salaries and benefits                                          298,925       268,611      252,302       250,103      250,507
  Stock incentive bonus plan                                      22,600
  Non-recurring compensation charge
    related to formula book value change                               -        69,906            -             -            -
  Occupancy & communications                                      62,915        62,061       72,155        60,566       71,173
  Professional and subcontracted services                         47,863        49,907       48,827        42,450       43,613
  Other                                                           29,753        26,779       23,871        23,637       25,135
                                                              ----------     ---------    ---------     ---------    ---------
                                                                 462,056       477,264      397,155       376,756      390,428
General & administrative expenses                                 56,578        51,759       45,696        38,656       41,313
Depreciation & amortization                                       15,248        24,994       22,094        25,541       21,103
                                                              ----------     ---------    ---------     ---------    ---------
                                                                 533,882       554,017      464,945       440,953      452,844
                                                              ----------     ---------    ---------     ---------    ---------
Income (loss) from operations                                     22,978       (41,357)      21,557        34,345       12,944
Other:
  Net interest income                                                944           901        1,462         1,441        1,343
  Net interest (expense)                                          (2,646)       (2,768)      (1,506)         (930)      (1,507)
  Income (loss) from affiliates                                    2,524           258          105          (820)        (576)
                                                              ----------     ---------    ---------     ---------    ---------
Income (loss) before income taxes and
    minority interest                                             23,800       (42,966)      21,618        34,036       12,204
Income taxes                                                      11,448        13,134        9,070        14,071        6,369
Minority interest                                                   (217)         (112)        (167)         (130)        (127)
Cumulative effect of change in accounting for
  postemployment benefits, net of tax benefit
  of $1,000                                                            -             -            -             -         (800)
                                                              ----------     ---------    ---------     ---------    ---------
Income (loss) from continuing operations                          12,135       (56,212)      12,381        19,835        4,908
Discontinued operations                                            8,678       (69,906)     (11,483)      (10,480)      (4,059)
Net income (loss)                                             $   20,813     $(126,118)    $    898     $   9,355    $     849
                                                              ==========     =========    =========     =========    =========
Earnings (loss) per share, continuing
  operations, basic and fully diluted                          $    0.80     $   (3.27)    $   0.71      $   1.07     $   0.25
Earnings (loss) per share, basic and
  fully diluted                                                $    1.37     $   (7.34)    $   0.05      $   0.51     $   0.05
Weighted average shares outstanding                               15,215        17,170       17,438        18,516       19,248

                                                                                         As of June 30,
                                                               ----------------------------------------------------------------
                                                                  1999          1998          1997          1996          1995
                                                                  ----          ----          ----          ----          ----
BALANCE SHEET DATA:
Cash and cash equivalents                                     $   35,985     $  13,405     $ 26,257      $  21,694    $ 11,860
Net working capital                                               11,692        23,748       21,307         18,788      49,826
Total assets                                                     313,960       268,310      331,778        320,819     286,622
Notes payable and book overdrafts                                    248        11,666          408            ---         ---
Redeemable common stock                                          107,631        96,296       96,091         90,214      86,275
Total stockholders' (deficit)                                    (74,351)      (84,510)     (12,205)        (5,832)     (6,562)
Shares outstanding                                                16,112        15,917       18,130         18,262      19,130

</TABLE>
                                      -6-
<PAGE>

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

OVERVIEW

Watson Wyatt & Company,  including its  subsidiaries,  is a global  provider of
human capital consulting  services.  The Company operates on a geographic basis
from 59 offices in 18 countries  throughout  North  America,  Asia-Pacific  and
Latin America. The Company provides services in three principal practice areas:
employee benefits, human resources technologies and human capital consulting.

Although the Company operates globally as an alliance with its affiliates,  its
revenues and  operating  expenses  reflect  solely the results of operations of
Watson Wyatt & Company.  The Company's  share of the results of its affiliates,
recorded using the equity method of accounting is reflected in the "Income/loss
from  affiliates"  line.  The Company's  principal  affiliates are Watson Wyatt
Partners,  in which it holds a 10% interest in a defined distribution pool, and
Watson Wyatt Holdings  (Europe)  Limited,  a holding  company through which the
Company  conducts  continental  European  operations.  The Company  owns 25% of
Watson  Wyatt  Holdings  (Europe)  Limited and Watson Wyatt  Partners  owns the
remaining 75%.

The Company derives  substantially  all of its 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,
fees  from U.S.  consulting  operations  have  comprised  approximately  80% of
consolidated  revenues.  No  single  client  accounted  for more than 3% of the
Company's consolidated revenues for any of the most recent three fiscal years.

The Company's most  significant  expense is  compensation  to employees,  which
typically comprises over 60% of total costs of providing services.  In addition
to payroll and related  benefits  and taxes,  compensation  to  employees  also
includes  incentive bonus expense,  which is linked to the Company's  operating
performance.  Other significant costs of providing services include office rent
and related costs, communications and professional and subcontracted services.

Historically,  the Company has 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,  the  Company  provided  supplemental  bonus
compensation  to its employee  shareholders  pursuant to a the stock  incentive
bonus plan in an amount representing all income in excess of a targeted amount.

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

REVENUES.  Fee 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 various North  American  regions  totaling  $40.4
million  and  a  further  $5.9  million,  or  13%  increase  in  the  Company's
Asia-Pacific  region.  The individual  regions within North American showed the
following trends: U.S. East, a $34.6 million, or 21% increase;  U.S. Central, a
$15.0  million,  or 10%  increase;  and,  U.S.  West, a $9.7  million,  or 11%,
decline.  The fee  increase in these  regions can be  attributed  to  increased
chargeable  hours,  accounting  for  approximately  $32.6  million,  and to the
realization  of billing  rate  increases,  accounting  for  approximately  $7.8
million.  Within North America the following individual lines of business,  not

                                      -7-
<PAGE>

all inclusive,  showed the following  trends:  Benefits  Group, a $35.1 million
increase,  including $11.5 million of additional revenues from the first fiscal
quarter acquisition of selected units of KPMG's benefits  consulting  business;
HR  Technologies  Group,  a $16.5 million  increase,  despite the sale in early
fiscal year 1999 of the defined contribution  recordkeeping  business which had
generated revenues in fiscal year 1998 of $6.0 million;  Human Capital Group, a
$3.4 million decline in revenues amid a reorganization of the practice; and, no
risk and insurance consulting revenues due to the sale of this practice in late
fiscal  year  1998,  which had  generated  $9.2  million  in  fiscal  year 1998
revenues.

COMPENSATION AND BENEFITS. For fiscal year 1999, salaries and employee benefits
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
annual increases in compensation and benefits. In fiscal year 1999, the Company
accrued,  for the first time, a  supplemental  bonus under its stock  incentive
bonus plan of $22.6 million, which amounts were paid in January 2000.

OCCUPANCY AND  COMMUNICATIONS.  Occupancy and communications  expense increased
$0.9 million or 1% in fiscal year 1999. This low percentage  increase  reflects
the  Company's  adoption of an office space  standard as well as its success in
negotiating advantageous leases of office space.

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.

OTHER.  Other costs of providing services increased $3.0 million in 1999, which
is mainly attributable to increased travel.

GENERAL AND ADMINISTRATIVE. 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.

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 reevaluation 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.

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  the  Company's  affiliated  European
operations as well as improved business operations in the United Kingdom.

PROVISION  (BENEFIT)  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 the Company 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.

                                      -8-
<PAGE>

DISCONTINUED OPERATIONS.  In fiscal year 1999, the Company further resolved its
future   obligations   related   to  the   discontinuation   of  its   benefits
administration  outsourcing  business and reduced the expected loss on disposal
by $8.7 million,  net of taxes. The Company believes it has adequate provisions
for any remaining costs related to the discontinuation.

NET INCOME  (LOSS).  The  Company  generated  net income in fiscal year 1999 of
$20.8  million  compared to a net loss in fiscal  year 1998 of $126.1  million.
Continuing  operations  income  before  income taxes and  minority  interest in
fiscal  year 1999 of $23.8  million  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  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 the Company's Board of Directors.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997

REVENUES.  Fee revenue from  continuing  operations  reached  $512.7 million in
fiscal year 1998, an increase of $26.2  million,  or 5%, from $486.5 million in
fiscal year 1997.  This  increase is primarily  attributable  to an increase in
various North American regions totaling $34.0 million.  The individual  regions
within North America showed the following trends: a $12.0 million,  or 15% rise
in fees generated by the U.S. West consulting  region,  a $12.0 million,  or 8%
increase in the U.S. East region, and a $5.9 million, or 4% rise in fees in the
U.S.  Central  region.  The increases are due primarily to the  realization  of
billing rate increases.  Within North America the following individual lines of
business,  not all inclusive,  showed the following  trends:  Benefits Group, a
$4.3 million increase;  Human Capital Group, a $10.8 million  increase;  and HR
Technologies  Group, a 15.7 million  increase.  These North American  increases
were partially offset by a decline of $5.4 million, or 11%, in the Asia-Pacific
region, largely reflecting regional economic issues.

COMPENSATION AND BENEFITS.  For fiscal year 1998, salaries and employee benefit
expenses were $268.6 million,  an increase of $16.3 million,  or 6% from fiscal
year 1997.  This is due  primarily  to a 2%  increase in  headcount  and annual
salary increases.

NON-RECURRING  COMPENSATION CHARGE. In fiscal year 1998, the Company recorded a
non-cash, non-recurring compensation charge of $69.9 million because it changed
the method of calculating the formula book value of its common stock to exclude
the effect of the  discontinuance  of its benefits  administration  outsourcing
business. There was no such charge in fiscal year 1997.

OCCUPANCY AND COMMUNICATIONS.  Occupancy and communications  expenses decreased
$10.1 million in fiscal year 1998. The Company  relocated its corporate  office
to a lower-cost suburban location in 1997, recognizing sublease losses of $12.1
million.  Excluding these lease losses,  occupancy and communications increased
$2.0 million or 3%, with the largest  growth  occurring  in  telecommunications
expenses.

PROFESSIONAL  AND  SUBCONTRACTED   SERVICES.   Professional  and  subcontracted
services  were $49.9 million for fiscal year 1998, an increase of $1.1 million,
or 2%, from fiscal year 1997.

OTHER.  Other costs of providing services increased $2.9 million in fiscal year
1998 due to increased travel and local office promotion expenses.

                                      -9-
<PAGE>

GENERAL AND ADMINISTRATIVE. General and administrative expenses for fiscal year
1998 were $51.8 million,  an increase of $6.1 million, or 13%, from fiscal year
1997. The increase is due to increased  spending on corporate  advertising  and
promotional  expenses of $4.0 million and business strategy initiatives of $2.0
million.

DEPRECIATION AND  AMORTIZATION.  Depreciation  and amortization  increased $2.9
million in fiscal year 1998 to $25.0 million. This increase is primarily due to
the Company's  decision to accelerate the amortization of internally  developed
software  in fiscal year 1998 by $6.8  million  based upon a  reevaluation  and
subsequent reduction of the useful lives of the related products.  Without this
acceleration,  depreciation  and  amortization  expense  declined  18% due to a
decrease  in the base of capital  assets of $16.4  million in fiscal  year 1998
from fiscal year 1997.

PROVISION  (BENEFIT)  FOR INCOME  TAXES.  Loss before  income  taxes,  minority
interest and discontinued operations was $43.0 million in fiscal year 1998; the
provision  for taxes was $13.1  million.  The  resulting  effective tax rate of
(30.6%)  compares with an effective  tax rate of 42% for fiscal year 1997.  The
major reason for the  difference in effective tax rates is the fiscal year 1998
non-recurring  compensation charge of $69.9 million included in the loss before
taxes of $43.0 million,  which is permanently  non-deductible for tax purposes.
Further,  the  effective  tax  rate  increased  in  fiscal  year  1998 by seven
percentage  points due to changes in various tax  jurisdictions  with differing
rates, particularly foreign jurisdictions, and lower tax credits.

DISCONTINUED  OPERATIONS.  In the early 1990's the Company entered the employee
benefits administration outsourcing business and took on long-term contracts in
this area. In 1996, recognizing the significant capital requirements needed for
expansion in this area, the Company  formed a joint venture  called  Wellspring
Resources  with  State  Street  Bank  and  Trust  Company.  In 1996  and  1997,
Wellspring Resources continued to require significant cash outlays and suffered
development and implementation delays. The combination of Wellspring Resources'
financial performance, which failed to meet the Company's expectations, as well
as  a  strategy   evaluation   that  concluded  that  benefits   administration
outsourcing  did not  leverage  its  consulting  strengths,  led the  Board  of
Directors to approve a plan of discontinuation  of the benefits  administration
outsourcing  business in fiscal  year 1998,  the  financial  effect of which is
further described below.

NET INCOME (LOSS). Although the Company incurred a net loss in fiscal year 1998
of $126.1  million  compared to net income in fiscal year 1997 of $0.9 million,
these results include aggregate charges totaling $139.8 million on an after-tax
basis for the  special  compensation  charge  and the  discontinued  operations
charge. Fiscal year 1997 results include $11.5 million in after-tax charges for
the results of operations of the benefits administration  outsourcing business,
prior to its discontinuation in fiscal year 1998.

The charges  totaling  $139.8 million in fiscal year 1998 were both  associated
with  the  Company's   discontinued   operations  in  fiscal  year  1998.   The
discontinuation of its benefits administration outsourcing business resulted in
a $69.9  million  loss net of taxes  due to the  withdrawal  from  this line of
business and is reported as a discontinued  operation.  Included in this amount
is the $6.8  million loss from  operations  prior to  discontinuance  and $63.1
million for the loss upon exit.  The loss upon exit  includes the  write-off of
the Company's  investment in Wellspring  Resources,  net  capitalized  software
development  costs for the  benefits  administration  outsourcing  clients  not
included in the  Wellspring  Resources  joint  venture and a provision  for the
completion of any obligations to clients, vendors or the Company's former joint
venture partner.

                                      -10-
<PAGE>

In  connection  with the  discontinuation,  the  Company  changed its bylaws to
modify the  formula  book value  repurchase  price of its stock to exclude  the
effect of the discontinued  operations from the formula book value calculation.
The  applicable  accounting  rules required the Company to take a $69.9 million
non-cash,  non-recurring compensation charge for this. This charge was reported
as a special compensation expense as a component of continuing operations.  The
charge was measured by the  difference  between what the formula book value per
share was at June 30, 1998 and what it would have been at that date without the
modification.  The non-cash charge had no effect on the Company's  liquidity or
capital  resources  but  significantly   reduced  its  income  from  continuing
operations.

LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at June 30, 1999 totaled $36.0 million,
compared to $13.4  million at June 30,  1998.  The Company had no borrowings at
June 30, 1999,  compared to $9.0 million of  borrowings at June 30,  1998.  The
decrease in  borrowings  and  increased  cash  balances  were the result of the
Company's  stock  sale in fiscal  year 1999,  and from  reduced  operating  and
closedown   costs   associated  with  the   discontinuation   of  the  benefits
administration outsourcing business.

The Company has a $120.0  million  credit line that is  currently  scheduled to
mature on June 30,  2003.  Ninety-five  million  dollars of the credit  line is
allocated as revolving credit for operating needs, subject to certain borrowing
limitations. Of this amount, $92.8 million was available to the Company at June
30, 1999 and $2.2 million was  unavailable as a result of support  required for
letters of credit issued under the credit line. The remaining  $25.0 million is
available to secure loans to associates  for the purchase of redeemable  common
stock made available under the Company's Stock Purchase Program.

CASH FROM OPERATIONS.  Net cash provided by operating  activities  increased in
1999 compared to 1998 by $33.3  million.  The increase was primarily due to the
$43.2 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 $14.4 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 FROM INVESTING ACTIVITIES. Uses of cash for investing activities decreased
$8.7  million  from  1998,  principally  due  to  reduced  cash  needs  of  the
discontinued operations.

CASH FROM FINANCING  ACTIVITIES.  The Company used more cash in 1999 as it paid
down its  outstanding  debt.  The Company's net stock activity had virtually no
impact on cash used by financing activities in 1999.

The Company relies primarily on funds from operations and short-term borrowings
for  liquidity.  The  Company  believes  that it has 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 $30.1 million for fiscal year 2000,  mainly for computer  hardware
purchases  and for office  relocations  and  renovations.  The Company  expects
operating  cash flows to provide for these cash needs.  In future fiscal years,
the Company  would expect that its capital  needs would be similar in nature to
what it has  incurred  in the past.  Capital  expenditures  will be required in
conjunction with office lease renewals and relocations  required to support the
Company's  growth  strategy.  Additionally,  its consultants  will need to have
access to hardware and software that will support servicing its client base. In
a rapidly changing technological  environment,  the Company anticipates it will
need to  make  investments  in its  knowledge  sharing  and  financial  systems

                                      -11-
<PAGE>

infrastructure.  The Company would expect cash from  operations in  conjunction
with its existing credit facility to adequately provide for these cash needs.

The Company's foreign  operations do not materially impact liquidity or capital
resources.  At June 30, 1999,  $14.4 million of the total cash balance of $36.0
million was held outside of North America, which the Company has the ability to
readily   access,   if  necessary.   There  are  no  significant   repatriation
restrictions other than local or U.S. taxes associated with  repatriation.  The
foreign operations in total are substantially self-sufficient for their working
capital needs.


MARKET RISK

The  Company is exposed to market  risks in the  ordinary  course of  business.
These risks include interest rate risk and foreign currency  exchange risk. The
Company has examined its exposure to these risks and concluded that none of its
exposures in these areas are material to fair values, cash flow or earnings.

YEAR 2000 ISSUE

The Company has  continued  to address the Year 2000  problem as it affects the
Company's business. While the Company has successfully passed several important
Year 2000 milestones,  management believes that effort will be required through
the end of 1999 and beyond to enable the  Company to meet its Year 2000  goals.
Based on the work completed  during the past year,  management  continues to be
confident that the Year 2000 problem is not likely to have a material effect on
the  Company's  business,   results  of  operations,  or  financial  condition.
Nevertheless,  since the  effects  of the Year 2000  problem  are  likely to be
unpredictable,  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.

Based on its ongoing  review,  management  continues  to believe  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  Technologies  practice
(including  benefit  administration  software 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 and costs
of replacing or repairing client systems. Other risks identified by the Company
include:  risk of a  general  economic  downturn  as a result  of the Year 2000
problem;  risk arising  from the failure of  infrastructure,  including  power,
water,  telecommunications,  and building  services;  and risks from operations
outside North  America.  The Company's  Year 2000  compliance  program will not
address  or  prevent  adverse  effects  to  the  Company  because  of  economic
disruption or failure of public infrastructure.

The  Company's  Year 2000  compliance  plan relies on  geographic  and practice
leaders to assess and oversee  repair or  replacement  of software and hardware
used in their domain.  Except in the case of software provided to or maintained
for clients by the HR Technologies  practice,  substantially all assessment and
remediation work has been completed,  but formal verification and documentation
of  this  effort  is  still  in  process.   The  Company  expects  to  complete
verification and documentation by September 30, 1999.

The Company has completed  assessment,  repair, and testing of all its internal
information  technology  systems,  including  WyVal,  the  Company's  actuarial
valuation  software.  The Company has completed an inventory of its vendors and

                                      -12-
<PAGE>

is monitoring Year 2000 compliance efforts by its major vendors. Because of the
nature of the Company's  business and the widely  distributed  locations of the
Company's  operations,  management  believes  that  the  Company  does not face
significant  risks  from Year  2000  failures  in  systems  relied  upon by its
vendors.  The Company has not reviewed the Year 2000  compliance  status of its
clients,  some of which  may be  affected  by Year  2000  problems.  Management
believes that the effect of client  problems on the Company's own operations is
not  likely to be  material  because of the  broad,  diversified  nature of the
Company's  client  base.  The  Company  will  continue  to  develop  and revise
contingency  procedures to address the Year 2000 situation.  In many cases, the
Company  will rely on  existing  contingency  plans  relating  to  failures  in
information  technology systems. A principal focus of the Company's contingency
planning is maintaining  communications among employees and with clients in the
event of  short-term  telecommunications  failures  or  short-term  disruptions
limiting access to the Company's offices.

While the Company has made progress  toward  meeting its  compliance  goals for
software provided to or used on behalf of clients,  the Company continues to be
behind in its schedule for compliance activity for such systems.  The Company's
deadline for bringing  systems into compliance was June 30, 1999. The following
summarizes the status of the Company's Year 2000 compliance  efforts related to
client software:

-    As  of   August  31,  1999,  remediation  and  testing  were  complete  on
     substantially all of the systems inventoried by the Retirement practice in
     North America. This assessment, however, does not include certain internal
     systems with limited  application  (such as  calculators  used to estimate
     benefits for a single  client plan).  The Company will  remediate and test
     such  systems as a part of its normal  quality  review  process  when such
     systems are next used.

-    As of  August  31,  1999,  the HR  Technologies  practice   has  completed
     assessment on more than 70% of the systems  inventoried  in North America.
     Testing and remediation have been completed on  approximately  45% of such
     systems. Testing and remediation of the remaining systems are scheduled to
     be completed before the end of 1999. A substantial number of the remaining
     systems  are used to  support  open  enrollment  in benefit  plans;  these
     systems are normally  modified  late in the calendar year and any required
     Year 2000 remediation will be performed as a part of such modifications.

-    The Company has  established  a program of  contacting  clients to discuss
     Year 2000  issues.  As of August  31,  1999,  the  Company  had  completed
     approximately  90% of the projected  effort for this program.  The Company
     expects to complete its client contact program by October 31, 1999.

The Company's Year 2000  compliance  program  includes its  operations  outside
North America.  Because of the size of these  operations,  management  does not
expect  that Year 2000  problems  outside  North  America  will have a material
effect on the Company.

The Company's cost to address Year 2000 compliance issues exceeded $4.0 million
for fiscal year 1999. The Company's principal  expenditures were for repair and
testing of internal and client  software,  costs  associated with the Company's
Year 2000  compliance  program  and costs of outside  consultants.  The Company
expects  that its costs for Year 2000  compliance  will be lower in fiscal year
2000.  Funds for  costs  associated  with the  Company's  Year 2000  compliance
efforts  will come from  operating  cash  flows for all areas of the  Company's
operations and will be expensed as incurred.

                                      -13-
<PAGE>

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.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and supplementary data are included as Item 14 of this
report.


ITEM 9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

There are no  changes in  accountants  or  disagreements  with  accountants  on
accounting  principles  and financial  disclosures  required to be disclosed in
this Item 9.


PART III
--------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The  response  to this item will be included in a  definitive  proxy  statement
filed  within 120 days after the end of the  Registrant's  fiscal  year,  which
proxy statement is incorporated herein by this reference.


ITEM 11.  EXECUTIVE COMPENSATION.

The  response  to this item will be included in a  definitive  proxy  statement
filed  within 120 days after the end of the  Registrant's  fiscal  year,  which
proxy statement is incorporated herein by this reference.

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

The  response  to this item will be included in a  definitive  proxy  statement
filed  within 120 days after the end of the  Registrant's  fiscal  year,  which
proxy statement is incorporated herein by this reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The  response  to this item will be included in a  definitive  proxy  statement
filed  within 120 days after the end of the  Registrant's  fiscal  year,  which
proxy statement is incorporated herein by this reference.

                                      -14-
<PAGE>

PART IV
-------

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

                                                                      Page
                                                                      ----

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 ended June 30, 1999                       F-2

             Consolidated Balance Sheets at June 30, 1999 and 1998     F-3

             Consolidated Statements of Cash Flows for each of the
             three years ended June 30, 1999                           F-4

             Consolidated Statements of Changes in Permanent
             Shareholders' Equity for each of the three years
             ended June 30, 1999                                       F-5

             Notes to the Consolidated Financial Statements        F-6 to F-25

(2)      Consolidated Financial Statement Schedule for each of
         the three years ended June 30, 1999

             Valuation and Qualifying Accounts and Reserves
             (Schedule II)                                            F-26

        All other schedules are omitted  because they are not applicable or the
        required  information is  shown in the financial  statements  or  notes
        thereto.
        Financial  statements of 50% or less owned entities and  unconsolidated
        subsidiaries  have  been  omitted,  with the  exception  of  Wellspring
        Resources  LLC for the fiscal  year ended June 30,  1997 which is filed
        with this Form 10-K,  because the registrant's  proportionate  share of
        the income from  continuing  operations  before  income taxes from such
        companies is less than 20% of the respective consolidated amount. Total
        assets  of  each  such  company  is  less  than  20% of the  respective
        consolidated  amounts,  and  the  investment  in and  advances  to each
        company is less than 20% of consolidated total assets.

(3)     Unaudited Supplementary Data

             Not required.

b)      Reports on Form 8-K

             None.

                                      -15-
<PAGE>

c) Exhibits

3.1     Restated Certificate of Incorporation of Watson Wyatt & Company2
3.2     Restated Bylaws (as amended through June 30, 1999)3
4       Form of Certificate Representing Common Stock1
10      Credit Agreement Among NationsBank, N.A. and Others dated June 30, 19984
21      Subsidiaries of Watson Wyatt & Company5
23      Consent of the Company's Independent Accountants5
24      Consent of Wellspring's Independent Accountants5
99      Wellspring Resources LLC Financial Statements5




--------
1     Incorporated by reference from Registrant's Initial  Statement on Form 10
      (File No. 0-20724), 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. 0-20724),  filed on
      September 16, 1996
3     Incorporated  by reference from Registrant's Report on Form S-8 (File No.
      33-369545), filed on December 23, 1998
4     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
5     Filed herewithin

                                      -16-

<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:May 15 , 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 date indicated.

Signature                   Title                                       Date
---------                   -----                                       ----

/S/ John J. Haley           President, Chief Executive Officer         5/15/00
-----------------           and Director
John J. Haley


/S/ Carl D. Mautz           Vice President and Chief                   5/15/00
-----------------           Financial Officer
Carl D. Mautz


/S/ Peter L. Childs         Controller                                 5/15/00
-------------------
Peter L. Childs


/S/ Thomas W. Barratt       Vice President and Director                5/15/00
---------------------
Thomas W. Barratt


/S/ Paula A. DeLisle        Vice President and Director                5/15/00
--------------------
Paula A. DeLisle



-------------------
Barbara H. Franklin         Director


/S/ David B. Friend         Vice President and Director                5/15/00
-------------------
David B. Friend



-------------------
John J. Gabarro             Director

                                      -17-
<PAGE>

Signature                   Title                                       Date
---------                   -----                                       ----

/S/ Ira T. Kay              Vice President and Director                5/15/00
--------------
Ira T. Kay


/S/ Brian E. Kennedy        Vice President and Director                5/15/00
--------------------
Brian E. Kennedy


/S/ Eric P. Lofgren         Vice President and Director                5/15/00
-------------------
Eric P. Lofgren


/S/ Robert D. Masding       Director                                   5/15/00
---------------------
Robert D. Masding



-------------------------
R. Michael McCullough       Director


/S/ Gail E. McKee           Vice President and Director                5/15/00
-----------------
Gail E. McKee



-------------------
Kevin L. Meehan             Vice President and Director


-------------------
Gilbert T. Ray              Director


/S/ John A. Steinbrunner    Vice President and Director                5/15/00
------------------------
John A. Steinbrunner


/S/ A. Grahame Stott        Vice President and Director                5/15/00
--------------------
A. Grahame Stott


/S/ Charles P. Wood, Jr.
------------------------
Charles P. Wood, Jr.        Vice President and Director

                                      -18-
<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 15 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, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1999,
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 15 of this Form 10-K/A presents
fairly, in all material respects, the information,  set forth therein when read
in  connection  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
opinion expressed above.



/S/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP

Washington, D.C.
September 8, 1999, except as to the
information presented in Notes 5 and 6,
for which the date is December 9, 1999.



                                      F-1

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

                                                                                               Year Ended June 30,
                                                                                   ------------------------------------------
                                                                                       1999           1998          1997
                                                                                   ------------   ------------  -------------

<S>                                                                                <C>            <C>           <C>
Fees                                                                               $    556,860   $    512,660   $    486,502

Costs of providing services:
   Salaries and employee benefits                                                       298,915        268,611        252,302
   Stock incentive bonus                                                                 22,610              -              -
   Non-recurring compensation charge (see Note 12)                                            -         69,906              -
   Occupancy and communications                                                          62,915         62,061         72,155
   Professional and subcontracted services                                               47,863         49,907         48,827
   Other                                                                                 29,753         26,779         23,871
                                                                                   ------------   ------------   ------------
                                                                                        462,056        477,264        397,155

General and administrative expenses                                                      56,578         51,759         45,696
Depreciation and amortization                                                            15,248         24,994         22,094
                                                                                   ------------   ------------   ------------
                                                                                        533,882        554,017        464,945

Income (loss) from operations (see Note 12)                                              22,978        (41,357)        21,557

Other:
   Interest income                                                                          944            901          1,462
   Interest expense                                                                      (2,646)        (2,768)        (1,506)

Income from affiliates                                                                    2,524            258            105
                                                                                   ------------   ------------   ------------


Income (loss) before income taxes and minority interest (see Note 12)                    23,800        (42,966)        21,618

Provision for (benefit from) income taxes:
   Current                                                                               18,744         15,116         12,627
   Deferred                                                                              (7,296)        (1,982)        (3,557)
                                                                                   ------------   ------------   ------------
                                                                                         11,448         13,134          9,070
                                                                                   ------------   ------------   ------------


Income (loss) before minority interest (see Note 12)                                     12,352        (56,100)        12,548


Minority interest in net (income) loss of consolidated subsidiaries                        (217)          (112)          (167)
                                                                                   ------------   ------------   ------------

Income(loss)from continuing operations (see Note 12)                                     12,135        (56,212)        12,381

Discontinued operations:

Loss from operations of discontinued Outsourcing Business (less
   applicable income tax benefit of $0, $5,053 and $8,181 respectively)                       -         (6,821)       (11,483)

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)                                                    $     20,813   $   (126,118)  $        898
                                                                                   ============   ============   ============



Earnings (loss) per share, continuing operations, basic and fully diluted          $       0.80   $      (3.27)  $       0.71
                                                                                   ============   ============   ============

Earnings (loss)  per share, discontinued operations, basic and fully diluted       $       0.57   $      (4.07)  $      (0.66)
                                                                                   ============   ============   ============

Earnings (loss) per share, net income (loss), basic and fully diluted              $       1.37   $      (7.34)  $       0.05
                                                                                   ============   ============   ============
</TABLE>

                                                        SEE ACCOMPANYING NOTES
                                                                  F-2

<PAGE>
<TABLE>
<CAPTION>

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

                                                                              June 30,                 June 30,
                                                                                1999                     1998
                                                                             ----------               ----------

                                                      ASSETS
<S>                                                                          <C>                      <C>
Cash and cash equivalents                                                    $   35,985               $   13,405
Receivables from clients:

    Billed, net of allowances of $3,701 and $2,142                               72,798                   69,671
    Unbilled                                                                     63,068                   59,725
                                                                             ----------               ----------
                                                                                135,866                  129,396

Income taxes receivable                                                               -                    2,216
Other current assets                                                             10,834                    6,945
                                                                             ----------               ----------
    Total current assets                                                        182,685                  151,962

Investment in affiliates                                                         15,306                   17,666
Fixed assets                                                                     42,797                   37,368
Deferred income taxes                                                            56,206                   48,911
Intangible assets                                                                 7,455                    2,412
Other assets                                                                      9,511                    9,991
                                                                             ----------               ----------
                                                                             $  313,960               $  268,310
                                                                             ==========               ==========

                     LIABILITIES, REDEEMABLE COMMON STOCK, AND PERMANENT SHAREHOLDERS' EQUITY


Accounts payable and accrued liabilities                                     $  152,371               $  116,548
Note payable and book overdrafts                                                    248                   11,666
Income taxes payable                                                             18,374                        -
                                                                             ----------               ----------
    Total current liabilities                                                   170,993                  128,214

Accrued retirement benefits                                                      77,140                   82,528
Deferred rent and accrued lease losses                                            9,270                   12,676
Other noncurrent liabilities                                                     22,608                   32,784

Minority interest in subsidiaries                                                   669                      322

Redeemable Common Stock - $1 par value:
    25,000,000 shares authorized;
    16,112,416 and 15,916,757 issued
    and outstanding; at redemption value                                        107,631                   96,296

Permanent shareholders'equity:
Adjustment for redemption value less than
    amounts paid in by shareholders                                              11,420                   25,240
Retained deficit                                                                (83,209)                (106,834)
Cumulative translation
    (accumulated other comprehensive loss)                                       (2,562)                  (2,916)
Commitments and contingencies
                                                                             ----------               ----------
                                                                             $  313,960               $  268,310
                                                                             ==========               ==========

</TABLE>



                                                        SEE ACCOMPANYING NOTES
                                                                  F-3

<PAGE>

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


                                                                                                   Year Ended June 30,
                                                                                       -----------------------------------------
                                                                                          1999            1998           1997
                                                                                       -----------     ----------     ----------
<S>                                                                                    <C>             <C>            <C>
Cash flows from (used for) operating activities:
   Net income(loss)                                                                    $    20,813     $ (126,118)    $      898
   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         11,483
       Provision for doubtful receivables from clients                                       9,503          5,613          6,853
       Depreciation                                                                         13,680         12,849         13,816
       Amortization of deferred software and development costs
           and other intangible assets                                                       1,568         12,143          8,277
       Provision for deferred  income taxes                                                 (7,295)        (1,982)        (3,557)
       Income from affiliates                                                               (2,524)          (258)          (105)
       Minority interest in net income of consolidated subsidiaries                            217            112            167
       (Increase) decrease in assets (net of discontinued operations):
         Receivables from clients                                                          (25,488)       (11,115)        (2,794)
         Income taxes receivable                                                             2,216          4,558          3,327
         Other current assets                                                               (3,889)           342           (351)
         Other assets                                                                          480             76         (1,930)
       Increase (decrease) in liabilities (net of discontinued operations):
         Accounts payable and accrued liabilities                                           54,567         11,318          1,300
         Income taxes payable                                                               12,052         (3,563)        (7,799)
         Accrued retirement benefits                                                        (5,388)        (4,169)         5,556
         Deferred rent and accrued lease losses                                             (3,406)        (2,262)         5,034
         Other noncurrent liabilities                                                        1,132            840            687
       Other, net                                                                              514          1,603            656
       Discontinued operations, net                                                         (5,537)       (18,554)         7,530
                                                                                       -----------     ----------     ----------
       Net cash provided by operating activities                                            54,537         21,245         49,048
                                                                                       -----------     ----------     ----------

Cash flows (used in) from investing activities:
   Purchases of fixed assets                                                               (19,684)       (16,034)       (15,548)
   Proceeds from sales of fixed assets and investments                                         237            623            446
   Acquisitions                                                                             (6,207)             -         (1,169)
   Investment in software and development costs                                                  -         (3,000)        (4,554)
   Investment in affiliates                                                                  4,220          3,076         (1,385)
   Discontinued operations                                                                       -        (14,750)       (20,062)
                                                                                       -----------     ----------     ----------
       Net cash used in investing activities                                               (21,434)       (30,085)       (42,272)
                                                                                       -----------     ----------     ----------

Cash flows (used by) from financing activities:
   Borrowings and bank overdrafts                                                          (11,418)        11,258              -
   Issuances of Redeemable Common Stock                                                     15,451          1,005         15,414
   Repurchases of Redeemable Common Stock                                                  (15,124)       (13,141)       (16,604)
                                                                                       -----------     ----------     ----------
       Net cash used by financing activities                                               (11,091)          (878)        (1,190)
                                                                                       -----------     ----------     ----------
Effect of exchange rates on cash                                                               568         (3,134)        (1,023)
                                                                                       -----------     ----------     ----------
Increase (decrease) in cash and cash equivalents                                            22,580        (12,852)         4,563
Cash and cash equivalents at beginning of period                                            13,405         26,257         21,694
                                                                                       -----------     ----------     ----------
Cash and cash equivalents at end of period                                             $    35,985     $   13,405     $   26,257
                                                                                       ===========     ==========     ==========

</TABLE>


                                                         SEE ACCOMPANYING NOTES
                                                                   F-4
<PAGE>
<TABLE>
<CAPTION>
                                                  WATSON WYATT & COMPANY
                            CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY
                                               (THOUSANDS OF U.S. DOLLARS)

                                                                                                  Adjustment for
                                                                                                    Redemption
                                                                                                       Value
                                                                                                  (Greater) Less
                                                           Retained            Cumulative           Than Amounts
                                                           Earnings            Translation           Paid in by
                                                           (Deficit)           Gain (Loss)         Shareholders        Total
                                                         -------------        -------------        -------------       -----
<S>                                                      <C>                  <C>                  <C>                 <C>
Balance at June 30, 1996                                 $      30,677        $      1,040         $     (37,549)      $    (5,832)

Comprehensive income:
     Net income                                                    898                   -                     -               898
     Foreign currency translation adjustment                         -                (204)                    -              (204)
                                                         -------------        ------------         -------------       -----------
Total comprehensive income                                         898                (204)                    -               694
Effect of repurchases of 3,258,203 shares of
     common stock (various prices per share)                    (6,942)                  -                 6,942                 -
Adjustment of redemption value for change
     in formula book value per share                                 -                   -                (7,067)           (7,067)
                                                         -------------        ------------         -------------       -----------
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                                      (126,118)             (3,752)                    -          (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                                      20,813                 354                     -            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)
                                                         =============        ============         =============       ===========

</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  ("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  the
Company's  stock is held by or for the benefit of  employees.  On July 1, 1996,
The Wyatt Company changed its name to Watson Wyatt & Company.

In 1998,  the Company  discontinued  its  benefits  administration  outsourcing
business  as further  described  in Note 16.  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 and 1997.

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  revenues  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,  discontinued
operations and Year 2000 costs.

PRINCIPLES OF  CONSOLIDATION  - The  consolidated  financial  statements of the
Company  include  the  accounts  of the  Company  and  its  majority-owned  and
controlled   subsidiaries  after  elimination  of  intercompany   accounts  and
transactions.  Investments  in affiliated  companies over which the Company has
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 - The Company  considers  short-term,  highly liquid
investments with original maturities of 90 days or less to be cash equivalents.
Such investments were $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.  Services rendered
are generally billed on a monthly basis using fee  arrangements  defined at the
inception of the project.  Unbilled  receivables  are stated at their estimated
net realizable value.

REVENUE RECOGNITION - For consulting  services,  fees from clients are recorded
as services are performed and are presented net of write-offs and uncollectible
amounts.  Revenues from long-term contracts are recognized on the percentage of
completion  basis.  Anticipated  contract  losses are recognized as they become
known. Fees for administrative  and recordkeeping  operations are recognized as
earned by the Company.

                                      F-6
<PAGE>

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.  The Company
regularly  assesses  the  recoverability  of  unamortized  goodwill  and  other
long-lived assets by comparing the probable undiscounted 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  -  The  Company  had  outstanding  employee  receivables
included in other current and noncurrent assets of $2,440,000 and $3,165,000 at
June 30, 1999 and June 30,  1998,  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 the Company's  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 the
Company's  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 the Company's equity  interests in its 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  generally  not  recognized  because  such  amounts  are  usually
considered to be permanent and are not expected to be liquidated.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of the Company's 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.  At
June 30, 1999, the outstanding balance under its revolving credit agreement was
zero,  while at June 30,  1998 the  Company  had  $9,000,000  outstanding.  The
Company  knows of no event of  default  that would  require  it to satisfy  the
guarantees  described  in  Notes  9 and  15  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.
The  Company  invests  its  excess  cash  with  high-credit  quality  financial
institutions.  Concentrations  of credit risk with respect to receivables  from
clients are limited due to the  Company's  large number of customers  and their
dispersion across many industries and geographic regions.

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 15,215 in fiscal
year 1999, 17,170 in fiscal year 1998, and 17,438 in fiscal year 1997 (see Note
10).

COMPREHENSIVE  INCOME - In fiscal year 1999, the Company  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, 1999,
1998 and 1997, comprehensive income (loss) totaled $21,167,000, $(129,870,000),
and $694,000, respectively.

                                      F-7
<PAGE>


NOTE 2 - CASH FLOW INFORMATION

Net cash  provided by operating  activities in the  consolidated  statements of
cash flows includes cash payments for:
                                                 Year Ended June 30
                                       --------------------------------------
                                       1999              1998            1997
                                       ----              ----            ----

Interest expense                    $ 1,889           $ 2,639         $ 1,506

Income taxes paid                   $ 5,462           $18,679         $11,947


NOTE 3 - INVESTMENTS IN AFFILIATES

Entities accounted for under the equity method are:

                                        Ownership              June 30
                                        Interest         --------------------
                                                         1999            1998
                                                         ----            ----

Watson Wyatt Partners                   10.0%        $  9,265       $  11,040
Watson Wyatt Holdings (Europe) Limited  25.0%           6,041           6,626
Professional Consultants Insurance
     Company, Inc.                      27.4%               -               -
                                                     --------       ---------

Total Investment in Affiliates                       $ 15,306       $  17,666
                                                     ========       =========

On  April  1,  1995,  the  Company  transferred  its  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.  The Company
also transferred its Continental  European operations to a newly-formed holding
company,  Watson Wyatt Holdings  (Europe) Limited  ("WWHE"),  jointly owned and
controlled by the Company 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, the Company sold one half of its investment in WWHE to
Watsons; no gain or loss was recognized on the transaction.

The Company  accounts  for its interest in Watsons  using the equity  method of
accounting  because it is an investment in a general  partnership.  The Company
accounts for its interest in WWHE using the equity method of accounting because
it has the ability to exercise significant influence over the operations of the
entity.

At June 30,  1999,  the Company's  investment in WWHE and Watsons  exceeded the
Company's share of the underlying net assets by $2,257,000 due primarily to the
capitalization  of external  transaction  costs  incurred by the Company.  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:

                                                 Year Ended June 30
                                       --------------------------------------
                                       1999            1998              1997
                                       ----            ----              ----

Equity investment income            $ 2,760          $  724           $ 1,019
Amortization of basis
     differential                      (236)           (466)             (914)
                                    -------          ------           -------

Income from affiliates              $ 2,524          $  258           $   105
                                    =======          ======           =======

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

                                                         1999            1998
                                                         ----            ----
Current assets                                       $117,717        $118,116
Noncurrent assets                                      17,286          10,886
                                                     --------        --------

       Total assets                                  $135,003        $129,002
                                                     ========        ========

Current liabilities                                  $ 65,171        $ 54,278
Noncurrent liabilities                                 30,810          39,344
Shareholders' equity                                   39,022          35,380
                                                     --------        --------

Total liabilities &
     shareholders' equity                            $135,003        $129,002
                                                     ========        ========

The Company's  operating results include its 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:

                                           1999           1998           1997
                                           ----           ----           ----

Revenue                                $206,463        $173,012      $166,851
Operating expenses                      155,330         135,577       126,338
                                       --------        --------      --------

Income before tax                      $ 51,133        $ 37,435      $ 40,513
                                       ========        ========      ========

Net income                             $ 51,116        $ 38,176      $ 39,996
                                       ========        ========      ========


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.

                                       F-9
<PAGE>

The components of fixed assets are:
                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Furniture, fixtures and equipment                   $  96,096       $  90,727
Leasehold improvements                                 27,069          22,294
                                                    ---------       ---------
                                                      123,165         113,021
Less: accumulated depreciation
     and amortization                                 (80,368)        (75,653)
                                                    ---------       ---------

Net fixed asssets                                   $  42,797       $  37,368
                                                    =========       =========



NOTE 5 - PENSION AND SAVINGS PLANS

In fiscal year 1999, the Company 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 the Company's  principal
retirement plans are:

                                                               June 30
                                                        ---------------------
                                                        1999             1998
                                                        ----             ----

Defined benefit retirement plans                    $  28,149       $  35,263
Canadian Separation Allowance Plan                      5,953           6,264
Postretirement benefits other than pensions            43,038          41,001
                                                     --------         -------

Accrued retirement benefits                         $  77,140       $  82,528
                                                    =========       =========


DEFINED BENEFIT PLANS

The Company sponsors both qualified and non-qualified  non-contributory defined
benefit pension plans covering  substantially all of its associates.  Under the
Company's 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. As of January 1, 1997, changes
were  made  to the  U.S.  pension  program.  The  pension  plan  definition  of
compensation  was revised to include  overtime and annual bonuses.  The pension
benefit  formula was changed to integrate  with Social  Security  benefits on a
step-rate basis. The total years of service included in the benefit calculation
were reduced from 28-1/3 years to 25 years.

                                      F-10
<PAGE>


Net periodic pension cost consists of the following components:

                                                 Year Ended June 30
                                       --------------------------------------
                                       1999            1998              1997
                                       ----            ----              ----

Service cost                      $  22,976       $  18,340         $  16,962
Interest cost                        23,909          22,302            19,651
Expected return on plan assets      (37,437)        (31,910)          (26,828)
Amortization of transition
     obligation                         201             201               199
Amortization of net
     unrecognized gains              (5,979)         (6,316)           (4,740)
Amortization of prior service
     cost                             1,841           1,794             1,352
                                  ---------       ---------         ---------

Net periodic pension cost             5,511           4,411             6,596
Settlement loss                           -               -               708
                                  ---------       ---------         ---------

Net periodic pension cost
     including settlements        $   5,511       $   4,411         $   7,304
                                  =========       =========         =========


During  fiscal year 1999,  the Company  acquired a portion of KPMG's  actuarial
consulting  services.   In  connection  with  this  transaction,   the  Company
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:
                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Benefit obligation at beginning of year           $   353,658     $   295,245
Service cost                                           22,976          18,340
Interest cost                                          23,909          22,302
Participant contributions                                  54               -
Actuarial losses/gains                                 (8,503)         34,610
Benefit payments                                      (14,593)        (16,042)
Plan amendments                                             -             647
Foreign currency adjustment                               (94)         (1,444)
                                                  -----------     -----------

Benefit obligation at end of year                 $   377,407     $   353,658
                                                  ===========     ===========


                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Fair value of plan assets at beginning of year    $   381,398      $  322,533
Actual return on plan assets                           36,473          67,275
Company contributions                                   7,889           9,311
Participant contributions                                  54               -
Benefit payments                                      (14,593)        (16,042)
Foreign currency adjustment                              (119)         (1,679)
                                                  -----------      ----------

Fair value of plan assets at end of year          $   411,102      $  381,398
                                                  ===========      ==========

                                      F-11
<PAGE>

The following table sets forth selected  information for plans with accumulated
benefit obligations in excess of plan assets:
                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Projected benefit obligation                      $    86,703      $   78,519
Accumulated benefit obligation                         42,740          38,474
Fair value of plan assets                                   -               -


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

                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Funded status at end of year                      $    33,695     $    27,740
Unrecognized prior service cost                         9,255          11,101
Unrecognized net gain                                 (75,579)        (74,030)
Unrecognized transition obligation                        793             993
                                                  -----------     -----------

Net accrued pension liability                     $   (31,836)    $   (34,196)
                                                  ===========     ===========

Prepaid pension benefit cost                      $    26,691     $    13,778
Accrued pension benefit liability                     (58,527)        (47,974)
Intangible assets                                           -               -
Accumulated other comprehensive income                      -               -
                                                  -----------     -----------

Net accrued pension liability                     $   (31,836)    $   (34,196)
                                                  ===========     ===========





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

                                                      June 30
                                       --------------------------------------
                                       1999             1998             1997
                                       ----             ----             ----

Discount rate, projected
      benefit obligation                7.0%             6.8%             7.5%
Discount rate, net periodic
      pension cost                      6.8%             7.5%             7.5%
Expected long-term rate of
      return on assets                 10.0%            10.0%            10.0%
Rate of increase in compensation
      levels                            5.3%             5.8%             5.8%

                                      F-12
<PAGE>



DEFINED CONTRIBUTION PLANS

The Company  sponsors a savings plan which provides  benefits to  substantially
all U.S. associates and under which the Company matches 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 1999,  1998 and 1997 for the match
was $4.5 million, $5.1 million and $2.0 million, respectively.  Under the plan,
the  Company  also  has  the  ability  to  make  discretionary   profit-sharing
contributions.  The Company made no profit sharing  contributions during fiscal
years 1999,  1998 or 1997.  The  Company  also  sponsors 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 1999,  1998 and
1997 amounted to $377,000, $293,000 and $414,000, respectively.


NOTE 6 - BENEFITS OTHER THAN PENSIONS

HEALTH CARE BENEFITS

The  Company   sponsors  a   contributory   health  care  plan  that   provides
hospitalization,   medical  and  dental  benefits  to  substantially  all  U.S.
associates.  The  Company  accrues  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 $2,495,000 at June 30,  1999 and 1998, and
is included in accounts  payable and accrued  liabilities  in the  consolidated
balance sheets.

POSTRETIREMENT BENEFITS

The Company  provides  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.  The Company's principal plans
are unfunded.

Effective  January 1, 1997,  premiums paid on the retiree medical plan are tied
to the retiree's years of service.  The Company  contribution is capped at 200%
of 1997 per  capita  claims  cost.  Benefits  have been  redefined  to ensure a
retiree benefit comparable to the Watson Wyatt Plan for active employees.

Net periodic postretirement benefit cost consists of the following components:

                                                Year Ended June 30
                                      ---------------------------------------
                                      1999            1998               1997
                                      ----            ----               ----

Service cost                     $   1,898        $   1,848        $    1,891
Interest cost                        2,178            2,133             1,987
Amortization of transition
     obligation                         46               46                50
Amortization of net unrecognized
     gains                            (488)            (584)             (559)
Amortization of prior service
     cost                             (127)            (127)             (126)
                                 ---------        ---------        ----------
Net periodic postretirement
     benefit cost                $   3,507        $   3,316        $    3,243
                                 =========        =========        ==========

                                      F-13
<PAGE>


The following  tables set forth the changes in the  accumulated  postretirement
benefit obligation, company contributions and benefit payments:

                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Benefit obligation at beginning of year             $  32,326       $  30,031
Service cost                                            1,898           1,848
Interest cost                                           2,178           2,133
Participant contributions                                 175             189
Actuarial losses/(gains)                                 (563)           (883)
Acquisitions/(divestitures)                               245               -
Benefit payments                                       (1,267)           (849)
Foreign currency adjustment                               (11)           (143)
                                                    ---------       ---------

Benefit obligation at end of year                   $  34,981      $   32,326
                                                    =========      ==========

                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Fair value of plan assets at beginning of year      $       -      $        -
Company contributions                                   1,092             660
Participant contributions                                 175             189
Benefit payments                                       (1,267)           (849)
                                                    ---------      ----------

Fair value of plan assets at end of year            $       -      $        -
                                                    =========      ==========


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

                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Funded status at end of year                     $    (34,981)   $    (32,326)
Unrecognized prior service cost                        (1,325)         (1,451)
Unrecognized net gain                                  (8,763)         (8,664)
Unrecognized transition obligation                        650             698
                                                 ------------    ------------

Net accrued postretirement liability             $    (44,419)   $    (41,743)
                                                 ============    ============

Prepaid pension benefit cost                     $          -    $          -
Accrued postretirement benefit liability              (44,419)        (41,743)
Intangible assets                                           -               -
Accumulated other comprehensive income                      -               -
                                                 ------------    ------------

Net accrued postretirement liability             $    (44,419)   $    (41,743)
                                                 ============    ============

                                      F-14
<PAGE>


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

                                                       June 30
                                       --------------------------------------
                                       1999             1998             1997
                                       ----             ----             ----

Health care cost trend, accumulated
benefit obligation:
Pre-65 benefits
     (decreasing to 5.0% for 2004
     and thereafter)                    7.7%             8.4%             9.1%
Post-65 benefits
     (decreasing to 5.0% for 2007
     and thereafter)                    7.1%             7.7%             8.3%
Discount rate, accumulated benefit
     obligation postretirement
     benefit                            7.0%             6.8%             7.5%
Discount rate, net periodic cost        7.0%             6.8%             7.5%

A one percentage point change in the assumed health care cost trend rates would
have the following effect:
                                                1% Increase       1% Decrease
                                                -----------       -----------

Effect on net periodic postretirement benefit
     cost in fiscal year 1999                   $      233        $     (283)
Effect on accumulated postretirement benefit
     obligation as of June 30, 1999                  1,925            (2,189)


NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of:
                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Accounts payable and accrued liabilities          $    53,586     $    55,865
Accrued salaries and bonuses                           68,405          37,567
Current portion of defined benefit retirement plans
     and postretirement benefits other than pensions    9,948           4,191
Accrued vacation                                       13,578          13,300
Advance billings                                        6,854           5,625
                                                  -----------     -----------

Total accounts payable and accrued liabilities    $   152,371     $   116,548
                                                  ===========     ===========



NOTE 8 - LEASES

The Company leases office space and various computer  equipment under operating
lease  agreements  with terms  generally  ranging  from one to ten  years.  The
Company has entered into sublease  agreements for some of its leased space. The
rental expense was  $43,631,000,  $43,133,000  and $42,079,000 for fiscal years
1999, 1998 and 1997, respectively.  Sublease income was $4,208,000,  $3,905,000
and $1,702,000 for fiscal years 1999, 1998 and 1997, respectively.

                                      F-15
<PAGE>


Future cash  outlays  for  operating  lease  commitments  and cash  inflows for
sublease income are:
                                              Lease                 Sublease
                                           Commitments               Income
                                           -----------             ---------
                     2000                    $  43,771             $   3,388
                     2001                       38,709                 3,315
                     2002                       30,614                 2,963
                     2003                       18,074                   115
                     2004                       14,043                     -
               thereafter                       25,770                     -
                                             ---------             ---------

                                             $ 170,981             $   9,781
                                             =========             =========

As a result of  relocations  and the  subleasing of excess  office  space,  the
Company  recognized  lease  termination   losses  of  $341,000,   $790,000  and
$12,107,000 in fiscal years 1999, 1998 and 1997, respectively.


NOTE 9 - NOTE PAYABLE

The  Company has 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 the Company's 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, 1999;  $9,000,000
was outstanding at June 30, 1998. The credit  facility  requires the Company 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, 1999 the Company was 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 the Company as revolving
credit for operating  needs.  The remaining  $25,000,000 is available to secure
loans to associates for the purchase of redeemable  common stock made available
under the Company's Stock Purchase Program.  The Company guarantees these loans
to its  shareholders,  the  aggregate  outstanding  balances  of which  totaled
$20,316,000  and  $15,617,000 at June 30, 1999 and 1998,  respectively.  Shares
totaling 4,735,000 and 4,897,000 of the Company's  redeemable common stock were
pledged  by  shareholders  to  secure  these  loans at June 30,  1999 and 1998,
respectively.


NOTE 10 - REDEEMABLE COMMON STOCK

Substantially  all of the Company's  redeemable  common stock is held by or for
the benefit of its employees and,  pursuant to the Company's bylaws, is subject
to certain restrictions. In connection with these restrictions, the Company has
the  following  rights and  obligations  regarding  purchases  and sales of its
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.

                                      F-16
<PAGE>

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.

Pursuant  to the  Company's  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 the  Company's
redeemable  common  stock as of June 30,  1996,  increased  or decreased by net
income  or  losses,  and all other  Generally  Accepted  Accounting  Principals
("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
$6.68 at June 30, 1999 and $6.05 at June 30, 1998.

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

                                                    1999                 1998
                                                    ----                 ----

Consolidated net worth [1]                    $   36,882           $   15,742
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               69,906

Add:  Adjustment for after-tax effect
      of lease losses                              3,606                4,733
                                              ----------            ---------

Formula book value of redeemable common stock $  107,631           $   96,296
                                              ==========           ==========

Number of shares of redeemable common
      stock outstanding                           16,112               15,917
                                              ==========           ==========

Formula book value per share of
      redeemable common stock                 $     6.68           $     6.05
                                              ==========           ==========

          [1]   After  adjusting for  currency translation as  specified in the
                Company's bylaws of $3,602 in 1999 and $3,956 in 1998.

                                      F-17
<PAGE>

In view of the Company's  obligation to repurchase its 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 the  Company  would be  required to  repurchase  the shares,  or 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.

                                     Number of                   Redeemable
                                       Shares                   Common Stock
                                     ---------                  ------------

Balance at June 30, 1996            18,261,963                $       90,214

Redemption of shares                (3,258,203)                      (16,604)

Issuance of shares                   3,126,670                        15,414

Adjustment of redemption value for
     change in formula book
     value per share                         -                         7,067
                                    ----------                --------------


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

                                      F-18
<PAGE>


The Company  sponsors a Stock Purchase Plan ("SPP") which allows  virtually all
associates  to  become   shareholders.   During  1999,  the  Company   received
$15,451,000 from the sale of 2,557,201 shares of stock under the SPP. There was
no formal  stock sale in fiscal year 1998,  although  for the fiscal year ended
June 30,  1998, the Company received $1,005,000 from the sale of 196,752 shares
of stock  outside of the SPP.  During  fiscal year 1997,  the Company  received
$15,414,000  from the sale of 3,126,670  shares of stock under the SPP.  During
1997,  the  Company  paid each  associate  purchasing  stock  $0.50 per  share,
resulting in expense of $1,300,000.

NOTE 11 - INCOME TAXES

The  provision  for income taxes is based upon  reported  income  before income
taxes and includes  deferred  income taxes resulting from  differences  between
assets and  liabilities  recognized for financial  reporting  purposes and such
amounts recognized for income tax purposes. The Company measures deferred taxes
by applying currently enacted tax laws, recognizes deferred tax assets if it is
more likely than not that a benefit will be realized,  and provides a valuation
allowance  on deferred tax assets to the extent that it is more likely than not
that a benefit will not be realized.

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

                                              Year Ended June 30
                                    -----------------------------------------
                                    1999             1998                1997
                                    ----             ----                ----
Current tax expense:
     U.S.                     $   10,817       $    9,972          $    8,370
     State and local               4,050            3,324               2,773
     Foreign                       3,877            1,820               1,484
                              ----------       ----------          ----------
                                  18,744           15,116              12,627
                              ----------       ----------          ----------


Deferred tax (benefit) expense:
     U.S.                         (5,776)            (337)             (4,188)
     State and local              (1,407)          (1,706)             (1,507)
     Foreign                        (113)              61               2,138
                              ----------       ----------          ----------

                                  (7,296)          (1,982)             (3,557)
                              ----------       ----------          ----------

Total provision for income
     taxes                    $   11,448       $   13,134          $    9,070
                              ==========       ==========          ==========

                                      F-19
<PAGE>

Deferred income tax assets  (liabilities)  included in the consolidated balance
sheets at June 30, 1999 and June 30, 1998 are comprised of the following:

                                                               June 30
                                                         --------------------
                                                         1999            1998
                                                         ----            ----

Cash method of accounting for U.S. income
      tax purposes                                   $      -        $(15,561)
Difference between book and tax depreciation                -          (1,987)
Foreign temporary difference                           (2,595)           (914)
                                                     --------        --------

      Gross deferred tax liabilities                   (2,595)        (18,462)
                                                     ========        ========

Cash method of accounting for U.S. income
      tax purposes                                      3,744               -
Difference between book and tax depreciation            3,202               -
Accrued retirement benefits                            37,137          39,255
Amortization of deferred rent                           5,697           6,794
Foreign temporary difference                            6,367           3,092
Foreign net operating loss carryforwards                1,989           4,942
Discontinued operations exit costs                      7,230          19,559
Other                                                     317               2
                                                     --------        --------

     Gross deferred tax assets                         65,683          73,644
                                                     --------        --------

     Deferred tax assets valuation allowance           (6,882)         (6,271)
                                                     --------        --------
     Net deferred tax asset                          $ 56,206        $ 48,911
                                                     ========        ========


The  Company  has foreign tax credit  carryforwards  for U.S.  tax  purposes of
$305,000.  At June 30,  1999, the Company has unused loss carryforwards for tax
purposes in various jurisdictions outside the U.S. amounting to $6,352,000,  of
which $4,350,000 can be indefinitely carried forward under local statutes.  The
majority of the remaining loss carryforwards will expire, if unused,  after the
end of fiscal year 2002. The valuation  allowance  applies to the tax effect of
the foreign net operating loss  carryforwards  ($1,944,000),  the tax effect of
certain  foreign  temporary  expenses   ($4,563,000)  and  foreign  tax  credit
carryforwards and other items ($375,000) for which  realizability is considered
uncertain.

The net change in the  valuation  allowance of $611,000 in fiscal year 1999 and
$2,569,000 in fiscal year 1998 is due primarily to the tax effect of the change
in  realizable   foreign  net  operating   losses,   foreign  tax  credits  and
non-deductible foreign expenses.

                                      F-20
<PAGE>

Domestic and foreign  components of income before taxes,  minority interest and
discontinued  operations  for each of the  three  years  ended  June 30  are as
follows:
                                    1999             1998                1997
                                    ----             ----                ----

          Domestic            $   15,203       $  (47,435)        $    14,861
          Foreign                  8,597            4,469               6,757
                              ----------       ----------         -----------

                              $   23,800       $  (42,966)        $    21,618
                              ==========       ==========         ===========

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:

                                                 Year Ended June  30
                                       --------------------------------------
                                       1999             1998             1997
                                       ----             ----             ----

Calculated income tax
     provision at U.S.
     federal statutory tax
     rate of 35%                 $    8,330       $  (15,038)      $    7,507

Increase (reduction)
resulting from:
     Non-deductible
        compensation expense              -           24,467                -
     Results of non-U.S.
        affiliates taxed at
        other than statutory
        rates                          (377)            (324)            (463)
     Losses of non-U.S.
        affiliates for which
        no current benefit
        is available                    881              852              599
     State income taxes, net
        of federal tax
        benefit                       1,207            1,618            1,266
     Non-deductible
        amortization and other
        expenses                        849              758              700
     Tax credits                          -             (353)            (888)
        Other                           558            1,154              349
                                 ----------       ----------       ----------

Income tax provision             $   11,448       $   13,134       $    9,070
                                 ==========       ==========       ==========


NOTE 12 - NON-RECURRING COMPENSATION CHARGE

In accordance with generally accepted  accounting  principles,  the Company has
recorded  a  charge  against  operating  results  of  $69,906,000  in  1998  as
compensation expense. This charge arises because the Company changed the method
of  calculation  of its formula book value during 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
the Company's benefits administration outsourcing business.

                                      F-21
<PAGE>

The non-recurring compensation charge does not represent a call against Company
resources and will not recur unless the Company modifies its formula book value
calculation  again.  The Company has  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 infrequent nature.


NOTE 13 - SEGMENT INFORMATION

In fiscal  year 1999,  the  Company  adopted  SFAS No. 131  "Disclosures  about
Segments of an Enterprise  and Related  Information."  The Company is primarily
organized geographically and has 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

The Company  evaluates the performance of its segments and allocates  resources
to them based on net operating income.  Prior year data has been restated to be
consistent with current year classifications for comparative purposes.

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>

External fees           $ 150,959   $ 130,568   $  54,496   $   44,404    $  36,515    $ 5,691     $  12,796    $ 435,429
Intersegment fees          37,738      24,369      18,957        4,284        5,010      1,424           329       92,111
Net operating
     income                45,287      27,087       1,236        7,085        3,488        223         3,736       88,142
Interest expense            1,158         856         471           17          300         98             5        2,905
Depreciation &
     amortization           5,950       4,414       3,351        1,281        1,186        143           185       16,510
Receivables                47,198      39,905      18,730       12,729       12,491      2,527             -      133,580
Income from
     affiliates                 -           -           -            -            -          -             -        2,524

</TABLE>
                                      F-22
<PAGE>

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>

External fees          $ 129,337   $ 125,639    $  68,076   $   38,429    $  36,221    $ 6,062     $  13,004    $ 416,768

Intersegment fees         28,187      15,296       14,210        3,945        4,443      1,153           249       67,483
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>

The table below presents  specified  information  about reported segments as of
and for the year ended June 30, 1997 (in thousands):
<TABLE>

                           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>

External fees           $ 126,077  $ 121,613    $  63,989   $   45,468    $  34,743    $  5,024    $  12,062    $ 408,976

Intersegment fees          17,518     12,739        8,002        2,851        2,789         784          573       45,256
Net operating
     income                18,169     26,797       11,595        5,162        2,595         225        3,146       67,689
Interest expense            1,165        799          322           10          262          35           17        2,610
Depreciation &
     amortization           5,838      3,555        2,353        1,599        1,006         132          193       14,676
Receivables                34,042     32,416       15,134       17,821       10,812       2,345            -      112,570
Income from
   affiliates                   -          -            -            -            -           -            -          105

</TABLE>

Information about interest income and tax expense is not presented as it is not
produced internally.

                                      F-23
<PAGE>

A  reconciliation  of the information  reported by segment to the  consolidated
amounts follows for the years ended June 30:
<TABLE>
<CAPTION>
                                                                               1999        1998        1997
                                                                             ---------   ---------   ---------
<S>                                                                          <C>         <C>         <C>
FEES:
Total segment external and intersegment fees                                 $ 527,540   $ 484,251   $ 454,232
Reimbursable expenses not included in segment fees                              30,426      28,686      30,091
Other, net                                                                      (1,106)       (277)      2,179
                                                                             ---------   ---------   ---------
Consolidated fees                                                            $ 556,860   $ 512,660   $ 486,502
                                                                             =========   =========   =========

NET OPERATING INCOME:
Total segment income                                                         $  88,142   $  72,585   $  67,689
Non-recurring compensation charge                                                    -     (69,906)          -
Sublease loss                                                                     (341)       (790)    (12,107)
Income from affiliates                                                           2,524         258         105
Differences in allocation methods for depreciation,
   G&A and pension costs                                                         1,277      (6,208)      3,913
Gain on sale of business units                                                   2,723       3,093           -
Discretionary payments                                                         (67,194)    (37,400)    (34,703)
Other, net                                                                      (3,331)     (4,598)     (3,279)
                                                                             ---------   ---------   ---------
Consolidated pretax income (loss) from continuing operations                $   23,800   $ (42,966)  $  21,618
                                                                            ==========   =========   =========

INTEREST EXPENSE:
Total segment expense                                                       $    2,905   $   2,596   $   2,610
Differences in allocation method                                                  (259)        172      (1,104)
                                                                            ----------   ---------   ---------
Consolidated interest expense                                               $    2,646   $   2,768   $   1,506
                                                                            ==========   =========   =========

DEPRECIATION & AMORTIZATION:
Total segment expense                                                       $   16,510   $  15,231   $  14,676
Capitalized software amortization, not allocated to segments                         -      12,267       9,451
Goodwill amortization, not allocated to segments                                 1,568         549         695
Differences in allocation method and other                                      (2,830)     (3,053)     (2,728)
                                                                            ----------   ---------   ---------
Consolidated depreciation and amortization expense                          $   15,248   $  24,994   $  22,094
                                                                            ==========   =========   =========

RECEIVABLES:
Total segment receivables                                                   $  133,580   $ 116,340   $ 112,570
Net valuation differences and receivables of discontinued operations             2,286      13,056      11,191
                                                                            ----------   ---------   ---------
Total billed and unbilled receivables                                          135,866     129,396     123,761
Assets not reported by segment                                                 178,094     138,914     208,017
                                                                            ----------   ---------   ---------
Consolidated assets                                                         $  313,960   $ 268,310   $ 331,778
                                                                            ==========   =========   =========
</TABLE>
                                      F-24
<PAGE>

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

<TABLE>
<CAPTION>

                                    Fees                                     Long Lived Assets
                  -------------------------------------          -------------------------------------
                       1999          1998          1997               1999          1998          1997
                       ----          ----          ----               ----          ----          ----

<S>               <C>           <C>           <C>                <C>           <C>           <C>
United States     $ 464,521     $ 424,246     $ 395,351          $ 105,481     $  95,617     $ 156,692
Foreign              92,339        88,414        91,151             25,794        20,731        17,781
                  ---------     ---------     ---------          ---------     ---------     ---------

                  $ 556,860     $ 512,660     $ 486,502          $ 131,275     $ 116,348     $ 174,473
                  =========     =========     =========          =========     =========     =========
</TABLE>

Fee  revenue is based on the  country of domicile  for the legal  entity  which
originated  the  fees.  Exclusive  of the  United  States,  fees from no single
country constituted more than 10% of consolidated revenues. Fees from no single
customer constituted more than 10% of consolidated revenues.


NOTE 14 - 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 behalf of the Company.
Expenses  charged to the Company by  Wellspring  for such  services  for fiscal
1999,   1998  and  1997  were   $11,600,000,   $41,811,000   and   $40,313,000,
respectively.  The Company's  obligation to service the retained clients ceased
in fiscal  year 1999 and there were no amounts  due to  Wellspring  at June 30,
1999, compared with $1,186,000 at June 30, 1998.

NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES

The Company is a defendant in certain  lawsuits arising in the normal course of
business,  some of which are in their  earliest  stages.  Management  currently
foresees no material  liability to the Company  resulting from such litigation,
and management  believes that the Company  carries  adequate  insurance,  above
reasonable  deductibles,  or has appropriately  accrued against any foreseeable
outcome of such litigation.

As of June 30,  1999, the Company and its affiliates had outstanding letters of
credit of $2,225,000.

The Company  continues  to  guarantee  certain  leases for office  premises and
equipment for Wellspring.  Minimum  remaining  payments  guaranteed under these
leases at  June 30,  1999 total  $59,800,000,  which  expire at  various  dates
through  2007.  These leases are also jointly and  severally  guaranteed by the
Company's former partner in Wellspring,  State Street.  The estimated loss from
the  potential  exercise of these  guarantees  has been included in the loss on
disposal of the benefits administration outsourcing business.

Anticipated  commitments  of  funds  for  fiscal  year  2000 are  estimated  at
$30,100,000,   which  includes  expected  purchases  of  fixed  assets  and  an
installment  payment  during the fiscal  year  related to the  purchase  of one
consulting  operation.  The Company expects operating cash flows to provide for
the Company's cash needs.

                                      F-25
<PAGE>


NOTE 16 - DISCONTINUED OPERATIONS

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

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

In  1998,  the  Company   recorded  a  pre-tax  loss  on   discontinuation   of
$109,800,000,  which  included the  $45,200,000  write-off of its 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 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  $25,000,000  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.  The Company reduced the amount of its
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-26
<PAGE>

<TABLE>
<CAPTION>
                              WATSON WYATT & COMPANY

                                   SCHEDULE II
                    Valuation and Qualifying Accounts and Reserves
                              (Thousands of Dollars)



                                                                                                                     Balance at
                           Balance at Beginning       Additions Charged        Additions Charged                       End of
    Description                   of Year                Against Fees          to Other Accounts      Deductions        Year
    -----------            --------------------       -----------------        -----------------      ----------        ----

                                                    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(1)              -            6,882


                                                    Year Ended June 30, 1998
                                                    ------------------------

Allowance for doubtful
       accounts                  $ 2,525                $ 5,613                     $     -          $ (5,996)         $ 2,142

Valuation allowance for
  deferred tax assets              3,702                      -                       2,569(1)              -            6,271


                                                    Year Ended June 30, 1997
                                                    ------------------------

Allowance for doubtful
       accounts                  $ 5,161                $ 6,853                     $     -          $ (9,489)         $ 2,525

Valuation allowance for
  deferred tax assets              3,331                      -                         371(1)              -            3,702


<FN>
(1)  Represents   current  year  net  operating  loss   carryforwards  and  the
nondeductible foreign expenses for which realizability is considered uncertain.
</FN>
</TABLE>
                                      F-27