<PAGE>   1

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

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

                         FOR THE TRANSITION PERIOD FROM
                               ---------------TO
                                ---------------

                         COMMISSION FILE NUMBER 1-4720

                          WESCO FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      95-2109453
       (STATE OR OTHER JURISDICTION OF              (I.R.S. EMPLOYER IDENTIFICATION NO.)
        INCORPORATION OR ORGANIZATION)

   301 EAST COLORADO BOULEVARD, SUITE 300,                       91101-1901
             PASADENA, CALIFORNIA                                (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

                                 (626) 585-6700
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

<TABLE>
<S>                                            <C>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
         CAPITAL STOCK, $1 PAR VALUE                      AMERICAN STOCK EXCHANGE
                                                         AND PACIFIC STOCK EXCHANGE
</TABLE>

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

                                      NONE
                                (TITLE OF CLASS)

                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant as of March 19, 1998 was: $486,959,000

     The number of shares outstanding of the registrant's Capital Stock as of
March 19, 1998 was: 7,119,807.

                      DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
              TITLE OF DOCUMENT                             PARTS OF FORM 10-K
              -----------------                             ------------------
<S>                                            <C>
          Proxy Statement for 1998                   Part III, Items 10, 11, 12 and 13
       Annual Meeting of Shareholders
</TABLE>

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

                                       11
<PAGE>   2

                                     PART I

ITEM 1. BUSINESS

GENERAL

     Wesco Financial Corporation ("Wesco") was incorporated in Delaware on March
19, 1959. Wesco, through wholly owned subsidiaries, engages in two principal
businesses: (1) the insurance business, through Wesco-Financial Insurance
Company ("Wes-FIC"), which was incorporated in 1985 and engages in the property
and casualty insurance business, and The Kansas Bankers Surety Company ("KBS"),
which was incorporated in 1909, was purchased by Wes-FIC in mid-1996 and
provides specialized insurance coverages for banks; and (2) the steel service
center business, through Precision Steel Warehouse, Inc. ("Precision Steel"),
which was begun in 1940 and acquired by Wesco in 1979. Through late 1993, Wesco
also engaged in the savings and loan business, through another wholly owned
subsidiary, Mutual Savings and Loan Association ("Mutual Savings"), which was
incorporated in California in 1925, gave up its status as a regulated thrift
institution after disposing of its savings accounts and most of its real estate
loans in October 1993, and, in a statutory merger effective January 1, 1994,
merged into Wes-FIC.

     Wesco's operations also include, through MS Property Company ("MS
Property"), the ownership and management of commercial real estate transferred
to MS Property by Wesco, and the development and liquidation of foreclosed real
estate and delinquent real estate loans transferred to MS Property by Mutual
Savings, all in December 1993, when MS Property, a wholly owned subsidiary of
Wesco, began its operations. Wesco's operations, through mid-1993, also included
the manufacture of electrical equipment through New America Electrical
Corporation, which was organized in 1982 and was approximately 80%-owned by
Wesco from December 1988 through mid-1993.

     Since 1973, Wesco has been 80.1% owned by Blue Chip Stamps or its
predecessor by the same name (collectively, "Blue Chip"), a wholly owned
subsidiary of Berkshire Hathaway Inc. ("Berkshire"). Wesco and its subsidiaries
are thus controlled by Blue Chip and Berkshire. All of these companies may also
be deemed to be controlled by Warren E. Buffett, who is Berkshire's chairman and
chief executive officer and owner of approximately 40% of its stock. Charles T.
Munger, the chairman of Wesco, is also vice chairman of Berkshire, and consults
with Mr. Buffett with respect to Wesco's investment decisions and major capital
allocations, but Mr. Buffett has no active participation in Wesco's management
other than as a director of Wes-FIC.

     Wesco's activities fall into two business segments -- insurance and
industrial. The insurance segment consists of the operations of Wes-FIC and KBS.
The industrial segment comprises Precision Steel's steel service center
operations. Wesco is also engaged in several relatively insignificant activities
not identified with either business segment; these include (1) investment
activity unrelated to the insurance segment, (2) management of owned commercial
real estate, (3) development and liquidation of foreclosed real estate and
delinquent loans formerly owned by Mutual Savings, and (4) parent company
operations.

     The amounts of revenues, operating profit and identifiable assets
attributable to Wesco's business segments, as well as nonsegment activities, are
included in Note 8 to the accompanying consolidated financial statements.

INSURANCE SEGMENT

     Wes-FIC was incorporated in 1985 to engage in the property and casualty
insurance and reinsurance business. Its insurance operations are managed by
National Indemnity Company ("NICO"), headquartered in Omaha, Nebraska. To
simplify discussion, the term "Berkshire Insurance Group," as used in this
report, refers to NICO and all other wholly owned insurance subsidiaries of
Berkshire, individually or collectively, although in practice Berkshire also
includes in its group the insurance subsidiaries 80.1%-owned through its
ownership of Wesco.

                                       12
<PAGE>   3

     On January 1, 1994, Wes-FIC's net worth increased from $329 million to $569
million as a result of the absorption of Mutual Savings' remaining net assets
(essentially, the market value of Freddie Mac common stock and mortgage-backed
securities, less the taxes due if sold) through merger. Primarily due to
appreciation of investments, Wes-FIC's shareholder's equity has increased to
$1.7 billion as of 1997 yearend. (The foregoing figures have been computed under
generally accepted accounting principles. Wes-FIC's regulatory net worth as of
yearend 1997 was $2.4 billion. The difference represents mainly the absence in
the regulatory figure of income taxes associated with unrealized appreciation of
investments.)

     In 1985, Wes-FIC entered into an arrangement whereby it effectively
reinsured -- through the Berkshire Insurance Group, as
intermediary-without-profit -- 2% of the entire book of insurance business of
the long-established Fireman's Fund Insurance Companies ("Fireman's Fund").
Wes-FIC thus assumed the benefits and burdens of Fireman's Fund's underwriting
results under a contract covering virtually all of the property and casualty
insurance business of Fireman's Fund during a four-year coverage period that
expired on August 31, 1989. The arrangement put Wes-FIC in essentially the same
position it would have been in if it, instead of Fireman's Fund, had directly
written the business reinsured. Differences in results under this arrangement
have occurred principally from the investment of premiums, as Wes-FIC, instead
of Fireman's Fund, has invested funds from "float" (funds set aside and invested
pending payment of claims). Wes-FIC will remain liable for its share of
remaining unpaid losses and loss expenses, an estimate of which is reflected as
a liability on Wesco's consolidated balance sheet, and will continue to invest
the related float until all liabilities are settled, perhaps many years hence.

     In 1990 and 1991, Wes-FIC reinsured 50% of the workers' compensation
insurance business written by a member of the Berkshire Insurance Group. As with
the similar Fireman's Fund contract, Wes-FIC remains liable for its share of
unpaid losses and loss adjustment expenses.

     Wes-FIC's traditional financial strength, made even greater by the
absorption of Mutual Savings, enabled it to enter into the business of
"super-catastrophe reinsurance" through subcontracts retroceded by the Berkshire
Insurance Group. Several were entered into in 1994; most of these were renewed
in 1995 but none were renewed in 1996. In 1996, Wes-FIC accepted 3%
participations in two super-catastrophe reinsurance policies covering hurricane
risk in Florida: (1) a 12-month policy effective June 1, 1996, not renewed upon
policy expiration in mid-1997; and (2) a three-year policy effective January 1,
1997 with exposure not significant to Wes-FIC's capital base. There has been no
other super-catastrophe reinsurance business to date.

     Throughout this report, "catastrophe reinsurance" refers to the insurance
purchased by insurance and reinsurance companies to protect themselves against
the accumulation of property losses arising from a single major event or a
series of major events. "Super-catastrophe reinsurance" refers to a catastrophe
contract which subjects the reinsurer to especially large amounts of losses from
a mega-catastrophe such as a hurricane or earthquake. The super-catastrophe
policies in which Wes-FIC has participated have indemnified the ceding companies
for all or part of covered losses in excess of large, specified retentions;
reinsurance of this type is referred to as "excess-of-loss" reinsurance (as
contrasted with "quota share" reinsurance, under which a ceding company is
indemnified for a portion of its own loss). Management believes that an insurer
in this business must maintain large net worth in relation to annual premiums in
order to remain solvent when called upon to pay claims when a super catastrophe
occurs. In this regard, the Berkshire Insurance Group and Wes-FIC are believed
to operate differently from other reinsurers in that risks they write are kept
in house, while other reinsurers may retrocede portions of the risks to other
reinsurers, thereby assuming contingent risks that such reinsurers will not
remain adequately solvent if called upon to pay off on risks reinsured.

     Berkshire has indicated that it may from time to time be offered
super-catastrophe reinsurance business that is somewhat larger than it wishes to
have a wholly owned subsidiary retain and may make a portion of the business
available to Wes-FIC. Wesco's and Wes-FIC's boards of directors have authorized
automatic acceptance of retrocessions of reinsurance offered by the Berkshire
Insurance

                                       13
<PAGE>   4

Group provided the following guidelines and limitations are complied with: (1)
in order not to delay the acceptance process, the retrocession is to be accepted
without delay in writing in Nebraska by agents of Wes-FIC who are salaried
employees of the Berkshire Insurance Group; (2) the Berkshire Insurance Group is
to receive a ceding commission of 3% of premiums, probably less than the
Berkshire Insurance Group could get in the marketplace; (3) Wes-FIC is to assume
20% or less of the risk (before taking into account effects of the ceding
commission); (4) the Berkshire Insurance Group must retain at least 80% of the
identical risk (again, before taking into account effects of the ceding
commission); and (5) the aggregate premiums from this type of business in any
twelve-month period cannot exceed 10% of Wes-FIC's net worth.

     Wes-FIC, in Nebraska, Utah and Iowa, is also licensed to write "direct"
insurance business (as distinguished from reinsurance), but the volume written
to date has been very small.

     In July 1996, Wes-FIC purchased KBS for approximately $80 million in cash.
The acquisition became available after Berkshire agreed to the purchase of KBS
by itself or a subsidiary and then provided Wes-FIC the opportunity to be the
acquiring party. Wes-FIC's acceptance was approved by the boards of Wes-FIC and
Wesco.

     KBS provides specialized insurance coverage to more than 20% of the banks
in the United States, mostly small and medium-size banks in the Midwest. It is
regulated by insurance departments in 25 states and by the Department of the
Treasury. Its product line for financial institutions includes policies for
crime insurance, check kiting fraud indemnification, directors and officers
liability, bank employment practices, and professional errors and omissions
indemnity, as well as deposit guaranty bonds, which insure deposits in excess of
federal deposit insurance limits. In 1997 and 1996, KBS ceded about 42% and 44%,
respectively, of its gross insurance business to third party reinsurers.

     KBS markets its products in some states by exclusive, commissioned agents,
and in others by salaried, traveling employees. Inasmuch as the number of small
midwestern banks is declining as banks are merging, KBS relies for growth on an
extraordinary level of service provided by its dedicated employees and agents,
and on new products such as bank deposit guaranty bonds, which were introduced
in 1993 and currently account for approximately 13% of premiums written.

     In recent years, financial failures in the insurance industry have received
considerable attention from news media, regulatory authorities, rating agencies
and Congress. As one result, industry participants and the public have been made
more aware of the benefits derived from dealing with insurers whose financial
resources support their promises with significant margins of safety against
adversity. In this respect Wes-FIC and KBS are competitively well positioned,
inasmuch as their net premiums written for calendar 1997 amounted to less than
 .5% of their combined statutory surplus, compared to an industry average of
about 105% based on figures reported for 1996.

     Standard & Poor's Corporation, in 1994, recognized Wes-FIC's strong
competitive position as a member of Berkshire's family of wholly and
substantially owned insurance subsidiaries and its unusual capital strength, and
assigned its highest rating, AAA, to Wes-FIC's claims-paying ability. This
rating recognized the commitment of Wes-FIC's management to a disciplined
approach to underwriting and reserving, as well as Wes-FIC's extremely strong
capital base.

     Wesco's and Wes-FIC's boards are hopeful, but have no assurance, that the
businesses of Wes-FIC and KBS will grow. They welcome the opportunity to
participate in additional attractive super-catastrophe reinsurance
retrocessions, and other insurance arrangements such as the one with Fireman's
Fund, as well as acquisitions of other insurance companies.

     Insurance companies are subject to regulation by the departments of
insurance of the various states in which they write policies as well as the
states in which they are domiciled, and, if applicable, as is the case with KBS,
by the Department of the Treasury. Regulations relate to, among other things,
capital requirements, shareholder and policyholder dividend restrictions,
reporting requirements, annual audits by independent accountants, periodic
regulatory examinations, and limitations on the size and types of investments
that can be made.
                                       14
<PAGE>   5

     Wes-FIC, which is operated by NICO, has no employees of its own. KBS has 14
employees.

INDUSTRIAL SEGMENT

     Precision Steel, acquired in 1979 for approximately $15 million, and a
subsidiary operate steel service centers at Franklin Park, Illinois (near
Chicago) and Charlotte, North Carolina. The service centers buy low carbon sheet
and strip steel, coated metals, spring steels, stainless steel, brass, phosphor
bronze, aluminum and other metals, cut these metals to order, and sell them to a
wide variety of customers.

     The service center business is highly competitive. Precision Steel's annual
sales volume of approximately 30 thousand tons compares with the steel service
industry's annual volume of over 20 million tons. Precision Steel competes not
only with other service centers but also with mills which supply metal to the
service centers. Competition exists in the areas of price, quality, availability
of products and speed of delivery. Because it is willing to sell in relatively
small quantities, Precision Steel has been able to compete in geographic areas
distant from its service center facilities. Competitive pressure is intensified
by imports and by a tendency of domestic manufacturers to make parts of less
costly materials.

     Precision Brand Products, Inc. ("Precision Brand"), a wholly owned
subsidiary of Precision Steel, manufactures shim stock and other tool room
specialty items, as well as hose and muffler clamps, and sells them under its
own brand names nationwide, generally through industrial distributors. This
business is highly competitive. Precision Brand's share of the toolroom
specialty products market is believed to approximate .5%; statistics are not
available with respect to its share of the market for hose and muffler clamps.

     Steel service raw materials are obtained principally from major domestic
steel mills, and their availability is considered good. Precision Steel's
service centers maintain extensive inventories in order to meet customer demand
for prompt deliveries. Typically, an order is filled and the processed metals
delivered to the customer within two weeks. Precision Brand normally maintains
inventories adequate to allow for off-the-shelf service to customers within 24
hours.

     The industrial segment businesses are subject to economic cycles. These
businesses are not dependent on a few large customers. The backlog of steel
service orders increased to approximately $6.1 million at December 31, 1997 from
$6.0 million at December 31, 1996.

     Approximately 250 full-time employees are engaged in the industrial segment
businesses, about 40% of whom are members of unions. Management considers labor
relations to be good.

WESCO'S ACTIVITIES NOT IDENTIFIED WITH A BUSINESS SEGMENT

     Through 1993, Wesco's business activities included a financial segment,
whose principal activities consisted mainly of savings and loan operations. In
late 1993, several events occurred that resulted in a major restructuring of the
consolidated enterprise. Mutual Savings transferred its savings accounts and
certain other liabilities (totaling about $220 million), offset by substantially
all of its real estate loans and certain other non-cash assets (about $86
million, combined) and cash (about $134 million), to CenFed Bank, A Federal
Savings Bank ("CenFed"). Mutual Savings and Wesco jointly agreed to indemnify
CenFed to the extent of at least 90% with respect to any losses that might be
sustained on the loans transferred. Mutual Savings transferred to MS Property
all real estate it was in process of developing and liquidating as well as the
few real estate loans that were not sold to CenFed and the indemnification
obligation with respect to the loans that were transferred to CenFed. Wesco
transferred its commercial real estate property in Pasadena, California to MS
Property. Finally, Mutual Savings merged into Wes-FIC by statutory merger,
effective January 1, 1994.

     After completion of the restructuring, the financial segment no longer
served a useful purpose. The activities that remained had previously been
included in the financial segment only because they were indirectly related to
operation of the savings and loan association and were relatively insignifi
                                       15
<PAGE>   6

cant. Accordingly, effective with the beginning of 1994, these activities were
removed from the financial segment and are no longer identified with any segment
as they do not in any way relate to the two remaining segments. These
extraneous, relatively insignificant operations include (1) investment activity
unrelated to the insurance segment, (2) management of commercial real estate
property in Pasadena, (3) development and liquidation of foreclosed real estate,
and (4) parent company operations.

     Wesco, while it seeks suitable businesses to acquire and explores ways to
expand its existing operations, invests in marketable securities of unaffiliated
companies. (See Note 2 to the accompanying consolidated financial statements for
summaries of investments.)

     Seven full-time employees are engaged in the activities of Wesco and MS
Property.

ITEM 2. PROPERTIES

     MS Property owns a business block situated between the city hall and an
indoor shopping mall in downtown Pasadena, California. The block's principal
improvements are a nine-story office building that was constructed in 1964 and
has approximately 125,000 square feet of net rentable area, and a multistory
garage with space for 425 automobiles. Of the 125,000 square feet of space in
the office building, approximately 5,000 square feet are used by MS Property or
leased to Blue Chip or Wesco. Most of the remaining space is leased to outside
parties, including CenFed, law firms and others, under agreements expiring at
dates extending to 2008. In addition to the office building and garage, the
business block has contained a row of small, blighted commercial retail
buildings; MS Property is in process of demolishing this portion of the block
and is exploring options for redeveloping it, together with a parcel of land it
owns in the next block which it has been using as a 100-car parking lot.

     Wes-FIC's place of business is the Omaha, Nebraska headquarters office of
NICO.

     KBS leases 5,100 square feet of office space in a multistory office
building in Topeka, Kansas under a lease which expires July 1, 2002. KBS has an
option to renew the lease for an additional five-year term.

     MS Property holds real estate in Southern California acquired by Mutual
Savings or itself through foreclosure. The principal property consists of the
remainder of a 22-acre parcel of largely oceanfront land near Santa Barbara,
which it developed on an upscale basis over a period of many years; as of
December 31, 1997, all 20 town houses and 12 residential lots had been sold,
except for four lots that were in process of sale (in escrow). Other properties
include several buildings that are leased to various small businesses in a small
shopping center and a single-family residence.

     Precision Steel and its subsidiaries own three buildings housing their
plant and office facilities, having usable area approximately as follows:
138,000 square feet in Franklin Park, Illinois; 63,000 square feet in Charlotte,
North Carolina; and 59,000 square feet in Downers Grove, Illinois.

ITEM 3. LEGAL PROCEEDINGS

     Wesco and its subsidiaries are not involved in any legal proceedings that
are expected to result in material loss.

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

     None.

                                       16
<PAGE>   7

                                    PART II

ITEM 5.

     Wesco's capital stock is traded on the American Stock Exchange and the
Pacific Stock Exchange.

     The following table sets forth quarterly ranges of composite prices for
American Stock Exchange trading of Wesco shares for 1997 and 1996, based on data
reported by the American Stock Exchange, as well as cash dividends paid by Wesco
on each outstanding share:

<TABLE>
<CAPTION>
                                 1997                                               1996
                        -----------------------                         --------------------------
                        SALES PRICE                                     SALES PRICE
                        -----------   DIVIDENDS                         -----------      DIVIDENDS
QUARTER ENDED           HIGH   LOW      PAID         QUARTER ENDED        HIGH   LOW       PAID
-------------           ----   ----   ---------      -------------        ----   ----    ---------
<S>                     <C>      <C>    <C>          <C>                  <C>    <C>      <C>
March 31.............   $214     $180    $0.275      March 31..........   $189   $164 3/4  $0.265
June 30..............    331      197     0.275      June 30...........    183    155       0.265
September 30.........    332      262     0.275      September 30......    182    158 1/2   0.265
December 31..........    339 7/8  300     0.275      December 31.......    193    171 3/4   0.265
                                         ------                                            ------
                                         $1.100                                            $1.060
                                         ======                                            ======
</TABLE>

     There were approximately 750 shareholders of record of Wesco's capital
stock as of the close of business on March 19, 1998. It is estimated that
approximately 4,700 additional Wesco shareholders held shares of Wesco's capital
stock in street name at that date.

                                       17
<PAGE>   8

ITEM 6. SELECTED FINANCIAL DATA

     Set forth below and on the following page are selected consolidated
financial data for Wesco and its subsidiaries. For additional financial
information, attention is directed to Wesco's audited 1996 consolidated
financial statements appearing elsewhere in this report. (Amounts are in
thousands except for amounts per share.)

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                      ----------------------------------------------------------
                                         1997         1996         1995        1994       1993
                                      ----------   ----------   ----------   --------   --------
<S>                                   <C>          <C>          <C>          <C>        <C>
Revenues:
  Sales and service revenues........  $   67,557   $   63,654   $   62,271   $ 62,143   $ 63,627
  Insurance premiums earned.........      11,507       10,060        9,294      1,133     12,158
  Dividends and interest on
     investments other than
     mortgage-backed securities.....      35,898       31,815       27,774     26,207     28,152
  Interest on loans and mortgage-
     backed securities..............         654        1,498        2,499      2,810      7,952
  Realized gains (losses), net, on
     securities and foreclosed
     property.......................     102,348         (152)       7,428        323      1,783
  Gain on disposition of Mutual
     Savings' loans and deposits....          --           --           --         --      1,577
  Other.............................       1,087        1,144        1,791      2,842      2,109
                                      ----------   ----------   ----------   --------   --------
                                         219,051      108,019      111,057     95,458    117,358
                                      ----------   ----------   ----------   --------   --------
Costs and expenses:
  Cost of products and services
     sold...........................      52,710       50,054       50,019     49,459     51,570
  Insurance losses and expenses.....         860        4,264        1,501       (571)    12,894
  Interest on savings accounts......          --           --           --         --      5,792
  Selling, general and
     administrative.................       9,393       10,849       11,142     13,411     16,051
  Interest on notes payable.........       3,320        3,352        3,371      3,394      4,610
  Decline in value of investment....          --           --           --      9,000         --
  Loss on sale of New America
     Electric.......................          --           --           --         --      2,700
                                      ----------   ----------   ----------   --------   --------
                                          66,283       68,519       66,033     74,693     93,617
                                      ----------   ----------   ----------   --------   --------
Income before income taxes and
  cumulative effect of change in
  accounting for income taxes.......     152,768       39,500       45,024     20,765     23,741
Provision for income taxes..........     (50,959)      (8,881)     (10,483)    (1,793)    (5,046)
                                      ----------   ----------   ----------   --------   --------
Income before cumulative effect of
  change in accounting for income
  taxes.............................     101,809       30,619       34,541     18,972     18,695
Cumulative effect of change in
  accounting for income taxes.......          --           --           --         --      1,023
                                      ----------   ----------   ----------   --------   --------
Net income..........................  $  101,809   $   30,619   $   34,541   $ 18,972   $ 19,718
                                      ==========   ==========   ==========   ========   ========
Amounts per capital share:
  Income before cumulative effect
     of change in accounting for
     income taxes...................  $    14.30   $     4.30   $     4.85   $   2.66   $   2.63
  Net income........................       14.30         4.30         4.85       2.66       2.77
                                      ==========   ==========   ==========   ========   ========
  Cash dividends....................  $     1.10   $     1.06   $     1.02   $    .98   $    .94
                                      ==========   ==========   ==========   ========   ========
</TABLE>

                                       18
<PAGE>   9

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                      ----------------------------------------------------------
                                         1997         1996         1995        1994       1993
                                      ----------   ----------   ----------   --------   --------
<S>                                   <C>          <C>          <C>          <C>        <C>
Assets:
  Cash and cash equivalents.........  $   10,687   $   23,039   $   87,981   $ 15,800   $  5,230
  Investments --
     Securities with fixed
       maturities...................     279,697      176,885      119,575    183,089    202,126
     Marketable equity securities...   2,224,848    1,533,009    1,102,221    696,261    639,958
  Excess of cost of KBS over net
     assets acquired................      30,121       30,903           --         --         --
  Real estate held for sale.........       5,240       15,831       19,021     23,414     29,935
  Property and equipment............      13,229       13,297       13,967     14,279     13,907
  Other assets......................      24,290       25,441       22,962     28,918     23,999
                                      ----------   ----------   ----------   --------   --------
          Total assets..............  $2,588,112   $1,818,405   $1,365,727   $961,761   $915,155
                                      ==========   ==========   ==========   ========   ========
Liabilities:
  Insurance losses and expenses.....  $   41,437   $   45,491   $   34,195   $ 39,785   $ 53,818
  Income taxes payable, principally
     deferred.......................     733,488      468,370      324,341    191,858    180,722
  Notes payable.....................      33,635       37,162       37,369     37,557     37,896
  Other liabilities.................      15,260       16,367       12,193     14,414     16,632
                                      ----------   ----------   ----------   --------   --------
          Total liabilities.........  $  823,820   $  567,390   $  408,098   $283,614   $289,068
                                      ==========   ==========   ==========   ========   ========
Shareholders' equity:
  Capital stock and surplus.........  $   30,439   $   30,439   $   30,439   $ 30,439   $ 30,439
  Unrealized appreciation of
     investments, net of taxes......   1,290,939      871,640      601,326    349,122    309,057
  Retained earnings.................     442,914      348,936      325,864    298,586    286,591
                                      ----------   ----------   ----------   --------   --------
          Total shareholders'
            equity..................  $1,764,292   $1,251,015   $  957,629   $678,147   $626,087
                                      ==========   ==========   ==========   ========   ========
            Per capital share.......  $   247.80   $   175.71   $   134.50   $  95.25   $  87.94
                                      ==========   ==========   ==========   ========   ========
</TABLE>

                                       19
<PAGE>   10

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

     In reviewing this item, attention is directed to Item 6, Selected Financial
Data, and Item 1, Business.

FINANCIAL CONDITION

     Wesco's shareholders' equity at December 31, 1997 was $1.8 billion or
$247.80 per share, up $.5 billion or $72.09 per share for the year. This
increase was due principally to appreciation in market value of investments,
which under accounting convention is credited directly to shareholders' equity,
net of taxes, without being reflected in earnings. Because unrealized
appreciation is recorded using current market quotations, which are subject to
fluctuation, the net gains ultimately realized could differ substantially from
recorded unrealized appreciation, which constituted 73% of shareholders' equity
at December 31, 1997, compared to 49% at December 31, 1993.

     Over half of the Wesco group's unrealized appreciation of securities at
December 31, 1997 was attributable to its investment in Freddie Mac common stock
(see Note 2 to the consolidated financial statements appearing elsewhere
herein). Even if the market prices of the Freddie Mac and all other Wesco group
investments dropped suddenly to original cost, the group would still be clearly
viable. This can be seen by glancing at the following balance sheet totals,
which result from removing all unrealized appreciation and related deferred
taxes from balance sheet totals shown in the final table in Item 6 (in thousands
except for amounts per share):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                      ----------------------------------------------------------
                                         1997         1996         1995        1994       1993
                                      ----------   ----------   ----------   --------   --------
<S>                                   <C>          <C>          <C>          <C>        <C>
Total assets........................  $  603,178   $  478,863   $  442,439   $425,159   $441,952
                                      ==========   ==========   ==========   ========   ========
Total liabilities...................  $  129,825   $   99,488   $   86,139   $ 96,134   $124,922
                                      ==========   ==========   ==========   ========   ========
Total shareholders' equity..........  $  473,353   $  379,375   $  356,303   $329,025   $317,030
                                      ==========   ==========   ==========   ========   ========
  Per capital share.................      $66.48       $53.28       $50.04     $46.21     $44.53
                                      ==========   ==========   ==========   ========   ========
</TABLE>

Wesco's management believes the group has adequate liquidity and capital
resources, including the ability to borrow, to minimize the impact of a downturn
in its fortunes -- even one as extreme and unrealistic as the worst-case
scenario presented above solely for illustrative purposes.

     Borrowings from banks and others have been available to Wesco and its
subsidiaries under attractive terms for a number of years. In recognition of the
sound financial condition of Wesco and of its Wes-FIC insurance subsidiary,
Wesco's $30 million of Notes due November 1999 and Wes-FIC's claims-paying
ability have since 1994 been assigned Standard & Poor Corporation's highest
rating, AAA.

     MS Property has substantially liquidated the foreclosed real estate and
problem loans acquired from Mutual Savings in December 1993. However, MS
Property and Wesco are contingently liable for at least 90% of any losses that
may be sustained by CenFed on collection of real estate loans sold by Mutual
Savings to CenFed in October 1993, which have declined in principal amount from
$81 million originally to about $30 million at December 31, 1997. The
managements of MS Property and Wesco believe any net overall loss in completing
disposition of these items will not be material.

     Wesco is not now suffering from inflation, but its insurance and industrial
segments have potential exposure. Very large unanticipated changes in the rate
of inflation could adversely impact the insurance business, because premium
rates are often established well in advance of expenditures. Precision Steel's
businesses are competitive and operate on tight gross profit margins, and thus
its earnings are susceptible to bad effects from inflationary cost increases.

                                       20
<PAGE>   11

RESULTS OF OPERATIONS

     The following summary sets forth the contribution to consolidated net
income of each of Wesco's business segments, insurance and industrial, and of
Wesco's nonsegment activities. In each case unusual items (i.e., realized gains
and losses on securities and foreclosed real estate) are shown separately from
"normal" net operating income. (Amounts are in thousands, all after income tax
effect.)

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                              ----------------------------
                                                                1997      1996      1995
                                                              --------   -------   -------
<S>                                                           <C>        <C>       <C>
Insurance segment:
  "Normal" net operating income.............................  $ 33,507   $27,249   $26,496
  Realized securities gains (losses)........................    32,843      (115)    2,424
                                                              --------   -------   -------
  Segment net income........................................    66,350    27,134    28,920
                                                              --------   -------   -------
Industrial segment net income (all "normal" net operating
  income)...................................................     3,622     3,033     2,386
                                                              --------   -------   -------
Other than identified business segments:
  "Normal" net operating income.............................     1,133       438     1,043
  Gains, net, on sales of foreclosed real estate............       850        14       283
  Realized securities gains.................................    29,854        --     1,909
                                                              --------   -------   -------
  Nonsegment net income.....................................    31,837       452     3,235
                                                              --------   -------   -------
       Consolidated net income..............................  $101,809   $30,619   $34,541
                                                              ========   =======   =======
</TABLE>

     In the following sections the "normal" net operating income data set forth
in the foregoing summary on an after-tax basis are broken down and discussed.
Attention is directed to Note 8 to the accompanying consolidated financial
statements for information as to operating profit before taxes.

Insurance Segment

     The "normal" net operating income of the insurance segment (i.e., Wes-FIC
and, since July 1996, KBS) represents the combination of underwriting results
with dividend and interest income. Following is a summary of such data (in
thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1997       1996       1995
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Premiums written............................................  $10,654    $ 5,353    $ 5,808
                                                              =======    =======    =======
Premiums earned.............................................  $11,507    $10,060    $ 9,294
                                                              =======    =======    =======
Underwriting gain...........................................  $10,647    $ 5,795    $ 7,794
Dividend and interest income................................   32,915     29,353     26,107
                                                              -------    -------    -------
Income before income taxes..................................   43,562     35,148     33,901
Income tax provision........................................  (10,055)    (7,899)    (7,405)
                                                              -------    -------    -------
"Normal" net operating income...............................  $33,507    $27,249    $26,496
                                                              =======    =======    =======
</TABLE>

     Premiums written by Wesco's insurance subsidiaries for 1997 were comprised
of (1) $8.6 million attributable to KBS and (2) $2.1 million attributable to
Wes-FIC, relating principally to its participation with the Berkshire Insurance
Group in a large excess-of-loss super-catastrophe reinsurance policy covering
hurricane risk in Florida for the first year of a three-year period that began
January 1, 1997. Premiums written in 1996 consisted of (1) $4.2 million
attributable to KBS and (2) $1.2 million attributable to Wes-FIC, relating
principally to another super-catastrophe reinsurance policy covering hurricane
risk in Florida, also retroceded to Wes-FIC by the Berkshire Insurance Group.
Premiums from Berkshire Insurance Group super-catastrophe reinsurance
retrocessions to Wes-FIC have declined from about $5.8 million in 1995 and $8.8
million in 1994. The decline has been attributed by the Berkshire group's
management to increased competition; it has stated repeatedly that it will not
knowingly write business at inadequate rates.

                                       21
<PAGE>   12

     Earned premiums for 1997 included $8.7 million attributable to KBS; the
remainder were attributable to Wes-FIC and related principally to
super-catastrophe reinsurance participations. Earned premiums for 1996 included
$4.6 million attributable to KBS; the remainder were attributable principally to
Wes-FIC's super-catastrophe reinsurance participations. Premiums on
super-catastrophe reinsurance are not recognized as earned until the earlier of
a loss occurrence or policy expiration. Insurance premiums on all other forms of
insurance are recognized as earned revenues by Wes-FIC and KBS pro rata over the
term of the contracts.

     The underwriting gain for 1997 included $5.5 million attributable to KBS,
and $5.1 million attributable to Wes-FIC, of which $2.3 million was attributable
to two super-catastrophe reinsurance policies, and $2.8 million to quota-share
reinsurance agreements; $2.6 million of the $2.8 million resulted from a
downward revision of liabilities for losses and loss expenses with respect to
Wes-FIC's reinsurance of Fireman's Fund business. The underwriting gain for 1996
included $1.7 million contributed by KBS; the balance was earned by Wes-FIC on
expiration of several super-catastrophe reinsurance policies written in 1995.
The underwriting gain for 1995 was earned by Wes-FIC principally on expiration
of several one-year super-catastrophe reinsurance contracts. KBS's underwriting
gain in 1997 and 1996 is net of $.8 million and $.4 million amortization of
"goodwill"; this excess of Wes-FIC's cost over the fair value of the identified
net assets acquired in mid-1996 (about $31 million) is being written off over 40
years (or $.8 million per year).

     Although no super-catastrophe reinsurance losses have been incurred to
date, the managements of Berkshire, Wes-FIC and Wesco believe that large
super-catastrophe reinsurance losses will inevitably occur from time to time.
While such large losses are not expected to be significant in relation to
Wes-FIC's capital base, the managements accept the prospect of increased
volatility in Wes-FIC's short-term underwriting results in order to obtain what
they believe will be better long-term results.

     One area of particular concern to the insurance industry is its exposure to
claims for environmental contamination. Wes-FIC's management has reported that
it believes Wes-FIC has virtually no such liability.

     Dividend and interest income has been earned by the insurance group
principally (1) on the assets (approximately $.4 billion at market value) added
to Wes-FIC by the merger of Mutual Savings on January 1, 1994, (2) on capital
contributed by Wesco, (3) on earnings retained and reinvested, and (4) on float.

     The income tax provision of the insurance segment has fluctuated as a
percentage of its pre-tax income in each of the periods presented in the
foregoing table. These fluctuations have been caused by fluctuations in the
relationship of substantially tax-exempt components of income to total pre-tax
income.

     Insurance losses and loss expenses, and the related liabilities reflected
on Wesco's consolidated balance sheet, because they are based in large part upon
estimates, are subject to estimation error. Revisions of such estimates in
future periods could significantly affect the results of operations reported for
future periods. However, Wesco's insurance subsidiaries have maintained capital
positions strong enough not only to absorb adverse estimation corrections but
also to enable them to accept other insurance contracts. Although additional
reinsurance retrocessions from Berkshire subsidiaries, or acquisitions of
insurance businesses like or unlike that of KBS, or other attractive reinsurance
or insurance arrangements, would be welcome, the timing and extent of any
increase in insurance underwriting activity cannot presently be predicted.

                                       22
<PAGE>   13

Industrial Segment

     Following is a summary of the "normal" net operating results of the
industrial segment, consisting of the businesses of Precision Steel and its
subsidiaries (in thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1997       1996       1995
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenues, principally sales and services....................  $67,693    $63,762    $62,382
                                                              =======    =======    =======
Income before income taxes..................................  $ 6,042    $ 5,076    $ 4,005
Income tax provision........................................   (2,420)    (2,043)    (1,619)
                                                              -------    -------    -------
"Normal" net operating income...............................  $ 3,622    $ 3,033    $ 2,386
                                                              =======    =======    =======
</TABLE>

     Revenues of Precision Steel's businesses have improved in each of the past
two years after having declined for several prior years. The revenue improvement
is due to increased sales volume, which its management attributes principally to
changing economic conditions and competitive pressures in the industrial sector
of the economy. Sales volume, in terms of pounds of steel products sold,
increased 16.7 percent for 1997 over the comparable 1996 figure, which, in turn,
was 7.4% higher than its 1995 counterpart. Revenues per pound, however,
decreased in 1997 following price decreases by mills and other suppliers.

     Income before income taxes and normal net operating income of the
industrial segment are dependent not only on revenues, but also on operating
expenses and the cost of products sold. The latter, as a percentage of revenues,
amounted to 78.0%, 78.6% and 80.3% for 1997, 1996 and 1995. The cost percentage
typically fluctuates slightly from year to year as a result of changes in
product mix and price competition at all levels. The improvement in the cost
percentage in 1997 was attributable principally to the continuing decline in
wholesale costs, begun in 1996. Precision Steel's cost of products sold
percentage is very sensitive to current changes in the cost of purchasing raw
materials, because it carries its inventories at the lower of last-in, first-out
cost or market; under this method, the most recent costs are reflected in cost
of goods sold.

Other Than Identified Business Segments

     Set forth below is a summary of "normal" net operating income for items not
identified with either business segment, insurance or industrial (in thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1997       1996       1995
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Dividend and interest income................................  $ 3,148    $ 3,988    $ 5,709
Rental income, net, from commercial real estate.............      879      1,035      1,249
Interest expense............................................   (3,609)    (3,858)    (5,007)
General and administrative expenses.........................   (1,010)    (1,229)    (1,379)
Reduction (increase) in allowance for losses on foreclosed
  real estate and other assets..............................    1,800         --     (1,000)
Other items, net............................................     (393)      (508)       119
                                                              -------    -------    -------
Income (loss) before income tax provision or benefit........      815       (572)      (309)
Income tax benefit..........................................      318      1,010      1,352
                                                              -------    -------    -------
"Normal" net operating income...............................  $ 1,133    $   438    $ 1,043
                                                              =======    =======    =======
</TABLE>

     "Normal" net operating income other than from identified business segments
includes mainly (1) dividend and interest income from marketable securities and
cash equivalents owned outside the insurance subsidiaries and (2) rental income
from owned commercial real estate, reduced by (1) the costs associated with the
development and liquidation of foreclosed real estate and delinquent loans
formerly owned by Mutual Savings, including adjustments of reserves for possible
losses on sales of

                                       23
<PAGE>   14

foreclosed real estate, and (2) interest and other corporate expenses -- plus or
minus income taxes related to such "normal" nonsegment items.

     "Normal" net operating income other than from identified business segments
typically fluctuates from period to period. The improvement in the figure for
1997 resulted principally from the beneficial effect of $1.1 million, after
taxes, of the reversal into income of reserves for losses primarily on sales of
foreclosed real estate, recorded in prior years; this compares with a
nonadjustment of these reserves in 1996 and a $.6 million after-tax increase in
1995. MS Property has had success in selling various foreclosed properties at
prices higher than were anticipated when the real estate market was extremely
depressed. The beneficial effect of the foregoing adjustment was somewhat offset
by (1) reductions in dividend income following conversions of installments of
Salomon Inc 9% preferred stock into lower-yielding common stock held outside the
insurance segment in the fourth quarters of 1997 and 1996, prior to Salomon's
acquisition by Travelers Group, Inc., and (2) a decrease in net rental income
from commercial real estate owned by MS Property in connection with the
demolition and redevelopment of a portion of its business block in Pasadena. The
most significant reason for the drop in "normal" net operating income from 1995
to 1996 was a reduction in dividend income upon disposition of the Champion
International Corporation 9.25% preferred stock held outside the insurance
segment in the second quarter of 1995.

     Nonsegment interest expense was somewhat lower in 1997 than in 1996, and
much lower in 1996 than in 1995, mainly due to repayment by Wesco (parent
company) of borrowings from Wes-FIC beginning in mid-1995. (Insurance segment
revenues decreased accordingly so that Wesco's consolidated net income was not
affected.)

     Wesco's nonsegment tax benefits appear at first glance to be anomalous
compared to the pre-tax income. This is caused by the inclusion in pre-tax
income or loss of large (but declining) amounts of dividend income, which is
highly tax-favored; all other revenues and expense items are fully taxable or
deductible, and net in total to a smaller (and declining) pre-tax loss.

                                   * * * * *

     Management's long-term goal is to maximize gain in Wesco's intrinsic
business value per share, with little regard to earnings recorded in any given
year. There is no particular strategy as to the timing of sales of investments
or the realization of securities gains. Securities may be sold for a variety of
reasons, including (1) the belief that prospects for future appreciation of a
particular investment are less attractive than the prospects for reinvestment of
the after-tax proceeds from its sale, or (2) the desire for funds for an
acquisition or repayment of debt.

     Realized gains and losses on investments have been an element of Wesco's
net income for a number of years. The amounts of these gains or losses, recorded
when securities are sold or when a decline in market value of an investment is
considered to be other than temporary, tend to fluctuate significantly from year
to year. The varying effect upon Wesco's pre-tax income is evident on the face
of the consolidated statement of income. The amount of realized gain or loss has
no predictive value, and variations in amount from period to period have no
practical analytical value, particularly in view of the existence of substantial
unrealized price appreciation in Wesco's consolidated investment portfolio.
(Wesco's shareholders' equity at December 31, 1997 contained $1.3 billion, or
$181.32 per share, of unrealized appreciation of investments, net of taxes --
about 73% of shareholders' equity.)

     Wesco's consolidated earnings for 1997 contained securities gains, after
income taxes, of $62.7 million, versus after-tax losses of $.1 million for 1996
and after-tax gains of $4.3 million for 1995. Of the 1997 figure, only $.1
million was realized through the sale of securities; the balance, $62.6 million,
resulted from the exchange of the preferred and common shares of Salomon Inc
owned by the Wesco group for preferred and common shares of The Travelers Group
Inc. ("Travelers") late in 1997 in connection with the merger of Salomon Inc
with Travelers. Although the realized gain had a material impact on Wesco's
reported earnings, it had a minor impact on Wesco's shareholders' equity:

                                       24
<PAGE>   15

Inasmuch as $48.5 million of the after-tax gain had previously been reflected in
the unrealized gain component of Wesco's shareholders' equity as of September
30, 1997, that amount was merely switched from unrealized gains to retained
earnings, another component of shareholders' equity.

     Wesco's consolidated revenues include significant amounts of tax-favored
dividend income from preferred and common stocks as well as substantially
tax-exempt interest on state and municipal bonds. Fluctuations in the proportion
of these components to total consolidated pre-tax income have resulted in tax
provisions as percentages of pre-tax income of 33.4%, 22.5% and 23.3% in 1997,
1996 and 1995. (See Note 5 to the accompanying consolidated financial statements
for further information on income taxes.)

     Consolidated revenues, expenses and earnings set forth in Item 6, Selected
Financial Data, and in Wesco's consolidated statement of income, are not
necessarily indicative of future revenues, expenses and earnings, in that they
are subject to significant variations in amount and timing of securities gains
and losses and the possible occurrence of other unusual items. For example, the
merger of Mutual Savings into Wes-FIC at the beginning of 1994 increased
Wes-FIC's insurance and reinsurance capacity and asset-deployment options,
enabling it to enter into the business of super-catastrophe reinsurance in 1994.
Another example of a significant unusual item was Wesco's expansion of its
insurance segment operations through acquisition of KBS in mid-1996. In addition
to exposure to large fluctuations due to realization of securities gains and
losses or the occurrence of other unusual items, Wesco's consolidated revenues,
expenses and earnings from operations are expected to be much more volatile than
they were prior to Wes-FIC's entry into the super-catastrophe reinsurance
business.

     Shareholders' equity is impacted not only to the extent the foregoing types
of unusual items affect earnings, but also to reflect changes in unrealized
appreciation of investments, which are not reflected in earnings.

                                   * * * * *

     Many computer systems used today may be unable to interpret data correctly
after December 31, 1999 because they allow only two digits to indicate the year
in a date. Wesco and its subsidiaries have been engaged in (1) assessing this
"Year 2000" issue as it relates to their businesses, including their electronic
and other interactions with banks, vendors, customers and others, and (2)
developing and implementing solutions. Management currently anticipates that the
project will be completed in a timely manner, and will not have a material
adverse impact on the operations of Wesco or its subsidiaries, or on Wesco's
consolidated financial results or financial condition. However, Wesco's
consolidated financial results could be adversely affected if one or more of the
companies in which it has material investments were materially adversely
affected by the Year 2000 issue.

                                       25
<PAGE>   16

ITEM 8. FINANCIAL STATEMENTS

     Following is an index to financial statements and related schedules of
Wesco appearing in this report:

<TABLE>
<CAPTION>
                                                                PAGE
                    FINANCIAL STATEMENTS                      NUMBER(S)
                    --------------------                      ---------
<S>                                                           <C>
Independent auditors' report................................     29
Consolidated balance sheet -- December 31, 1997 and 1996....     30
Consolidated statement of income and retained
  earnings -- years ended December 31, 1997, 1996 and
  1995......................................................     31
Consolidated statement of cash flows -- years ended December
  31, 1997, 1996 and 1995...................................     32
Notes to consolidated financial statements..................  33 - 41
</TABLE>

     Listed below are financial statement schedules required by the Securities
and Exchange Commission to be included in this report. The data appearing
therein should be read in conjunction with the consolidated financial statements
and notes of Wesco and the independent auditors' report referred to above.
Schedules not included with these financial statement schedules have been
omitted because they are not applicable or the required information is shown in
the consolidated financial statements or notes thereto.

<TABLE>
<CAPTION>
                                                              SCHEDULE      PAGE
               FINANCIAL STATEMENT SCHEDULES                   NUMBER     NUMBER(S)
               -----------------------------                  --------    ---------
<S>                                                           <C>         <C>
Condensed financial information of registrant -- December
  31, 1997 and 1996, and years ended December 31, 1997, 1996
  and 1995..................................................    I         42 - 43
</TABLE>

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

     Not applicable, as there were no such changes or disagreements.

                                       26
<PAGE>   17

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information set forth in the section entitled "Election of Directors"
appearing in the definitive combined notice of annual meeting and proxy
statement of Wesco Financial Corporation for its 1998 annual meeting of
shareholders (the "1998 Proxy Statement") is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information set forth in the section "Compensation of Directors and
Executive Officers" in the 1998 Proxy Statement is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information set forth in the section "Voting Securities and Holders
Thereof" in the 1998 Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Certain information set forth in the sections "Election of Directors,"
"Voting Securities and Holders Thereof," "Compensation of Directors and
Executive Officers" and "Board of Director Interlocks and Insider Participation"
in the 1998 Proxy Statement is incorporated herein by reference.

                                    PART IV

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

     The following exhibits (listed by numbers corresponding to Table 1 of Item
601 of Regulation S-K) are filed as part of this Annual Report on Form 10-K or
are incorporated herein by reference:

<TABLE>
    <S>     <C>
     3a.    Articles of Incorporation and By-Laws of Wesco Financial
            Corporation (incorporated by reference to Exhibit 3a to
            Wesco's Annual Report on Form 10-K for the year ended
            December 31, 1994).
     4.1    Form of Indenture dated October 2, 1989 (incorporated by
            reference to Exhibit 4.1 to report on Form 8-K of Wesco
            Financial Corporation dated October 31, 1989, File No.
            33-31290).
     4.2    Form of Supplemental Indenture dated October 15, 1989
            (incorporated by reference to Exhibit 4.1 to report on Form
            8-K of Wesco Financial Corporation dated October 31, 1989,
            File No. 33-31290).
    22.     List of Subsidiaries.
    27.     Financial Data Schedule.
</TABLE>

     Instruments defining the rights of holders of long-term debt of registrant
and its subsidiaries are not being filed since the total amount of securities
authorized by all such instruments does not exceed 10% of the total assets of
the Registrant and its subsidiaries on a consolidated basis as of December 31,
1997. The Registrant hereby agrees to furnish to the Commission upon request a
copy of any such debt instrument to which it is a party.

     The index to financial statements and related schedules set forth in Item 8
of this report is incorporated herein by reference.

     No reports on Form 8-K were filed during the quarter ended December 31,
1997.

                                       27
<PAGE>   18

                                   SIGNATURES

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

                                          WESCO FINANCIAL CORPORATION

<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                     DATE
                     ---------                                    -----                     ----
<S>                                                  <C>                               <C>

               /s/ CHARLES T. MUNGER                 Chairman of the Board (principal  March 25, 1998
---------------------------------------------------         executive officer)
                 Charles T. Munger

                /s/ ROBERT H. BIRD                    President (principal operating   March 25, 1998
---------------------------------------------------              officer)
                  Robert H. Bird

              /s/ JEFFREY L. JACOBSON                    Vice President and Chief      March 25, 1998
---------------------------------------------------    Financial Officer (principal
                Jeffrey L. Jacobson                      financial and accounting
                                                                 officer)
</TABLE>

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

<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                     DATE
                     ---------                                    -----                     ----
<S>                                                  <C>                               <C>

                /s/ ROBERT H. BIRD                               Director              March 25, 1998
---------------------------------------------------
                  Robert H. Bird

              /s/ CAROLYN H. CARLBURG                            Director              March 25, 1998
---------------------------------------------------
                Carolyn H. Carlburg

                /s/ JAMES N. GAMBLE                              Director              March 25, 1998
---------------------------------------------------
                  James N. Gamble

               /s/ CHARLES T. MUNGER                             Director              March 25, 1998
---------------------------------------------------
                 Charles T. Munger

               /s/ DAVID K. ROBINSON                             Director              March 25, 1998
---------------------------------------------------
                 David K. Robinson
</TABLE>

                                       28
<PAGE>   19

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Wesco Financial Corporation

     We have audited the accompanying consolidated balance sheets of Wesco
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and retained earnings and of cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the index at
Item 8. These financial statements and the financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Wesco Financial Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP
Omaha, Nebraska
March 6, 1998

                                       29
<PAGE>   20

                          WESCO FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEET

                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 1997          1996
                                                              ----------    ----------
<S>                                                           <C>           <C>
ASSETS
Cash and cash equivalents...................................  $   10,687    $   23,039
Investments:
  Securities with fixed maturities..........................     279,697       176,885
  Marketable equity securities..............................   2,224,848     1,533,009
Accounts receivable.........................................       7,148         7,940
Real estate held for sale...................................       5,240        15,831
Property and equipment......................................      13,229        13,297
Excess of cost over net assets of acquired business.........      30,121        30,903
Other assets................................................      17,142        17,501
                                                              ----------    ----------
                                                              $2,588,112    $1,818,405
                                                              ==========    ==========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance losses and loss adjustment expenses...............  $   41,437    $   45,491
Income taxes payable, principally deferred..................     733,488       468,370
Notes payable...............................................      33,635        37,162
Other liabilities...........................................      15,260        16,367
                                                              ----------    ----------
                                                                 823,820       567,390
                                                              ----------    ----------
Shareholders' equity:
  Capital stock, $1 par value -- authorized, 7,500,000
     shares;
     issued and outstanding, 7,119,807 shares...............       7,120         7,120
  Capital in excess of par value............................      23,319        23,319
  Unrealized appreciation of investments, net of taxes......   1,290,939       871,640
  Retained earnings.........................................     442,914       348,936
                                                              ----------    ----------
     Total shareholders' equity.............................   1,764,292     1,251,015
                                                              ----------    ----------
                                                              $2,588,112    $1,818,405
                                                              ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.
                                       30
<PAGE>   21

                          WESCO FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                             AND RETAINED EARNINGS

           (DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR AMOUNTS PER SHARE)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                          --------------------------------
                                                            1997        1996        1995
                                                          --------    --------    --------
<S>                                                       <C>         <C>         <C>
Revenues:
  Sales and service revenues............................  $ 67,557    $ 63,654    $ 62,271
  Insurance premiums earned.............................    11,507      10,060       9,294
  Dividend and interest income..........................    36,552      33,313      30,273
  Realized gains (losses), net, on securities and
     foreclosed property................................   102,348        (152)      7,428
  Other.................................................     1,087       1,144       1,791
                                                          --------    --------    --------
                                                           219,051     108,019     111,057
                                                          --------    --------    --------
Costs and expenses:
  Cost of products and services sold....................    52,710      50,054      50,019
  Insurance losses, loss adjustment and underwriting
     expenses...........................................       860       4,264       1,501
  Selling, general and administrative expenses..........     9,393      10,849      11,142
  Interest on notes payable.............................     3,320       3,352       3,371
                                                          --------    --------    --------
                                                            66,283      68,519      66,033
                                                          --------    --------    --------
Income before income taxes..............................   152,768      39,500      45,024
Provision for income taxes..............................   (50,959)     (8,881)    (10,483)
                                                          --------    --------    --------
     Net income.........................................   101,809      30,619      34,541
Retained earnings -- beginning of year..................   348,936     325,864     298,586
Cash dividends declared and paid........................    (7,831)     (7,547)     (7,263)
                                                          --------    --------    --------
Retained earnings -- end of year........................  $442,914    $348,936    $325,864
                                                          ========    ========    ========
Amounts per capital share based on 7,119,807 shares
  outstanding throughout each year:
  Net income............................................  $  14.30    $   4.30    $   4.85
                                                          ========    ========    ========
  Cash dividends........................................  $   1.10    $   1.06    $   1.02
                                                          ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.
                                       31
<PAGE>   22

                          WESCO FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS

                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                         ---------------------------------
                                                           1997         1996        1995
                                                         ---------    --------    --------
<S>                                                      <C>          <C>         <C>
Cash flows from operating activities:
  Net income...........................................  $ 101,809    $ 30,619    $ 34,541
  Adjustments to reconcile net income with cash flows
     from operating activities --
     Realized (gains) losses, net, on securities and
       foreclosed property, before taxes...............   (102,348)        152      (7,428)
     Provision for depreciation and amortization.......      2,056       1,672       1,395
     Increase (reduction) in allowance for losses on
       real estate held for sale and other assets......     (1,800)         --       1,000
     Decrease in liabilities for losses and loss
       adjustment expenses of insurance businesses.....     (4,054)     (2,816)     (5,590)
     Deferred income taxes on realized securities
       gain............................................     38,168          --          --
     Increase (decrease) in income taxes payable
       currently.......................................      2,421       1,325      (1,114)
     Other, net........................................     (1,377)     (6,228)     (3,140)
                                                         ---------    --------    --------
          Net cash flows from operating activities.....     34,875      24,724      19,664
                                                         ---------    --------    --------
Cash flows from investing activities:
  Purchases of securities with fixed maturities........   (176,235)    (65,918)         --
  Proceeds from maturities and redemptions of
     securities with fixed maturities..................     35,215      10,521      38,181
  Proceeds from sales of securities with fixed
     maturities........................................     95,122      45,389      35,046
  Purchases of marketable equity securities............         --          --     (20,687)
  Acquisition of business, net of cash and cash
     equivalents acquired..............................         --     (77,320)         --
  Principal collections on loans.......................      1,425       5,102       3,154
  Other, net...........................................      8,604         314       4,274
                                                         ---------    --------    --------
          Net cash flows from investing activities.....    (35,869)    (81,912)     59,968
                                                         ---------    --------    --------
Cash flows from financing activities:
  Repayments of notes..................................     (3,527)       (207)       (188)
  Payment of cash dividends............................     (7,831)     (7,547)     (7,263)
                                                         ---------    --------    --------
          Net cash flows from financing activities.....    (11,358)     (7,754)     (7,451)
                                                         ---------    --------    --------
Increase (decrease) in cash and cash equivalents.......    (12,352)    (64,942)     72,181
Cash and cash equivalents -- beginning of year.........     23,039      87,981      15,800
                                                         ---------    --------    --------
Cash and cash equivalents -- end of year...............  $  10,687    $ 23,039    $ 87,981
                                                         =========    ========    ========
Supplementary disclosures:
  Interest paid during year............................  $   3,320    $  3,352    $  3,371
  Income taxes paid, net, during year..................     11,934      10,794      13,939
  Noncash investing activities --
     Fair value of investments exchanged...............    180,772          --          --
                                                         =========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.
                                       32
<PAGE>   23

                          WESCO FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR AMOUNTS PER SHARE)

NOTE 1. PRESENTATION

     Wesco Financial Corporation ("Wesco") is 80.1%-owned by Blue Chip Stamps
("Blue Chip"), which in turn is wholly owned by Berkshire Hathaway Inc.
("Berkshire").

     Wesco's consolidated financial statements include the accounts of Wesco and
its subsidiaries, which are all either directly or indirectly wholly owned. The
principal subsidiaries are Wesco-Financial Insurance Company ("Wes-FIC"); The
Kansas Bankers Surety Company ("KBS"), purchased by Wes-FIC in July 1996;
Precision Steel Warehouse, Inc. ("Precision Steel"); and MS Property Company
("MS Property"). Prior to 1994, Wesco's consolidated financial statements also
included the accounts of another wholly owned subsidiary, Mutual Savings and
Loan Association ("Mutual Savings"). See Note 8 for Wesco's consolidated
financial information classified by business segment.

     In connection with Mutual Savings' sale of approximately $81,000 principal
amount of first mortgage real estate loans in 1993 (paid down to about $30,000
as of yearend 1997), Wesco agreed to indemnify the buyer with respect to at
least 90% of any losses that might be sustained on the loans sold. Losses to
date amount to less than $100.

     The outstanding stock of KBS was purchased for approximately $80,000. The
excess of purchase cost over the fair value of the identified net assets
acquired, approximately $31,300, is being amortized on a straight-line basis
over 40 years. The net unamortized balance is carried as an asset on the
consolidated balance sheet.

     The 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, liabilities, revenues
and expenses. The estimates and assumptions are based on management's evaluation
of the relevant facts and circumstances using information available at the time
such estimates and assumptions are made. Although the amounts of such assets,
liabilities, revenues and expenses included in the consolidated financial
statements may differ from those that might result from use of estimates and
assumptions based on facts and circumstances not yet available, Wesco's
management does not believe such differences, if any, would have a material
adverse effect on reported shareholders' equity.

     All material intercompany balances and transactions have been eliminated in
the preparation of the consolidated financial statements

     In 1997, the Financial Accounting Standards Board issued two Statements of
Financial Accounting Standards ("SFAS") required to be adopted at the end of
1997: No. 128 -- "Earnings per Share," and No. 129 -- "Disclosure of Information
About Capital Structure." SFAS No. 128 requires publicly owned companies to
compute and report "basic" and, if applicable, "diluted" earnings per share;
because Wesco has not had any dilutive share equivalents, only the basic
per-share earnings are shown in its consolidated financial statements. SFAS No.
129 relates to disclosures concerning equity and debt securities issued by the
reporting entity; Wesco's only class of equity securities, capital stock, has no
unusual features requiring disclosure, and its one issue of debt securities, the
8 7/8% Notes due November 1999, is discussed in Note 6.

     Two other SFASs will be adopted at the beginning of 1998: No.
130 -- "Reporting Comprehensive Income," which establishes standards for the
reporting of so-called comprehensive income and its components; and No. 131
 -- "Disclosures about Segments of an Enterprise and Related Information," which
establishes new standards for reporting information about operating segments in
interim

                                       33
<PAGE>   24

and annual financial statements. Adoption of these standards is not expected to
have a material effect on Wesco's consolidated financial statements.

NOTE 2. INVESTMENTS

     Cash equivalents consist of funds invested in money-market accounts and in
other investments maturing in less than three months from date acquired.

     Management determines the appropriate classifications of investments in
securities with fixed maturities and marketable equity securities at the time of
purchase and reevaluates such designations as of each balance sheet date. There
are three permissible classifications: held-to-maturity; available-for-sale; and
trading (of which there have been none). Securities are deemed to be
held-to-maturity securities when both the ability and the positive intent to
hold them to maturity are present; they are carried on the consolidated balance
sheet at amortized cost and adjusted for any accretion of discount or
amortization of premium using a method that produces approximately level yield.
Available-for-sale securities are carried at quoted market value or, if market
quotations are not available, at estimated fair value, with unrealized gains and
losses, net of deemed applicable income taxes, reported as a separate component
of shareholders' equity; there is no effect on net income, except to reflect
changes in income tax rates relating to such unrealized gains and losses.

     Realized gains and losses on sales of investments, determined on a specific
identification basis, are included in the consolidated statement of income, as
are provisions for other-than-temporary declines in market or estimated fair
value. Once the carrying value of an investment has been written down to reflect
an other-than-temporary decline, any subsequent increase in market or fair value
is credited, net of taxes, to shareholders' equity, without affecting net income
until realized.

     Investments in marketable equity securities and securities with fixed
maturities at December 31, 1997 and 1996 were deemed to be available-for-sale
and, accordingly, carried at quoted market or estimated fair value, with the net
unrealized gain shown as a separate component of shareholders' equity. Because
market quotations are subject to fluctuation, gains or losses ultimately
realized upon sale of the investments, less taxes, could differ very
significantly from recorded unrealized appreciation, which constituted 73% and
70% of Wesco's shareholders' equity at December 31, 1997 and 1996.

     Following is a summary of securities with fixed maturities:

<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1997            DECEMBER 31, 1996
                                                --------------------------   --------------------------
                                                            ESTIMATED FAIR               ESTIMATED FAIR
                                                AMORTIZED     (CARRYING)     AMORTIZED     (CARRYING)
                                                  COST          VALUE          COST          VALUE
                                                ---------   --------------   ---------   --------------
<S>                                             <C>         <C>              <C>         <C>
Mortgage-backed securities....................  $  4,861       $  4,896      $ 13,236       $ 13,308
Preferred stocks --
  Salomon Inc, 9%.............................        --             --        60,000         66,000
  The Travelers Group Inc., 9%................    90,000         96,000            --             --
  US Airways Group, Inc., 9.25%...............     3,000*        19,200         3,000*        10,800
State and municipal bonds.....................    12,145         12,240        21,114         21,172
Obligations of U.S. Government and its
  agencies....................................   131,392        147,361        65,421         65,605
                                                --------       --------      --------       --------
                                                $241,398       $279,697      $162,771       $176,885
                                                ========       ========      ========       ========
</TABLE>

---------------
* Net of writedown (see below).

     At 1997 year end, the estimated fair values of securities with fixed
maturities contained $38,349 of unrealized gains and $50 of unrealized losses,
compared with $14,375 of unrealized gains and $261 of unrealized losses at 1996
yearend.

            Dollar amounts in thousands except for amounts per share

                                       34
<PAGE>   25

     The preferred stocks shown in the foregoing summary were acquired in
conjunction with purchases made by other subsidiaries of Berkshire, and are
convertible into common stock and subject to various other contractual terms and
conditions. They are similar to an investment in preferred stock of Champion
International Corporation, which Wesco and its subsidiaries converted to common
stock and sold in 1995; the after-tax gain of $4.2 million ($.59 per share) is
reflected in Wesco's 1995 earnings.

     The Travelers Group Inc. ("Travelers") preferred stock (and common stock)
was received by the Wesco group late in 1997 in exchange for its remaining
preferred (and common) shares of Salomon Inc ("Salomon") upon merger of Salomon
with Travelers. The Salomon preferred stock had been purchased in 1987. Of the
Wesco group's original investment at par of $100,000, $20,000 was redeemed by
the issuer on October 31, 1995, $20,000 was converted to common stock by Wesco
in October 1996 and $20,000 was converted in October 1997. The remaining $40,000
of Salomon preferred was exchanged for $40,000 par value of essentially
identical Travelers preferred, which must be redeemed in $20,000 installments on
October 31, 1998 and 1999 to the extent the installments are still outstanding.
Wesco's holding of Travelers preferred was recorded at $90,000 (and its
investment in common stock was recorded at $90,771), estimated fair values as of
the date of the merger, as required under generally accepted accounting
principles. The excess of total fair value of the Travelers securities over the
combined carrying values of the Salomon preferred and common shares surrendered
represented a realized securities gain of $100,772 before taxes ($62,604, or
$8.79 per Wesco share, after taxes) on the accompanying consolidated income
statement; however, no gain or loss is recognized on the tax return until
Travelers securities are sold. Although the gain had a material impact on
Wesco's reported earnings, most of the gain had already been reflected in
shareholders' equity as unrealized appreciation, which under accounting
convention is credited directly to shareholders' equity, net of taxes, without
being reflected in earnings.

     The Wesco group's investment in preferred stock of US Airways Group, Inc.
("US Air") was made in 1989 at par, $12,000. If not called or converted prior to
August 7, 1999, the stock is redeemable by US Air at par plus accrued dividends.
At yearend 1994, because US Air had incurred significant losses for several
years and had suspended payment of dividends, Berkshire and Wesco managements
concluded that an other-than-temporary decline in the value of the stock had
occurred. Accordingly, Wesco's 1994 consolidated statement of income included a
charge of $9,000, or $5,850 after income taxes, reducing the carrying value of
the investment to estimated fair value of $3,000. US Air managed to pay all
dividend arrearages, plus interest, in the second half of 1996 and first quarter
of 1997. Consequently, at yearend 1996, Berkshire and Wesco managements
estimated the fair value of Wesco's investment to be $10,800. Following US Air's
subsequent return to profitability, the trading price of its common stock
appreciated significantly, and as of 1997 yearend Berkshire and Wesco
managements estimated that the fair value of Wesco's investment was $19,200. The
increases in estimated fair value of Wesco's investment over the $3,000 adjusted
cost ($7,800 at yearend 1996 and an additional $8,400 at yearend 1997) have been
added back to the carrying value of the investment and are included, net of
taxes, in unrealized appreciation of investments, a separate component of
shareholders' equity, on the consolidated balance sheet, without effect on the
consolidated statement of income.

     US Air has called its preferred stock owned by Wesco and Berkshire for
redemption on March 15, 1998. Wesco intends to convert its preferred stock
investment to 309,718 shares of US Air common stock prior to the repurchase
date.

            Dollar amounts in thousands except for amounts per share

                                       35
<PAGE>   26

     Investments in state and municipal bonds, obligations of the U.S.
Government and its agencies and mortgage-backed securities as of 1997 yearend
are expected to mature as follows:

<TABLE>
<CAPTION>
                                                              AMORTIZED     MARKET
                                                                COST        VALUE
                                                              ---------    --------
<S>                                                           <C>          <C>
In one year or less.........................................  $ 11,023     $ 11,036
After one year through five years...........................    21,475       21,701
After five years through ten years..........................       160          168
After ten years.............................................   110,879      126,696
                                                              --------     --------
                                                               143,537      159,601
Mortgage-backed securities..................................     4,861        4,896
                                                              --------     --------
                                                              $148,398     $164,497
                                                              ========     ========
</TABLE>

     Following is a summary of marketable equity securities (all common stocks):

<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1997       DECEMBER 31, 1996
                                                  ---------------------   ---------------------
                                                               QUOTED                  QUOTED
                                                               MARKET                  MARKET
                                     NUMBER OF               (CARRYING)              (CARRYING)
                                       SHARES       COST       VALUE        COST       VALUE
                                     ----------   --------   ----------   --------   ----------
<S>                                  <C>          <C>        <C>          <C>        <C>
Freddie Mac........................  28,800,000   $ 71,729   $1,207,814   $ 71,729   $  794,700
The Coca-Cola Company..............   7,205,600     40,761      480,527     40,761      379,195
The Gillette Company...............   3,200,000     40,000      321,402     40,000      248,800
Wells Fargo & Company..............     169,340     11,351       57,480     11,351       45,679
American Express Company...........     647,700     20,687       57,807     20,687       36,595
Salomon Inc........................          --         --           --     20,000       24,803
The Travelers Group Inc............   1,784,204     90,771       96,124         --           --
Other..............................                  2,914        3,694      2,914        3,237
                                                  --------   ----------   --------   ----------
                                                  $278,213   $2,224,848   $207,442   $1,533,009
                                                  ========   ==========   ========   ==========
</TABLE>

     The market values of marketable equity securities contained no unrealized
losses at 1997 or 1996 yearends. During 1997 and 1996, unrealized appreciation
of investments increased $645,392 and $416,257, respectively, with corresponding
increases in deferred income tax liabilities of $226,093 and $145,943.

NOTE 3. REAL ESTATE HELD FOR SALE

     Real estate held for sale represents property owned by MS Property and
acquired through foreclosure by Mutual Savings or itself. It is stated on the
accompanying consolidated balance sheet at cost, less valuation allowances. The
principal property consists of the minor residue of a 22-acre parcel of largely
oceanfront land near Santa Barbara, California, where a luxury development
consisting of 20 town houses and 12 residential lots has been in process of
construction and sale for a number of years. During 1997, four town houses and
three lots were sold; the four remaining lots at 1997 yearend were in escrow,
with sales expected to be completed in 1998. The net book value of the project
decreased to $4,367 at 1997 yearend from $9,708 one year earlier; these carrying
values reflect allowances for possible losses of approximately $600 and $2,000
as of those dates, resulting from writedowns to estimated net realizable values
taken prior to 1996.

            Dollar amounts in thousands except for amounts per share

                                       36
<PAGE>   27

NOTE 4. INSURANCE

     Wes-FIC's insurance business through mid-1996 consisted mainly of
participations in property and casualty reinsurance contracts of Berkshire's
principal insurance subsidiary. Wes-FIC's purchase of KBS in July 1996 added to
its operations the sale of various insurance products geared towards small and
medium-sized banks located primarily in the midwestern United States. These
products include bank deposit insurance in excess of FDIC coverage, directors
and officers liability insurance, employment practice insurance and fidelity
bond coverage.

     Insurance premiums are recognized as earned revenues pro rata over the term
of each contract on all forms of insurance except for catastrophic
excess-of-loss reinsurance contracts. Premiums on this type of reinsurance
contract are not recognized as earned until the earlier of a loss occurrence or
contract expiration. Unearned insurance premiums of $7,432 and $8,505 at
December 31, 1997 and 1996 are included in other liabilities on the consolidated
balance sheet.

     Liabilities for unpaid losses and loss adjustment expenses are established
at the aggregate of estimated ultimate payment amounts, which are determined
from (1) individual case amounts, (2) incurred but not reported losses, based on
past experience, and (3) reports from ceding insurers.

     Provisions for losses and loss adjustment expenses are reported in the
consolidated statement of income after deducting estimates of amounts that will
be recoverable under reinsurance contracts. Reinsurance contracts do not relieve
the ceding companies of their obligations to indemnify policyholders with
respect to the underlying insurance contracts. Losses and loss adjustment
expenses recoverable at 1997 and 1996 yearends under reinsurance contracts are
included in accounts receivable on the consolidated balance sheet.

     Following is a summary of liabilities for unpaid losses and loss adjustment
expenses for each of the past three years:

<TABLE>
<CAPTION>
                                                               1997       1996       1995
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Balance at beginning of year................................  $45,491    $34,195    $39,785
Less ceded liabilities......................................     (840)        --         --
                                                              -------    -------    -------
Balance at beginning of year................................   44,651     34,195     39,785
                                                              -------    -------    -------
Liabilities of KBS at date of acquisition...................       --     12,639         --
                                                              -------    -------    -------
Incurred losses recorded during year --
  For current year..........................................    6,563        984          1
  For all prior years*......................................   (7,453)      (194)    (1,014)
                                                              -------    -------    -------
  Total incurred losses.....................................     (890)       790     (1,013)
                                                              -------    -------    -------
Payments made during year --
  For current year..........................................    1,579      1,224         --
  For all prior years.......................................    2,085      1,749      4,577
                                                              -------    -------    -------
  Total payments............................................    3,664      2,973      4,577
                                                              -------    -------    -------
Plus ceded liabilities at end of year.......................    1,340        840         --
                                                              -------    -------    -------
Balance at end of year......................................  $41,437    $45,491    $34,195
                                                              =======    =======    =======
</TABLE>

---------------
* Includes adjustments of estimated losses provided for in prior years.

            Dollar amounts in thousands except for amounts per share

                                       37
<PAGE>   28

NOTE 5. INCOME TAXES

     Following is a breakdown of income taxes payable at 1997 and 1996 yearends:

<TABLE>
<CAPTION>
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Deferred tax liabilities, relating to --
  Appreciation of investments, principally unrealized.......  $729,012    $464,752
  Other items...............................................     8,180      12,400
                                                              --------    --------
                                                               737,192     477,152
Deferred tax assets.........................................    (5,380)     (8,037)
                                                              --------    --------
     Net deferred tax liabilities...........................   731,812     469,115
Taxes currently payable (recoverable).......................     1,676        (745)
                                                              --------    --------
Income taxes payable........................................  $733,488    $468,370
                                                              ========    ========
</TABLE>

     Income taxes are accounted for using the asset and liability method. Under
this method, temporary differences between financial statement and tax-return
bases of assets and liabilities at each balance sheet date are multiplied by the
tax rates in effect at that date, with the results reported on the balance sheet
as net deferred tax liabilities or assets. The effect of a change in tax rate on
such deferred items is required, under generally accepted accounting principles,
to be reflected when enacted in the consolidated statement of income even though
the original charge or credit for income taxes was not reflected in that
statement; see Note 2 for explanation of the accounting for unrealized
appreciation of investments, the taxes on which are subject to this rate-change
rule. As the temporary differences reverse in future periods, the taxes become
currently payable or recoverable.

     The consolidated statement of income contains a provision for income taxes,
as follows:

<TABLE>
<CAPTION>
                                                               1997       1996       1995
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Federal.....................................................  $45,781    $ 8,578    $ 9,917
State.......................................................    5,178        303        566
                                                              -------    -------    -------
     Provision for income taxes.............................  $50,959    $ 8,881    $10,483
                                                              =======    =======    =======
Current.....................................................  $13,021    $11,028    $13,046
Deferred provision (benefit)................................   37,938     (2,147)    (2,563)
                                                              -------    -------    -------
     Provision for income taxes.............................  $50,959    $ 8,881    $10,483
                                                              =======    =======    =======
</TABLE>

     Following is a reconciliation of the statutory federal income tax rate with
the effective income tax rate resulting in the provision for income taxes
appearing on the consolidated statement of income:

<TABLE>
<CAPTION>
                                                              1997    1996     1995
                                                              ----    -----    -----
<S>                                                           <C>     <C>      <C>
Statutory federal income tax rate...........................  35.0%    35.0%    35.0%
Increase (decrease) resulting from:
  Exclusion from taxable income of a significant portion of
     dividend income........................................  (3.8)   (14.4)   (13.7)
  Exclusion from taxable income of a significant portion of
     interest income on state and municipal bonds...........  (0.2)    (0.6)    (0.6)
  State income taxes, less federal tax benefit..............   2.2      0.5      0.8
  Other differences, net....................................   0.2      2.0      1.8
                                                              ----    -----    -----
Effective income tax provision rate.........................  33.4%    22.5%    23.3%
                                                              ====    =====    =====
</TABLE>

     Wesco and its subsidiaries join with other Berkshire subsidiaries in the
filing of consolidated federal income tax returns for the Berkshire group. The
consolidated federal tax liability is apportioned among group members pursuant
to methods that result in each member of the group paying or

            Dollar amounts in thousands except for amounts per share

                                       38
<PAGE>   29

receiving an amount that approximates the increase or decrease in consolidated
taxes attributable to that member.

     Federal income tax returns through 1988 have been examined by and settled
with the Internal Revenue Service. California franchise tax returns through 1990
have been examined by and settled with the California Franchise Tax Board.

NOTE 6. NOTES PAYABLE

     Following is a list of notes payable, at year end:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1997            1996
                                                              ------------    ------------
<S>                                                           <C>             <C>
Notes due November 1999, bearing interest at 8 7/8% payable
  semiannually..............................................    $30,000         $30,000
Note payable, collateralized by land, buildings and
  assignment of leases, due in monthly installments through
  February 2007 of $45 including interest at 9 1/4%, prepaid
  in full in 1997...........................................         --           3,527
Industrial revenue bonds due December 2014, bearing interest
  at 7 3/4% payable semiannually............................      2,600           2,600
Note payable, due January 2002, bearing interest, payable
  monthly, at 10% through 1998 and 7 5/8% thereafter........      1,035           1,035
                                                                -------         -------
                                                                $33,635         $37,162
                                                                =======         =======
</TABLE>

     Notes payable at 1997 yearend mature as follows: 1999, $30,000; 2002,
$1,035; and 2014, $2,600.

     The 8 7/8% notes are not convertible. The indenture contains covenants,
among others, enabling the lenders to require Wesco to redeem the notes at par
in the event Wesco ceases to be controlled by Berkshire. Wesco is in compliance
with all of the covenants.

     Estimated fair market values of the foregoing notes payable at December 31,
1997 and December 31, 1996 were approximately $35,300 and $39,100. These figures
were calculated using discounted cash flow computations based upon estimates as
to interest rates prevailing on those dates for comparable borrowings.

NOTE 7. QUARTERLY FINANCIAL INFORMATION

     Unaudited quarterly financial information for 1997 and 1996 follows:

<TABLE>
<CAPTION>
                                                                QUARTER ENDED
                                            ------------------------------------------------------
                                            DECEMBER 31,    SEPTEMBER 30,    JUNE 30,    MARCH 31,
                                                1997            1997           1997        1997
                                            ------------    -------------    --------    ---------
<S>                                         <C>             <C>              <C>         <C>
Total revenues............................    $129,778         $30,133       $29,084      $30,056
                                              ========         =======       =======      =======
Net income excluding securities gains.....    $ 11,347         $ 9,246       $ 8,736      $ 9,783
  Per capital share.......................        1.59            1.30          1.23         1.37
Realized securities gains (losses), net of
  income tax effect.......................      62,555             142            --           --
  Per capital share.......................        8.79             .02            --           --
                                              --------         -------       -------      -------
Net income................................    $ 73,902         $ 9,388       $ 8,736      $ 9,783
  Per capital share.......................       10.38            1.32          1.23         1.37
                                              ========         =======       =======      =======
</TABLE>

            Dollar amounts in thousands except for amounts per share

                                       39
<PAGE>   30

<TABLE>
<CAPTION>
                                            DECEMBER 31,    SEPTEMBER 30,    JUNE 30,    MARCH 31,
                                                1996            1996           1996        1996
                                            ------------    -------------    --------    ---------
<S>                                         <C>             <C>              <C>         <C>
Total revenues............................    $ 26,836         $26,999       $24,734      $29,450
                                              ========         =======       =======      =======
Net income excluding securities gains.....    $  7,673         $ 7,918       $ 6,573      $ 8,570
  Per capital share.......................        1.08            1.12           .92         1.20
Realized securities gains (losses), net of
  income tax effect.......................          --            (115)           --           --
  Per capital share.......................          --            (.02)           --           --
                                              --------         -------       -------      -------
Net income................................    $  7,673         $ 7,803       $ 6,573      $ 8,570
  Per capital share.......................       1 .08            1.10           .92         1.20
                                              ========         =======       =======      =======
</TABLE>

NOTE 8. BUSINESS SEGMENT DATA

     Consolidated financial information for each of the three most recent years
is presented below, broken down as to Wesco's business segments.

     The insurance segment includes the accounts of Wes-FIC and, since July
1996, its subsidiary, KBS.

     The industrial segment includes the operating accounts of Precision Steel
and its subsidiaries.

     Items not identified with either business segment include principally (1)
investments other than those of Wes-FIC and KBS, together with related dividend
and interest income and securities gains and losses, (2) commercial real estate
properties, together with related revenues and expenses, (3) foreclosed real
estate and delinquent loans formerly owned by Mutual Savings, together with
associated costs and expenses of development and liquidation, and (4) the
assets, revenues and expenses of the parent company.

<TABLE>
<CAPTION>
                                                                1997       1996       1995
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Revenue:
  Insurance.................................................  $ 95,729   $ 39,714   $ 39,241
  Industrial................................................    67,693     63,762     62,382
  Not identified with a business segment....................    55,629      4,543      9,434
                                                              --------   --------   --------
                                                              $219,051   $108,019   $111,057
                                                              ========   ========   ========
Operating profit before taxes:
  Insurance.................................................  $ 94,161   $ 34,972   $ 37,632
  Industrial................................................     6,243      5,278      4,005
  Interest expense on notes payable.........................    (3,320)    (3,352)    (3,371)
  Not identified with a business segment....................    55,684      2,602      6,758
                                                              --------   --------   --------
                                                              $152,768   $ 39,500   $ 45,024
                                                              ========   ========   ========
</TABLE>

The above revenue and pre-tax operating profit data include realized gains and
losses on securities and foreclosed property -- notably the gain recognized for
financial statement purposes on conversion of Salomon preferred and common stock
to preferred and common stock of Travelers in 1997, explained in Note 2 -- as
summarized below:

<TABLE>
<CAPTION>
                                                            1997         1996         1995
                                                         ----------   ----------   ----------
<S>                                                      <C>          <C>          <C>
  Insurance............................................  $   50,528   $     (177)  $    3,730
  Not identified with a business segment...............      51,820           25        3,698
                                                         ----------   ----------   ----------
                                                         $  102,348   $     (152)  $    7,428
                                                         ==========   ==========   ==========
</TABLE>

            Dollar amounts in thousands except for amounts per share

                                       40
<PAGE>   31

     Additional business segment data follow:

<TABLE>
<S>                                                      <C>          <C>          <C>
Capital expenditures:
  Insurance............................................  $       68   $       19           --
  Industrial...........................................         614          452   $      275
  Not identified with a business segment...............         495           --          697
                                                         ----------   ----------   ----------
                                                         $    1,177   $      471   $      972
                                                         ==========   ==========   ==========
Depreciation and amortization of tangible assets other
  than investments:
  Insurance............................................  $       36   $       15           --
  Industrial...........................................         849          879   $      929
  Not identified with a business segment...............         388          353          360
                                                         ----------   ----------   ----------
                                                         $    1,273   $    1,247   $    1,289
                                                         ==========   ==========   ==========
Identifiable assets at yearend:
  Insurance............................................  $2,440,141   $1,710,475   $1,259,279
  Industrial...........................................      23,084       22,001       20,062
  Not identified with a business segment...............     124,887       85,929       86,386
                                                         ----------   ----------   ----------
                                                         $2,588,112   $1,818,405   $1,365,727
                                                         ==========   ==========   ==========
</TABLE>

            Dollar amounts in thousands except for amounts per share

                                       41
<PAGE>   32

                          WESCO FINANCIAL CORPORATION
                       SCHEDULE I -- CONDENSED FINANCIAL
                           INFORMATION OF REGISTRANT

                                 BALANCE SHEET
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1997          1996
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                        ASSETS
Cash and cash equivalents...................................  $       13    $       17
Marketable equity securities................................      48,062        12,401
Convertible preferred stocks................................      48,000        33,000
Investment in subsidiaries, at cost plus equity in
  subsidiaries'
  undistributed earnings and unrealized appreciation:
  Wes-FIC and KBS...........................................   1,684,978     1,201,182
  Precision Steel...........................................      46,735        41,203
  MS Property...............................................      13,080        24,248
Other assets................................................         693           852
                                                              ----------    ----------
                                                              $1,841,561    $1,312,903
                                                              ==========    ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Intercompany advances.......................................  $   22,672    $   28,657
Income taxes payable, principally deferred..................      23,095         1,727
Notes payable...............................................      31,035        31,035
Other liabilities...........................................         467           469
                                                              ----------    ----------
          Total liabilities.................................      77,269        61,888
                                                              ----------    ----------
Shareholders' equity (see consolidated balance sheet).......   1,764,292     1,251,015
                                                              ----------    ----------
                                                              $1,841,561    $1,312,903
                                                              ==========    ==========
</TABLE>

                   STATEMENT OF INCOME AND RETAINED EARNINGS
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                          --------------------------------
                                                            1997        1996        1995
                                                          --------    --------    --------
<S>                                                       <C>         <C>         <C>
Revenues:
  Dividend income.......................................  $  2,692    $  3,375    $  4,704
  Realized securities gains.............................    50,386          --       2,339
  Other.................................................       118         197         768
                                                          --------    --------    --------
                                                            53,196       3,572       7,811
                                                          --------    --------    --------
Expenses:
  Interest on notes payable.............................     3,104       3,320       4,165
  General and administrative............................       414         366         348
                                                          --------    --------    --------
                                                             3,518       3,686       4,513
                                                          --------    --------    --------
Income (loss) before items shown below..................    49,678        (114)      3,298
Income tax (provision) benefit..........................   (19,654)        760        (222)
Equity in undistributed earnings of subsidiaries........    71,785      29,973      31,465
                                                          --------    --------    --------
     Net income.........................................   101,809      30,619      34,541
Retained earnings -- beginning of year..................   348,936     325,864     298,586
Cash dividends declared and paid........................    (7,831)     (7,547)     (7,263)
                                                          --------    --------    --------
Retained earnings -- end of year........................  $442,914    $348,936    $325,864
                                                          ========    ========    ========
</TABLE>

                 See notes to consolidated financial statements

                                       42
<PAGE>   33

                          WESCO FINANCIAL CORPORATION
                       SCHEDULE I -- CONDENSED FINANCIAL
                           INFORMATION OF REGISTRANT

                            STATEMENT OF CASH FLOWS
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                          ---------------------------------
                                                            1997        1996        1995
                                                          --------    --------    ---------
<S>                                                       <C>         <C>         <C>
Cash flows from operating activities:
  Net income............................................  $101,809    $ 30,619    $  34,541
  Adjustments to reconcile net income with cash flows
     from operating activities --
     Realized securities gains..........................   (50,386)         --       (2,339)
     Deferred income taxes on realized securities
       gains............................................    20,532          --           --
     Increase (decrease) in income taxes payable
       currently........................................       836      (1,196)         (19)
     Equity in undistributed earnings of subsidiaries...   (59,034)    (29,973)     (31,465)
     Other, net.........................................        55         163         (373)
                                                          --------    --------    ---------
          Net cash flows from operating activities......    13,812        (387)         345
                                                          --------    --------    ---------
Cash flows from investing activities:
  Proceeds from sales and redemptions of securities with
     fixed maturities...................................        --          --       20,339
  Principal collections on loans........................        --       4,000           --
  Other, net............................................        --          --          411
                                                          --------    --------    ---------
          Net cash flows from investing activities......        --       4,000       20,750
                                                          --------    --------    ---------
Cash flows from financing activities:
  Advances from (repayments to) subsidiaries, net.......    (5,985)      3,883      (13,861)
  Payment of cash dividends.............................    (7,831)     (7,547)      (7,263)
  Other, net............................................        --          --           75
                                                          --------    --------    ---------
          Net cash flows from financing activities......   (13,816)     (3,664)     (21,049)
                                                          --------    --------    ---------
Increase (decrease) in cash and cash equivalents........        (4)        (51)          46
Cash and cash equivalents -- beginning of year..........        17          68           22
                                                          --------    --------    ---------
Cash and cash equivalents -- end of year................  $     13    $     17    $      68
                                                          ========    ========    =========
</TABLE>

                 See notes to consolidated financial statements

                                       43
<PAGE>   34
                          WESCO FINANCIAL CORPORATION

                         COMMISSION FILE NUMBER 1-4720

                             EXHIBITS TO FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                         INCORPORATED
        DESCRIPTION                                             FILED    BY REFERENCE
        -----------                                             -----    ------------
<S>     <C>                                                     <C>      <C>
3a.     Articles of Incorporation and By-Laws of Wesco
        Financial Corporation (incorporated by reference
        to Exhibit 3a to Annual Report on Form 10-K of
        Wesco Financial Corporation for the year ended
        December 31, 1994).                                              X

4.1     Form of Indenture dated October 2, 1989
        (incorporated by reference to Exhibit 4.1 to
        report on Form 8-K of Wesco Financial Corporation
        dated October 31, 1989, File No. 33-31290                        X

4.2     Form of Supplemental Indenture dated October 15,
        1989 (incorporated by reference to Exhibit 4.1 to
        report on Form 8-K of Wesco Financial Corporation
        dated October 31, 1989, File No. 33-31290                        X

22.     List of Subsidiaries                                    X

27.     Financial Data Schedule                                 X
</TABLE>