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  October 31, 1998     
                                       OR

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

For the transition period from  ___________     to   ___________

--------------------------------------------------------------------------------

Commission file number      0-14900   
                          ------------               

                                      PSS, Inc.  
      --------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                          91-1335798
  ------------------------------                            ------------------  
 (State or other jurisdiction of                           (I.R.S. Employer
  incorporation or organization)                           Identification No.)

     P.O. Box 2573, Seattle, WA                              98111-2573   
 --------------------------------------                      ----------      
(Address of principal executive offices)                     (Zip Code)

(Registrant's telephone number, including area code) (206) 901-3790
                                                     ----------------

Former  name,  former  address and former  fiscal  year,  if changed  since last
report.

Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
  Common stock - $1.00 par value
  7-1/8% Convertible Debentures due July 15, 2006

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

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

Aggregate market value of the registrant's voting stock held by nonaffiliates of
the registrant as of December 1, 1997: $270,000.

The  number of shares  of common  stock  outstanding  as of  October  31,  1998:
19,473,728.

Documents incorporated by reference:  None.
-----------------------------------

                                  Page 1 of 25
<PAGE>

                                     PART I
                                     ------

ITEM 1 - BUSINESS
-----------------

PSS, Inc. ("PSS"),  through its wholly owned subsidiary,  PNS Inc. ("PNS"), owns
PSSC Inc. ("PSSC");  together, PSS, PNS and PSSC are referred to collectively as
the "Company".

The Company  owns  pass-through  and  participation  certificates  issued by the
Federal  Home  Loan  Mortgage  Corporation  backed  by whole  pool  real  estate
mortgages  ("Mortgage  Certificates"),  and as a result, is primarily engaged in
the  business  of owning  mortgages  and other  liens on and  interests  in real
estate.  At October 31,  1998,  the  Company's  principal  assets  consisted  of
approximately  $3.7 million of Mortgage  Certificates from which interest income
is earned.  The Mortgage  Certificates are financed with borrowings,  payable on
demand,  secured by the Mortgage  Certificates (the "Mortgage  Financing").  The
principal obligations of the Company are the Mortgage Financing borrowings,  the
PNS 12-1/8% Senior Subordinated Notes due July 15, 1996 (the "Senior Notes") and
the PSS 7-1/8% Convertible Debentures due July 15, 2006 (the "Debentures"), upon
which interest expense is incurred.

See the Liquidity and Capital Resources  section of Management's  Discussion and
Analysis of Financial  Conditions and Results of Operations regarding the status
of the Company's  defaults on the Senior Notes and  Debentures  and factors upon
which the Company's future operating results,  liquidity,  capital resources are
primarily dependent.


ITEM 2 - PROPERTIES
-------------------

None

ITEM 3 - LEGAL PROCEEDINGS
--------------------------

The  Company  has  been  named as a  defendant  in a case in the  United  States
District Court for the district of Alaska concerning  allegations that a firearm
was negligently designed and manufactured  resulting in injury to the plaintiff.
The Company was sued based upon a sales receipt bearing the Pay'N Save name. The
sale,  however,  took place  after all the assets of Pay'N Save were sold by the
Company to Thrifty Corporation,  a subsidiary of Pacific Enterprises.  An answer
has been interposed on behalf of the Company and documents have been provided to
plaintiff's  counsel to demonstrate  the sale of assets and that any liabilities
subsequently  arising  would not be the  obligations  of the  Company.  To date,
plaintiff's  counsel has been  unwilling  to  discontinue  the  action.  Company
counsel is involved  in motion  practice  involving  the  discontinuance  of the
Company from the claim.  Management  of the Company  believes that the case will
ultimately be  discontinued  or dismissed as to the Company  without  liability,
aside from defense costs.

In the opinion of management,  there are no other legal  proceedings  pending to
which the Company is a party or of which any of its assets is the subject.


                                       2
<PAGE>



ITEM 4 - SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

Not applicable.

                                     PART II
                                     -------

ITEM 5 - MARKET  FOR  THE  REGISTRANT'S  COMMON  STOCK  AND  RELATED STOCKHOLDER
--------------------------------------------------------------------------------
MATTERS
-------

Market Information

The Company's common stock is traded  over-the-counter.  High and low prices are
the high and low bids as reported by National Quotation Bureau,  Inc., which are
those  quoted by dealers to each  other,  exclusive  of  markups,  markdowns  or
commissions,  and do not represent actual transactions.  The high and low prices
for the stock  during the two years  ended  October  31, 1998 has been $0.01 per
share,  except that the low prices  during the last two fiscal  quarters of 1998
were reported as being less than $0.01 per share.

Holders

As of December 1, 1998, there were 968 holders of record of the Company's common
stock.

Dividends on Common Stock

The Company has never paid a dividend and does not anticipate  paying  dividends
for the foreseeable future. The indentures  governing the Company's Senior Notes
and Debentures  contain  covenants  which restrict the ability of the Company to
pay dividends (see Note 5 to the financial statements).


                                       3
<PAGE>

ITEM 6 - SELECTED FINANCIAL DATA   
--------------------------------                                                

The following  selected  financial data should be read in  conjunction  with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations"  included elsewhere herein. As
explained  in  Note 2 to  the  financial  statements,  information  for  periods
subsequent to October 29, 1994 is presented on a liquidation basis. Presentation
of per share information on a liquidation basis is not considered meaningful and
has been omitted.
<TABLE>
<CAPTION>


                                                                  Year Ended     
                                                                  ----------                         
                                 October         November         November        October        October 
                                 31, 1998        1, 1997          2, 1996         28, 1995       29, 1994
                                -------------------------------------------------------------------------
                                              (thousands of dollars, except per share data)                           
                                                          
<S>                            <C>             <C>             <C>             <C>           <C>   
Income Statement Data:

Increase in Net Liabilities      $(2,265)        $(2,265)        $(3,020)        $(4,231)       

Loss before extraordinary items                                                                   $(2,141)

Net income                                                                                         $9,568 (1)

Net income per common share                                                                          0.49

</TABLE>

(1) Includes  pre-tax  extraordinary  gains on early  extinguishment  of debt of
    approximately $13 million.
<TABLE>
<CAPTION>



                                October       November      November        October        October 
                                31, 1998      1, 1997       2, 1996         28, 1995       29, 1994
                               ---------------------------------------------------------------------
                                                          

<S>                           <C>           <C>             <C>            <C>             <C>     
Balance Sheet Data: 

Total Assets                    $3,984        $4,829          $5,591         $5,927          $11,383 

Short-term borrowings            3,270         4,073           4,922          5,278           10,192

Long-term debt                  28,178        28,178          28,178         28,178           28,159

Total Lliabilities              43,440        42,020          40,517         37,833           39,058

Stockholders' deficit                                                                       $(27,675)

Net Liabilities               $(39,456)     $(37,191)       $(34,926)      $(31,906)      


</TABLE>

                                       4
<PAGE>


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

Liquidity and Capital Resources

At October 31, 1998, the Company's  principal  assets consisted of approximately
$3.7 million of Mortgage  Certificates  from which interest income is earned and
its principal  obligations  consisted of Mortgage Financing  borrowings,  Senior
Notes and Debentures upon which interest expense is incurred.

PNS is restricted by terms of its Senior Notes  Indenture from paying  dividends
or making  other  payments to PSS,  except that PNS may pay  dividends to PSS in
amounts  sufficient to enable PSS to meet its obligation on its Debentures  when
due. PNS, like its parent company, has a stockholder's deficit.

At October 31, 1998, the Company had assets of  approximately  $3.98 million and
liabilities,  other than Senior Notes and Debentures  including accrued interest
and  liquidation  costs,  of $3.44  million,  thus  having a net  difference  of
approximately $540,000 available for holders of Senior Notes and Debentures.  At
October 31, 1998, approximately $5.26 million of Senior Notes and $22.92 million
of Debentures remain outstanding, such outstanding amounts being unchanged since
1995.

The Company  failed to pay the interest due January 15 and July 15, 1995,  1996,
1997 and 1998 on its Debentures and such default continues. However, the trustee
for the Debentures  has indicated to the holders of the Debentures  that it does
not intend to accelerate payment of the Debentures  "because it is unlikely that
the  Debenture  holders  would  receive  any  payment  if  the  Debentures  were
accelerated."

PNS failed to pay interest due July 15, 1995, January 15, 1996 and July 15, 1996
and failed to pay the outstanding principal of its Senior Notes which became due
on July 15, 1996.  All such  defaults  continue.  In June 1997,  the Company was
advised by the trustee  for the Senior  Notes that,  after  concluding  that the
Company  lacks  sufficient  assets to pay the  Senior  Notes,  the  trustee  had
petitioned a district court for the State of Minnesota to authorize and instruct
it to refrain  from  pursuing  any  default  remedy  against  the Company and to
discharge it as trustee, and that the Court had granted the trustee's requests.

The  Company's  future  operating  results,  liquidity,  capital  resources  and
requirements  are  primarily  dependent  upon actions  which may be taken by the
trustee for the  Debentures to collect  amounts due  thereunder,  the payment of
amounts due on and  purchases  of Senior Notes and  Debentures  and, to a lesser
extent,  interest  rate  fluctuations  as they  relate  to the  market  value of
Mortgage  Certificates  and to the  spread of  interest  income  therefrom  over
interest expense on related borrowings.  The Company is exclusively  invested in
Mortgage Certificates,  and, accordingly, is presently relying solely on such as
its source of cash funds.  It has not been  determined what course of action the
Company  may  pursue  with  respect  to debt  service  on the  Senior  Notes and
Debentures.

                                       5
<PAGE>


Results of Operations

         Investment income

Interest income for each of the years ended October 31, 1998,  November 1, 1997,
and  November 2, 1996  decreased  as compared to the  immediate  preceding  year
primarily as a result of lower balances of investments in Mortgage Certificates.
The weighted  average  interest income rate earned on the Mortgage  Certificates
approximated  7.7%,  7.7% and 7.9%  during the years  ended  October  31,  1998,
November 1, 1997, and November 2, 1996, respectively.

Included in investment  income are unrealized  gains (or losses)  resulting from
increases   (or   decreases)   in   unrealized   appreciation   resulting   from
mark-to-market adjustments on Mortgage Certificates.  As a result of declines in
market values as well as due to principal  repayments on Mortgage  Certificates,
unrealized  appreciation  resulting from  mark-to-market  adjustments  decreased
during the year ended  October 31, 1998 by $47,000.  Increases in market  values
resulted in increases in unrealized appreciation during the years ended November
1, 1997 and November 2, 1996 of approximately $64,000 and $25,000, respectively.

         Interest expense

Interest expense for each of the years ended October 31, 1998, November 1, 1997,
and November 2, 1996,  decreased  as compared to the  immediate  preceding  year
primarily  due to  lower  average  balances  of  Mortgage  Financing  borrowings
outstanding  during the periods.  The weighted  average interest expense rate on
Mortgage Certificate related borrowings approximated 6.0%, 6.0%, and 5.6% during
the years  ended  October 31,  1998,  November  1, 1997,  and  November 2, 1996,
respectively.

         Year 2000

The Company has contacted  significant service providers to determine the extent
to which the Company may be vulnerable to third-party Year 2000 issues. Based on
current information, management believes that modifications necessary to operate
and  effectively  manage the Company will be performed by the Year 2000 and that
related  costs  will not have a  material  impact on the  Company's  results  of
operations, cash flow or financial condition of future periods.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

The Company's  investment in mortgage  certificates  is a market risk  sensitive
instrument relative primarily to interest rate risk. The investment represents a
pass-through  and  participation  certificate  issued by the  Federal  Home Loan
Mortgage  Corporation in 1990 with an original  principal of  approximately  $11
million and a 2020 maturity date. The Company's average investment  approximated
$4.1  million,  $4.9  million  and $5.5  million  during the fiscal  years ended
October 31,  1998,  November 1, 1997 and  November  2, 1996,  respectively.  The
investment in mortgage  certificates  has declined over the past three years due
primarily to  principal  repayments  from the 

                                       6
<PAGE>

underlying  mortgages  within  the  mortgage  certificate  pool.   Specifically,
principal  repayments have  approximated  15% to 20% of the mortgage  investment
during each of the past two fiscal  years.  The rate of interest to be earned on
the mortgage  certificates is adjustable  based on general interest rate trends,
with  certain  maximums,  including  limits of 2% for annual  rate  changes  and
interest rate maximums of  approximately  13%.  Interest rates on the underlying
mortgages are adjusted, as applicable, throughout the year. The weighted average
interest  income  rates earned on the mortgage  certificates  approximated  7.7%
during each of the past two fiscal  years and the  interest  rate at October 31,
1998 approximated 7.6%.

Mortgage certificates are financed with borrowings from an investment bank, such
borrowing  being  secured by the  mortgage  certificates  and payable on demand.
Borrowings  bear  interest  at rates  generally  approximating  the three  month
Federal Funds rate plus 25 to 75 basis points.  The Company's average borrowings
approximated  $3.7 million,  $4.6 million and $5 million during the fiscal years
ended October 31, 1998, November 1, 1997 and November 2, 1996, respectively. The
borrowings  have  declined  over the past three years due  primarily to applying
principal  repayments from the mortgage  certificates to repay  borrowings.  The
weighted average interest expense rates incurred on the borrowings  approximated
6% during each of the past two fiscal years and the interest rate at October 31,
1998 approximated 6%.

Generally,  a decline in interest  rates would  result in a decrease in interest
rates  earned on mortgage  certificates  as  underlying  mortgages  would likely
adjust interest rates down,  however such adjustment  would occur throughout the
year. Interest rates paid on borrowings would likely decline on a more immediate
basis.  The  timing of when  interest  income  and  expense  rates are  effected
historically has resulted in a short-term margin  improvement  during periods of
interest  rate  declines.   The  market  price  of  mortgage   certificates  has
historically  increased as interest  rates  decline.  During periods of interest
rate increases, the opposite is the case.

In the  Company's  circumstances,  whereby  its  future  operating  results  and
financial  condition  are  primarily  dependent  upon  actions  to be taken with
respect  to the  Company's  Senior  Notes and  Debentures,  both of which are in
default,  and its financial  statements  are  presented on a  liquidation  basis
utilizing  a  liquidation  date in October  1999,  additional  quantitative  and
qualitative  disclosures about market risk, including projections of future cash
flows, have not been presented.


                                       7
<PAGE>


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

INDEX TO FINANCIAL STATEMENTS
-----------------------------

         Financial statements                                               Page
         --------------------                                               ----

         Report of Independent Accountants                                     9
         Consolidated Statements of Net Liabilities                           10
         Consolidated Statements of Changes of Net Liabilities                11
         Consolidated Statements of Cash Flows                                12
         Notes to Financial Statements                                        13

         Financial statement schedules
         -----------------------------

         Financial statement schedule  information is presented in the financial
         statements.

SUPPLEMENTARY FINANCIAL INFORMATION
-----------------------------------

         Selected quarterly financial data (unaudited)                        19
         ---------------------------------------------


                                       8

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholders of PSS, Inc.



We have audited the  accompanying  consolidated  statements  of net  liabilities
(liquidation basis) of PSS, Inc. and its subsidiaries as of October 31, 1998 and
November 1, 1997,  and the  related  consolidated  statements  of changes in net
liabilities  (liquidation  basis) and of cash flows for the years ended  October
31, 1998, November 1, 1997 and November 2, 1996. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  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,  the  consolidated  financial  statements  audited by us present
fairly, in all material  respects,  the financial  position of PSS, Inc. and its
subsidiaries  at October 31, 1998 and November 1, 1997, and the changes in their
net  liabilities  (liquidation  basis) and their cash flows for the years  ended
October 31, 1997,  November 1, 1997 and  November 2, 1996,  in  conformity  with
generally accepted accounting principles.


/s/ PricewaterhouseCoopers LLP

Seattle, Washington
December 14, 1998


                                       9

<PAGE>
                                            
                                   PSS, INC.
                   Consolidated Statements of Net Liabilities
                              (Liquidation Basis)
                             (thousands of dollars)

<TABLE>
<CAPTION>
                                                
                                                                       October       November
                                                                      31, 1998       1, 1997
                                                                      ------------------------

<S>                                                                   <C>             <C>  
Cash and short-term investments                                           $239            $313 

Investment in mortage certificates                                       3,700           4,459 

Accrued interest receivable                                                 45              57 
                                                                      ---------       --------- 

                         Total Assets                                    3,984           4,829 
                                                                      ---------       --------- 

Borrowings under mortgage certificate financing agreement                3,270           4,073 
Accounts payable and accrued liabilities                                   177             169 
Reserve for estimated costs during period of liquidation                   102             151 
PNS 12 1/8% senior notes                                                 5,258           5,258 
Accrued interest payable on PNS notes                                    2,424           1,788 
Reserve for interest on PNS notes during period of liquidation             636             636 
PSS 7 1/8% debentures                                                   22,920          22,920 
Accrued interest payable on PSS debentures                               7,024           5,396 
Reserve for interest on PSS debentures during period of liquidation      1,629           1,629
                                                                      ---------       --------- 

                         Total Liabilities                              43,440          42,020 
                                                                      ---------       ---------

                         Net Liabilities                              ($39,456)       ($37,191)
                                                                      =========       =========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       10


<PAGE>

                                  PSS, INC.
             Consolidated Statements of Changes in Net Liabilities
                              (Liquidation Basis)
                             (thousands of dollars)
<TABLE>
<CAPTION>

                                                                       Year Ended
                                                                       ----------

                                                   October        November         November 
                                                   31, 1998       1, 1997          2, 1996
                                                   -----------------------------------------
<S>                                              <C>             <C>             <C>  
Investment income                                    $270            $446            $459 

Interest expense                                   (2,490)         (2,546)         (2,601)

General and administrative expense                    (94)           (104)           (197)

Decrease in reserve for estimated costs                                                                         
     and interest during period of liquidation      2,314           2,204           1,674 

Provision for estimated costs and interest                                                                      
     during period of liquidation                  (2,265)         (2,265)         (2,355)
                                                  --------        --------        --------

Increase in Net Liabilities                       $(2,265)        $(2,265)        $(3,020)
                                                  ========        ========        ========





</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       11



<PAGE>                                                                  
                                   PSS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (thousands of dollars)
<TABLE>
<CAPTION>


                                                                       Year ended
                                                                       ----------
             
                                                        October        November       November
                                                        31, 1998       1, 1997         2, 1996
                                                        ----------------------------------------


<S>                                                   <C>           <C>             <C>     

Cash flows from operating activities:

     Increase in Net Liabilities                         $(2,265)      $(2,265)        $(3,020)

     Decrease (increase) in unrealized appreciation           47           (64)            (25)

     Adjustments to reconcile to net cash flows 
        from operating activities:

     Increase (decrease) in estimated costs and interest                                                                
        during period of liquidation                         (49)           61             681 

     Increase in accrued interest payable                  2,264         2,265           2,308 

     Other                                                    20            34              62 
                                                            ----          ----            ----

Net cash provided by operating activities                     17            31               6 
                                                            ----          ----            ----
Cash flows from investing activities:

     Principal repayments on mortgage certificates           712           855             615
                                                            ----          ----            ----

Net cash provided by investing activities                    712           855             615 
                                                            ----          ----            ----

Cash flows from financing activities:

     Repayment of mortgage certificate borrrowings          (803)         (849)           (356)
                                                           -----         -----           -----

Net cash used by financing activities                       (803)         (849)           (356)
                                                           -----         -----           -----

Net increase (decrease) in cash and short-term investments   (74)           37             265 


     Cash and short-term investments at beginning of year    313          $276             $11 
                                                           -----         -----           -----

     Cash and short-term investments at end of year         $239          $313            $276 
                                                           =====         =====           =====


</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       12

<PAGE>


                                    PSS, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - The Company
--------------------

The consolidated financial statements of PSS, Inc. ("PSS"),  includes its direct
subsidiary  PNS  Inc.   ("PNS")  and  its  subsidiary   PSSC,   Inc.   ("PSSC"),
collectively,  the "Company".  The Company is principally owned by Seacorp, Inc.
("Seacorp") and Zimmerman  Retailing Group Limited ("Zimco").  Seacorp and Zimco
own approximately 41% and 13%, respectively, of the Company's outstanding common
stock, with the remainder publicly owned.

The Company,  through PSSC, owns  pass-through  and  participation  certificates
issued by the Federal Home Loan Mortgage  Corporation  backed by whole pool real
estate  mortgages  ("Mortgage  Certificates"),  and as a  result,  is  primarily
engaged in the business of owning  mortgages and other liens on and interests in
real  estate.  The  principal  obligations  of the Company  are PSSC  borrowings
secured by Mortgage Certificates, PNS 12-1/8% Senior Subordinated Notes due July
15, 1996 (the "Senior Notes") and PSS 7-1/8% Convertible Debentures due July 15,
2006 (the "Debentures").

The Company  failed to pay the interest due January 15 and July 15, 1995,  1996,
1997 and 1998 on its Debentures and such default continues.  The trustee for the
Debentures  has  indicated  to the  holders of the  Debentures  that it does not
intend to accelerate payment of the Debentures  "because it is unlikely that the
Debenture holders would receive any payment if the Debentures were accelerated."

PNS failed to pay interest  due on July 15, 1995,  January 15, 1996 and July 15,
1996 and  failed to pay the  outstanding  principal  on its Senior  Notes  which
became  due on July 15,  1996.  All such  defaults  continue.  In June  1997 the
Company was advised by the trustee for the Senior Notes that,  after  concluding
that the Company lacks  sufficient  assets to pay the Senior Notes,  the trustee
had  petitioned a district  court for the State of  Minnesota  to authorize  and
instruct it to refrain from pursuing any default  remedy against the Company and
to  discharge  it as  trustee,  and that the Court  had  granted  the  trustee's
requests.

At October 31, 1998, the Company had assets of  approximately  $3.98 million and
liabilities,  other  than the  Senior  Notes and  Debentures  including  accrued
interest and liquidation  costs, of approximately  $3.44 million,  thus having a
net difference of approximately  $540,000  available for holders of Senior Notes
and Debentures. At October 31, 1998, approximately $5.26 million of Senior Notes
and  $22.92  million of  Debentures  remain  outstanding  and,  annual  interest
thereon,  in the absence of additional  repurchases,  approximates  $636,000 and
$1.63 million,  respectively. The Company's future operating results, liquidity,
capital  resources and requirements  are primarily  dependent upon actions which
may  be  taken  by the  trustee  for  the  Debentures  to  collect  amounts  due
thereunder,  the payment of amounts  due on and  purchases  of Senior  Notes and
Debentures and, to a lesser extent, interest rate fluctuations as they relate to
the market value of Mortgage  Certificates  and to the spread of interest income
therefrom  over  interest  expense  on  related   borrowings.   The  Company  is
exclusively invested in Mortgage  Certificates,  and, accordingly,  is 

                                       13
<PAGE>

presently  relying  solely on such as its source of cash funds.  It has not been
determined  what course of action the  Company  may pursue with  respect to debt
service on the Senior Notes and Debentures.

NOTE 2 - Liquidation Basis of Accounting
----------------------------------------

Effective  October 28,  1995,  the  Company  adopted  the  liquidation  basis of
accounting for presenting its consolidated  financial statements.  This basis of
accounting is considered appropriate when, among other things,  liquidation of a
company  appears  imminent  and the  net  realizable  value  of its  assets  are
reasonably determinable.  Under this basis of accounting, assets and liabilities
are  stated at their  net  realizable  value and  estimated  costs  through  the
liquidation date are provided to the extent reasonably determinable.

The net effect of converting  from the going  concern  basis to the  liquidation
basis of accounting as of October 28, 1995 was an increase in net liabilities of
approximately  $1.7  million,  as a result  of  recording  estimated  costs  and
interest expense to the liquidation date. No adjustment to the reported value of
assets was required.  Under the  liquidation  basis,  the Company accrued future
liabilities  and  estimated  future net revenues  from interest and other income
associated with mortgage certificates to the liquidation date.

A summary of significant  estimates and judgments utilized in preparation of the
consolidated financial statements on a liquidation basis follows:

         o        The Company's next fiscal year end, October 30, 1999, has been
                  utilized  as the  liquidation  date for the  October  31, 1998
                  financial statements, the October 31, 1998 fiscal year end was
                  utilized  as the  liquidation  date for the  November  1, 1997
                  financial statements, and the November 1, 1997 fiscal year end
                  was utilized as the liquidation  date for the November 2, 1996
                  financial statements.

         o        Mortgage  Certificates  and  related  interest  receivable are
                  stated at estimated market value.

         o        Borrowings secured by Mortgage Certificates are stated at face
                  value, which approximates market value.

         o        The  reserve  for   estimated   costs  during  the  period  of
                  liquidation   represents  estimates  of  future  costs  to  be
                  incurred through the liquidation date.

         o        Net  estimated  interest  income  to  be  earned  on  Mortgage
                  Certificates   in  excess  of  interest   expense  on  related
                  borrowings has been  considered in determining the reserve for
                  estimated costs during the period of liquidation.
  
                                       14

<PAGE>


NOTE 2 - Liquidation Basis of Accounting (continued)
----------------------------------------------------

         o        Senior Notes  and  Debentures and related interest accrued are
                  stated at face value.

         o        The  reserve  for  interest  during the period of  liquidation
                  represents  interest on Senior  Notes and  Debentures  for the
                  period  from the date of the  Consolidated  Statements  of Net
                  Liabilities to the estimated liquidation date, as applicable.

All of the above  estimates  and judgments may be subject to change as facts and
circumstances   change.   Similarly,   actual  costs  and  expenses  may  differ
significantly  depending on a number of factors,  particularly the length of the
liquidation period.

During the fiscal years ended October 31, 1998,  November 1, 1997,  and November
2, 1996 the Company's  actual net excess of costs  incurred over net  investment
income reasonably approximated the recorded reserve for such years.

Presentation  of per common  share  information  on a  liquidation  basis is not
considered meaningful and has been omitted.

NOTE 3 - Summary of Accounting Principles
-----------------------------------------

Cash and Short-Term Investments

Cash and short-term investments,  having maturities of three months or less when
purchased, are primarily comprised of interest-bearing short-term bank deposits.

Investment in Mortgage Certificates

The  investment in Mortgage  Certificates  is recorded at estimated  fair value,
based upon market  prices  obtained from an  investment  bank.  Gains and losses
realized  upon sale of Mortgage  Certificates  and  unrealized  gains and losses
resulting from mark-to-market adjustments are included in investment income.

Accounting Estimates

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  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those amounts.

Reclassification

Certain amounts in prior period financial  statements have been  reclassified to
conform with current year classifications.

                                       15
<PAGE>


NOTE 4 - Investment in Mortgage Certificates
--------------------------------------------

Mortgage  Certificates  are financed with  borrowings  provided by an investment
bank pursuant to a letter  agreement  (the  "Financing  Agreement").  Borrowings
pursuant to the Financing  Agreement (the "Mortgage  Financing")  are secured by
the Mortgage  Certificates.  In the event of a decrease in the aggregate  market
value of the  Mortgage  Certificates  below the  requirements  of the  Financing
Agreement,  additional  collateral is required.  Principal and interest payments
received on Mortgage  Certificates are maintained in an interest earning account
and are  released to the  Company,  at its  request,  after all interest and any
"mark-to-market" indebtedness then due have been paid. The Mortgage Financing is
payable on demand and generally bears interest at rates  approximating the three
month  Federal  Funds  Rate  plus  25 to 75  basis  points.  Mortgage  Financing
borrowings  and  related  interest  rates  approximated  $3.3  million and 6% at
October 31,  1998,  and $4.1  million and 6% at November 1, 1997,  respectively.
During the years ended October 31, 1998, November 1, 1997, and November 2, 1996,
the average balance of mortgage related borrowings outstanding approximated $3.7
million,  $4.6 million, and $5 million, and the weighted annual average interest
expense rates approximated 6.0%, 6.0%, and 5.6%, respectively.

At October 31, 1998, the interest rate to be earned on the Mortgage Certificates
approximated  7.6% as determined  on a basis that interest  rates do not change.
The rate of interest on the Mortgage Certificates is adjustable based on general
interest rate trends with certain  maximums,  including  limits of 2% for annual
interest  rate  changes and interest  rate  maximums of  approximately  13%. The
weighted  average  interest  income rates  earned on the  Mortgage  Certificates
approximated  7.7%,  7.7%,  and 7.9%,  during the years ended  October 31, 1998,
November 1, 1997, and November 2, 1996, respectively.

NOTE 5 - Subordinated Debt
--------------------------

Subordinated  debt and related  interest payable through the balance sheet dates
are summarized as follows (thousands of dollars):

                                     October  31,         November 1,
                                       1998                  1997
                                     ------------         ----------    

PNS 12-1/8% Senior Notes               $  5,258          $   5,258
Interest payable on Senior Notes          2,424              1,788
                                          -----              -----
                                       $  7,682          $   7,046
                                          =====              =====

PSS 7-1/8% Debentures                  $ 22,920          $  22,920
Interest payable on Debentures            7,024              5,396
                                         ------             ------
                                       $ 29,944          $  28,316
                                         ======             ======


                                       16

<PAGE>


NOTE 5 - Subordinated Debt (continued)
--------------------------------------

In July 1986,  the Company  completed  three public  securities  offerings  (the
"Public  Offerings").  PNS issued  $150  million of Senior  Notes (at a price of
98.6%) and PSS sold 3.25  million  shares of its common  stock and issued at par
$150 million of Debentures  convertible  to PSS common stock at $19.68 per share
(the  conversion  price is subject to adjustment  in the case of dilution).  PSS
invested  the net  proceeds  from  its two  offerings  in PNS,  in the form of a
contribution to capital and an intercompany  debenture  between PNS and PSS (the
"Intercompany  Debenture") in the amount of $150 million with  substantially the
same interest rate and redemption  provisions as the Debentures.  At October 31,
1998, the Intercompany Debenture approximated $1.4 million.

The indenture  governing  the Senior Notes  restricts the ability of PNS and its
subsidiaries  to pay  dividends or make other  payments to PSS. The Senior Notes
indenture  permits PNS to pay  dividends to PSS in amounts  sufficient to enable
PSS to meet its  obligations on the Debentures  when due (to the extent payments
are not made to PSS when due pursuant to the Intercompany  Debenture),  provided
that no event of default (as defined in the Senior Notes indenture) has occurred
and is continuing. PNS, like its parent company, has a stockholder's deficit.

The Senior Notes and Debentures provide for semiannual interest payments and are
unsecured.  Principal  repayment on the Senior Notes was due in full on July 15,
1996. The Debentures  require annual  principal  payments of  approximately  $11
million commencing July 15, 1996 until July 15, 2006 when the balance is due; by
utilizing Debentures which the Company has previously acquired, there will be no
scheduled maturity payments required before 2006.

The indentures for the Senior Notes and Debentures  contain certain  restrictive
covenants which, among other things,  limit dividends and similar  distributions
to  stockholders,  essentially  prohibit  redemptions  and  retirements  of  the
Company's equity, limit the Company's ability to incur debt, and restrict action
and  agreements  by the  Company  that  would  prohibit  dividends  and  similar
distributions to the Company from its subsidiaries.


NOTE 6 - Income Taxes
---------------------

Due to losses for each of the years ended October 31, 1998, November 1, 1997 and
November 2, 1996, there was no provision for income taxes recorded.

As  of  October  31,  1998,   for  income  tax  purposes,   net  operating  loss
carryforwards,  which  begin to expire in 2001,  approximate  $144  million.  If
certain substantial changes in the Company's ownership should occur, there would
be an annual  limitation  on the  amount  of the  carryforwards  which  could be
utilized.

                                       17

<PAGE>


NOTE 7 - Stockholders' Deficit
------------------------------

The Company's  common stock  consists of 60 million  authorized  shares,  $1 par
value,  19,473,728 shares of which are issued and outstanding.  The Company also
has 10 million authorized shares of preferred stock, $1 par value, none of which
have been issued.  There have been no changes in common stock or additional paid
in capital  since  October 29, 1994.  Effective  October 28, 1995 as a result of
presenting  financial statements on the liquidation basis, changes in components
of stockholders' deficit are not presented.

NOTE 8 - Contingencies
----------------------

The  Company  has  been  named as a  defendant  in a case in the  United  States
District Court for the district of Alaska concerning  allegations that a firearm
was negligently designed and manufactured  resulting in injury to the plaintiff.
The Company was sued based upon a sales receipt bearing the Pay'N Save name. The
sale,  however,  took place  after all the assets of Pay'N Save were sold by the
Company to Thrifty Corporation,  a subsidiary of Pacific Enterprises.  An answer
has been interposed on behalf of the Company and documents have been provided to
plaintiff's  counsel to demonstrate  the sale of assets and that any liabilities
subsequently  arising  would not be the  obligations  of the  Company.  To date,
plaintiff's  counsel has been  unwilling  to  discontinue  the  action.  Company
counsel is involved  in motion  practice  involving  the  discontinuance  of the
Company from the claim.  Management  of the Company  believes that the case will
ultimately be  discontinued  or dismissed as to the Company  without  liability,
aside from defense costs.


                                       18

<PAGE>
   

NOTE 9 - Selected Quarterly Financial Data (Unaudited)
------------------------------------------------------

Selected quarterly financial data are as follows (thousands of dollars):
<TABLE>
<CAPTION>


                                                              Fiscal Quarters Ended 
                                                              ---------------------
                          
                                               October         August       May      January         
                                               31, 1998        1, 1998     2, 1998   31, 1998
                                              ------------------------------------------------

                                                         
<S>                                             <C>            <C>         <C>        <C>     

Decrease in reserve for estimated costs and    
interest during period of liquidation              $578           $611        $567       $558    

Provision for estimated costs and interest
during period of liquidation                     (2,265)           ---         ---        ---     

Increase in Net Liabilities                      (2,265)           ---         ---        ---     
</TABLE>


<TABLE>
<CAPTION>
                                                              Fiscal Quarters Ended 
                                                              ---------------------
                          
                                               November         August        May      February        
                                               1, 1997          2, 1997      3, 1997   1, 1997
                                              ---------------------------------------------------


<S>                                              <C>             <C>          <C>       <C>    
Decrease in reserve for estimated costs and 
interest during period of liquidation              $502            $567         $566      $569   

Provision for estimated costs and interest
during period of liquidation                     (2,265)            ---          ---      ---     
 
Increase in Net Liabilities                      (2,265)            ---          ---      ---     


</TABLE>



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


None.                                                           



                                       19


<PAGE>


                                    PART III
                                    --------

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------


The  following  table  sets forth  certain  information  concerning  each of the
directors and executive officers of the Company.  All directors will serve until
the next Annual Meeting of  Shareholders  and until his respective  successor is
elected or appointed. Each director of the Company is also a director of PNS.

                                                Present Principal
Name and Position                               Occupation or Employment
 With the Company                  Age          and Five Year Employment History
------------------                 ---          --------------------------------


Mark Todes                         43           President  and Director of the
President and Director                          Company    since   May   1996.
                                                President of City Realty, Inc.
                                                since   May   1996   and  Vice
                                                President    of    200    West
                                                Holdings,  Ltd. (a real estate
                                                holding    company    and    a
                                                subsidiary of City Realty) for
                                                more   than  5   years   prior
                                                thereto.   Vice  President  of
                                                Seacorp since July 1996.      
                                                                              
Gerald P. Nathanson                62           Director of the Company  since
Director                                        October 1986. During 1996, Mr.
                                                Nathanson, a private investor,
                                                left the  employ of L.Luria (a
                                                retail company).  He served as
                                                Chief Executive  Officer of US
                                                Holographics        (marketing
                                                company    for     holographic  
                                                products)  from  April 1992 to  
                                                December 1995.                  
                                                                                
Carite L. Torpey                   50           Vice President,  Secretary and  
Vice President, Secretary                       Treasurer of the Company since  
and Treasurer                                   July   1997   and    Assistant  
                                                Secretary   for  more  than  5  
                                                years  prior   thereto.   Vice  
                                                President of TG Services, Inc.  
                                                since July 1998 and  Assistant  
                                                Vice  President  and Assistant
                                                Secretary   since  July  1996.  
                                                Employed by The Trump Group (a  
                                                private  investment   company)  
                                                for  more  than 5 years  prior  
                                                hereto.  

ITEM 11 - EXECUTIVE COMPENSATION
--------------------------------

Compensation of Directors and Executive Officers

The Company has no employees.  There are currently no  arrangements  under which
any officer or director of the Company will receive  compensation for serving as
such; however, other arrangements may be made in the future.


                                       20

<PAGE>


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

The following table sets forth, as of December 31, 1998,  information concerning
the beneficial ownership of the common stock of the Company by (i) persons known
by the Company to own beneficially more than 5% of its outstanding common stock,
(ii) each of the  directors of the Company and (iii) all directors and executive
officers of the Company as a group.  Except as set forth in the footnotes to the
table, the stockholders  have sole voting and investment power over such shares.
Unless otherwise specified,  the address for all directors is the address of the
Company's executive offices.  The address for Messrs.  Julius and Eddie Trump is
the address set forth below for Seacorp.  The address for Mr. Christopher Podoll
is the address set forth below for Zimmerman Retailing Group Limited.

                                        Amount and Nature
                                            of Beneficial             Percent
Name                                          Ownership               of Class
----                                    -----------------             --------

Christopher Podoll (a)                      2,391,079                  12.28%
Zimmerman Retailing Group Limited (a)       2,391,079                  12.28%
 P.O. Box 948
 Route 2, Pleasant Plain Road
 Fairfield, IA 52556
Seacorp, Inc. (b)                           8,014,705                  41.1%
 P.O. Box 2573
 Seattle, WA 98111
Eddie Trump (b)                             8,014,705                  41.1%
Julius Trump (b)                            8,014,705                  41.1%
All Directors and Executive Officers as
 a Group (2 persons)                                0                     0%

(a)      According to the Schedule  13D, as amended (the "Zimco  Amended  13D"),
         filed with the Securities and Exchange  Commission (the  "Commission"),
         Zimco is an Iowa limited partnership, the sole general partner of which
         is Soma 2 L.P., a Delaware limited  partnership  ("Soma 2"). Soma 2 has
         as its general partner ZRG Co., Inc., a Delaware  corporation  ("ZRG"),
         for which Mr. Podoll serves as the sole executive officer and director.
         Mr. Podoll is a manager of investments of the William Zimmerman family.
         Amounts  include 8,079 shares  issuable  upon  conversion of Debentures
         beneficially  owned by Zimco.  Amounts do not include the  ownership of
         6,000 shares and 3,810 shares  issuable  upon  conversion of Debentures
         owned by the Surya  Financial Inc.  Retirement  Plan, a retirement plan
         for the  benefit of  various  employees  of Surya  Financial  Inc.,  an
         affiliate of Zimco.

(b)      According to the Schedule 13D, as amended, filed with the Commission by
         Julius Trump, Eddie Trump and Seacorp,  Seacorp is, and Messrs.  Julius
         and  Eddie  Trump  may be  deemed to be,  the  beneficial  owner(s)  of
         8,014,705  shares of common stock.  Such amount  includes 


                                       21
<PAGE>

         8,079 shares issuable upon conversion of Debentures  beneficially owned
         by an affiliate of Seacorp.  As set forth in the Schedule 13D,  Seacorp
         is a Delaware  corporation  and does not  presently  have any  business
         other  than the  ownership  of shares of common  stock of the  Company.
         Seacorp is indirectly controlled by Messrs. Julius and Eddie Trump.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

None


                                       22

<PAGE>


                           PART IV. OTHER INFORMATION
                           --------------------------

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

(a)      See  the section  entitled  "Index to Financial  Statements"  appearing
         under Item 8 of this Annual Report on Form 10-K.

(b)      Not applicable

(c)      Exhibits:

         3.1  Restated Certificate of             Incorporated   by   referenced
              Incorporation of the Registrant     from   Exhibit   3.1   to  the
                                                  Registration Statement on Form
                                                  S-1 (File No.  33-5560) of the
                                                  Company   (the   "Registration
                                                  Statement").     
         
         3.2  Certificate of Amendment of         Incorporated by reference from
              Certificate of Incorporation of     Exhibit      3.2     to    the
              the Registrant                      Registration Statement.

         3.3  Certificate  of Amendment of        Incorporated by reference from
              Certificate of  Incorporation       Exhibit   3.1   to   Quarterly
              of the Registrant                   Report  on Form  10-Q  for the
                                                  quarter ended July 30, 1988.  

         3.4  Certificate  of Amendment of        Incorporated by reference from
              Certificate of  Incorporation       Exhibit   3.4  to  the  Annual
              of the Registrant                   Report  on Form  10-K  for the
                                                  year ended October 31, 1992.  

         3.5  By-Laws of the Registrant           Incorporated by reference from
                                                  Exhibit     3.3     to     the
                                                  Registration Statement.
     

         4.1  Indenture between the Registrant    Incorporated by reference from
              Inc. and United States Trust        Exhibit     4.1     to     the
              Company  of New  York, as Trustee,  Registration Statement.       
              relating  to the  7-1/8%            
              Convertible Debentures due
              July 15, 2006 (including the
              form of Convertible Debenture). 

         4.2  First  Supplemental  Indenture be-  Incorporated by reference from
              tween the  Registrant  and          Exhibit  4.1 to the  Quarterly
              United States Trust Company of      Report   on  Form   10-Q   for
                                                  quarter  ended April 30, 1988.
                                                                                


                                       23

<PAGE>
 
                                                 
                                                  
               New York as  Trustee, relating 
               to the 7-1/8%  Convertible
               Debentures  due July 15, 2006.

         4.3   Indenture between PNS Inc. and     Incorporated by reference from
               Norwest Bank Minneapolis, Nat-     Exhibit     4.1     to     the
               ional Association as Trustee,      Registration Statement on Form
               relating to the 12-1/8% Senior     S-1 (File No.  33-5591) of PNS
               Subordinated Notes due July 15,    Inc.                          
               1996 (including the form of       
               Senior Subordinated Note.                                        


         4.4  First  Supplemental  Indenture be-  Incorporated by reference from
              tween PNS Inc.,  and  Norwest Bank  Exhibit  4.2 to the  Quarterly
              Minnesota, National Association     Report  on Form  10-Q  for the
              as Trustee,  relating to the        quarter ended April 30, 1988. 
              12-1/8% Senior Subordinated                 
              Notes due July 15, 1996.

10.5          Letter Agreement dated              Incorporated by reference from
              February 9, 1990 by and among       Exhibit   (i)   to   Quarterly
              PSSC Inc. and Bear Stearns &        Report  on form  10-Q  for the
              Co., Inc. for the purchase and the  quarter   ended   February  3,
              financing of adjustable-rate        1990. 
              mortgages.                                     

22.1          Subsidiaries of the Registrant.     Incorporated by reference from
                                                  Exhibit   22.to   the   Annual
                                                  Report  on Form  10-K  for the
                                                  year ended October 31, 1992.  
                                                  

                                       24
<PAGE>


                                   SIGNATURES
                                   -----------

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                                PSS, INC.
                                                (Registrant)




Date:  December 30, 1998                    By:   /s/ MARK TODES                
                                                 -------------------------------
                                                      Mark Todes, President and 
                                                                  Director





                                       25