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 (FEE REQUIRED)

     FOR  THE FISCAL YEAR ENDED JUNE 30, 1997
                                       OR
[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
     EXCHANGE  ACT OF 1934 (NO FEE  REQUIRED)   
     For the  transition  period  from  _______ to _______



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

            Delaware                                       53-0181291
 (State or other jurisdiction of                (I.R.S. Employer Identification
          organization)                                       No.)
                                             
                            6707 DEMOCRACY BOULEVARD
                                    SUITE 800
                               BETHESDA, MD 20817
           (Address of Principal executive offices including zip code)
                                 (301) 581-4600
              (Registrant's telephone number, including area code)

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

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

              NONE                                        NONE

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

  COMMON STOCK, $1.00 PAR VALUE               OUTSTANDING AT SEPTEMBER 29, 1997
        (TITLE OF CLASS)                                17,736,687 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. [X]

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
Registrant is $82,753,943.  The aggregate market value was computed by using the
formula book value of the stock (calculated in accordance with the bylaws) as of
September 29, 1997.
                       Documents Incorporated by Reference

The  registrant's  definitive  proxy  statement  for its 1997 annual  meeting of
shareholders  (which is to be filed  pursuant to General  Instruction  G of Form
10-K not later than October 28, 1997),  is  incorporated  by reference into Part
III of this Form 10-K.

<PAGE>


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
      the three years ended June 30, 1997                                  F-2

      Consolidated Balance Sheets at June 30, 1997 and 1996                F-3

                                       -2-
<PAGE>

      Consolidated Statements of Cash Flows for the three
      years ended June 30, 1997                                            F-4

      Consolidated Statements of Changes in Permanent
      Shareholders' Equity for the three years ended June 30, 1997         F-5

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

(2) Consolidated Financial Statement Schedule for the three years
    ended June 30, 1997

    Report of Independent Accountants on Financial Statement Schedule     F-26

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

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

    Financial  statements  of 50% or less  owned  entities  and  unconsolidated
    subsidiaries have been omitted, with the exception of Wellspring Resources,
    LLC  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.

c)  Exhibits (Previously filed with Form 10-K)

                                      -3-
<PAGE>



    


                        REPORT OF INDEPENDENT ACCOUNTANTS





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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of cash flows and of changes in permanent
shareholders'  equity present fairly,  in all material  respects,  the financial
position  of Watson  Wyatt & Company and its  subsidiaries  at June 30, 1997 and
1996,  and the results of their  operations and their cash flows for each of the
three years in the period  ended June 30, 1997,  in  conformity  with  generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards 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/ PRICE WATERHOUSE LLP
------------------------
PRICE WATERHOUSE LLP

Washington, D.C.
July 23, 1997


                                      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,
                                                                  --------------------------------------------------
                                                                      1997               1996                1995
                                                                  ------------       ------------        -----------
<S>                                                              <C>                <C>                 <C>

Fees                                                             $     510,998      $     492,513       $    474,521

Costs of providing services:
     Salaries and employee benefits                                    252,302            241,648            248,708
     Occupancy and communications                                       72,155             63,955             73,449
     Professional and subcontracted services                            82,782             76,243             56,594
     Other                                                              23,898             25,211             26,650
                                                                  ------------       ------------        -----------
                                                                       431,137            407,057            405,401

General and administrative expenses                                     45,696             38,656             41,313
Depreciation and amortization                                           25,993             26,348             21,442
                                                                  ------------       ------------        -----------
                                                                       502,826            472,061            468,156

Income from operations                                                   8,172             20,452              6,365

Other:
     Interest income                                                     1,462              1,441              1,343
     Interest expense                                                   (1,506)              (930)            (1,507)
Loss from affiliates                                                    (6,174)            (2,275)              (576)
                                                                  ------------       ------------        -----------

Income before income taxes, minority interest and
     cumulative effect of a change in accounting                         1,954             18,688              5,625

Provision for (benefit from) income taxes:
     Current                                                             4,149             15,781              2,492
     Deferred                                                           (3,260)            (6,578)             1,357
                                                                  ------------       ------------        -----------
                                                                           889              9,203              3,849
                                                                  ------------       ------------        -----------

Income before minority interest and cumulative
     effect of a change in accounting                                    1,065              9,485              1,776

Minority interest in net income of consolidated subsidiaries              (167)              (130)              (127)
                                                                  ------------       ------------        -----------
                                                                           898              9,355              1,649
Cumulative effect of a change in accounting for
     postemployment benefits, net of tax benefit of $1,000                   -                  -               (800)
                                                                  ------------       ------------        -----------

Net income                                                       $         898      $       9,355       $        849
                                                                  ============       ============        ===========


Earnings per share                                               $        0.05      $        0.51       $       0.09
Cumulative effect of a change in accounting                               0.00               0.00              (0.04)
                                                                  ------------       ------------        -----------
Net income per share                                             $        0.05      $        0.51       $       0.05
                                                                  ============       ============        ===========
</TABLE>


               See notes to the consolidated financial statements.
                                       F-2

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                       June 30,             June 30,
                                                                                         1997                 1996
                                                                                    ------------         -------------
                                                        Assets
<S>                                                                                <C>                   <C>    

Cash and cash equivalents                                                          $      26,257        $       21,694
Receivables from clients: 
     Billed, net of allowances of $2,525 and $5,161                                       67,393                71,431
     Unbilled                                                                             56,368                53,122
                                                                                    ------------         -------------
                                                                                         123,761               124,553

Other current assets                                                                       7,287                 6,936
                                                                                    ------------         -------------
     Total current assets                                                                157,305               153,183

Investment in affiliates                                                                  52,516                41,195
Fixed assets                                                                              37,045                36,466
Deferred income taxes                                                                     39,025                41,983
Deferred software and development costs                                                   32,869                35,746
Other intangible assets                                                                    2,661                 3,820
Other assets                                                                              10,357                 8,426
                                                                                    ------------         -------------

                                                                                  $      331,778        $      320,819
                                                                                    ============         =============

                                 Liabilities, Redeemable Common Stock, and Permanent Shareholders' Equity

Accounts payable and accrued liabilities                                          $      103,823        $       88,203
Income taxes payable                                                                       3,563                11,362
Deferred income taxes                                                                     28,612                34,830
                                                                                    ------------         -------------
     Total current liabilities                                                           135,998               134,395

Accrued retirement benefits                                                               86,697                81,141
Deferred rent and accrued lease losses                                                    14,938                 9,904
Other noncurrent liabilities                                                               9,908                10,635

Minority interest in subsidiaries                                                            351                   362

Redeemable Common Stock - $1 par value:
     25,000,000 shares authorized;
     18,130,429 and 18,261,963 issued
     and outstanding; at redemption value                                                 96,091                90,214

Permanent shareholders' equity:
Adjustment for redemption value greater than amounts paid in by shareholders             (37,674)              (37,549)
Retained earnings                                                                         24,633                30,677
Cumulative translation gain                                                                  836                 1,040

Commitments and contingencies (Note 14)
                                                                                    ------------         -------------

                                                                                  $      331,778        $      320,819
                                                                                    ============         =============

</TABLE>




               See notes to the consolidated financial statements.
                                       F-3

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


                                                                                          Year ended June 30,
                                                                           ---------------------------------------------------
                                                                                1997               1996                1995
                                                                           ------------       -------------       ------------
<S>                                                                         <C>               <C>                 <C>

Cash flows from operating activities:
     Net income                                                            $        898       $       9,355       $        849
     Adjustments to reconcile net income to net cash
     provided by operating activities:
         Provision for doubtful receivables from clients                          6,853              11,667              5,982
         Depreciation                                                            13,816              14,805             15,479
         Amortization of deferred software and development costs
             and other intangible assets                                         12,176              11,543              5,963
         Change in deferred income taxes                                         (3,260)             (6,578)               303
         Loss from affiliates                                                     6,174               2,275                576
         Minority interest in net income of consolidated subsidiaries               167                 130                127
         (Increase) decrease in assets:
             Receivables from clients                                            (6,061)              1,143            (17,619)
             Income taxes receivable                                               -                  2,055             (2,055)
             Other current assets                                                  (351)                 30               (778)
             Other assets                                                        (1,930)             (1,904)            (2,015)
         Increase (decrease) in liabilities:
             Accounts payable and accrued liabilities                            17,846              12,785             12,539
             Income taxes payable                                                (7,799)             10,926             (2,190)
             Accrued retirement benefits                                          5,556               7,104              8,975
             Deferred rent and deferred lease losses                              5,034              (3,004)               399
             Other noncurrent liabilities                                          (727)                605              7,364
         Other                                                                      656                  99               (433)
                                                                             ----------        ------------        -----------
         Net cash provided by operating activities                               49,048              73,036             33,466
                                                                             ----------        ------------        -----------

Cash flows from investing activities:
     Sale of short-term investments                                                 -                   -                2,530
     Purchases of fixed assets                                                  (15,548)            (21,672)           (18,780)
     Proceeds from sales of fixed assets and investments                            446               8,160                533
     Acquisitions                                                                (1,169)             (2,445)              (604)
     Investment in software and development costs                                (7,597)            (17,568)           (21,645)
     Investment in affiliates                                                   (18,404)            (24,687)            (7,879)
                                                                             ----------        ------------        -----------
         Net cash used in investing activities                                  (42,272)            (58,212)           (45,845)
                                                                             ----------        ------------        -----------

Cash flows from financing activities:
     Issuances of Redeemable Common Stock                                        15,414              10,274              7,188
     Repurchases of Redeemable Common Stock                                     (16,604)            (14,270)           (10,144)
                                                                             ----------        ------------        -----------
         Net cash used in financing activities                                   (1,190)             (3,996)            (2,956)
                                                                             ----------        ------------        -----------

Effect of exchange rate changes on cash                                          (1,023)               (994)               936
                                                                             ----------        ------------        -----------

Increase (decrease) in cash and cash equivalents                                  4,563               9,834            (14,399)

Cash and cash equivalents at beginning of period                                 21,694              11,860             26,259
                                                                             ----------        ------------        -----------

Cash and cash equivalents at end of period                                  $    26,257       $      21,694       $     11,860
                                                                             ==========        ============        ===========
</TABLE>



               See notes to the consolidated financial statements.
                                       F-4

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                                         Excess of Redemption
                                                                                      Cumulative          Value Over Amounts
                                                                Retained              Translation             Paid in by
                                                                Earnings                 Gain                Shareholders
                                                              -------------        ----------------        ---------------
<S>                                                          <C>                  <C>                     <C>

Balance at June 30, 1994                                     $       30,344       $             694       $        (37,866)

Net income                                                              849                      -                      -
Effect of repurchases of 2,221,419 shares of
     common stock (various prices per share)                         (4,306)                     -                   4,306
Foreign currency translation adjustment                                  -                    1,036                     -
Adjustment of redemption value for change
     in formula book value per share                                     -                       -                  (1,619)
                                                              -------------        ----------------        ---------------

Balance at June 30, 1995                                     $       26,887       $           1,730       $        (35,179)

Net income                                                            9,355                      -                      -
Effect of repurchases of 3,146,899 shares of
     common stock (various prices per share)                         (5,565)                     -                   5,565
Foreign currency translation adjustment                                  -                     (690)                    -
Adjustment of redemption value for change
     in formula book value per share                                     -                       -                  (7,935)
                                                              -------------        ----------------        ---------------

Balance at June 30, 1996                                     $       30,677       $           1,040       $        (37,549)

Net income                                                              898                      -                      -
Effect of repurchases of 3,258,203 shares of
     common stock (various prices per share)                         (6,942)                     -                   6,942
Foreign currency translation adjustment                                  -                     (204)                    -
Adjustment of redemption value for change
     in formula book value per share                                     -                       -                  (7,067)
                                                              -------------        ----------------        ---------------

Balance at June 30, 1997                                     $       24,633       $             836       $        (37,674)
                                                              =============        ================        ===============

</TABLE>













               See notes to the consolidated financial statements.
                                       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 a  diversified  international
company  engaged in the  business of  providing  professional  services on a fee
basis,  primarily in the employee  benefit and  compensation  field, but also in
other  areas  of  specialization  such as  risk  management,  insurance  company
consulting and asset services.  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.

On March 31, 1996,  the Company  transferred  its employee  outsourced  benefits
administration  operations including certain deferred systems development costs,
to  a  newly  formed  limited  liability  company,   Wellspring  Resources,  LLC
("Wellspring").  Wellspring,  which is owned 50% by the Company and 50% by State
Street Bank and Trust  Company  ("State  Street"),  provides  benefits and human
resources administration outsourcing services. The transfer included $15,407,000
of deferred software development costs substantially incurred in anticipation of
this transaction,  transaction costs of $2,834,000 and the sale of $3,800,000 of
fixed assets. In conjunction with the Wellspring transfer, the Company also sold
its rights to contracts and fixed assets for its Minneapolis benefit outsourcing
center directly to State Street for $3,500,000.  No gain or loss was recorded on
either transaction, (See also Notes 3, 13 and 14).

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,  allowance for uncollectible  receivables,
deferred software and development costs, investments in affiliates, depreciation
and amortization, asset write-downs, employee benefit plans and taxes.

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.
The Company had an overnight repurchase  agreement with a financial  institution
of $17,200,000 at June 30, 1997 and $15,500,000 at June 30, 1996.

RECEIVABLES  FROM CLIENTS - Billed  receivables  from  clients are  presented at
their  billed  amount  less  an  allowance  for  doubtful   accounts.   Unbilled
receivables are stated at their estimated net realizable value.

                                      F-6
<PAGE>

REVENUE RECOGNITION - For consulting services, fees from clients are recorded as
services are performed and are  presented  net of write-offs  and  uncollectible
amounts.  Under certain long-term contracts for administrative and recordkeeping
services, implementation fees are deferred until services become operational and
are then  recognized  ratably over the remaining  life of the initial  contract.
Total current and non-current  deferred  implementation fees were $9,043,000 and
$7,259,000 at June 30, 1997 and 1996, respectively.  Fees for administrative and
recordkeeping operations are recognized as earned by the Company.

DEFERRED  SOFTWARE AND DEVELOPMENT COSTS - Labor and other direct costs incurred
to develop  software and systems are deferred on the Company's  balance  sheets.
Deferred software costs include costs primarily associated with products used in
providing services to clients. Deferred system development costs include certain
pre-operational  costs,  primarily  systems  development and enhancement  costs,
which are specifically  identifiable and associated with long-term contracts for
outsourcing and  recordkeeping  services.  Deferred software costs are amortized
over the useful lives of the products  ranging usually from three to five years.
Deferred  systems  development  costs are  amortized  ratably over the estimated
remaining  life  of  the  respective  contract  (excluding  renewals)  upon  the
commencement  of  services  under the  contract.  Accumulated  amortization  was
$21,325,000 and $18,871,000 at June 30, 1997 and June 30, 1996, respectively.

The Company assesses impairment  quarterly on individual  contracts by comparing
probable  undiscounted future cash flows with the net book value of the deferred
costs. Losses so identified are then measured as the difference between net book
value of the deferred costs and the  discounted  present value of the cash flows
and are recorded when identified. Permanent impairment of $3.7 million on two of
three contracts for  administrative  and  recordkeeping  services was recognized
during  fiscal  year 1997 and is  included  in  Professional  and  subcontracted
services, (See also Note 13). This impairment resulted from changes in estimated
future cash flows primarily related to third party vendor costs.

OTHER INTANGIBLE  ASSETS - Other 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 ten 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.  Accumulated  amortization of other
intangible  assets was $12,201,000 and $11,931,000 at June 30, 1997 and June 30,
1996, respectively.

EMPLOYEE RECEIVABLES - The Company had outstanding employee receivables included
in other current and noncurrent  assets of $3,505,000 and $4,474,000 at June 30,
1997 and June 30, 1996, 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.

                                      F-7
<PAGE>

FAIR VALUE OF FINANCIAL  INSTRUMENTS - The carrying amount of the Company's cash
and cash  equivalents,  short-term  investments,  receivables  from  clients and
accounts payable and accrued liabilities  approximates fair value because of the
short maturity and ready liquidity of those instruments. The Company's policy is
to estimate the fair value of its notes payable, if any, by discounting required
future cash flows under such notes using  interest  rates at which similar types
of borrowing  arrangements could be currently  obtained by the Company.  At June
30, 1997 and June 30,  1996,  the Company had no amounts  outstanding  under its
note payable. The Company knows of no event of default which would require it to
satisfy the  guarantees  described  in Notes 9 and 14, and  therefore,  the fair
value of these contingent liabilities is considered immaterial.

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 17,438 in fiscal year
1997, 18,516 in fiscal year 1996, and 19,248 in fiscal year 1995.


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,
                                   ------------------------------------------
                                       1997           1996              1995
                                       ----           ----              ---- 
Interest expense and bank fees     $     1,506    $       930       $     1,507
Income taxes paid                  $    11,947    $     2,800       $     6,955


                                      F-8
<PAGE>

NOTE 3 - INVESTMENTS IN AFFILIATES

Entities accounted for under the equity method are:

                                                              June 30,
                                         Ownership  ---------------------------
                                         Interest      1997             1996
                                         --------      ----             ----

Watson Wyatt Holdings (Europe) Limited     50.1%    $      7,614    $     7,585
Watson Wyatt Partners                      10.0%          12,582         10,366
Wellspring Resources, LLC                  50.0%          31,894         22,833
Professional Consultants Insurance 
     Company, Inc.                         22.5%             426            411
                                                    ------------    -----------
     Total investment in affiliates                 $     52,516    $    41,195
                                                    ============    ===========




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.

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 and  Wellspring  using the equity  method of
accounting because it exercises significant influence, but does not control, the
operations of the entities.

At June 30, 1997,  the  Company's  investment  in WWHE,  Watsons and  Wellspring
exceeded the Company's  share of the  underlying  net  assets  by $6,772,000 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 (See also Notes 13 and 14).

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

                                               Year ended June 30,
                                     -----------------------------------------
                                        1997          1996           1995
                                        ----          ----           ---- 

Wellspring                           $    (6,087)  $    (1,408)  $          -
All others                                   827          (231)          (510)
                                     ------------  ------------  -------------
Equity investment losses                  (5,260)       (1,639)          (510)
                                                        
Amortization of basis differential          (914)         (636)           (66) 
                                     ------------  ------------  -------------
Loss from affiliates                 $    (6,174)  $    (2,275)  $       (576)
                                     ============  ============  =============

                                      F-9
<PAGE>

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

                                       1997                      1996
                                       ----                      ----
                                           50% or                      50% or
                           Unconsolidated Less Owned Unconsolidated  Less Owned
                            Subsidiaries   Entities   Subsidiaries    Entities  
                            ------------   --------   ------------    --------
Current assets                 $  12,487  $ 130,948    $  15,713     $ 101,434
Noncurrent assets                  1,972     61,157        2,058        33,560
                               ---------  ---------    ---------     ---------
     Total assets              $  14,459  $ 192,105    $  17,771     $ 134,994
                               =========  =========    =========     =========

Current liabilities            $   7,820  $  47,983    $  15,340     $  33,688
Noncurrent liabilities            13,561     21,990       11,715        13,476
Shareholders' equity              (6,922)   122,132       (9,284)       87,830
                               ---------  ---------    ---------     ---------
     Total liabilities &       
     shareholders' equity      $  14,459  $ 192,105    $  17,771     $ 134,994 
                               =========  =========    =========     ========= 
                               


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:

<TABLE>
<CAPTION>


                                              1997                             1996                             1995
                                              ----                             ----                             ----
                                 Unconsolidated    50% or less    Unconsolidated    50% or less    Unconsolidated    50% or less
                                  Subsidiaries   Owned Entities    Subsidiaries   Owned Entities    Subsidiaries    Owned Entities
                                  ------------   --------------    ------------   --------------    ------------    --------------
<S>                                          <C>           <C>            <C>            <C>             <C>             <C>

Revenue                               $   29,410    $  182,529     $   20,082      $  127,531       $   19,208       $   90,129
Operating expenses                        31,443       152,203         23,493         100,073           20,730           66,820
                                      ----------    ----------     ----------      ----------       ----------       ----------
Income(loss) before tax               $   (2,033)   $   30,326     $   (3,411)     $   27,458       $   (1,522)      $   23,309
                                      ==========    ==========     ==========      ==========       ==========       ==========

Net income (loss)                     $   (2,220)   $   29,996     $   (3,249)     $   27,761       $   (1,562)      $   23,503
                                      ==========    ==========     ==========      ==========       ==========       ==========
</TABLE>


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-10
<PAGE>

The components of fixed assets are:

                                                   June 30,
                                          --------------------------
                                              1997            1996
                                              ----            ----   
Furniture, fixtures and equipment         $  105,704      $  110,117
Leasehold improvements                        23,688          22,098
                                          ----------      ----------
                                             129,392         132,215
Less: accumulated depreciation
      and amortization                       (92,347)        (95,749)
                                          ----------      ----------

      Net fixed assets                    $   37,045      $   36,466
                                          ==========      ==========


NOTE 5 - PENSION AND PROFIT SHARING PLANS

The  noncurrent  portions of accrued costs  related to the  Company's  principal
retirement plans are:

                                                             June 30,
                                                   --------------------------
                                                       1997              1996
                                                       ----              ----  
Reserves for defined benefit retirement plans      $   42,212      $   38,916
Reserves for Canadian Separation Allowance Plan         6,229           5,966
Reserves for postretirement benefits other             
     than pensions                                     38,256          36,259
                                                   ----------      ----------
     Accrued retirement benefits                   $   86,697      $   81,141
                                                   ==========      ==========


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 associates' compensation during the three
highest paid consecutive years of service. Consolidated pension plan expense for
the Company's  principal  defined  benefit plans for fiscal years 1997, 1996 and
1995 amounted to $6,595,000, $10,952,000 and $10,027,000 respectively.

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.  At June 30, 1997 and 1996, the
Company's non-qualified plans had accumulated benefits in excess of related plan
assets.

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-11
<PAGE>

The following  table sets forth the principal  plans' funded status as reflected
in the consolidated balance sheets:

<TABLE>
<CAPTION>
                                    
                                                      June 30, 1997                        June 30, 1996
                                            -------------------------------        -------------------------------
                                            Assets Exceed      Accumulated         Assets Exceed     Accumulated
                                             Accumulated        Benefits            Accumulated       Benefits
                                               Benefits       Exceed Assets           Benefits      Exceed Assets
                                               --------       -------------           --------      -------------
<S>                                                  <C>                <C>                <C>           <C>

Actuarial present value of benefit
  obligations:
Vested benefit obligation                    $  162,769        $   32,689          $  150,510        $   15,499
                                             ==========        ==========          ==========        ==========
Accumulated benefit obligation               $  184,582        $   36,239          $  170,959        $   17,786
                                             ==========        ==========          ==========        ==========

Projected benefit obligation for
  service rendered to date                      225,987            69,258             220,052            43,670
Plan assets at fair value, primarily
 marketable equity securities                   322,485                 -             271,000                 -
                                             ----------        ----------          ----------        ----------
Projected benefit obligation (less than)
  in excess of plan assets                      (96,498)           69,258             (50,948)           43,670
Remaining unrecognized transition
  obligation                                       (576)             (598)               (708)             (661)
Unrecognized prior service cost (benefit)        15,385           (27,676)              4,086           (11,274)
Unrecognized net gain subsequent
  to transition                                  78,635               885              49,346             5,117
                                             ----------        ----------           ---------        ----------
Accrued pension obligation (benefit)         $   (3,054)       $   41,869           $   1,776        $   36,852
                                             ==========        ==========           =========        ==========
</TABLE>



Net  periodic  pension  cost for the  principal  plans  included  the  following
components:

                                                   Year ended June 30,
                                           -----------------------------------  
                                              1997         1996        1995
                                              ----         ----        ----
Service cost - benefits earned during
    the period                             $   16,962   $   16,601  $   14,134
Interest cost on projected benefit            
    obligation                                 19,651       18,425      15,951  
Amortization of unrecognized net obligation
    and other deferred amounts                 26,860       24,798      17,738
Actual return on plan assets                  (56,877)     (48,872)    (37,796)
                                           ----------   ----------   ---------
Net periodic pension cost                  $    6,596   $   10,952   $  10,027
                                           ==========   ==========   =========
                                                   


During fiscal year 1996, the Company sold its  Minneapolis  benefit  outsourcing
center  and  transferred  the  employee  benefits   administrative   outsourcing
operations of WPC to a newly formed  limited  liability  company.  In connection
with  this   transaction,   the  Company   recognized  a  curtailment   gain  of
approximately  $2,919,000,  which is included in the  accompanying  statement of
operations  for fiscal  year  1996,  but is  excluded  from the  previous  table
detailing net periodic pension cost.

                                      F-12
<PAGE>


During fiscal year 1995, the Company suspended its U.K. pension plan as a result
of the  transaction  with  Watsons.  The  suspension  of the U.K.  pension  plan
resulted in a curtailment loss of approximately $2,600,000, which is included in
the  accompanying  statement of operations for fiscal year 1995, but is excluded
from the previous table detailing net periodic pension cost.

During  fiscal year 1995,  the Company  had certain key  executive  retirements.
These  retirements  resulted in a net loss of  approximately  $346,000 in fiscal
year 1995 associated with settlements of the U.S. pension plan.

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

                                                          June 30,
                                              ----------------------------------
                                              1997          1996           1995
                                              ----          ----           ----
Discount rate, projected benefit obligation    7.5%          7.5%           7.5%
Discount rate, net periodic pension cost       7.5%          7.5%           8.0%
Rate of increase in compensation levels        5.8%          5.8%           5.8%
Expected long-term rate of return on assets   10.0%          9.5%           9.5%



Based upon an analysis of recent experience,  anticipated future experience, and
market and economic factors,  the Company changed certain actuarial  assumptions
used in its pension valuations for fiscal years 1997, 1996, and 1995. Changes in
actuarial  assumptions  from  fiscal  year  1996 to fiscal  year 1997  decreased
pension expense by approximately  $1,182,000.  Changes in actuarial  assumptions
from  fiscal  year  1995 to  fiscal  year  1996  increased  pension  expense  by
approximately $1,039,000. Changes in actuarial assumptions from fiscal year 1994
to fiscal year 1995 decreased pension expense by approximately $4,358,000.

DEFINED CONTRIBUTION PLANS

The  Company  sponsors  a  profit  sharing  plan  which  provides   benefits  to
substantially   all  U.S.   associates   and  to  which  the  Company  can  make
discretionary    irrevocable   annual   contributions   and   matches   employee
contributions.  The Profit  Sharing Plan was changed in 1997 to The Savings Plan
with a company  match of 50% of the first 6% of total pay (which  includes  base
salary,  overtime and annual  performance  based  bonuses) on  associate  401(k)
contributions.  Vesting  of the  Company  match  occurs  after 3  years  for new
employees  and is 100% for all  employees  hired  before  January 1,  1997.  The
expense in fiscal year 1997 for the match was $2.0 million.  The Company made no
profit sharing contributions during fiscal years 1997, 1996 or 1995. 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 1997, 1996 and 1995 amounted to $414,000,  $509,000,  and $679,000,
respectively.

                                      F-13
<PAGE>

NOTE 6 -  BENEFITS OTHER THAN PENSIONS

HEALTH CARE BENEFITS

The  Company   sponsors  a   contributory   health  care  plan  which   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 $2,195,000 and $1,867,000 at June 30, 1997
and  1996,  respectively,  and is  included  in  accounts  payable  and  accrued
liabilities in the consolidated balance sheets.

POSTEMPLOYMENT BENEFITS

The Company  provides  certain  postemployment  health  care and life  insurance
benefits for terminated or inactive  associates  other than  retirees.  Prior to
fiscal year 1995, the Company  recognized  these expenses as they were reported.
Effective July 1, 1994, the Company  adopted  Statement of Financial  Accounting
Standards (SFAS) No. 112, "Employers'  Accounting for Postemployment  Benefits,"
which  requires  that the  Company  estimate  and accrue  future  benefits.  The
cumulative effect upon adoption of SFAS No. 112, which relates to years prior to
fiscal year 1995, was an expense of $1,800,000  ($800,000 after-tax or $0.04 per
share).

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.

                                      F-14
<PAGE>

The following  table sets forth the principal  plans' status as reflected in the
consolidated balance sheets:

                                                              June 30,
                                                    --------------------------
                                                       1997              1996
                                                       ----              ----  
Accumulated postretirement benefit obligation:
   Retirees                                         $   12,453      $   13,142
   Fully eligible active plan participants               1,918           5,987
   Other active plan participants                       15,661          17,608
                                                    ----------      ----------
   Accumulated postretirement benefit obligation        30,032          36,737
Unrecognized prior service cost (benefit)                1,563          (3,831)
Unrecognized net gain subsequent to transition           8,367           4,842
Unrecognized transition obligation                        (792)           (930)
                                                    ----------      ----------
   Accrued postretirement benefit obligation        $   39,170      $   36,818
                                                    ==========      ==========


Net periodic  postretirement  benefit cost for the principal  plans included the
following components:

                                                        Year ended June 30,
                                                   ----------------------------
                                                     1997      1996      1995
                                                     ----      ----      ----
Service cost - benefits earned during the period   $  1,891  $  3,881  $  2,145
Interest cost on accumulated postretirement
   benefit obligation                                 1,987     2,685     2,038
Net amortization of prior service cost and net gain
   subsequent to transition                            (685)      138      (935)
Amortization of transition obligation over 20 years      50       347       349
                                                   --------  --------   -------
   Net periodic postretirement benefit cost        $  3,243  $  7,051   $ 3,597
                                                   ========  ========   =======

                                      F-15
<PAGE>

Assumptions  used in the  valuation  for the  U.S.  plan,  which  comprises  the
majority of the principal plans, include:
<TABLE>
<CAPTION>


                                                                                       June 30,
                                                                             -----------------------------
                                                                             1997        1996         1995
                                                                             ----        ----         ---- 
<S>                                                                            <C>         <C>         <C>

Health care cost trend rate, accumulated benefit obligation:
   Pre-65 benefits  (decreasing to 5.0% for 2004 and thereafter)              9.1%        9.8%       10.6%
   Post-65 benefits (decreasing to 5.0% for 2007 and thereafter)              8.3%        8.8%        9.9%
Health care cost trend rate, net periodic postretirement benefit cost:
   Pre-65 benefits  (decreasing to 5.0% for 2004 and thereafter)              9.8%       10.6%       11.3%
   Post-65 benefits (decreasing to 5.0% for 2007 and thereafter)              8.8%        9.4%        9.9%
Discount rate, accumulated benefit obligation                                 7.5%        7.5%        7.5%
Discount rate, net periodic postretirement benefit cost                       7.5%        7.5%        8.0%
</TABLE>


Based on an analysis of market and economic trends,  the Company changed certain
actuarial  assumptions used in determining net periodic  postretirement  benefit
cost in fiscal years 1997, 1996 and 1995. Changes in actuarial  assumptions from
fiscal  year  1996 to  fiscal  year  1997  decreased  expense  by  approximately
$3,182,000 in fiscal year 1997. The effect was to increase net income for fiscal
year 1997 by  approximately  $1,877,000 or $.11 per share.  Changes in actuarial
assumptions  from  fiscal  year 1995 to fiscal  year 1996  increased  expense by
approximately  $259,000 in fiscal year 1996. The effect was to reduce net income
for fiscal year 1996 by  approximately  $121,000  or $.01 per share.  Changes in
actuarial  assumptions  from  fiscal  year  1994 to fiscal  year 1995  decreased
expense  by  approximately  $869,000  in fiscal  year  1995.  The  effect was to
increase net income for fiscal year 1995 by  approximately  $420,000 or $.02 per
share.

An  increase  in the  assumed  health care cost trend rate by 1% each year would
have the following effect on the principal plans:
<TABLE>
<CAPTION>

                                                                           Year ended June 30,
                                                                     ------------------------------ 
                                                                        1997      1996      1995
                                                                        ----      ----      ----  
<S>                                                                  <C>        <C>        <C>    
Increase in accumulated postretirement benefit obligation            $  1,441   $  5,242   $  5,503
Increase in service and interest cost components of net
    periodic postretirement benefit cost                             $    260   $  1,301   $    677

</TABLE>


                                      F-16
<PAGE>


NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of:

                                                             June 30,
                                                   ---------------------------
                                                      1997             1996
                                                      ----             ---- 
Accounts payable and accrued liabilities           $   47,902       $   33,697
Accrued salaries and bonuses                           33,221           32,141
Current portion of reserves for principal defined
    benefit retirement plans                            1,351            3,220
Current portion of reserves for postretirement
    benefits other than pensions                          891              559
Accrued vacation                                       12,260           12,183
Deferred fee income - current portion                   8,198            6,403
                                                   ----------       ----------
Total accounts payable and accrued liabilities     $  103,823       $   88,203
                                                   ==========       ==========



NOTE 8 - LEASES

The Company leases office space and various  computer  equipment under operating
lease agreements with terms generally  ranging from one to 10 years. The Company
has entered into sublease  agreements  for some of its leased space.  The rental
expense was  $42,079,000,  $45,749,000,  and  $51,604,000 for fiscal years 1997,
1996 and 1995,  respectively.  Sublease income was $1,702,000,  $1,810,000,  and
$2,868,000  for fiscal  years  1997,  1996 and 1995,  respectively.  Future cash
outlays for operating  lease  commitments  and cash inflows for sublease  income
are:

                                               Lease           Sublease
                                            Commitments         Income
                                            -----------         ------
                    1998                    $   42,863       $    2,024
                    1999                        36,217            1,353
                    2000                        34,489            1,358
                    2001                        30,675            1,216
                    2002                        24,857              966
              thereafter                        35,782                -
                                            ----------       ----------
                                            $  204,883       $    6,917
                                            ==========       ==========



As a result of  relocations  and the  subleasing  of excess  office  space,  the
Company  recognized  lease  termination  losses  of  approximately  $12,100,000,
$500,000, and $1,200,000 in fiscal years 1997, 1996, and 1995, respectively.

                                      F-17
<PAGE>

NOTE 9 - NOTE PAYABLE

The Company has an $80 million revolving credit line with a group of banks at an
interest rate which varies with the prime rate. 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 the
Company's  receivables.  The current  line is  currently  scheduled to mature on
January 5, 2001. Of the credit line,  $55 million is available to the Company as
revolving credit for operating needs, subject to certain borrowing  limitations.
The  remaining  $25 million is  available  to secure  loans to  associates  from
financial  institutions  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  $20,920,000  and  $17,534,000 at June 30, 1997 and 1996,  respectively.
Shares totaling 5,718,000 and 4,800,000 of the Company's Redeemable Common Stock
were  pledged by  shareholders  to secure these loans at June 30, 1997 and 1996,
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.

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  purchases  and sales 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.  Additional  amounts may be paid for  purchases  of  Redeemable
Common Stock reflecting 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  Corporation's  Common  Stock  as of June 30,  1996,
increased  or  decreased  by net  income or  losses,  and all other  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;  and (ii)  eliminate  annual changes in the
Currency  Translation  Adjustment  ("CTA")  occurring  after June 30, 1996.  The
Formula Book Value per share was $5.30 at June 30, 1997. In prior years, the Net
Book  Value was  defined in the bylaws as the sum of  Redeemable  Common  Stock,
adjustments for redemption  value greater than amounts paid in by  shareholders,
retained  earnings,   and  cumulative   translation   adjustment,   adjusted  by
compensation  survey items.  The Formula Book Value per share, as defined above,
was $4.94 and $4.51 at June 30, 1996 and 1995,  respectively.  Redeemable Common
Stock is equal to the number of shares  outstanding  multiplied  by the  Formula
Book Value per share.

                                      F-18
<PAGE>

The following schedule computes the Formula Book Value per share at June 30:
<TABLE>
<CAPTION>

                                                           1997            1996           1995
                                                           ----            ----           ----
<S>                                                     <C>             <C>           <C>

Consolidated net worth (as defined in the Company's
      bylaws)                                           $   84,091      $   84,382    $   79,713
Adjustment for the compensation survey items:
      50% of consolidated income received
      from compensation survey business                      5,915           5,915         6,524
Add:  Adjustment for after tax affect of lease losses        6,003             N/A           N/A
                                                        ----------      ----------    ----------
Formula Book Value of Redeemable Common Stock           $   96,009      $   90,297    $   86,237
                                                        ==========      ==========    ==========

Number of shares of Redeemable Common Stock outstanding     18,130          18,262        19,130
                                                        ==========      ==========    ==========

Formula Book Value per share of Redeemable Common Stock $     5.30      $     4.94    $     4.51
                                                        ==========      ==========    ==========
</TABLE>
                                      F-19
<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 changes in this balance for the three years ended June
30, 1997 were as follows:


                                            Number of                Redeemable
                                              Shares                Common Stock
                                              ------                ------------
Balance at June 30, 1994                    19,732,423             $     87,612

Redemption of shares                        (2,221,419)                 (10,143)

Issuance of shares                           1,618,702                    7,187

Adjustment of redemption values for
   change in formula book vaue per share         -                        1,619
                                           -----------             ------------
Balance at June 30, 1995                    19,129,706             $     86,275
                                           ===========             ============
Redemption of shares                        (3,146,899)                 (14,270)

Issuance of shares                           2,279,156                   10,274

Adjustment of redemption value for
  change in formula book value per share             -                    7,935

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




The Company  sponsors a Stock  Purchase  Plan (SPP) which allows  virtually  all
associates to become shareholders.  For the fiscal year ended June 30, 1997, the
Company paid each associate  purchasing stock $.50 per share purchased under the
SPP.  For fiscal  years  ended 1996 and 1995,  the Company  paid each  associate
purchasing  stock  $1.00 per share  purchased  under the SPP.  This  resulted in
expense for fiscal years 1997,  1996,  and 1995 of $1,300,000,  $1,700,000,  and
$1,600,000, respectively.

                                      F-20
<PAGE>


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 income tax provision  before the cumulative  effect of any
accounting change include:

                                               Year ended June 30,
                                       ------------------------------------
                                          1997         1996          1995
                                          ----         ----          ----
Current tax expense (benefit):
        U.S.                          $    1,699   $   11,415   $   (1,269)
        State and local
                                             966        2,735          659
        Foreign
                                           1,484        1,631        3,102
                                      ----------   ----------   ----------
                                      $    4,149   $   15,781   $    2,492
                                      ----------   ----------   ----------

Deferred tax expense (benefit):
        U.S.                          $   (4,002)  $   (4,579)  $    1,101
        State and local
                                          (1,396)      (1,298)          92
        Foreign
                                           2,138         (701)         164
                                      ----------   ----------   ----------
                                      $   (3,260)  $   (6,578)  $    1,357
                                      ----------   ----------   ----------

Total provision for income taxes      $      889   $    9,203   $    3,849
                                      ==========   ==========   ==========
                                             


                                      F-21
<PAGE>

Deferred income tax assets  (liabilities)  included in the consolidated  balance
sheets at June 30, 1997 and June 30, 1996 are comprised of the following:


                                                         June 30,
                                               -----------------------------   
                                                   1997             1996
                                                   ----             ----
Cash method of accounting for U.S. income
     tax purposes                              $   (23,468)     $   (34,061)
Amortization of deferred software and
     development costs                              (3,470)          (4,351)
Foreign temporary difference                        (1,036)            (975)
Partnership income                                  (4,289)            (744)
Other                                                   (9)            (144)
                                               -----------      -----------
  Gross deferred tax liabilities                   (32,272)         (40,275)
                                               -----------      -----------
Accrued retirement benefits                         36,619           36,177
Non-deductible foreign expenses                      1,172            1,172
Difference between book and tax depreciation        (2,576)           1,704
Amortization of deferred rent                        3,419            4,313
Foreign temporary difference                         1,281            1,306
Foreign net operating loss carryforwards             2,530            2,159
Other                                                3,942            3,928
                                               -----------      -----------
     Gross deferred tax assets                      46,387           50,759
                                               -----------      -----------

     Deferred tax assets valuation allowance        (3,702)          (3,331)
                                               -----------      -----------
     Net deferred tax asset                    $    10,413      $     7,153
                                               ===========      ===========

The  Company  has  foreign tax credit  carryforwards  for U.S.  tax  purposes of
$441,000.  At June 30, 1997, the Company has unused loss  carryforwards  for tax
purposes in various jurisdictions  outside the U.S. amounting to $6,171,000,  of
which $3,804,000 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 ($2,530,000), and the tax effect of
nondeductible   foreign  expenses   ($1,172,000)  for  which   realizability  is
considered uncertain.

The net change in the  valuation  allowance  of $371,000 in fiscal year 1997 and
$1,080,000 in fiscal year 1996 are due primarily to the tax effect of the change
in foreign net operating losses and non-deductible foreign expenses.

                                      F-22
<PAGE>

Domestic and foreign  components of income before taxes,  minority  interest and
cumulative  effect of a change in  accounting  for each of the three years ended
June 30, are follows:

                                 1997           1996          1995
                                 ----           ----          ----

          Domestic           $   (4,803)    $   11,477     $    6,817
          Foreign                 6,757          7,211         (1,192)
                             ----------     ----------     ----------

                             $    1,954     $   18,688     $    5,625
                             ==========     ==========     ==========

The  reported  income tax  provision  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,
                                               ------------------------------
                                                  1997       1996       1995
                                                  ----       ----       ----
Calculated income tax provision at U.S.
     federal statutory tax rate of 35%         $   684     $ 6,541    $ 1,969
(Reduction) increase resulting from:
     Results of non-U.S. affiliates taxed
          at other than statutory rates           (463)        120       (759)
     Losses of non-U.S. affiliates for which
          no current benefit is available          599         792      1,043
     State income taxes, net of federal tax
          benefit                                 (430)        620        336
     Non-deductible amortization and other
          expenses                                 700       1,668      1,183
     Tax credits                                  (258)       (311)      (207)
     Other                                          57        (227)       284
                                               -------     -------    -------
Income tax provision before cumulative
     effect of a change in accounting          $   889     $ 9,203    $ 3,849
                                               =======     =======    =======


                                      F-23
<PAGE>

NOTE 12 - GEOGRAPHIC SEGMENT INFORMATION

The following  table  presents  segment  information  for U.S. and  consolidated
foreign   operations   including  Canada,   Latin  America,   and  Asia  Pacific
subsidiaries. Summary financial information follow:
<TABLE>
<CAPTION>

                                                            Year ended June 30,
                                               ------------------------------------------
<S>                                            <C>              <C>             <C>  
                                                  1997            1996             1995
                                                  ----            ----             ----
U.S. Operations
   Fees                                        $  419,847      $  410,969      $  370,462
   Cost of Providing Services                     347,852         332,192         305,555
   Depreciation and amortization                   23,038          23,575          17,805
   Income from operations before               ----------      ----------      ----------  
     General and Administrative Expenses       $   48,957      $   55,202      $   47,102
                                               ----------      ----------      ----------

Foreign Operations
   Fees                                        $   91,151      $   81,544      $  104,059
   Cost of Providing Services                      83,285          74,865          99,846
   Depreciation and amortization                    2,955           2,773           3,637
                                               ----------      ----------      ----------
   Income from operations before
     General and Administrative Expenses       $    4,911      $    3,906     $       576
                                               ----------      ----------      ----------

All Operations
   Fees                                        $  510,998      $  492,513      $  474,521
   Cost of Providing Services                     431,137         407,057         405,401
   Depreciation and amortization                   25,993          26,348          21,442
                                               ----------      ----------      ----------            
   Income from operations before
     General and Administrative Expenses       $   53,868      $   59,108      $   47,678
                                               ----------      ----------      ----------

   General and Administrative Expenses         $   45,696      $   38,656      $   41,313
                                               ----------      ----------      ----------
Income from operations                         $    8,172      $   20,452      $    6,365
                                               ==========      ==========      ==========
                                                                 
 
                                                              As of June 30,
                                               ------------------------------------------
                                                  1997            1996             1995
                                                  ----            ----             ----   

Total Assets:
   U.S. Operations                             $  306,779      $  300,472      $  267,677
   Foreign Operations                              24,999          20,347          18,945
                                               ----------      ----------      ----------
                                                                
   All Operations                              $  331,778      $  320,819      $  286,622
                                               ==========      ==========      ==========
</TABLE>


General and Administrative expenses include corporate functions primarily in the
U.S.

                                      F-24
<PAGE>

NOTE 13 - RELATED PARTY TRANSACTIONS

In connection  with the formation of  Wellspring,  Watson Wyatt  retained  three
contracts  for  administrative  and  recordkeeping  services  and  entered  into
agreements whereby  Wellspring  provides the services to those clients on behalf
of the Company for a fee equal to the cost of servicing those clients.  Expenses
charged to the Company by Wellspring  for such services for fiscal 1997 and 1996
were  $40,313,000 and $10,829,000,  respectively.  At June 30, 1997, the Company
owed Wellspring  $11,009,000 for such services. At June 30, 1996 Wellspring owed
the Company $736,000 (See also Notes 1 and 14).


NOTE 14 - 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  resulting from such litigation,  and management
believes  that  the  Company  carries  adequate   insurance,   above  reasonable
deductibles, against any foreseeable outcome of such litigation.

As of  June  30,  1997,  the  Company  had  outstanding  letters  of  credit  of
$2,225,000.

The Company  guarantees certain leases for office premises and equipment for one
of its affiliates.  Minimum remaining payments  guaranteed under these leases at
June 30, 1997 total  $73,200,000,  which expire at various  dates  through 2007.
These leases are also jointly and severally guaranteed by the Company's partner.
In addition,  the Company guarantees its affiliate's obligation to a customer in
the event of termination  without cause. The amount of the guarantee at June 30,
1997 is $5,310,000. This amount declines monthly beginning in September 1997 and
expires in 2002.

It is not practical to estimate  fair value of these  guarantees;  however,  the
Company  believes the  likelihood of significant  loss from these  guarantees is
remote.

Anticipated  commitments  of  funds  for  fiscal  year  1998  are  estimated  at
$39,000,000,  and include expected purchases of fixed assets, 50% of the capital
requirements of Wellspring, and 50.1% of the capital requirements of WWHE. It is
the intention of the Company to fund  Wellspring's and WWHE's cash  requirements
as needed (See also Notes 3 and 13).



                                      F-25
<PAGE>


                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE



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

Our audits of the consolidated  financial  statements  referred to in our report
dated July 23,  1997  appearing  on page F-1 of the Form 10-K also  included  an
audit of the  Financial  Statement  Schedule  listed in item  14(a) of this Form
10-K. In our opinion,  the Financial  Statement Schedule presents fairly, in all
material  respects,  the  information set forth therein when read in conjunction
with the related consolidated financial statements.




/S/ PRICE WATERHOUSE LLP
------------------------
PRICE WATERHOUSE LLP

Washington, D.C.
July 23, 1997


                                      F-26
<PAGE>


                             WATSON WYATT & COMPANY

                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>



                        Balance  at   Additions     Additions                    Balance at
                         Beginning     Charged      charged to                    End of
       Description        of Year    against fees  other accounts  Deductions      Year
       -----------      -----------  ------------  --------------  ----------    ----------

                                     Year Ended June 30, 1997
                                     ------------------------
<S>                       <C>          <C>          <C>             <C>           <C>

Allowance for doubtful
   accounts               $5,161       $6,853       $    -          $(9,489)       $2,525
Valuation allowance for
   deferred tax assets     3,331            -          371(1)             -         3,702


                                     Year ended June 30, 1996
                                     ------------------------

Allowance for doubtful
   accounts                1,508       11,667            -           (8,014)        5,161

Valuation allowance for
   deferred tax assets     2,251            -        1,080(1)             -         3,331


                                     Year ended June 30, 1995
                                     ------------------------

Allowance for doubtful
   accounts                1,026        5,982            -           (5,500)        1,508

Valuation allowance for
   deferred tax assets    $5,209          $ -         $235(1)       $(3,193)(2)    $2,251
</TABLE>


----------

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

(2)  Represents  expiring net operating loss  carryforwards and reduction of net
     operating  loss  carryforwards  resulting  from  the  transfer  of  certain
     subsidiaries to a newly formed entity.

                                      F-27