Exhibit 13


                                   Designing
                                for the Future

                                   [PFC LOGO]

                                    Pulaski
                             Furniture Corporation

                              1998 Annual Report


<PAGE>

CONTENTS
-------------------------------------------------------------------------------

Message to Shareholders                       1
General Information                           2
Selected Financial Data                       3
Forward Looking Statements                    3
Management's Discussion and Analysis          4
Consolidated Balance Sheets                   6
Consolidated Statements of Operations
     and Retained Earnings                    8
Consolidated Statements of Cash Flows         9
Notes to Consolidated Financial Statements   10
Report of Independent Auditors               15


[PHOTO]
This beautiful secretary is one of the newest introductions to our Accentrics
division. It features a drop down lid, two drawers and hand painted decorations.

<PAGE>

1998 MESSAGE TO SHAREHOLDERS
--------------------------------------------------------------------------------

[PHOTO]
Officers of Pulaski Furniture Corporation (Seated L-R: Ira S. Crawford, John G.
Wampler, Jason A. Gibbs.
Standing L-R: James H. Kelly, Randolph V. Chrisley, James W. Stout, Paul T.
Purcell, Raymond E. Winters, Jr.)

We made major changes in 1997 to better position Pulaski Furniture for the
future. The timing for the restructuring was fortuitous, as the retail of
residential furniture was healthy throughout 1998, providing an improved
environment for our marketing and manufacturing initiatives. All facets of the
Corporation showed improvement as we focused on our core businesses and recorded
profits in every division. Sales from continuing operations increased 13 percent
as they reached $172,359,000 in 1998. Earnings were at record levels with a net
income of $6,397,000 or $2.25 per share.

We are pleased to have shown substantial improvement and to have met the goals
that were set for the 1998 fiscal year; however, we are far from satisfied with
the results. We feel that we have the domestic facilities and international
sourcing structure to grow sales and to increase our earnings. The entire
Pulaski Furniture team is well coordinated and highly focused as we endeavor to
show another year of improvement in 1999. We do not know if the retail sales of
furniture will continue their current expansion, but we will continue to
scrutinize every aspect of our business to enhance earnings and to improve
shareholders' value.

We announced the anticipated  acquisition of Dawson Furniture Company of Webb
City, Missouri, in the fourth quarter. We understand Dawson's business well in
that it is a low cost manufacturer of solid wood occasional and bedroom
furniture. The transaction should be completed early next year and is expected
to be accretive to earnings in 1999. Dawson Furniture is a blueprint for a good
investment. It is a well run manufacturer of quality products that fit into our
niches. The management team has unquestionable integrity, a deep understanding
of the furniture business, and ample energy to execute the necessary marketing
and manufacturing initiatives to achieve outstanding results. Current management
plans to stay with the Company after the acquisition is completed.

We have a well  trained  work  force and our  factories  are  modern and well
equipped.  We will continue to make astute  investments in the proper  equipment
and systems to enhance  our  competitiveness.  We feel that the import  division
will provide the best opportunities for growth in the future,  therefore we will
deploy more resources in support of this division.

We appreciate  the efforts of our employees  and sales  representatives  this
year.  We also want to thank our Board of  Directors  for their  assistance  and
guidance during 1998.

Sincerely,


/s/ John G. Wampler
-------------------------
John G. Wampler
President

1998 Annual Report                  1              Pulaski Furniture Corporation
<PAGE>

GENERAL INFORMATION
--------------------------------------------------------------------------------


   Organized in Virginia in 1955, the Corporation manufactures and sells
medium-priced wooden bedroom, dining room and occasional furniture produced in
its manufacturing plants located in Pulaski, Dublin, and Martinsville, Virginia.
The Corporation also has a veneer plant located in Dublin, Virginia, which
produces veneer used at all manufacturing plants. The Corporation's Ridgeway
Clock division manufactures grandfather, mantel and wall clocks and is located
in Ridgeway, Virginia. The Corporation also has an import division that
supplements its' product mix with furniture and components parts.

   At November 1, 1998, the end of the Corporation's 1998 fiscal year, 2,864,939
shares of the  Corporation's 10 million  authorized  shares of Common Stock were
outstanding.  In addition,  the Corporation has authorized one million shares of
Cumulative Preferred stock of which no shares were outstanding.

MARKET AND DIVIDEND INFORMATION
--------------------------------------------------------------------------------


   Pulaski Furniture Corporation's stock is listed on the NASDAQ National Market
System, which is the most active listing of over-the-counter quotations.  During
the fiscal  year 1998,  the  Corporation  believes  that Wheat First  Union,  of
Richmond,  Virginia,  was the  most  active  market  maker  for the  stock.  The
Corporation has approximately 800 shareholders of record as of November 1, 1998.
The range of closing  sales prices as reported by NASDAQ and cash  dividends for
the last two  fiscal  years  are  listed  in the  following  chart.  The  market
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commissions and may not necessarily represent actual transactions.

SALES PRICES OF COMMON STOCK
---------------------------------------------------

Fiscal          1998             Dividends
Quater          High      Low  Declared 1998
---------------------------------------------------
First          $19.75   $17.75    $0.17
Second          26.00    18.75    $0.17
Third           27.00    24.00    $0.17
Fourth          25.50    19.50    $0.17


Fiscal          1997             Dividends
Quater          High      Low  Declared 1997
---------------------------------------------------
First          $18.25   $15.50    $0.17
Second          18.25    15.00    $0.17
Third           18.50    15.50    $0.17
Fourth          19.50    17.25    $0.17

[PHOTO]
The Accentrics division of Pulaski Furniture debuts their Orient Collection at
the High Point Furniture Market. Featured in their collection is this 63" tall
chest with two tone hand applied Antique finish and antiqued hardware with that
special oriental flair.

Pulaski Furniture Corporation                2                1998 Annual Report

<PAGE>

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                              Years Ended
-------------------------------------------------------------------------------------------------------
                               November 1,    November 2,     November 3,   October 29,    October 30,
                                  1998           1997            1996           1995          1994
-------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>            <C>             <C>            <C>
Net Sales                    $ 172,359,659   $158,942,459   $ 166,646,062   $172,842,105   $148,698,029
Net Income                       6,397,397     (2,422,844)      4,308,067      4,475,171      3,168,494
Diluted Earnings Per Share            2.25           (.87)           1.51           1.56           1.10
Total Assets                   117,627,771    110,879,450     124,335,635    118,675,813    112,750,099
Long-Term Debt                  23,764,884     25,774,173      27,851,222     29,354,804     31,398,173
Cash Dividends Per Share              0.68           0.68            0.64           0.60           0.56
Book Value Per Share                 20.46          19.10           20.72          19.78          18.69
Net Working Capital             51,504,949     48,984,594      52,771,424     51,787,988     47,203,234
Current Ratio                          2.8            2.9             2.6            2.9            3.1
</TABLE>

QUARTERLY RESULTS OF OPERATIONS (Unaudited)
--------------------------------------------------------------------------------

   The  following  is  a  tabulation  of  the  unaudited  quarterly  results  of
operations  for the fiscal  years ended  November  1, 1998 and  November 2, 1997
(dollars in thousands, except earnings per share).

<TABLE>
<CAPTION>
                              First Quarter   Second Quarter  Third Quarter   Fourth Quarter      Total
                              (12 Weeks in     (12 Weeks in    (12 Weeks in    (16 Weeks in    (52 Weeks in
                             1998 and 1997)   1998 and 1997)  1998 and 1997)  1998 and 1997)  1998 and 1997)
------------------------------------------------------------------------------------------------------------
<S>                          <C>              <C>             <C>             <C>             <C>
November 1, 1998
  Net sales                     $36,310         $39,268         $32,687         $64,095        $172,360
  Gross profit                    7,095           7,763           6,809          15,351          37,018
  Net income                      1,000           1,158             533           3,706           6,397
  Basic earnings per share         0.36            0.41            0.19            1.31            2.27
  Diluted earnings per share       0.35            0.41            0.19            1.30            2.25

November 2, 1997
  Net sales                     $35,422         $35,322         $30,054         $58,144        $158,942
  Gross profit                    6,935           7,390          (3,167)a        13,465          24,623
  Net income                        664             852          (5,745)a         1,806          (2,423)
  Basic earnings per share*        0.24            0.30           (2.06)a          0.65           (0.87)
  Diluted earnings per share*      0.23            0.30           (2.06)a          0.64           (0.87)
</TABLE>

(a) Note: 1997 income includes a  non-recurring  non-cash  write-off  of certain
assets and inventories  amounting to $9,270,269 pre-tax ($5,923,702 after taxes,
or $2.10 per share) announced July 28, 1997.

*Note:  Earnings  (loss) per share ("EPS") amounts have been restated to reflect
the adoption of Statement of Financial  Accounting  Standards No. 128, "Earnings
per Share", which replaces the presentation of primary EPS and fully diluted EPS
with a presentation of basic EPS and diluted EPS, respectively.

FORWARD LOOKING STATEMENTS
--------------------------------------------------------------------------------

   Some of the information  presented in the following  report,  particularly in
the Year 2000  Update  of the  Management  Discussion  and  Analysis  and in the
Capital Resources and Liquidity Section,  constitutes  forward-looking  comments
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995.
Although the  Corporation  believes  its  expectations  are based on  reasonable
assumptions within the bounds of its knowledge of its businesses and operations,
there can be no assurance  that actual results will not differ  materially  from
its  expectations.  Factors  which  could  cause  actual  results to differ from
expectations  include,  without  limitation,  the timing of orders received from
customers,  the gain or loss of significant  customers,  competition  from other
manufacturers,  changes in the demand for the Corporation's products,  increases
in the cost of the product,  changes in the market in general,  fluctuations  in
currencies, and possible problems incurred in the Year 2000 strategic plan.

1998 Annual Report                3                Pulaski Furniture Corporation
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations

1998 Compared to 1997
-------------------------------------------------------------------------------
   The fiscal 1998 net income was $6,397,397, or $2.25 per share compared to net
loss of  $2,422,844,  or $0.87  per  share for  fiscal  1997.  The 1997 net loss
included  non-recurring,  non-cash  after tax  write-down of certain  assets and
inventories amounting to $5,923,702 or $2.10 per share.

   The  Corporation  shipped 15% more units in fiscal  1998 at a higher  average
unit price of approximately 2%. The increase in sales was due, primarily, to the
development of marketing  programs that  capitalized  on the  improvement in the
retail furniture  environment during fiscal 1998. The Corporation is not certain
how long this improvement in the retail furniture environment will last into the
future. Export sales for fiscal 1998 were approximately 7% of net sales compared
to approximately 5% in 1997.

   Cost of products  sold for fiscal 1997  included an inventory  write-down  of
$9,047,698.  Excluding the write-down, cost of products sold for fiscal 1997 was
78.81% versus 78.52% for fiscal 1998.

   Selling,  general and  administrative  expenses as a percentage  of net sales
were  14.65% for fiscal  1998 and 16.15% for fiscal  1997.  The  decrease in the
percentage is due to the increased sales without increases in expenses.

   The  Corporation's  average amount of outstanding  indebtedness  for borrowed
money was  $40,802,594  in fiscal  1997 and  $31,419,610  in  fiscal  1998.  The
weighted  average  borrowing  rates for the three fiscal years of 1996, 1997 and
1998 were 5.68%,  5.65% and 5.40%  respectively.  The lower interest expense for
fiscal 1998 was due to the lower average outstanding  indebtedness and the lower
interest rates.

   Miscellaneous other deductions for fiscal 1997 included a loss on disposal of
the Craftique division and the domestic seating line.

1997 Compared to 1996
--------------------------------------------------------------------------------
   The fiscal 1997 net loss was  $2,422,844,  or $0.87 per share compared to net
income of $4,308,067, or $1.51 per share for fiscal 1996.

   The 1997 net loss  included a  non-recurring  non-cash  write-down of certain
assets and inventories  amounting to $9,270,269 pre-tax ($5,923,702 after taxes,
or $2.10 per share)  announced July 28, 1997.  Excluding the write-off,  pre-tax
earnings were $5,503,233 for fiscal 1997 compared to $6,739,607 for fiscal 1996,
a decrease of 18.34%.  The decrease was caused,  in part,  by a reduction in net
sales of  approximately  $7,704,000 in 1997. The 4.6% reduction in net sales was
caused by a lower demand for the Corporation's  furniture in fiscal 1997, by the
elimination  of the  domestic  seating  line  and by the  sale of the  Craftique
division.  Additionally,  fiscal 1997 comprised 52 weeks (16 weeks in the fourth
quarter),  whereas  fiscal  1996  comprised  53 weeks  (17  weeks in the  fourth
quarter).

   The Corporation  shipped  approximately  5% fewer units in 1997 at an average
unit price of approximately 3% more. The decrease in units shipped was caused by
the lower demand in fiscal 1997. Export sales for fiscal 1997 were approximately
5% of net sales compared to approximately 6% in 1996.

   Cost of products  sold  included  $9,047,698  of  inventory  costs which were
written down in the third quarter of fiscal 1997. Excluding the write-down, cost
of  products  sold for fiscal  1997 was 78.81%  versus  79.19% for fiscal  1996.
Although factory labor  decreased,  the percentage of factory labor to sales was
21.35% for  fiscal  1997  compared  with  20.83% in fiscal  1996.  Overall,  the
Corporation  was not able to  reduce  labor in  proportion  to the  decrease  in
production and sales volume.

   Selling, general and administrative expenses as a percentage  of net sales
were 16.15% for fiscal 1997 and 15.47% for fiscal 1996. The largest increases
were in the categories of showroom and warehouse expenses, bad debts,
advertising, education and training and depreciation of new computers.

   The  Corporation's  average amount of outstanding  indebtedness  for borrowed
money was  $39,077,050  in fiscal  1996 and  $40,802,594  in  fiscal  1997.  The
weighted  average  borrowing  rates for the three fiscal years of 1995, 1996 and
1997 were 6.44%, 5.68% and 5.65%  respectively.  The weighted averages excluding
the interest  rate swap costs for 1995 and 1996 would have been 5.94% and 5.41%.
The interest rate swap costs increased interest expense by $206,595 and $103,992
in 1995 and 1996 respectively. The interest rate Conversion Agreement terminated
April 15, 1996, therefore, no rate swap expenses were incurred in fiscal 1997.

   Miscellaneous  other deductions for fiscal 1997 included the loss on disposal
of the Craftique division and domestic seating line.

Interest Risk Disclosures
--------------------------------------------------------------------------------
   Because the  Corporation's  obligations under the bank credit agreements bear
interest  at  variable  rates,  the  Corporation  is  sensitive  to  changes  in
prevailing  interest rates. A 10% fluctuation in market interest rates would not
have a material impact on earnings during the 1999 fiscal year, however.

Year 2000 Update
--------------------------------------------------------------------------------
   The  Corporation  realizes that the Year 2000 presents  many  challenges  for
information systems and the overall exchange of business related information. To
address this event,  management  has embarked on a strategic plan to ensure that
the needs of the Year 2000 are met and that the costs are  understood.  Based on
the assessments made pursuant to the strategic plan, the Corporation  determined
that it would be  required  to modify or  replace  significant  portions  of its
software so that its  computer  systems  would  properly  reflect  dates  beyond
December 31, 1999. The Corporation  realizes that if such modifications were not
made, or in the

Pulaski Furniture Corporation              4                  1998 Annual Report
<PAGE>



event they are not completed in a timely manner,  the Year 2000 issue could have
a material impact on the operations of the Corporation.  The Corporation's  Year
2000 remediation  efforts  progressed through the selection phase into a testing
phase in the beginning of the fourth fiscal quarter of 1998, where both internal
and external resources were employed to modify and test new enterprise software.
These efforts culminated in the recent installation,  as of the 1998 fiscal year
end, of the necessary equipment and software to assure that the computer systems
are Year  2000  compliant.  Additionally,  the  Corporation  has  undertaken  to
identify  critical areas outside of the information  systems where the Year 2000
issue could have an adverse impact on the Corporation.

   The principal cost  associated with the Year 2000 issue has been the purchase
of  compliant  enterprise  software  and the  requisite  hardware  over which it
operates.  Additional  support  applications  have been  purchased  or developed
in-house as needed, and the total software costs to date have not exceeded,  nor
are expected to exceed,  $700,000.  Compliant hardware was put into service over
the past  three  years in  conjunction  with the  Corporation's  migration  to a
client-server  network,  which was a planned upgrade  unrelated to the Year 2000
issue.  Additional hardware has been purchased in 1998 relating  specifically to
the Year 2000 enterprise software at a cost not exceeding  $100,000.  No further
hardware  requirements  have  been  identified  with the Year 2000  issue.  User
education and training costs to date have amounted to less than $100,000 and are
not  expected  to  exceed  that  amount  in  total.  At the  present  time,  the
Corporation  believes there are no other material costs which relate to the Year
2000  issue.  Funding  for the  Year  2000  project  has been  provided  by cash
generated from operations.  The project  expenditures  are being  capitalized or
expensed as  appropriate,  and are not expected to have a material effect on the
results of operations.

   The Corporation cannot fully assess the risks of the Year 2000 problem due to
the numerous uncertainties  surrounding the issue.  Management believes that the
primary risks are external to the Corporation and relate solely to the Year 2000
readiness of the Corporation's business partners. Formal communications with all
significant  suppliers,  customers and financial  service  organizations  of the
Corporation  are  currently  underway  to  determine  the  extent  to which  the
Corporation  might  be made  vulnerable  by  those  third  parties'  failure  to
remediate their own Year 2000 issue.  The Corporation has determined that it has
no exposure to contingencies related to the Year 2000 issue for products already
sold.

   The  failure to  correct a  material  Year 2000  problem  could  result in an
interruption,  or a failure of certain normal business activities or operations,
which  could  materially  and  adversely  affect  the  Corporation's  results of
operations,  liquidity and financial  condition.  Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party  suppliers and customers,  the Corporation is
unable to determine at this time whether the  consequences of Year 2000 problems
will  have  a  material  impact  on the  Corporation's  results  of  operations,
liquidity or financial condition.

CAPITAL RESOURCES & LIQUIDITY
--------------------------------------------------------------------------------

   Net cash provided by operating activities for the year totaled  approximately
$7,842,000.   Trade  receivables   increased   approximately   $1,685,000,   and
inventories increased approximately $7,646,000. The inventory increase is due to
the Corporation's response to the higher demand for household furniture.

   The Corporation  has short-term  lines of credit  totaling  $16,000,000  with
interest not to exceed prime rates. At November 1, 1998, which was approximately
the middle of the Corporation's  heaviest  shipping season,  the Corporation had
$12,000,000  outstanding  under these  credit  lines.  The  Corporation  reduced
overall debt by approximately $2,009,000 in fiscal 1998.

   Because  of the  available  lines  of  credit,  the  strong  working  capital
position,  and its ability to generate cash through operations,  the Corporation
believes it has adequate  liquidity to meet its  short-term  and long-term  debt
obligations,  cover its capital expenditures, pay cash dividends and to continue
controlled growth indefinitely.

   The Corporation has signed a Letter of Intent to purchase a furniture company
located in Southwest Missouri. The Corporation intends to borrow approximately
$17,000,000 in fiscal 1999 to finance the cost of the acquisition which is
expected to require approximately $17,000,000, including initial working
capital. The Corporation expects to service the new debt with earnings from
operations of the acquired facility. No other borrowings are contemplated by the
Corporation at this time.


DISCUSSION-FOURTH QUARTER
--------------------------------------------------------------------------------

   The increase in sales in the fourth  quarter of fiscal 1998,  compared to the
fourth  quarter  of fiscal  1997 was  caused,  primarily,  by the  Corporation's
response to the  improvement  in the retail  furniture  environment  in the 1998
quarter. The increase in net income was caused,  primarily,  by the strong sales
gains, which resulted in higher capacity utilization and improved  manufacturing
efficiencies. The fourth quarter is normally the Corporation's strongest quarter
for sales and earnings.

   The Board of Directors at its December 11, 1998, meeting  declared a dividend
of 17 cents per common share payable on January 4, 1999 to shareholders of
record December 18, 1998, and authorized the purchase by the Corporation of up
to 200,000 shares of its common stock presently outstanding.

1998 Annual Report                 5               Pulaski Furniture Corporation
<PAGE>

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                              November 1,    November 2,
                                                                 1998            1997
----------------------------------------------------------------------------------------
Assets
<S>                                                         <C>             <C>
Current assets:
  Cash and cash equivalents                                   $1,452,166     $ 2,702,339
  Trade receivables, less allowance of $950,000
    in 1998 and in 1997                                       38,411,214      36,726,320
  Inventories:
   Finished furniture                                         19,944,327      18,126,731
   Furniture in process                                        5,839,888       3,549,265
   Raw materials                                              13,205,339       9,667,753
----------------------------------------------------------------------------------------
                                                              38,989,554      31,343,749
  Prepaid expenses                                               802,637         874,515
  Recoverable income taxes                                            --       1,473,577
  Deferred income taxes                                          687,212       1,276,766
----------------------------------------------------------------------------------------
Total current assets                                          80,342,783      74,397,266

Property, plant and equipment:
  Land                                                           426,710         426,710
  Buildings                                                   32,771,313      32,446,950
  Machinery and equipment                                     55,327,271      51,331,178
  Furniture, fixtures and office equipment                     5,618,291       4,951,973
  Vehicles                                                       604,068         571,222
----------------------------------------------------------------------------------------
                                                              94,747,653      89,728,033
  Less allowances for depreciation                            59,522,800      54,480,356
----------------------------------------------------------------------------------------
                                                              35,224,853      35,247,677
Other assets
Cash surrender value of life insurance, less loans
  of $220,468 in 1998 and $802,273 in 1997                     2,049,120       1,223,492
Other                                                             11,015          11,015
----------------------------------------------------------------------------------------
                                                               2,060,135       1,234,507
----------------------------------------------------------------------------------------
                                                            $117,627,771    $110,879,450
========================================================================================
</TABLE>


Pulaski Furniture Corporation              6                  1998 Annual Report
<PAGE>


<TABLE>
<CAPTION>
                                                         November 1, 1998  November 2, 1997
------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses:
   Accounts payable                                           $7,684,327     $ 6,222,174
   Wages and commissions                                       3,948,283       2,901,691
   Payroll taxes and taxes withheld from employees               355,056         400,110
   Other accrued expenses                                      2,096,035       1,888,697
------------------------------------------------------------------------------------------
                                                              14,083,701      11,412,672

  Notes payable                                               12,000,000      12,000,000
  Current portion of long-term debt                            2,000,000       2,000,000
  Federal and state income taxes                                 754,133              --
------------------------------------------------------------------------------------------
Total current liabilities                                     28,837,834      25,412,672


Deferred compensation                                          2,875,084       2,680,686
Deferred income taxes                                          3,532,191       3,742,437
Long-term debt                                                23,764,884      25,774,173

Stockholders' equity:
  Common stock (authorized 10,000,000 shares, issued
   shares, 2,864,939 in 1998 and 2,789,527 in 1997)            6,328,363       4,989,622
  Retained earnings                                           52,955,435      48,479,127
  Unamortized restricted stock                                  (666,020)       (199,267)
------------------------------------------------------------------------------------------
Total stockholders' equity                                    58,617,778      53,269,482
------------------------------------------------------------------------------------------
                                                            $117,627,771    $110,879,450
==========================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

1998 Annual Report                      7          Pulaski Furniture Corporation
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                                Years Ended
--------------------------------------------------------------------------------------------
                                                November 1,     November 2,      November 3,
                                                   1998             1997             1996
--------------------------------------------------------------------------------------------
<S>                                            <C>             <C>              <C>
Net sales                                      $172,359,659    $158,942,459     $166,646,062
Cost of products sold                           135,341,805     134,318,909      131,939,252
--------------------------------------------------------------------------------------------
                                                 37,017,854      24,623,550       34,706,810
Selling, general and administrative expenses     25,244,182      25,676,853       25,776,676
--------------------------------------------------------------------------------------------
                                                 11,773,672      (1,053,303)       8,930,134

Other income:
  Interest                                           56,423          21,887           36,692
  Miscellaneous                                      13,146          38,485          158,059
--------------------------------------------------------------------------------------------
                                                     69,569          60,372          194,751
--------------------------------------------------------------------------------------------
                                                 11,843,241        (992,931)       9,124,885

Other deductions:
  Interest expense                                1,804,694       2,346,434        2,343,123
  Miscellaneous                                     148,050         427,669           42,695
--------------------------------------------------------------------------------------------
                                                  1,952,744       2,774,103        2,385,818
--------------------------------------------------------------------------------------------

Income (loss) before income taxes                 9,890,497      (3,767,034)       6,739,067
Income taxes                                      3,493,100      (1,344,190)       2,431,000
--------------------------------------------------------------------------------------------
Net income (loss)                                 6,397,397      (2,422,844)       4,308,067

Retained earnings at beginning of year           48,479,127      52,804,294       50,296,885

Cash dividends (per share:  1998 - $.68;
  1997 - $.68; 1996 - $.64)                      (1,921,089)     (1,902,323)      (1,800,658)
--------------------------------------------------------------------------------------------

Retained earnings at end of year                $52,955,435     $48,479,127      $52,804,294
============================================================================================
BASIC EARNINGS (LOSS) PER SHARE                 $      2.27     $     (0.87)     $      1.52
============================================================================================
DILUTED EARNINGS (LOSS) PER SHARE               $      2.25     $     (0.87)     $      1.51
============================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

Pulaski Furniture Corporation                8                1998 Annual Report
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                           Years Ended
-------------------------------------------------------------------------------------------------------
                                                            November 1,     November 2,    November 3,
                                                                1998            1997           1996
-------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Operating activities
Net income (loss)                                           $ 6,397,397     $(2,422,844)    $ 4,308,067
Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
   Provision for depreciation and amortization                5,481,109       5,418,042       5,108,000
   Provision for deferred income taxes                          379,308      (1,079,326)         29,479
   Provision for deferred compensation                          194,398         162,107         249,830
   Loss (gain) on sale of property, plant and equipment          (6,769)        274,165           7,721
   Changes in operating assets and liabilities:
     Trade receivables                                       (1,684,894)      2,746,718      (3,798,709)
     Inventories                                             (7,645,805)     10,434,695      (1,369,573)
     Accounts payable and
      accrued expenses                                        2,671,029      (1,381,213)         81,644
     Federal income taxes payable                             2,227,710      (2,822,262)      1,091,258
     Other                                                     (171,945)       (397,877)       (390,773)
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                     7,841,538      10,932,205       5,316,944

Investing activities
--------------------------------------------------------------------------------------------------------
Purchases of property, plant and equipment                   (5,026,913)     (2,950,835)     (4,215,586)
Proceeds from sale of property, plant and equipment               3,044         701,098          14,340
Sale of investments                                                  --              --           3,600
--------------------------------------------------------------------------------------------------------
Net cash used in investing activities                        (5,023,869)     (2,249,737)     (4,197,646)

Financing activities
--------------------------------------------------------------------------------------------------------
Issuance of common stock                                        540,591         486,220         440,722
Repurchase of common stock                                      (96,250)       (920,000)     (1,570,813)
Payment of dividends                                         (1,921,089)     (1,902,323)     (1,800,658)
Proceeds from long-term debt                                         --              --         500,000
Payments on long-term debt                                   (2,009,289)     (2,077,049)     (2,051,200)
Increase (decrease) in notes payable                                 --      (4,000,000)      4,000,000
(Payment) proceeds on life insurance loans                     (581,805)         36,173          37,955
--------------------------------------------------------------------------------------------------------
Net cash used in financing activities                        (4,067,842)     (8,376,979)       (443,994)

Increase in cash and cash equivalents                        (1,250,173)        305,489         675,304
Cash and cash equivalents at beginning of year                2,702,339       2,396,850       1,721,546
--------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                   $  1,452,166    $  2,702,339    $  2,396,850
========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

1998 Annual Report                     9           Pulaski Furniture Corporation
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE ONE
--------------------------------------------------------------------------------
Significant Accounting Policies
--------------------------------------------------------------------------------

Business and Credit Risk:  Pulaski Furniture Corporation manufactures medium-
priced bedroom, dining room and occasional furniture for a variety of customers
in the retail furniture industry. Ridgeway Clock manufactures grandfather,
mantel and wall clocks. Substantially all of the Corporation's accounts
receivable are due from companies in the retail furniture industry. Management
periodically performs credit evaluations of its customers and generally does not
require collateral.

Fiscal  Year:  The  Corporation  uses a 52-53 week year.  The fiscal  year ended
November 3, 1996, included 53 weeks. All other fiscal years presented include 52
weeks.

Principles of Consolidation:  The consolidated financial statements include the
accounts of the Corporation and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.

Cash Equivalents: The Corporation considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

Inventories:  Inventories are stated at the lower of LIFO (last-in, first-out)
cost or market.

Property, Plant and Equipment: Property, plant and equipment are stated at cost.
Depreciation has been computed on a straight-line basis over the estimated
useful lives of the related assets.

Fair Value of Financial  Instruments:  At November 1, 1998, the carrying amounts
of the Corporation's financial instruments, including cash and cash equivalents,
trade  receivables  and  accounts  payable,   approximated  their  fair  values.
Management believes that the estimated fair value of the Corporation's long-term
debt  approximated  its  carrying  value at  November  1,  1998.  Fair  value is
determined  based on expected  future cash flows,  discounted at market interest
rates, and other appropriate valuation methodologies.

Long-Lived  Assets: The Corporation  periodically  assesses the realizability of
its long-lived  assets and evaluates such assets for impairment  whenever events
or changes in circumstances  indicate the carrying amount of an asset may not be
recoverable.  For  assets  to be  held,  impairment  is  determined  to exist if
estimated future cash flows, undiscounted and without interest charges, are less
than the carrying amount. For assets to be disposed of, impairment is determined
to exist if the estimated net realizable value is less than the carrying amount.

Stock Based Compensation:  The Corporation accounts for stock options and grants
under Accounting Principals Board Opinion No. 25 "Accounting for Stock Issued to
Employees". Accordingly, compensation expense for stock options is measured as
the excess, if any, of the quoted market price of the Corporation's stock at the
date of grant over the exercise price. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS
No. 123) "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require, adoption of a fair value method of accounting for employee
stock-based compensation plans. SFAS No. 123 does not have a material impact on
the Corporation's financial position or results of operations.

Use of 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 estimates.

Advertising Costs: The Corporation expenses advertising costs when the
liabilities arise. Advertising expense for 1998, 1997 and 1996 was $1,549,000,
$1,552,000 and $1,568,000, respectively.

Earnings  Per Share:  Effective  for the  Corporation's  consolidated  financial
statements for the year ended November 1, 1998, the Corporation adopted SFAS No.
128 "Earnings per Share",  which replaces the  presentation of primary  earnings
per share  ("EPS") and fully  diluted EPS with a  presentation  of basic EPS and
diluted  EPS,  respectively.  Basic EPS  excludes  dilution  and is  computed by
dividing  earnings  available  to common  stockholders  by the  weighted-average
number of common  shares  outstanding  for the period.  Similar to fully diluted
EPS,  diluted  EPS  assumes the  issuance  of common  stock for all  potentially
dilutive  equivalent  shares  outstanding.  All  prior-period  EPS data has been
restated.

Other:  In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 "Reporting Comprehensive Income" and No. 131 "Disclosures About Segments of
an Enterprise and Related Information," both of which the Corporation will adopt
in its 1999 fiscal year. The Corporation will be required to report
comprehensive income, which is the total of net income and certain other
nonowner changes in shareholders' equity. SFAS No. 131, among other things,
establishes standards for

Pulaski Furniture Corporation              10                 1998 Annual Report
<PAGE>


reporting financial information about operating segments,  defined as components
of an enterprise about which separate financial  information is available to the
chief  operating  decision  maker for  purposes  of  assessing  performance  and
allocating resources.  The effect of SFAS No. 131 on the Corporation's financial
statement disclosures has not yet been determined.  The adoption of SFAS No. 130
and SFAS 131 will not affect the accounting for the  Corporation's  consolidated
results of operations and financial position.

Reclassification:  Certain reclassifications were made in prior year financial
statements to conform to the 1998 presentation.

NOTE TWO
--------------------------------------------------------------------------------
Inventories
--------------------------------------------------------------------------------

   Current  cost  of the  LIFO  inventories  exceeded  the  carrying  amount  by
approximately  $16,112,000  and  $14,758,000 at November 1, 1998 and November 2,
1997, respectively.

NOTE THREE
--------------------------------------------------------------------------------
Financing Arrangements and Commitments
--------------------------------------------------------------------------------

   Long-term debt consists of the following:

                                             November 1,    November 2,
                                                1998           1997
--------------------------------------------------------------------------------
Industrial Development Revenue
  Notes, due in installments of
  $5,000,000 in 2004 and 2009             $10,000,000        $10,000,000
Notes payable under revolving
  credit facility                           9,000,000          9,000,000
Term loan agreement, due in
  quarterly installments of
  $428,572                                  6,357,142          8,321,428
Note payable at 3% interest to
  the Town of Pulaski, Virginia,
  due in monthly installments of
  $4,831 through October 1, 2006,
  collateralized by deed of trust             407,742            452,745
--------------------------------------------------------------------------------
                                           25,764,884         27,774,173
Less current maturities                     2,000,000          2,000,000
--------------------------------------------------------------------------------
                                          $23,764,884        $25,774,173
================================================================================


   Future maturities of long-term debt at November 1, 1998 are as follows:

1999                              $ 2,000,000
2000                               10,522,707*
2001                                1,763,512
2002                                1,265,018
2003                                   52,266
2004 and thereafter                10,161,381
--------------------------------------------------------------------------------
                                  $25,764,884
================================================================================

* Of this amount, $9,000,000 is extended automatically unless the bank providing
the revolving credit facility gives notice of termination as described below.

   The  Industrial  Development  Revenue  Notes,  which may be  called  prior to
maturity,  bear interest at tax-exempt  market rates.  Interest cost  (including
related letter of credit and servicing  fees) averaged 4.08% during 1998. At the
option of the  Corporation,  or if called  prior to  maturity,  the notes may be
placed  with a bank under a letter of credit  arrangement.  In this  event,  the
notes would bear interest at two-thirds of the prime rate.

   The Corporation has a note and revolving  credit  agreement with a bank which
provides for $10 million in notes supported by a revolving credit facility.  The
notes bear  interest at current  market rates  (averaged  5.70% in 1998) and are
renewable on an annual basis subject to minimum  annual  reductions of long term
debt.  The  agreement  requires  annual  commitment  fees of one  quarter of one
percent of the total amount of the revolving credit  facility.  At the option of
the bank, the revolving  credit facility may be terminated on February 28 of any
year if the bank gives notice of termination not later than 60 days before March
1 of the preceding year.

   The Corporation has a term loan agreement with a bank that had an outstanding
amount of $6,357,142 at November 1, 1998.  The note bears interest at a variable
rate not to exceed  LIBOR  plus 3/8%  (averaged  6.25% in 1998).  The  agreement
requires  annual  commitment  fees of one  eighth of one  percent  of the unused
commitment.

   The agreements contain various conditions which provide,  among other things,
restrictions  relating  to  the  maintenance  of  working  capital,  payment  of
dividends and additional  indebtedness.  At November 1, 1998,  retained earnings
available for payment of dividends amounted to approximately $33,395,000.

   Under short term line of credit  arrangements,  the Corporation may borrow up
to $16 million at  November  1, 1998 which  would bear  interest at rates not to
exceed the prime  rate.  At November 1, 1998,  the  Corporation  had $12 million
outstanding under these arrangements.


1998 Annual Report                11               Pulaski Furniture Corporation
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

   In  connection  with the purchase of inventory  from foreign  suppliers,  the
Corporation has available letters of credit of approximately  $11 million,  with
$9.0 million outstanding at November 1, 1998.

   Interest  paid  in  1998,  1997  and  1996  was  $1,708,460,  $2,299,277  and
$2,386,425, respectively.

NOTE FOUR
--------------------------------------------------------------------------------
Common Stock
--------------------------------------------------------------------------------

   Changes in Common  Stock for the two years in the  period  ended 1998 were as
follows:
                                                       Common Stock
                                                 Shares            Amount
--------------------------------------------------------------------------------
BALANCE AT NOVEMBER 3, 1996                     2,783,579       $ 5,031,402
  Shares issued under Salaried
   Employee Stock Purchase Plan                    29,473           469,210
  Common Stock acquired and
   retired                                        (53,000)         (920,000)
  Shares issued under Stock
   Incentive Plan                                   3,975                10
  Restricted shares issued under
   Stock Incentive Plan                            24,500           392,000
  Shares issued under Stock
   Incentive Plan for
   Non-Employee Directors                           1,000            17,000
--------------------------------------------------------------------------------
BALANCE AT NOVEMBER 2, 1997                     2,789,527       $ 4,989,622
  Shares issued under Salaried
   Employee Stock Purchase Plan                    27,087           514,924
  Common Stock acquired and retired                (5,000)          (96,250)
  Shares issued under Stock
   Incentive Plan                                  10,525               167
  Restricted shares issued under Stock
   Incentive Plan                                  41,600           894,400
  Shares issued under Stock Incentive
   Plan for Non-Employee Directors                  1,200            25,500
--------------------------------------------------------------------------------
BALANCE AT NOVEMBER 1, 1998                     2,864,939       $ 6,328,363
================================================================================

    In 1998,  as part of a  shareholder  rights  plan,  the  Board of  Directors
declared a dividend  distribution of one preferred share purchase right for each
outstanding  share of common  stock.  Each right  entitles its holder to buy one
one-hundredth  of a share of the  Corporation's  Series A  Cumulative  Preferred
Stock at an exercise price currently in excess of market value.  The rights will
become  exercisable  only if a person or group  acquires or obtains the right to
acquire,  15% or more of the Corporation's  common stock (an "Acquiring Person")
or commences a tender offer that would result in the offeror  owning 15% or more
of the  Corporation's  outstanding  common stock  ("Triggering  Events").  If an
Acquiring Person acquires 15% or more of the Corporation's common stock or
engages in certain other transactions with the Corporation, each right will
entitle the holder, other than an Acquiring Person, to acquire the Corporation's
Series A Preferred Stock or, at the option of the Corporation, other securities
or property, having a value equal to twice the right's exercise price. Likewise,
if the Corporation is acquired in a merger or other business combination, or the
Corporation sells more than 50% of its earnings power or assets, each right will
entitle the holder, other that an Acquiring Person, to purchase securities of
the acquiring entity with a market value equal to twice the right's exercise
price. The rights expire December 15, 2007, and are subject to redemption at the
discretion of the Corporation's Board of Directors at a price of $0.01 per right
within 10 days following the occurrence of a Triggering Event, subject to
extension of the period by the Board of Directors. The Corporation has
authorized one million shares of cumulative preferred stock, of which 500,000
shares have been designated as Series A Cumulative Preferred Stock reserved for
issuance upon exercise of such rights.

NOTE FIVE
--------------------------------------------------------------------------------
Stock Purchase and Incentive Plans
--------------------------------------------------------------------------------

   The Salaried  Employees  Stock  Purchase Plan provides for the sale of Common
Stock annually based on payroll deductions of up to 8% of employee  compensation
at a price equal to 70.7% of market price on the date of purchase.  Compensation
expense  recognized  in 1998,  1997 and 1996  related to the Plan was  $210,015,
$218,081 and $198,458,  respectively.  At November 1, 1998, 23,158 shares are to
be issued  pursuant  to the Plan's  provisions,  after  which  there will remain
56,448 shares available for purchase in the future.

   Under the Stock  Incentive  Plan,  as amended  in 1989,  key  employees  were
granted  options to purchase  Common Stock at a price  determined by a committee
appointed by the Board of Directors or determined pursuant to a formula approved
by the committee. The committee was also able to grant stock appreciation rights
(SARs) in relation to the grants of stock  options.  The stock  options and SARs
expire ten years after the date of grant.

   At November 1, 1998,  outstanding  options and SARs under the Stock Incentive
Plan were as follows:

                                           Number       Option Price
                                         of Shares       Per Share
--------------------------------------------------------------------------------
Outstanding at November 3, 1996            97,500     $14.75 - $18.75
---------------------------------------------------
  Exercised                               (30,000)    $14.75 - $17.375
  Expired or canceled                     (15,000)    $18.75
---------------------------------------------------
Outstanding at November 2, 1997            52,500     $14.75 - $18.75
  Exercised                               (22,500)    $14.75 - $18.75
---------------------------------------------------
Outstanding at November 1, 1998            30,000     $14.75 - $18.75
===================================================


Pulaski Furniture Corporation                12               1998 Annual Report
<PAGE>



   All shares  under  option at  November  1, 1998 are  exercisable.  All shares
issued upon  exercise of options  during the three years ended  November 1, 1998
related to options granted between December 1989 and December 1991.

   The Stock  Incentive  Plan, as amended in 1991,  permits the committee of the
Board of  Directors to make awards of the  Corporation's  common stock upon such
terms and conditions as may be established  by the  committee.  Restrictions  on
shares  issued  under  the plan  lapse at the rate of 20% of the stock per year.
Upon  issuance  of  restricted  stock  under  the  plan,  unearned  compensation
equivalent to the market value at the date of grant is charged to  stockholders'
equity and amortized over the vesting period. Amortization of $427,647, $344,003
and  $360,385  was  recorded in fiscal  1998,  1997 and 1996,  respectively.  At
November 1, 1998, there are 69,000 shares available for future issuance.

NOTE SIX
--------------------------------------------------------------------------------
Pension Plan
--------------------------------------------------------------------------------

   The Corporation has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the employee's
highest five year average compensation. The Corporation's funding policy is to
contribute annually the amount required to fund current service cost plus an
amortization of prior service cost and actuarial gains and losses over
approximately 30 years to the extent such amounts are currently deductible for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.

   The  following  table  sets  forth  the  plan's  funded  status  and  amounts
recognized in the consolidated balance sheets:

                                                     November 1,    November 2,
                                                        1998           1997
--------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation,
  including vested benefits of
  $11,406,298 and $9,675,712
  in 1998 and 1997, respectively.                   $11,615,751     $9,893,938
================================================================================
Projected benefit obligation for
  service rendered to date                          $14,959,643    $13,458,480
Plan assets at fair value                            16,542,696     15,468,996
--------------------------------------------------------------------------------
Projected benefit obligation
  less than plan assets                               1,583,053      2,010,516
Unrecognized net gain from
  past experience different
  from that assumed                                  (2,242,223)    (2,446,108)
Unrecognized net asset at
  November 2, 1987                                     (200,366)      (250,457)
--------------------------------------------------------------------------------
Net pension liability recognized
  in balance sheet                                    $(859,536)   $  (686,049)
================================================================================



   Net pension cost included the following components:

                                         1998        1997           1996
--------------------------------------------------------------------------------
Service cost                          $608,698     $578,102       $563,784
Interest cost on
  projected
  benefit obligation                   989,730      918,759        879,694
Actual gain on
  plan assets                       (1,357,324)  (2,775,867)    (1,227,984)
Net amortization
  and deferral                         247,893    1,735,235        295,855
--------------------------------------------------------------------------------
Net periodic
  pension cost                        $488,997     $456,229     $  511,349
================================================================================

Assumptions used in accounting for the pension plan were:

                                                 1998      1997       1996
--------------------------------------------------------------------------------
Weighted average discount rate                  6.75%      7.5%       7.5%
Rate of increase in compensation level           5.0%      6.0%       6.0%
Expected long term rate of return on assets      8.0%      8.0%       8.0%

   100.0% of plan assets at November 1, 1998 are  invested in listed  stocks and
bonds.

   The Corporation also sponsors an unfunded  Supplemental  Executive Retirement
Program (SERP), which is a nonqualified plan that provides additional retirement
benefits to certain key employees.  Pension expense recognized in 1998, 1997 and
1996 related to the SERP was $290,754, $267,486 and $306,482,  respectively.  At
November  1,  1998,  the  projected  benefit  obligation  for this plan  totaled
$2,914,711,  of which an unrecognized  net obligation of $99,291 and unamortized
prior service cost of $231,474 are subject to later amortization.  The remaining
$2,554,878 is an additional pension liability recognized in the balance sheet at
November 1, 1998.

NOTE SEVEN
--------------------------------------------------------------------------------
Income Taxes
--------------------------------------------------------------------------------

   The provision for income taxes consisted of the following:

                        1998               1997                   1996
--------------------------------------------------------------------------------
Current:
  Federal           $2,761,427       $   (274,172)           $ 2,150,912
  State                352,365              9,308                250,609
--------------------------------------------------------------------------------
                     3,113,792           (264,864)             2,401,521
Deferred:
  Federal              289,573           (979,251)                 1,088
  State                 89,735           (100,075)                28,391
--------------------------------------------------------------------------------
                       379,308         (1,079,326)                29,479
--------------------------------------------------------------------------------
                    $3,493,100       $ (1,344,190)            $2,431,000
================================================================================


1998 Annual Report                13               Pulaski Furniture Corporation
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



   The total provision for income taxes varied from the U.S. federal statutory
rate for the following reasons:


                                       1998       1997       1996
--------------------------------------------------------------------------------
Statutory federal income
  tax rate                             34.0%      34.0%      34.0%
State income tax, net of federal
  tax benefit                           2.9%       1.6%       2.7%
Foreign sales corporation and other    (1.6%)      0.1%      (0.6%)
--------------------------------------------------------------------------------
Effective tax rate                     35.3%      35.7%      36.1%
================================================================================

   Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:

                                  November 1,        November 2,     November 3,
                                     1998               1997            1996
--------------------------------------------------------------------------------
Deferred tax liabilities:
  Depreciation                   $(4,597,007)    $   (4,729,947)    $(5,093,334)
  Inventory valuation                (84,515)                --              --
--------------------------------------------------------------------------------
  Total deferred tax
   liabilities                    (4,681,522)        (4,729,947)     (5,093,334)
Deferred tax assets:
  Deferred compensation            1,064,816            987,510         927,793
  Receivable allowance               351,842            349,961         331,542
  Net operating loss
   carryforwards                          --                 --          70,284
  Inventory valuation                     --            627,928          20,709
  Other                              419,885            298,877         268,293
--------------------------------------------------------------------------------
  Total deferred tax
   assets                          1,836,543          2,264,276       1,618,621
Valuation allowance
  for deferred tax assets                 --                 --         (70,284)
--------------------------------------------------------------------------------
  Net deferred tax
   assets                          1,836,543          2,264,276       1,548,337
--------------------------------------------------------------------------------
  Net deferred
   liabilities                   $(2,844,979)     $  (2,465,671)    $(3,544,997)
================================================================================
  Deferred tax
   liability                     $(3,532,191)     $  (3,742,437)    $(4,144,832)
  Deferred tax assets                687,212          1,276,766         599,835
--------------------------------------------------------------------------------
  Net deferred
   tax liability               $  (2,844,979)     $  (2,465,671)    $(3,544,997)
================================================================================

   The  Corporation  made income tax  payments  of  $1,886,000,  $1,630,000  and
$1,310,000, in 1998, 1997 and 1996, respectively.



NOTE EIGHT
--------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
--------------------------------------------------------------------------------

   The following table sets forth the computation of basic and diluted  earnings
per share:

                                    November 1,      November 2,     November 3,
                                       1998              1997           1996
--------------------------------------------------------------------------------
Numerator:
  Net income (loss)                $  6,397,397      $(2,422,844)     $4,308,067
  Numerator for
   dilutive earnings
   per share-income
   available to common
   stockholders after
   assumed conversions             $  6,397,397      $(2,422,844)     $4,308,067
================================================================================
Denominator:
  Denominator for
   basic earnings per
   share-weighted
   average shares                     2,819,838        2,789,628       2,838,836
Effect or dilutive securities:
   Employee stock options                 7,890               --           4,164
   Stock purchase plan                   12,348               --          15,303
--------------------------------------------------------------------------------
  Denominator for
   dilutive earnings
   per share-adjusted
   weighted average
   shares after assumed
   conversions                        2,840,076        2,789,628       2,858,303
================================================================================
Basic earnings (loss)
  per share                               $2.27            $(.87)          $1.52
================================================================================
Dilutive earnings (loss)
  per share                               $2.25            $(.87)          $1.51
================================================================================

NOTE NINE
--------------------------------------------------------------------------------
Special Charges

   On July 28, 1997,  the  Corporation  announced  that it would record  pre-tax
charges, in the third quarter of 1997, totaling approximately $9.2 million ($5.9
million  after  taxes,  or  $2.10  per  share).  These  charges  relate  to  the
elimination of the Corporation's  domestic seating line and related inventories,
the  divestiture  of  Craftique,  Inc. and the  discontinuance  of certain other
product lines. Of the charges, approximately $9.0 million is included in cost of
sales for inventory write-downs, with the remaining charges related to assets no
longer being used included in miscellaneous expense.

NOTE TEN
--------------------------------------------------------------------------------
Other


   The Company has entered into a letter of intent to purchase substantially all
the assets of a  furniture  company  for an amount  expected to be less than $16
million.   Execution  of  a  definitive  acquisition  agreement  is  subject  to
negotiation of satisfactory  terms and conditions and completion of business and
financial reviews.



Pulaski Furniture Corporation                14               1998 Annual Report
<PAGE>

REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------


Board of Directors and Stockholders

Pulaski Furniture Corporation

   We have audited the accompanying consolidated balance sheets of Pulaski
Furniture Corporation and Subsidiaries as of November 1, 1998 and November 2,
1997, and the related consolidated statements of operations and retained
earnings and cash flows for each of the three years in the period ended November
1, 1998. These financial statements are the responsibility of the Corporation'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 financial statements referred to above present fairly, in
all material respects,  the consolidated financial position of Pulaski Furniture
Corporation  and  Subsidiaries at November 1, 1998 and November 2, 1997, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  November 1, 1998 in conformity  with  generally
accepted accounting principles.


/s/ Ernst & Young LLP
--------------------------------
Winston-Salem, North Carolina
December 1, 1998

[PHOTO]
Top right:  The elegantly  curved side glass of this  charming  curio opens up a
grand view for your treasured collectibles. Shown in Brittany finish, it is also
available in Eden House Cherry, Golden Oak and Stone Crackle.

Bottom right:  Pulaski recently introduced "Cafe Country" to its line of kitchen
and dining home  furnishings.  Glazed tile,  beveled glass,  wooden pegs,  towel
racks, casters and a lazy susan are just some of the features in this casual but
functional group.

Pulaski Furniture Corporation               15                1998 Annual Report
<PAGE>

[PHOTOS]
Top left:  Your most  cherished  collectibles  will enjoy the view  sitting atop
curved glass shelves inside this dramatic  curio.  They will also enjoy the side
entry access, curved front glass, mirrored back and lighted interior.

Top right: The "Havana" grandfather clock is made with a rubbed cherry finish on
cherry veneers and solids,  and detailed book matched crotch mahogany veneers on
the crown and base  front.  The  cabinet  includes  carved bun feet and  beveled
glass.  Inside,  there is a brass twisted lure pendulum with 270mm bob featuring
the Hemingway logo with a center pierced fretwork.

Left: Bellissimo!! recaptures its place in time. In this fine bedroom grouping,
Pulaski has brought together the 16th Century Classic Renaissance period with
17th Century Baroque elements.

1998 Annual Report                 16              Pulaski Furniture Corporation

<PAGE>



OFFICERS
-------------------------------------------------------------------------------

JOHN G. WAMPLER
  President and Chief Executive
  Officer

RANDOLPH V. CHRISLEY
  Vice President-Sales

IRA S. CRAWFORD
  Vice President-Administration
  & Investor Relations; Secretary

JASON A. GIBBS
  Vice President-Chief Financial
  Officer; Treasurer

JAMES H. KELLY
  Vice President-Product
  Development

PAUL T. PURCELL
  Vice President-Credit
  Administration

JAMES W. STOUT
  Vice President-Manufacturing

RAYMOND E. WINTERS, JR.
  Vice President-Operations


DIRECTORS
-------------------------------------------------------------------------------

BERNARD C. WAMPLER
  Chairman of the Board

HARRY J.G. van BEEK*
  President, Klockner Capital
  Corporation, Gordonsville, Va.

ROBERT C. GREENING, JR.
  Vice President and General
  Manager, Neiman Marcus
  Northbrook, Il.

O. KENTON McCARTNEY, III*
  President, Virginia Banking,
  Wachovia Bank, N.A.
  Charlottesville, Va.

JOHN G. WAMPLER
  President and Chief Executive
  Officer of Pulaski Furniture
  Corporation

HARRY H. WARNER*
  Financial Consultant,
  Lexington, Va.

HUGH V. WHITE, JR.
  Partner of Hunton & Williams
  Attorneys, Richmond, Va.

*Member of Audit Committee


CORPORATE DATA
-------------------------------------------------------------------------------

CORPORATE OFFICES
Pulaski Furniture Corporation
One Pulaski Square
P.O. Box 1371
Pulaski, VA 24301
(540) 980-7330

STOCK TRANSFER AGENT AND DIVIDEND  DISBURSING AGENT First Union National Bank of
North Carolina-  Shareholders Services 1525 West W.T. Harris Blvd 3C3 Charlotte,
NC 28288-1153
(800) 829-8432

STOCK LISTING
Traded Over-The-Counter NASDAQ Symbol-PLFC

LEGAL COUNSEL
Hunton & Williams
Richmond, Virginia

ANNUAL MEETING
The Annual Meeting of Shareholders of Pulaski Furniture Corporation will be
held on Friday, February 12, 1999 at 10 a.m. at the Roanoke Airport Marriott,
Roanoke, Va.

ADDITIONAL INFORMATION
A copy of Form 10-K,  the Annual Report filed with the  Securities  and Exchange
Commission,  is available  without charge to  shareholders  upon written request
directed to the Corporation, attention Secretary


[PHOTO]
Detailed in a rubbed  Nantucket finish with carved  mouldings,  adjustable glass
shelves,  mirrored back, lighted interior and marble top, it is sure to enhanced
any area of your home.  Just imagine  showing off your heirloom  collections  in
this beautiful credenza.