<PAGE> 1
     A N N U A L  R E P O R T  1 9 9 8
--------------------------------------



                                    [PHOTOS]



     [GRAYBAR LOGO]
-------------------------------
          100% ISO REGISTERED
             100% ISO REGISTERED
               100% ISO REGISTERED
                  100% ISO REGISTERED
                    100% ISO REGISTERED
                       100% ISO REGISTERED
                          100% ISO REGISTERED

<PAGE> 2

GRAYBAR DIRECTORS
-------------------------------------------------------------------------------

                                    [PHOTOS]

Standing (left to right):
GERARD J. MCCREA
District Vice President--Northeastern
Comm/Data District

WILLIAM L. KING
District Vice President--Boston District

Seated:
THOMAS S. GURGANOUS
District Vice President--Richmond District

JACK F. VAN PELT
Vice President--Human Resources

JOHN R. SEATON
Vice President and Comptroller


Standing (left to right):
GOLDEN W. HARPER
Vice President--Operations

CARL L. HALL
President and Chief Executive Officer

RICHARD D. OFFENBACHER
District Vice President--Southeastern
Comm/Data District

Seated:
ROBERT A. REYNOLDS, JR.
Senior Vice President, Comm/Data Business

RICHARD H. HANEY
Senior Vice President, Electrical Business


Standing (left to right):
RICHARD A. COLE
District Vice President--Chicago District

JOHN C. LOFF
District Vice President--Seattle District

CHARLES R. UDELL
Vice President--Electrical Marketing

Seated:
JOHN W. WOLF
Vice President and Treasurer

THOMAS F. DOWD
Vice President, General Counsel and Secretary

<PAGE> 3

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

                              CAPITAL STOCK DATA

<TABLE>
<CAPTION>
Number of Equity Security Holders as of
December 31, 1998:
---------------------------------------------------------------------------
Title of Class                                   Number of Security Holders
---------------------------------------------------------------------------
<S>                                                                   <C>
Preferred Stock                                                          88
Common Stock                                                            168
Voting Trust Certificates for Common Stock                            4,204
---------------------------------------------------------------------------
</TABLE>

                                 DIVIDEND DATA
Common Stock, par value $1; stated value $20.

<TABLE>
<CAPTION>
Dividends declared for year:          1998            1997             1996
---------------------------------------------------------------------------
<S>                                  <C>             <C>              <C>
First Quarter                        $ .30           $ .30            $ .30
Second Quarter                         .30             .30              .30
Third Quarter                          .30             .30              .30
Fourth Quarter                       $1.10           $1.10            $1.10
---------------------------------------------------------------------------
</TABLE>

On December 10, 1998 a five percent stock dividend was declared to
shareholders of record on January 14, 1999. Shares representing this dividend
were issued on February 1, 1999.

<TABLE>
                                   CONTENTS

<S>                                                      <C>
Graybar Officers and Directors                           Inside Front Cover
President's Letter                                                        2
Market Review                                                             4
Operations Review                                                        14
Financial Review                                                         17
District Management                                                      30
Locations                                                                32
</TABLE>

COMPANY'S BUSINESS
Graybar Electric Company, Inc. is engaged internationally in the distribution
of electrical and communications products and integrated supply services
primarily to contractors, industrial plants, telephone companies, power
utilities, and commercial users. All products sold by the Company are
purchased by the Company from others.


MARKETS SERVED
Electrical Contractor
Commercial & Industrial
Voice & Data Communications
Power Utility
International


ON THE COVER

Left: Derrick Woodell, Supervisor Zone
Service Center, operates the Bendi forklift
at the new Atlanta Regional and National Zone.

Upper right: Lynn Anderson, Steve Becker,
Debbie Grace and Don Ludwinski, all employees
at the Information Systems facility in St. Louis,
confer over a recent report.

Lower right: Director of Training  John Teipen
tries out the new high-tech training room
at Information Systems. Trainees include
(left to right) IS employees Lynn Anderson,
Cherry Bennett, Jim Shemwell, and
Carrie Johnson, Training Specialist
at Corporate Headquarters.
                                                                             1

<PAGE> 4

LETTER TO SHAREHOLDERS
------------------------------------------------------------------------------


Supported by a strong economy, Graybar continued to outpace the industry in
1998 with record sales and profits.  Revenues and net profits increased by
12% over the previous year - concurrently establishing a new record for
return on sales.

There were a number of significant changes and appointments in senior
management in 1998:

Robert L. Mygrant, District Vice President in Tampa, and a Director and
Voting Trustee, retired.  Subsequently, Michael W. Fowler was appointed Tampa
District Vice President, William L. King was appointed a Director and Robert
A. Reynolds, Jr. was elected a Voting Trustee.  Bob Mygrant was invaluable in
his roles as District Vice President, Director, and Voting Trustee.  His
counsel will be missed.

Irving Orloff, District Vice President in St. Louis and a Director, retired.
Director Anthony A. Brzoski retired as Vice President-Comm/Data Marketing.
Both Irving and Tony, in fulfilling their responsibilities as Vice Presidents
and Directors, made significant contributions to the Company.  We wish them
the best in their well-earned retirement.

Thomas F. Williams was appointed District Vice President in St. Louis.
Dennis E. DeSousa was appointed Vice President-Comm/Data Marketing, and Bruce
C. Judkins was appointed Vice President-Corporate Accounts and Integrated
Supply.

                                [GRAPH]

Also in 1998, Kathleen M. Mazzarella was appointed Vice President-Comm/Data
National Accounts, and William R. Kuykendall was appointed Vice President-
International.

Finally, in addition to William L. King, two other Directors were elected -
Richard A. Cole, District Vice President in Chicago, and John C. Loff,
District Vice President in Seattle.

To support the Company's growth, five new locations opened, and more than 700
employees were hired in 1998.  At year-end, Human Resources Managers were in
place in six districts.  They are filling a vital role helping to manage our
employee recruiting and retention efforts, and we plan to have this position
filled in all districts in 1999.

To more fully meet the needs of national account customers, a centralized
customer service group was established to handle comm/data national accounts.
Those Fortune 500 customers and large national resellers now have one point
of contact for sales and customer service for their multiple locations
nationwide.

The Company continued to move forward with implementation of the new
logistics program.  Zone warehouses were opened in Dallas and Atlanta while
two others are scheduled to open early in 1999.  Four additional warehouses
are scheduled to open by year-end - including all of the designated national
zones.  We anticipate that the logistics strategy will be totally implemented
by the end of the year 2000.

Early results from the regional zones are positive.  It is apparent that
customer service and inventories have been improved in those locations served
by the zones, and we have made significant productivity gains.  When the
logistics plan is implemented nationwide, we will have the ability to deliver
to 98% of our customers within 24 hours.  And the zones will enable us to
increase the number of orders that are filled completely first time, one pass
- thereby greatly reducing the number of transactions and shipments.
Further, warehouse automation will minimize selection and receiving errors -
again, reducing the number of transactions for us - and the customer.  The
logistics plan is expected to support the Company's growth well into the next
century and is an integral part of our strategy to obtain increased market
share.

2

<PAGE> 5

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Graybar achieved a significant milestone in 1998, as we became ISO registered
in every location.  The disciplined approach afforded by ISO registration has
helped us improve both the consistency and quality of our service and also
enhances our ability to implement new procedures.

The Company continued its strong emphasis on training by providing 182
instructor-led courses in 1998 which were attended by over 3,500 employees.
In addition, Graybar employees registered for more than 60,000 courses on
Graybar's on-line "Virtual Campus."  Future training plans include
development of instructor-led, on-line courses along with an expanded
curriculum including training videos.

Some time ago, we became aware of the need for increased emphasis on long-
term strategic planning.  Consequently, beginning in 1997, the Board of
Directors began to meet specifically to discuss future strategy.  An
outgrowth of these meetings, along with an intensive effort by a sub-
committee of the Board, was the decision to create a new function to focus
full time on strategic issues and business development.  Effective
December 1, 1998, Beatty D'Alessandro was appointed to the new position of
Director of Strategic Planning and Business Development.  As such, Beatty
will lead Graybar's strategic business planning process and develop, with the
Board's oversight and approval, a strategic business plan.  Beatty and his
staff will analyze our existing business and evaluate potential opportunities
in an objective, disciplined fashion.  The goal is to change management's
focus from year-end results to a more distant horizon.  Beatty and his staff
will also be responsible for identifying and evaluating possible
acquisitions.


"Our stated ambition is to become the leading electrical and comm/data
distributor and to benumber one or two in every market that we serve."


Our stated ambition is to become the leading electrical and comm/data
distributor and to be number one or two in every market that we serve.  To
achieve that ambition we must continue to gain market share, which can only
be accomplished by developing the best service offering at a competitive
price.  To outpace the industry, we must have continued improvements in
productivity and our service offering. Key programs to this effort are
logistics, training and technology.

We have already touched on logistics and training.  Major technological
advances in 1998 included the installation of a new mainframe computer and an
updated version of  GraybarNet(R), our web-based, real time customer order
entry system.  This new version provides the capabilities to gain access
through the Internet and use an electronic catalog.

In addition, all critical computer programs were tested and updated to insure
Year 2000 compliance.  All system hardware was also tested and updated as
needed.  We are currently reviewing all supplier and customer Year 2000
issues, which may require the development of contingency plans.

The International Group focused on national account initiatives with
multinational companies and engineering contractors in strategic markets and
finished the year profitably despite turmoil in many of the markets we serve.
In Canada, Graybar Ontario and Harris & Roome had record sales with growth
rates exceeding their local markets.  We assumed 100% ownership of Graybar
Singapore, reorganized and moved to a new location.  Graybar Chile opened in
May, and despite negative pressures affecting all of Latin America, finished
the year in a strong position to support our future strategic activities in
the region.

It is management's opinion that Graybar is well positioned to achieve our long-
term objectives.



                                       /s/ C. L. Hall
St. Louis, Missouri                    Carl L. Hall
March 1999                             President

                                                                             3

<PAGE> 6

MARKET REVIEW
-------------------------------------------------------------------------------

                             CONSTRUCTION MARKET

Graybar continued to increase share in the contractor market as our 1998
sales to this core customer group significantly outpaced the industry.
Growth was strong across the country with the southwest and central regions
leading the way.

Investments in programs such as on-site services, interactive quote and
project management teams enabled us to grow our direct-ship project business
at a rate three times the industry average in 1998, making construction one
of our fastest growing domestic markets.  We expect this trend to continue as
we begin to implement our vision of being the "industry standard bearer" for
project management services.

Stock sales continued to grow despite a decline in copper wire pricing.  Our
continuing commitment to error-free performance, emphasized by our company-
wide registration to the ISO 9002 standards, and the introduction of our
regional zone warehouses contributed substantially to this growth.  The
logistics plan calls for a network of regional zone warehouses to be
completed by year-end 2000.  When fully implemented, this network will enable
Graybar to deliver an expanded inventory offering-next day-to 98% of the U.S.
market, with greatly improved fill rates and fewer errors.

Employee training is a major focus at Graybar as we continue our commitment
to sales specialization and skills enhancement. New contractor sales
representatives attended contractor sales training schools, which covered
topics such as plans and specs, take-offs, negotiating skills and project
management.  Four of these schools were held in 1998, and we plan four more
schools in 1999.  In addition, 50 corporate-sponsored training schools were
conducted with nine key suppliers.  More than 1,200 employees attended these
classes.

A total of 480 employees attended 14 lighting schools at General Electric's
Nela Park Training Institute and Graybar lighting schools at the Lithonia,
Hubbell, Lutron, and Cooper Lighting training centers.

In 1998 we conducted 16 Graybar-only, instructor-led regional training
schools with Square D.  These schools provided valuable intermediate-level
product training to 320 Graybar employees.  Prerequisites for most schools
included the successful completion of three Square D training courses on our
Virtual Campus.

The Company exhibited at two major contractor conventions in 1998: the
National Electrical

                                  [PHOTO]

4

<PAGE> 7

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Contractors Association (NECA) and the Independent Electrical Contractors
(IEC).  At the 1998 NECA Show, we displayed our Comm/Data and Electrical
Business strengths with an appropriate theme: "Graybar, your one source for
Electrical, Communications and Data Products."

Also at the NECA Show we reintroduced the Graybar hobbyhorse campaign,
"Electrical Wiring Is NOT A Hobby."  This advertising campaign discourages
the growing "do-it-yourself-electrically" trend among homeowners and others
by showing a hobbyhorse made of electrical parts engulfed in flames. Posters,
bumper stickers and other materials featuring the hobbyhorse are being
offered to electrical contractors-helping them create awareness of the
hazards associated with amateurs attempting electrical installations.  A big
hit when first introduced in 1955, and again in 1965, this campaign is
expected to generate customer goodwill and increased business from
contractors.

The Graybar booth at the IEC Annual Convention in Boca Raton, Florida,
featured presentations by several major suppliers who introduced new and
labor saving products.  Graybar, GE Lighting and Square D co-sponsored the
annual "Celebration `98" dinner during the convention.

Our special relationship with Square D continues to reward both companies
with growth exceeding industry averages.  The opportunity to do strategic
planning together in areas such as electronic commerce, training programs and
merchandising is a valuable by-product of our single line relationship.

                       COMMERCIAL AND INDUSTRIAL MARKETS

As corporate America continues the pursuit of becoming either the biggest or
the best in their respective industries at the lowest overall cost, companies
in the Commercial and Industrial Markets (C&I) are looking for strategies to
help them achieve a competitive advantage.  This unprecedented drive toward
cost competitiveness by our C&I customers offers us many opportunities to
apply our value-added capabilities in the form of Graybar "Real Solutions."

Our C&I national account business continued to grow at a double-digit rate in
1998.  Trends such as electronic commerce, supply chain integration, and
strategic alliances are providing differentiation for Graybar and its
customers in this market.


"Investments in programs such as on-site services, interactive quote and
project management teams enabled us to grow our direct-ship project business
at a rate three times the industry average in 1998, making construction one
of our fastest growing domestic markets."


The Graybar
hobbyhorse campaign
reintroduced at the NECA           [PHOTO]
Show is expected to
generate customer
goodwill and increased
business from contractors.

                                                                             5

<PAGE> 8

MARKET REVIEW
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This was demonstrated best in 1998 with the announcement of a new agreement
connecting IBM, Graybar, and Square D/Groupe Schneider in a supply chain that
allows IBM better control over capital expenditures and enables their
personnel to devote more time to IBM's core business.  Under this alliance,
IBM has designated Square D/Groupe Schneider as the national standard for all
IBM facilities in North America.  Graybar was selected to be an alliance
member due to our extensive electronic commerce capabilities and our national
inventory commitment to Square D/Groupe Schneider.

Our national account organization continues to evolve as we reinforce our
commitment to strategic customers and position Graybar as the market leader
for providing large national customers with both standard and specialized
services.

In 1998 we leased four facilities totaling 343,073 square feet to provide
specialized services to one of our key customers.  When fully operational, we
will employ approximately 140 people dedicated to these four facilities.  The
kit assembly and many other special services we perform assist this customer
in providing improved services to their end-user customers.

                             MINORITY/WOMEN-OWNED
                         BUSINESS ENTERPRISES (MWBE)

In 1998, as part of our continued commitment to minority and women-owned
businesses, we completed the MWBE expenditure reporting system.  Reports can
now be developed on a monthly, quarterly, or yearly basis for both local and
national accounts.  As part of this program, we have also developed a
resource list of more than 300 MWBE suppliers.

                                  [PHOTO]

6

<PAGE> 9

                               INTEGRATED SUPPLY

Graybar continues to actively pursue Integrated Supply business.  The concept
of "one stop shopping," which allows Graybar to be integrated into the
customer's systems and provide materials and services outside our normal
electrical and communications product offering, continues to grow.  One of
the highlights of 1998 was a series of government contracts awarded to
Graybar to provide MRO products to military installations in Hawaii, Alaska,
southern California, the northeastern United States, Texas and Louisiana.
These contracts cover military facilities in these regions and have been
implemented at targeted sites.  In addition to the standard supply products,
Graybar is providing products as diverse as barbecue pits, lawn and garden
supplies and runway chemicals.  We have opened an on-base storeroom  in
Hawaii and are providing all the material and staffing to support their
facilities maintenance personnel.

Also in 1998 we expanded the Integrated Supply offering with the successful
award of the Texas Instruments contract in October.  The multi-year agreement
is structured for the management and operation of the facilities,
communication, and, for the first time, the manufacturing support stockrooms.
Graybar has operated twelve MRO facilities and communication stockrooms for
Texas Instruments since 1990.  The four new stockrooms directly support the
raw material requirements for the production of wafers for Texas Instruments.
These stockrooms operate 24 hours a day, 365 days a year.


                               COMM/DATA MARKETS

Sales to Comm/Data Markets continued to grow at a record pace in 1998.  This
was fueled by user demand for more bandwidth capacity to carry a constantly
increasing amount of voice and data traffic.  With rapid changes in
technology and the growing use of the Internet and intranets, users are
expected to continue to upgrade their local and wide area networks for the
foreseeable future.

With our specialized sales and service teams designed around the reseller,
end-user, and public network markets, Graybar is uniquely positioned to take
advantage of opportunities in all



"The concept of "one stop shopping," which allows Graybar to be integrated
into the customer's systems and provide materials and services outside our
normal electrical and communications product offering, continues to grow."

                                  [PHOTO]

                                                                             7

<PAGE> 10

MARKET REVIEW
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customer segments of the comm/data industry.  This sales and service focus,
combined with the best inventory, counter service, and logistics network in
the industry, resulted in Graybar increasing share in every major market in
1998.

                            PRIVATE NETWORK MARKETS

Sales to the private network markets-voice interconnects, data contractors
and end-users-grew at a healthy rate in 1998, despite significant price
deflation on high performance data cabling and networking products.

Graybar solidified its preeminent market position with data contractors,
increasing sales to these customers at a higher rate than the overall growth
in the market.  Data contractors recognize Graybar combines quality products,
superior service, and a nationwide presence into a package that is the best
in the industry for serving their needs.  We also have a true commitment to
their success by continuing to implement a strategy of supporting the data
contractor as the primary installation and service provider for the end-user.

Sales directly to commercial and industrial end-users also increased in 1998.
The vertical alignment of our sales, marketing, and service teams, combined
with design capabilities of the Network System Specialists, resulted in
Graybar becoming a much more significant factor in the specification of
systems and products at the end-user level.  By influencing the product
selection early in the decision cycle, we strengthened our position with end-
user customers and increased sales and market presence.  As we become more
proficient in addressing the complex requirements of the end-user, we expect
sales to this market to grow rapidly in the coming years.

                            PUBLIC NETWORK MARKETS

Sales to public network customers - Bell Operating Companies, Independent
Telcos and other companies that build and maintain wide area networks -
increased dramatically in 1998 and represented the highest growth rate of all
our Comm/Data Markets.  These service providers are investing heavily in
products and services to support demand for high-speed voice and data traffic
over the public network.  Our specialized public network sales, service, and
management teams have successfully positioned Graybar as a leading provider
of distribution services to this market.

Our public network customers are demanding logistics services that reduce
their material management costs in order to release capital for investing in
their network infrastructure.  The services we have developed for these
customers-such as inventory management, rack and stack, customized
billing/shipping documentation-have allowed them to focus on providing
network services, while reducing their total cost of ownership

                                  [PHOTO]

8

<PAGE> 11

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

of material.  We expect very significant growth in sales to these customers
as we continue to gain more experience and expand our service offering.

                          NATIONAL COMM/DATA ACCOUNTS

Specialization and account focus were key contributors to increased sales to
comm/data national accounts in 1998 as these accounts continue to be a
significant part of our strategic sales plan.  Our most significant growth
opportunity was with the Bell Operating Companies as they recognize the value
full service distributors provide.

Similar to the field, our National Account Managers are specialized to focus
on the Private and Public Network Markets.  Within these markets, the
National Account team is aligned by industry (i.e., insurance,
transportation, integrators, etc.)  This realignment of assignments has
created a sales team that understands the nuances of each respective vertical
market andis prepared to address the unique product and service requirements
of each industry.

In late 1998 a National Account Customer Service Team was established to
support national customers who wanted a single point of contact for order
processing and billing along with local sales coverage. This program is in
its initial implementation phase, and we expect to have more than 15 national
accounts supported by this team by year-end 1999.

                             POWER UTILITY MARKET

Industry deregulation, a strong stock market and increased global influences
are contributing to changes in the electric utility market.  To meet
competitive challenges, utilities are putting more emphasis on outsourcing
and vendor reduction.  With our


The network room at Graybar's Information Systems facility in St. Louis is
the hub for monitoring the Company's comm/data network. A team of
communications technicians, including Anna Cavanaugh and Dennis O'Leary,
ensures that any problems are resolved quickly.


"Sales to public network
customers increased
dramatically in 1998
and represented the
highest growth rate of
all our Comm/Data
Markets."

                                                                             9

<PAGE> 12

MARKET REVIEW
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wide variety of products and service offerings Graybar is in a strong
position to help utilities meet these challenges and reduce their cost of
doing business.

We have already seen this trend during the last five years as our sales to
utilities have remained fairly flat, reflecting the industry in general.
However, Graybar's overall sales of utility-type products have increased
significantly during this period as we sold these products to contractors and
end-users.  Our sales through stock of utility products are up 22% over this
same period, reinforcing the fact that utilities are starting to purchase
more through distribution.

Distributor alliances with utilities, of which Graybar has several, have
usually been with the large, investor-owned utilities.  We are now seeing
these same strategic alliances in the rural electric cooperative market.  One
of the premiere alliances in the country is between New Hampshire Electric
Cooperative (NHEC) and Graybar Manchester.  This alliance received national
attention in a Purchasing magazine article in 1998.  The article explained
not only our ability to reduce NHEC's overall cost, but more important, our
ability to service the utility when a big ice storm hit their system earlier
in the year.  NHEC credits Graybar for staying open during this period and
providing them with the necessary products and services to restore their
power system.

As deregulation continues across the country, Graybar will have opportunities
to work closely with utilities, assisting them in improving their business
processes as they strive to meet the competitive challenges of the future.

                             INTERNATIONAL MARKETS

Despite the financial turmoil that spread from Asia throughout most of the
international markets in 1998, our International Group, while unable to meet
targets in all markets, finished the year profitably.  Our international
strategy remained focused on supporting our national account initiatives with
multinational companies and engineering contractors in strategic markets,
especially North America.  This strategy, coupled with our long experience in
these markets, has enabled us to maintain the structure necessary to support
the Company's objectives.

                                 NORTH AMERICA

While Canada faced a dramatic weakening of its dollar, Graybar Ontario and
Harris & Roome both had record years in 1998 and achieved growth rates well
in excess of their local markets.

With growth in strategic markets both Graybar de Mexico and Puerto Rico ended
the year profitably.

In Puerto Rico we completed a conversion to new computer software, while
systems in Graybar Ontario and Graybar de Mexico were also upgraded.  The new
software gives us the capability to fully support our global accounts.

                            LATIN AMERICA/CARIBBEAN

All Latin American and Caribbean markets felt the adverse effects of natural
disasters and the global financial crisis in 1998.  Miami International was
reorganized to meet the realities of today's market and ended the year
profitably, maintaining a strong presence in all strategic countries.

Our new location in Chile opened in May in a strong market but by year-end
fell victim to the same negative pressures affecting all of Latin America.
We adjusted our strategy there and local management did an excellent job
penetrating new markets.  Graybar Chile ended the year in a strong position
to successfully support our future strategic activities in Latin America.

                                 ASIA/PACIFIC

In spite of the Asian financial crisis, San Francisco International had an
excellent year due largely to our on-site Sales Representatives in Singapore
and Japan.

In 1998 the Company assumed 100% ownership of Graybar Singapore, reorganized
and moved to a new location.  These changes have proven successful, and
Graybar Singapore ended the year well positioned to fully support U.S.
national accounts, engineering contractors and strategic suppliers operating
in Asia during these very difficult times.

10

<PAGE> 13

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                              MIDDLE EAST/AFRICA

The falling price of oil had the effect of halting or delaying all projects
in the Middle East.  Because of its long-standing  relationships, excellent
service records and strong market presence, Houston International was able to
end the year profitably with its infrastructure not only intact but stronger
than ever.

                               MARKETING SUPPORT

                        ADVERTISING AND SALES PROMOTION

A consistent advertising campaign, rich in our service capabilities and
capitalizing on strategic relationships with electrical and comm/data
suppliers, continues to brand Graybar as the source for solutions.

More than 200 trade ad placements were positioned in major market magazines
generating more than 65,000 sales leads.  Trade magazine editorial was a
major focus, and we were successful in receiving coverage of our service
capabilities in many publications. Highlighting our effort was a feature
article in the July issue of Electrical Contractor magazine that praised the
uniqueness of our relationship with Universal Systems, a large electrical
contractor.

Direct mail advertising continued to communicate the breadth of product
available from our local, regional and national inventories. Supporting the
electrical business were three issues of the Graybar Products Extra tabloid.
Featured themes were Contractor Solutions, Square D Solutions and Commercial
& Industrial Solutions.

Graybar's service to
Universal Systems,
a large electrical contractor,                  [PHOTO]
was featured on the
cover of the July
Electrical Contractor
magazine.


"Our international
strategy remained focused
on supporting our national
account initiatives with
multinational companies
and engineering contractors
in strategic markets,
especially North America."

                                                                             11

<PAGE> 14

MARKET REVIEW
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The Graybar Digest, targeting our comm/data customers, was upgraded to a new,
full-color format.  Themes for the three 1998 issues were LAN/WAN Solutions,
Wire & Cable Solutions and Solutions for Voice Applications.

A new Graybar Public Network Products catalog for comm/data customers and 15
customized supplier catalogs helped keep customers aware of new products,
applications, and value-added services.

Demand for our "contractors" style job calendar continues to grow with more
than 90,000 distributed to customers in 1998.  The October to September
format makes our version unique.

A new concept in counter promotions, designed to focus on value-added high
margin products, was an instant success with our branches and counter
customers.  "Promotions In A Box" kits include signs and premiums designed to
fit special freestanding display fixtures.  The promotions are supplier and
product specific and offer free, family-oriented premiums with the purchase
of displayed products.  Branches can select two different kits each month
from a menu containing more than 40 supplier promotions.

                                   [PHOTO]

                               COUNTER MARKETING

Graybar counter sales continued their strong performance in 1998.  The
Counter Marketing Department designed 17 counters including three for new
locations.  Suppliers continue to show strong support for counter marketing
by working with corporate to develop new plan-o-grams and packaging designs
to promote impulse sales.

Training seminars in 1998 concentrated on the counter basics.  One hundred-
twenty counter personnel were tutored on merchandising, sales, product
training and margin development.

                             WORLD SERIES OF GOLF

In August Graybar was host to over 700 guests at the NEC World Series of Golf
at Firestone Country Club in Akron, Ohio.  Under clear blue skies,
professional golfer David Duval, won the World Series of Golf Championship,
ending this series of tournaments. A new format will be unveiled in 1999 with
the NEC Invitational played at Firestone.  Graybar will be a sponsor of this
prestigious tournament and will host many customers at this event.

                           SQUARE D CHAMPION'S CLUB

In an awards ceremony at the Hyatt Grand Cypress Hotel in Orlando, Florida,
the Graybar/Square D Champion's Club honored 26 new members in 1998 for their
exemplary sales efforts in 1997.  One Graybar and one Square D Sales
Representative from each district received their awards from Carl Hall,
Graybar President and CEO, and Charley Denny, Square D Chairman.  Following
the ceremony, the new Champion's Club members and their spouses were treated
to a three-day cruise to the Bahamas.

12

<PAGE> 15

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                                  NASCAR RACE

Graybar and Cooper Bussmann once again joined forces to sponsor the #12
Chevrolet Monte Carlo at the Carquest Autoparts 250 NASCAR race in the 2nd
Annual Busch Grand National Series.  Driving the #12 Chevrolet, Scott Hansen
finished 16th in the race which was held October 17 at Gateway International
Raceway in Madison, Illinois.  The race was nationally televised and drew a
large crowd, including over 250 Graybar/Bussmann customers.

                       GRAYBAR FINANCIAL SERVICES (GFS)

Our equipment leasing and financing subsidiary was completely restructured in
1998 to offer improved service and new financial products to our customers.
A joint venture, called Graybar Financial Services, LLC, was formed with
Newcourt Financial (formerly AT&T Capital).

Launched in June with a national press release, Graybar Financial Services,
LLC introduced an exciting new look and slogan- "Financing, simplified."
This fresh approach to leasing and financing emphasizes the simplified manner
in which it is delivered.

The impact of new pricing and services resulted in a significant increase in
leasing sales over 1997.  GFS profit contribution to Graybar was the highest
since its inception in 1989.

The joint venture with Newcourt Financial allowed us to introduce services
over the Internet at Graybar's web site.  Linked through Graybar's site to
Newcourt's web site, a customer can now submit a lease application over the
Internet and receive a credit response within one business day.

Customers can also get immediate quotes for monthly lease payments on any
size installation, compare the advantages of leasing versus buying and, if
qualified, establish a lease line of credit for fast and easy financing of
their next system upgrade.


"Linked through Graybar's
site to Newcourt's web site,
a customer can now
submit a lease application
over the internet and
receive a credit response
within one business day."

                                   [PHOTO]

The new counter promotion
concept- Promotions in a Box-
focuses on value-added
high margin products.

                                                                             13

<PAGE> 16

OPERATIONS REVIEW
-------------------------------------------------------------------------------

                               CUSTOMER SERVICE

In 1998 Graybar announced a National Customer Service Award program to recognize
Customer Service Representatives who have demonstrated leadership
and exemplary customer service over the course of each one-year award period.
One candidate will be recommended from each district at the end of the award
year.  An annual ceremony will be held for the presentation of the
"Excellence in Customer Service" awards.

                          CYCLE COUNTING OF INVENTORY

Following a successful two-year pilot, cycle counting procedures were
implemented in all locations in preparation for eliminating annual physical
inventory in 1999.  The cycle count method requires assigned personnel in
each location to count a certain number of items each day, eliminating end-of-
the-year inventory.  Customer service improves as a result of cycle
counting. The process allows us to maintain more accurate inventory
quantities throughout the year, and cycle counting eliminates the business
interruption associated with the annual physical inventory.

                                   [PHOTO]

                             CORPORATE PURCHASING

During 1998 replenishment planning was expanded to additional company
locations, and the Dallas and Atlanta Zones were fully implemented.  The
Corporate Purchasing group also absorbed the purchasing of electrical
products in the Atlanta and New York Districts.  In preparation for the
opening of the Fresno Zone in early 1999, the branch locations in the Phoenix
and Seattle Districts were also added.  At the end of 1998, Corporate
Purchasing was planning approximately 500,000 stockkeeping units for the St.
Louis, Dallas, Minneapolis, Atlanta, New York, Phoenix and Seattle Districts,
comm/data products nationally, and the Dallas and Atlanta Zones.

In May 1998 some members of the Corporate Purchasing group participated with
the District Purchasing Managers in a training seminar on negotiation skills.
Also, training has been developed for Graybar for an extensive five-level
certification process on the E3Trim(R) purchasing system.  All corporate
purchasing buyers are working to obtain E3Trim certification.

                 SUPPLIER ASSISTED INVENTORY MANAGEMENT (SAIM)

Nineteen ninety-eight marked the sixth year of our involvement with SAIM with
five key suppliers. During this time, stocks have improved and returns of
non-moving items have been easier to complete.  One of the important benefits
realized by distributors and manufacturers participating in SAIM is increased
awareness of business issues faced by the other party.  This understanding
and openness leads to more effective problem solving on performance
improvement and cost containment initiatives.  Progress review meetings are
held with all SAIM suppliers as needed, but at a minimum once per year.
Monthly charts and graphs supplied by Graybar help track progress.

14

<PAGE> 17

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

                              PRICE COST SERVICES

An automated process was implemented to update costs and supplier catalog
information, eliminating manual verification and data entry.  This electronic
cost update process has been in development for several years.  The Richmond,
Cincinnati, Pittsburgh, New York, Seattle, and Phoenix Districts are now
receiving transmissions from one of Graybar's major suppliers.  Another major
supplier has begun transmitting EDI transactions for the entire Graybar
branch network.  Automation eliminates discrepancies, redundant data entry
and invoice deductions due to cost errors.  Other benefits include more
timely and accurate cost and item updates.  Our pricing files remain in
agreement with supplier files, and Graybar maintains audit control over the
files.  We plan to expand electronic price and cost updates with other
suppliers.

                          WAREHOUSE MANAGEMENT SYSTEM

During 1998 the communications interface was developed for the transfer of
information from the Graybar computer system to the Warehouse Management
System (WMS).  WMS utilizes a comprehensive software package to direct the
flow of material within the warehouse.  Additional resources have been added
to the Installation Team to prepare for conversion at the zone facilities.
Implementation will be coordinated by the Logistics Group and is scheduled to
begin in June 1999 with a pilot at the Atlanta Zone.

                                    SAFETY

Due to increased safety awareness, the Company's OSHA Incident Rate compares
favorably to the industry average.  The vehicle accident rate decreased by
9.3%, and lost workdays due to work-related injuries decreased by more than
16% from the previous year.  The Cincinnati District earned the President's
Safety Award for the lowest OSHA Incident Rate.  New safety training
requirements for all forklift operators were introduced to comply with the
new OSHA requirements.  Graybar has incorporated safety as a measurement in
each location's Branch Review process.

An on-line database of Material Safety Data Sheets was developed in 1998.
All hazardous materials were coded in the computer system to identify
Department of Transportation hazardous classifications on shipping documents.


"Cycle counting
procedures were
implemented in all
locations in preparation
for eliminating annual
physical inventory
in 1999."

                                                                             15

<PAGE> 18

OPERATIONS REVIEW
-------------------------------------------------------------------------------

                              GENERAL OPERATIONS

During 1998 a new department was created within Operations to separate
administrative functions from customer service.  District Administrative
Managers and Supervisors, Administration were appointed to assume
responsibility for all Branch Administrators and the transaction processing
they perform-transaction approvals and office services such as telephone
services, mailroom and other clerical functions.  The Managers of Customer
Service, who previously had these responsibilities, will now focus totally on
customer relations and improved service, personnel development, training and
profitability in their respective locations.

                         NEW LOCATIONS OPENED IN 1998

Erie, Pennsylvania
Williston, Vermont (Burlington)
Fairbanks, Alaska
Dallas, Texas (Regional Zone)
Austell, Georgia (National Zone)

                                   [PHOTO]

                              INFORMATION SYSTEMS

Many significant infrastructure changes were completed during the year,
including a new mainframe computer system which was installed in the St.
Louis data center in March. The new system provides increased capacity to
support the Company's continued growth.  Also, voice and data networks were
improved with the addition of T1 access at 120 locations.  More than 5,000
PCs were upgraded to Windows(R) 95 and checked for Year 2000 compliance.  To
address Year 2000 requirements, new high-speed network switches were
installed, which significantly improved network speed.

GraybarNet,(R)  our customer dial-in offering, was redesigned to accommodate
Internet access.  Customers can now access our system directly or via the
World Wide Web if desired. GraybarNet will also provide access to our
electronic catalog.

Year 2000 compliance efforts required substantial IS attention as everything
from customer and supplier critical applications to the payroll and pension
systems were reviewed and tested.  We are currently reviewing all supplier
and customer Year 2000 issues, which may require the development of
contingency plans.

Graybar's e-mail system has become an integral part of our business.  Daily
messages now exceed 30,000 company-wide, with 20% delivered via the Internet.

Several large projects were started in 1998 including Central Accounts
Payable, Warehouse Management, Logistics, General Ledger and Fixed Assets.
These projects will require major efforts in 1999.

Graybar's 212,000 square foot
Regional and National Zone
located in Austell, Georgia,
opened in August.

16

<PAGE> 19

                               FINANCIAL REVIEW
         -------------------------------------------------------------



<TABLE>
                               TABLE OF CONTENTS
<S>                                                                     <C>
Selected Consolidated Financial Data                                     18

Management's Discussion and Analysis
of Financial Condition and Results of Operations                         19

Consolidated Financial Statements                                        21

Report of Independent Auditors                                           29
</TABLE>

                                                                             17

<PAGE> 20

<TABLE>
                                                    FINANCIAL REVIEW
--------------------------------------------------------------------------------------------------------------------

                                          SELECTED CONSOLIDATED FINANCIAL DATA
                                    (Stated in thousands except for per share data)
<CAPTION>
                                                    1998           1997           1996           1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>            <C>
SALES                                         $3,744,075     $3,348,496     $3,001,049     $2,774,368     $2,364,461
  Less--Cash discounts                           (11,872)       (10,474)        (9,637)        (9,578)        (8,839)
--------------------------------------------------------------------------------------------------------------------
NET SALES                                      3,732,203      3,338,022      2,991,412      2,764,790      2,355,622
--------------------------------------------------------------------------------------------------------------------
COST OF MERCHANDISE SOLD                      (3,042,176)    (2,726,147)    (2,453,962)    (2,267,186)    (1,934,925)
--------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE                                 (23,998)       (19,713)       (16,687)       (16,577)       (12,003)
--------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES
  Current                                        (37,167)       (29,750)       (28,599)       (23,426)       (15,225)
  Deferred                                        (4,919)        (6,820)        (1,722)        (2,408)         1,251
--------------------------------------------------------------------------------------------------------------------
    Total provision for income taxes             (42,086)       (36,570)       (30,321)       (25,834)       (13,974)
--------------------------------------------------------------------------------------------------------------------
NET INCOME                                        59,544         52,963         44,533         36,718         18,702
--------------------------------------------------------------------------------------------------------------------
INCOME APPLICABLE TO
  COMMON STOCK                                    59,539         52,957         44,526         36,710         18,694
--------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES
  OUTSTANDING <FA>                                 5,305          5,549          5,714          5,486          5,628
--------------------------------------------------------------------------------------------------------------------
INCOME PER SHARE OF
  COMMON STOCK <FA>                                11.22           9.54           7.79           6.69           3.32
--------------------------------------------------------------------------------------------------------------------
  Cash dividends per share                          2.00           2.00           2.00           2.00           2.00
--------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
  Balance, beginning of year                     149,226        115,218         84,801         57,081         52,486
  Add--Net income                                 59,544         52,963         44,533         36,718         18,702
--------------------------------------------------------------------------------------------------------------------
                                                 208,770        168,181        129,334         93,799         71,188
--------------------------------------------------------------------------------------------------------------------
  Less dividends
    Preferred ($1.00 per share)                       (5)            (6)            (7)            (8)            (8)
    Common (in cash)                             (10,031)        (9,576)        (9,480)        (8,990)        (8,729)
    Common (in stock)                             (4,896)        (9,373)        (4,629)           --          (5,370)
--------------------------------------------------------------------------------------------------------------------
                                                 (14,932)       (18,955)       (14,116)        (8,998)       (14,107)
--------------------------------------------------------------------------------------------------------------------
  Balance, end of year                           193,838        149,226        115,218         84,801         57,081
  Proceeds on stock subscriptions,
    shares unissued                                  --              37             52            --              39
STOCK OUTSTANDING
  Preferred                                          108            119            143            150            164
  Common                                         103,690        103,749         98,321         89,206         91,859
--------------------------------------------------------------------------------------------------------------------
                                                 297,636        253,131        213,734        174,157        149,143
--------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income              (836)           --             --             --             --
--------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                       296,800        253,131        213,734        174,157        149,143
--------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                   1,167,847      1,051,821        881,636        823,280        719,786
LONG-TERM DEBT                                $  269,570     $  139,748     $  151,659     $   91,257     $   90,212
--------------------------------------------------------------------------------------------------------------------

<FN>
<FA> Adjusted for the declaration of 5%, 10%, 5%  and 6.25% stock dividends in
1998, 1997, 1996 and 1994, respectively.  Prior to adjusting for the stock
dividends, the average common shares outstanding for 1997, 1996, 1995 and
1994 were 4,805,4,712, 4,524 and 4,368, respectively.
</TABLE>

This summary should be read in conjunction with the consolidated financial
statements and related notes thereto included elsewhere in this annual
report.

18

<PAGE> 21

                               FINANCIAL REVIEW
-------------------------------------------------------------------------------

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS

           (Stated in thousands except for share and per share data)

RESULTS OF OPERATIONS

1998 COMPARED TO 1997
      Net sales in 1998 were 11.8% higher than in 1997.  The higher net sales
resulted from improvements in the market sectors of the economy in which the
Company operates.  The impact of inflation on sales and cost of sales was not
significant in 1998.
      Gross margin in 1998 increased $78,152 (12.8%) compared to 1997
primarily due to the increased sales in the electrical and communications
markets.
      The increase in selling, general and administrative expenses in 1998
compared to 1997 occurred largely because of adjustments in personnel
complement and adjustments in compensation and related expenses.
      Interest expense increased in 1998 compared to 1997 primarily due to
increased levels of borrowing incurred to finance higher aggregate levels of
inventory and receivables.  Interest rates on 1998 short-term borrowings were
slightly lower than for the same period in 1997.
      Other income includes gains on sale of property of $808 and $2,280 in
1998 and 1997, respectively.
      The combined effect of the increases in gross margin and other income,
together with the increases in selling, general and administrative expenses,
interest expense and depreciation and amortization, resulted in an increase
in income before provision for income taxes of $12,097 in 1998 compared to
1997.

1997 COMPARED TO 1996
      Net sales in 1997 were 11.6% higher than in 1996.  The higher net sales
resulted from improvements in the market sectors of the economy in which the
Company operates.  The impact of inflation on sales and cost of sales was not
significant in 1997.
      Gross margin in 1997 increased $74,425 (13.8%) compared to 1996
primarily due to the increased sales in the electrical and communications
markets.
      The increase in selling, general and administrative expenses in 1997
compared to 1996 occurred largely because of adjustments in personnel
complement and adjustments in compensation and related expenses.
      Interest expense increased in 1997 compared to 1996 primarily due to
increased levels of borrowing incurred to finance higher aggregate levels of
inventory and receivables.  Interest rates on 1997 short-term borrowings were
slightly higher than for the same period in 1996.
      Other income includes gains on sale of property of $2,280 and $7,313 in
1997 and 1996, respectively.
      The combined effect of the increase in gross margin and the decrease in
other income, together with the increases in selling, general and
administrative expenses, interest expense and depreciation and amortization,
resulted in an increase in income before provision for income taxes of
$14,679 in 1997 compared to 1996.

1996 COMPARED TO 1995
      Net sales in 1996 were 8.2% higher than in 1995.  The higher net sales
resulted from improvements in the market sectors of the economy in which the
Company operates.  The impact of inflation on sales and cost of sales was not
significant in 1996.
      Gross margin in 1996 increased $39,846 (8.0%) compared to 1995
primarily due to the increased sales in the electrical and communications
markets.
      The increase in selling, general and administrative expenses in 1996
compared to 1995 occurred largely because of adjustments in personnel
complement and adjustments in compensation and related expenses.
      Interest expense increased slightly in 1996 compared to 1995 primarily
due to increased levels of borrowing incurred to finance higher aggregate
levels of inventory and receivables.  Interest rates on 1996 short-term
borrowings were generally lower than for the same period in 1995.
      Other income includes gains on sale of property of $7,313 and $2,055 in
1996 and 1995, respectively.
      The combined effect of the increases in gross margin and other income,
together with the increases in selling, general and administrative expenses,
interest expense and depreciation and amortization, resulted in an increase
in income before provision for income taxes of $12,302 in 1996 compared to
1995.

FINANCIAL CONDITION AND LIQUIDITY
      The financial condition of the Company continues to be strong.  At
December 31, 1998 current assets exceeded current liabilities by $400,850, up
$169,227 from December 31, 1997.  The current assets at December 31, 1998
were sufficient to meet the cash needs required to pay current liabilities.
The substantial increases in accounts receivable and merchandise inventory
resulted primarily from the growth in sales experienced by the Company.
While the average number of days of sales in accounts receivable has remained
relatively stable during 1998 and 1997, inventory turnover has decreased
slightly during that same period.  The decrease in inventory turnover is due
largely to a company-wide customer service and logistics project to redeploy
inventory into a system of national zones, regional zones and branch
locations.  Although the project objective is to provide better customer
service and reduce overall costs, management expected some temporary
inventory increase, unrelated to sales volume, during the transition to the
new system. This transition to the new customer service and logistics system
is planned to be complete by the end of the year 2000.   This temporary
increase in inventory investment is partially offset by a corresponding
increase in trade accounts payable.  The Company does not have any other
plans or commitments that would require significant amounts of additional
working capital.
      At December 31, 1998 the Company had available to it unused lines of
credit amounting to $280,000.  These lines are available to meet short-term
cash requirements of the Company.  Bank borrowings outstanding during 1998
and 1997 varied from a minimum of $19,000 and $65,000 to a maximum of
$211,655 and $181,000, respectively.

                                                                             19

<PAGE> 22

                               FINANCIAL REVIEW
------------------------------------------------------------------------------

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS

           (Stated in thousands except for share and per share data)

      Included in the Company's unused lines of credit is a $125,000
Revolving Credit Loan Agreement with a group of banks at an interest rate
based on the London Interbank Offered Rate.  The credit agreement expires in
May 2003.  The Company intends to utilize this credit line primarily as a
secondary source of borrowing for short-term financing requirements.  There
have been no borrowings against this credit line through December 31, 1998.
      The Company has funded its capital requirements from operations, stock
issuances to its employees and long-term debt.  In January 1998 the Company
received the proceeds from a seven-year note for $25,000 at a fixed interest
rate of 6.44% with principal payable in quarterly installments beginning in
April 1998.  In April 1998 the Company received the proceeds from a fifteen-
year note for $75,000 at a fixed interest rate of 6.59% with principal
payable in semiannual installments beginning in October 2003.  In June 1998
the Company received the proceeds from a fifteen-year note for $40,000 at a
fixed interest rate of 6.65% with principal payable in annual installments
beginning in June 2003.
      The Revolving Credit Loan Agreement and certain other note agreements
have various covenants which limit the Company's ability to make investments,
pay dividends, incur debt, dispose of property, and issue equity securities.
The Company is also required to maintain certain financial ratios as defined
in the agreements.
      Cash provided by operations during 1998 amounted to $3,585 compared to
$10,809 cash provided by operations in 1997.  Cash provided from the sale of
common stock and proceeds received on stock subscriptions amounted to $300
and $875 in 1998 and 1997, respectively.  Additional cash of approximately
$14,320 will be provided in 1999 as a result of payments to be made for stock
subscribed to by employees under the 1998 Common Stock Purchase Plan.
      Capital expenditures for property were $28,977, $27,342 and $44,865 for
the years ended December 31, 1998, 1997 and 1996, respectively. Purchases of
treasury stock were $5,303, $4,859 and $3,471 for the years ended December
31, 1998, 1997 and 1996, respectively. Dividends paid were $9,802, $9,550 and
$9,188 for the years ended December 31, 1998, 1997 and 1996, respectively.

IMPACT OF YEAR 2000
      In early 1996 the Company began its review and analysis of the Year
2000 issues and the potential risks to our operations.  Modifications to our
existing internal software began in 1996 and continue to be made.  A full-
time senior manager of the Company was appointed in January 1998 to oversee
all of the analytical and remedial projects connected with the Year 2000.
The Company has also used independent consultants to assist the Company with
its Year 2000 readiness efforts.
      The Company believes that with modifications to existing internal
software and conversions to new software, the Year 2000 will not pose
significant problems for all of its systems, including its accounting,
management information, warehouse and administrative systems.  However, if
such modifications and conversions are not completed in a timely manner, the
Year 2000 could have a material impact on the operations of the Company.
      Communications have been initiated by the Company with over 600
suppliers of products and large customers to determine the extent to which
the interface between their systems and the Company's systems are vulnerable
to those parties' failures to remediate their own Year 2000 issues.  Most
responses relating to products indicated Year 2000 compliance for the
specific product.  A significant number of the responses indicated that Year
2000 analytical studies were in process for both internal systems and some
products.  The Company's total Year 2000 project schedule and cost estimates
to complete include the estimated costs and time associated with the impact
of supplier and customer Year 2000 issues based on currently available
information. However, there can be no guarantee that the systems of these
companies on which the Company's systems rely will be modified in a timely
manner so there will not be an adverse impact on the Company's business.
Contingency plans will be developed on a case-by-case basis for suppliers or
customers where a problem is identified that cannot be remedied in time.
Contingency plans may involve alternate means of communications for
electronic data interchange suppliers and customers or an alternate source of
supply in the case of a supplier or a specific product.
      The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, and test the software for Year 2000
modifications.  Communications will continue with customers and suppliers to
identify any potential problems requiring contingency plans.  The Company
anticipates completing the Year 2000 project by September 30, 1999, although
some additional testing will continue after that date.  The Year 2000
projects will be funded through operating cash flows and expensed as
incurred.  The project costs have not had and are not expected to have a
material impact on the results of operations.
      The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors.  However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.  Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.

20

<PAGE> 23

<TABLE>
                               CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------
                     CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                    (Stated in thousands except for share and per share data)

<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                             1998           1997           1996
-----------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>
SALES, NET OF RETURNS AND ALLOWANCES                  $ 3,744,075    $ 3,348,496    $ 3,001,049
   Less--Cash discounts                                   (11,872)       (10,474)        (9,637)
-----------------------------------------------------------------------------------------------
     Net Sales                                          3,732,203      3,338,022      2,991,412
-----------------------------------------------------------------------------------------------
COST OF MERCHANDISE SOLD                               (3,042,176)    (2,726,147)    (2,453,962)
-----------------------------------------------------------------------------------------------
     Gross Margin                                         690,027        611,875        537,450
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES             (513,193)      (456,686)      (409,259)
TAXES, OTHER THAN INCOME TAXES                            (32,415)       (29,523)       (26,922)
DEPRECIATION AND AMORTIZATION                             (25,809)       (22,285)       (19,862)
-----------------------------------------------------------------------------------------------
     Income from operations                               118,610         103,381        81,407
OTHER INCOME, NET                                           7,018          5,865         10,134
INTEREST EXPENSE                                          (23,998)       (19,713)       (16,687)
-----------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES                  101,630         89,533         74,854
-----------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES
   Current                                                (37,167)       (29,750)       (28,599)
   Deferred                                                (4,919)        (6,820)        (1,722)
-----------------------------------------------------------------------------------------------
     Total provision for income taxes                     (42,086)       (36,570)       (30,321)
-----------------------------------------------------------------------------------------------
NET INCOME                                                 59,544         52,963         44,533
-----------------------------------------------------------------------------------------------
RETAINED EARNINGS, BEGINNING OF YEAR                      149,226        115,218         84,801
   Cash dividends-
     Preferred, $1.00 per share each year                      (5)            (6)            (7)
     Common, $2.00 per share each year                    (10,031)        (9,576)        (9,480)
   Common Stock dividend                                   (4,896)        (9,373)        (4,629)
-----------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR                        $   193,838    $   149,226    $   115,218
-----------------------------------------------------------------------------------------------
NET INCOME PER SHARE OF COMMON STOCK                  $     11.22    $      9.54    $      7.79
-----------------------------------------------------------------------------------------------

See accompanying Notes to Consolidated Financial Statements
</TABLE>

                                                                             21

<PAGE> 24

<TABLE>
                                       CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------------------
                                         CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                                              December 31,
                           (Stated in thousands except for share and per share data)       1998           1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>
ASSETS
--------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
  Cash                                                                               $   20,252     $   18,523
   Trade receivables (less allowances of
    $4,783 and $4,627, respectively)                                                    460,016        402,455
   Merchandise inventory                                                                440,406        389,314
   Other current assets                                                                   3,945          2,973
--------------------------------------------------------------------------------------------------------------
      Total current assets                                                              924,619        813,265
--------------------------------------------------------------------------------------------------------------
PROPERTY, AT COST
   Land                                                                                  21,550         22,868
   Buildings                                                                            174,736        167,654
   Furniture and fixtures                                                               123,044        113,854
   Capital equipment leases                                                              26,682         26,138
--------------------------------------------------------------------------------------------------------------
                                                                                        346,012        330,514
   Less--Accumulated depreciation and amortization                                      142,934        136,485
--------------------------------------------------------------------------------------------------------------
                                                                                        203,078        194,029
--------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES                                                                     8,105          9,639
--------------------------------------------------------------------------------------------------------------
OTHER ASSETS                                                                             32,045         34,888
--------------------------------------------------------------------------------------------------------------
                                                                                     $1,167,847     $1,051,821
--------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
   Notes payable to banks                                                            $   43,948     $  136,925
   Current portion of long-term debt                                                     16,475         15,059
   Trade accounts payable                                                               344,869        326,969
   Accrued payroll and benefit costs                                                     44,466         41,924
   Other accrued taxes                                                                   12,439         10,663
   Dividends payable                                                                      5,479          5,246
   Other payables and accruals                                                           56,093         44,856
--------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                         523,769        581,642
--------------------------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS LIABILITY                                                        77,708         77,300
--------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT                                                                          269,570        139,748
--------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                            Shares at December 31,
                                                             1998           1997
--------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>           <C>            <C>
SHAREHOLDERS' EQUITY
   Capital stock-
      Preferred, par value $20 per share,
         authorized 300,000 shares--
         Issued to shareholders                             5,386          6,009
         In treasury, at cost                                  --            (58)
--------------------------------------------------------------------------------------------------------------
         Outstanding                                        5,386          5,951            108            119
--------------------------------------------------------------------------------------------------------------
      Common, stated value $20 per share,
         Authorized                                     7,500,000      7,500,000
         Issued to voting trustees                      4,883,638      4,883,162
         Issued to shareholders                           326,586        323,434
         In treasury, at cost                             (25,706)       (19,124)
--------------------------------------------------------------------------------------------------------------
         Outstanding                                    5,184,518      5,187,472        103,690        103,749
--------------------------------------------------------------------------------------------------------------
   Common shares subscribed                                                              15,564            493
   Retained earnings                                                                    193,838        149,226
   Accumulated other comprehensive income                                                  (836)           --
--------------------------------------------------------------------------------------------------------------
                                                                                        312,364        253,587
         Less--Subscriptions receivable                                                  15,564            456
--------------------------------------------------------------------------------------------------------------
         TOTAL SHAREHOLDERS' EQUITY                                                     296,800        253,131
--------------------------------------------------------------------------------------------------------------
                                                                                     $1,167,847     $1,051,821
--------------------------------------------------------------------------------------------------------------

       See accompanying Notes to Consolidated Financial Statements
</TABLE>

22

<PAGE> 25

<TABLE>
                                           CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------------------
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (Stated in thousands)

<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                            1998           1997           1996
--------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>            <C>
CASH FLOWS FROM OPERATIONS
   Net Income                                                           $ 59,544       $ 52,963       $ 44,533
--------------------------------------------------------------------------------------------------------------
   Adjustments to reconcile net income
     to cash provided by operations -
      Depreciation and amortization                                       25,809         22,285         19,862
      Deferred income taxes                                                4,919          6,820          1,722
      Gain on sale of property                                              (808)        (2,280)        (7,313)
      Changes in assets and liabilities:
         Trade receivables                                               (57,561)       (50,117)         1,909
         Merchandise inventory                                           (51,092)       (80,186)       (42,053)
         Other current assets                                               (972)         3,224            476
         Other assets                                                     (6,728)        (4,232)        (2,143)
         Trade accounts payable                                           17,900         48,832         (3,851)
         Accrued payroll and benefit costs                                 2,542          6,001         (1,427)
         Other accrued liabilities                                        10,032          7,499         24,871
--------------------------------------------------------------------------------------------------------------
                                                                         (55,959)       (42,154)        (7,947)
--------------------------------------------------------------------------------------------------------------
   Net cash flow provided by operations                                    3,585         10,809         36,586
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds from sale of property                                       4,892          5,364         10,497
      Capital expenditures for property                                  (28,977)       (27,342)       (44,865)
      Investment in joint venture                                          9,571        (14,134)           --
      Other                                                                  --          (2,275)           --
--------------------------------------------------------------------------------------------------------------
   Net cash flow used by investing activities                            (14,514)       (38,387)       (34,368)
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Net increase (decrease) in notes payable to banks                  (92,977)        61,966        (62,272)
      Proceeds from long-term debt                                       140,000            --          72,000
      Repayment of long-term debt                                        (14,664)       (11,748)       (10,387)
      Principal payments under capital equipment leases                   (4,060)        (4,403)        (4,115)
      Sale of common stock                                                   300            875          8,002
      Purchases of treasury stock                                         (5,303)        (4,859)        (3,471)
      Dividends paid                                                      (9,802)        (9,550)        (9,188)
--------------------------------------------------------------------------------------------------------------
   Net cash flow provided (used) by financing activities                  13,494         32,281         (9,431)
--------------------------------------------------------------------------------------------------------------
Effect of currency translation adjustments on cash                          (836)           --             --
--------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH                                            1,729          4,703         (7,213)
--------------------------------------------------------------------------------------------------------------
CASH, BEGINNING OF YEAR                                                   18,523         13,820         21,033
--------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR                                                       $ 20,252       $ 18,523       $ 13,820
--------------------------------------------------------------------------------------------------------------

See accompanying Notes to Consolidated Financial Statements
</TABLE>

                                                                             23

<PAGE> 26

<TABLE>
                                            CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------------------------------------
                               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                  FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                               (Stated in thousands except for share and per share data)
<CAPTION>
                                                                         COMMON                      ACCUMULATED
                                                                         STOCK                         OTHER
                                           COMMON        PREFERRED     SUBSCRIBED,     RETAINED     COMPREHENSIVE
                                           STOCK           STOCK        UNISSUED       EARNINGS         INCOME        TOTAL
                                           ------        ---------     -----------     --------     -------------   --------
<S>                                       <C>            <C>           <C>             <C>          <C>             <C>
December 31, 1995                         $ 89,206       $   150       $               $ 84,801     $               $174,157
                                                                                                                    --------
Net income and
   comprehensive income                                                                  44,533                       44,533

Stock issued                                 7,950                                                                     7,950

Stock redeemed                              (3,464)           (7)                                                     (3,471)

Advance payments                                                              52                                          52

Dividends declared                           4,629                                      (14,116)                      (9,487)
                                          --------       -------       ---------       --------     --------        --------
December 31, 1996                         $ 98,321       $   143       $      52       $115,218     $               $213,734
                                          ========       =======       =========       ========     ========        ========

Net income and
   comprehensive income                                                                  52,963                       52,963

Stock issued                                   890                                                                       890

Stock redeemed                              (4,835)          (24)                                                     (4,859)

Advance payments                                                             (15)                                        (15)

Dividends declared                           9,373                                      (18,955)                      (9,582)
                                          --------       -------       ---------       --------     --------        --------
December 31, 1997                         $103,749       $   119       $      37       $149,226     $               $253,131
                                          ========       =======       =========       ========     ========        ========

Net income                                                                               59,544                       59,544

Currency translation adjustments                                                                        (836)           (836)
                                                                                                                    --------
Comprehensive income                                                                                                  58,708
                                                                                                                    --------
Stock issued                                   337                                                                       337

Stock redeemed                              (5,292)           (11)                                                    (5,303)

Advance payments                                                             (37)                                        (37)

Dividends declared                           4,896                                      (14,932)                     (10,036)
                                          --------       -------       ---------       --------     --------        --------
DECEMBER 31, 1998                         $103,690       $   108       $       0       $193,838     $   (836)       $296,800
                                          ========       =======       =========       ========     ========        ========

See accompanying Notes to Consolidated Financial Statements
</TABLE>

24

<PAGE> 27

                       CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
           (Stated in thousands except for share and per share data)

1.    SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
      The consolidated financial statements include the accounts of Graybar
Electric Company, Inc. and its subsidiary companies.  All significant
intercompany balances and transactions have been eliminated.

REVENUE RECOGNITION
      Revenue from the sale of the Company's products is recognized upon
shipment to the customer.  Costs of the products are recorded as cost of
merchandise sold when the related revenue is recognized.

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, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities.  Actual
results could differ from those estimates.

MERCHANDISE INVENTORY
      Inventory is stated at the lower of cost (determined using the last-in,
first-out (LIFO) cost method) or market.  LIFO accounting is generally a
conservative method of accounting that, compared with other inventory
accounting methods, provides better matching of current costs with current
revenues.  Had the first-in, first-out (FIFO) method been used, inventory
would have been approximately $17,490 and $28,993 greater than reported under
the LIFO method at December 31, 1998 and 1997, respectively.

PROPERTY AND DEPRECIATION
      The Company provides for depreciation and amortization using the
straight-line method over the following estimated useful lives of the assets:

----------------------------------------------------------------------------
Buildings                                                          42 years
----------------------------------------------------------------------------
Permanent fixtures--                                  Over the lives of the
leased property                                           respective leases
----------------------------------------------------------------------------
Furniture, fixtures and equipment                             4 to 14 years
----------------------------------------------------------------------------
Capital equipment                                     Over the lives of the
leases                                                    respective leases
----------------------------------------------------------------------------

      At the time property is retired, or otherwise disposed of, the asset
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is credited or charged to other income.
      Equipment under capital leases is recorded in property with the
corresponding obligations carried in long-term debt.  The amount capitalized
is the present value at the beginning of the lease term of the aggregate
future minimum lease payments.
      Maintenance and repairs are expensed as incurred.  Major renewals and
betterments that extend the life of the property are capitalized.
      The Company capitalizes interest expense on major construction and
development projects while in progress.

DESCRIPTION OF BUSINESS AND CREDIT RISK
      Graybar Electric Company, Inc. is engaged internationally in the
distribution of electrical and communications products and integrated supply
services primarily to contractors, industrial plants, telephone companies,
power utilities, and commercial users.  All products sold by the Company are
purchased by the Company from others.
      Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's business activity is primarily with customers in the United
States; however, the Company has limited sales activity in several
international locations.  The Company performs ongoing credit evaluations of
its customers, and a significant portion of trade receivables is secured by
lien or bond rights.  The Company maintains allowances for potential credit
losses, and such losses historically have been within management's
expectations.

COMPREHENSIVE INCOME
      Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
Comprehensive income is reported in the Consolidated Statements of Changes in
Shareholders' Equity.

PENDING ACCOUNTING PRONOUNCEMENTS
      In March 1998 the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."  The Company plans
to adopt the SOP on January 1, 1999.  The SOP requires capitalization of
certain internal and external costs incurred after the date of adoption in
connection with developing or obtaining software for internal use.  The
Company currently expenses internal costs as incurred.  The Company is
evaluating the impact of adoption of the SOP, but does not expect the effect
to be material to its results.

                                                                             25

<PAGE> 28

                       CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------

2.    INCOME TAXES
      The provisions for income taxes recorded in the Consolidated Statements
of Income and Retained Earnings are as follows:

<TABLE>
<CAPTION>
Years Ended December 31:              1998           1997           1996
------------------------------------------------------------------------
<S>                                <C>            <C>            <C>
Federal income tax
      Current                      $32,442        $26,248        $25,057
      Deferred                       4,212          5,669          1,543
State income tax
      Current                        4,725          3,502          3,542
      Deferred                         707          1,151            179
------------------------------------------------------------------------
Financial statement
      income tax provision         $42,086        $36,570        $30,321
------------------------------------------------------------------------
</TABLE>

      Deferred income taxes are provided based upon differences between the
financial statement and tax bases of assets and liabilities.  The following
deferred tax assets (liabilities) are recorded at December 31:

<TABLE>
<CAPTION>
Assets/(Liabilities)                       1998              1997
-----------------------------------------------------------------
<S>                                    <C>               <C>
Postretirement benefits                $ 30,734          $ 30,572
Payroll accruals                          6,929             6,416
Bad debt reserves                         1,909             2,605
Other deferred tax assets                 7,957             6,828
Inventory                                (2,591)           (1,387)
Prepaid pension                          (7,061)           (5,124)
Fixed asset depreciation                (12,861)          (13,209)
Fixed asset gains                        (6,287)           (6,052)
Accounts receivable                      (2,169)           (2,892)
Other deferred tax liabilities          (14,348)          (10,622)
-----------------------------------------------------------------
                                       $  2,212          $  7,135
-----------------------------------------------------------------
</TABLE>

      Deferred tax liabilities included in Other Payables and Accruals were
$5,893 and $2,504 in 1998 and 1997, respectively.
      A reconciliation between the "statutory" federal income tax rate and
the effective tax rate in the Consolidated Statements of Income and Retained
Earnings is as follows:

<TABLE>
<CAPTION>
Years Ended December 31:             1998           1997           1996
-----------------------------------------------------------------------
<S>                                  <C>            <C>            <C>
"Statutory" tax rate                 35.0%          35.0%          35.0%
State and local income taxes,
      net of federal benefit          3.4            3.4            3.3
Other, net                            3.0            2.4            2.2
-----------------------------------------------------------------------
Effective tax rate                   41.4%          40.8%          40.5%
-----------------------------------------------------------------------
</TABLE>

3.    CAPITAL STOCK
      The Company's capital stock is owned by its employees and retirees.
Neither common nor preferred stock may be sold by the holder thereof, except
by first offering it to the Company.  The Company may buy any common shares
so offered at the price at which they were issued ($20) with appropriate
adjustments for current dividends or may call all or part of the preferred
stock at par plus accrued dividends.
      During 1998 the Company offered to eligible employees the right to
subscribe to 1,000,000 shares of common stock at $20 per share in accordance
with the provisions of the Company's Common Stock Purchase Plan dated October
12, 1998.  This resulted in the subscription of 778,202 shares ($15,564).
Subscribers under the Plan elected to make payments under one of the
following options: (i) all shares subscribed for prior to January 22, 1999;
(ii) a portion of such shares prior to January 22, 1999, and the balance in
monthly installments through payroll deductions (or in certain cases where a
subscriber is no longer on the Company's payroll, through pension deductions
or direct monthly payments) over a 34-month period; or (iii) all shares
pursuant to the installment method.  Shares were issued and Voting Trust
Certificates were delivered to subscribers as of January 22, 1999, in the
case of shares paid for prior to January 22, 1999.  Shares will be issued and
Voting Trust Certificates will be delivered to subscribers on a quarterly
basis, as of the tenth day of March, June, September and December to the
extent full payments of shares are made in the case of subscriptions under
the installment method.
      Shown below is a summary of shares reacquired and retired by the
Company in the three years ended December 31:

<TABLE>
<CAPTION>
                        PREFERRED                           COMMON
              REACQUIRED         RETIRED        REACQUIRED          RETIRED
---------------------------------------------------------------------------
<S>             <C>               <C>             <C>               <C>
1998              565               623           264,580           257,998
1997            1,190             1,132           241,764           242,675
1996              363               363           173,173           165,569
---------------------------------------------------------------------------
</TABLE>

26

<PAGE> 29

                       CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

4.    LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
LONG-TERM DEBT WAS COMPOSED OF:                         1998             1997
-----------------------------------------------------------------------------
<S>                                                 <C>              <C>
6.59% note, unsecured, due in
      semiannual installments of $3,750
      beginning in October 2003 through
      April 2013                                    $ 75,000         $      0
7.36% note, unsecured, maturing
      May 2011, installments of $3,095
      due semiannually in each of the
      years 2001 through 2010 with
      final payment of $3,094 due in 2011             65,000           65,000
6.65% note, unsecured, due in annual
      installments of $3,636 in each of the
      years 2003 through 2013                         40,000                0
6.25% note, unsecured, maturing
      June 2004, installments of $7,000
      due annually in each of the years
      2000 through 2004                               35,000           35,000
6.44% note, unsecured, due in
      quarterly installments of $893
      through January 2005                            18,750                0
9.23% note secured by a first
      mortgage on various properties,
      maturing May 2005, installments
      of $2,725 due annually in each
      of  the years 1995 through 2004
      with final payment of $2,750 due
      in 2005                                         16,375           19,100
4.78% to 7.93% capital equipment
      leases, various maturities                       8,448            3,929
7.74% note, secured by facility, due
      in quarterly installments through
      August 2006                                      4,725            5,425
7.75% note, secured by facility,
      due in quarterly installments
      through March 2005                               2,100            2,500
7.67% note, unsecured, maturing
      April 2000, installments of
      $2,000 due annually in each of
      the years 1996 through 2000                      2,000            4,000
Variable rate mortgages, secured by
      facilities, various maturities                   1,649            1,914
Variable rate banker's acceptances,
      unsecured, various maturities                      523            1,119
12.25% note secured by a first
      mortgage on various properties, due in
      monthly installments through June 1999               0            1,761
-----------------------------------------------------------------------------
                                                    $269,570         $139,748
-----------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
LONG-TERM DEBT MATURES AS FOLLOWS:
-----------------------------------------------------------------------------
<S>                                                                  <C>
2000                                                                 $ 19,248
2001                                                                   22,635
2002                                                                   22,761
2003                                                                   30,795
2004-2013                                                             174,131
-----------------------------------------------------------------------------
                                                                     $269,570
-----------------------------------------------------------------------------
</TABLE>

      The present value of future minimum lease payments under capital leases
as of December 31, 1998 was $12,959, of which $8,448 is included in long-term
debt.  The net book value of property securing various long-term debt
instruments was $27,443 at December 31, 1998.
      Bank borrowings varied from a minimum of $19,000 and $65,000 to a
maximum of $211,655 and $181,000 in 1998 and 1997, respectively.  The average
amount of bank borrowings outstanding during 1998 and 1997 amounted to
approximately $98,000 and $122,000 at weighted average interest rates of
5.67% and 5.72%, respectively.  The averages are based on the daily amounts
outstanding during each year.
      In January 1998 the Company received the proceeds from a seven-year
note for $25,000 at a fixed interest rate of 6.44% with principal payable in
quarterly installments beginning in April 1998.  In April 1998 the Company
received the proceeds from a fifteen-year note for $75,000 at a fixed
interest rate of 6.59% with principal payable in semiannual installments
beginning in October 2003.  In June 1998 the Company received the proceeds
from a fifteen-year note for $40,000 at a fixed interest rate of 6.65% with
principal payable in annual installments beginning in June 2003.
      The Company had unused lines of credit of approximately $280,000 as
of December 31, 1998.  Certain lines require maintenance of compensating
balances of up to 5% of the available lines of credit or quarterly fees of up
to twenty-five basis points of the committed lines of credit.  Included in
these unused lines of credit is a $125,000 Revolving Credit Loan Agreement
with a group of banks at an interest rate based on the London Interbank
Offered Rate.  The credit agreement expires in May 2003.  There have been no
borrowings against this credit line through December 31, 1998.
      The Revolving Credit Loan Agreement and certain other note agreements
have various covenants which limit the Company's ability to make investments,
pay dividends, incur debt, dispose of property, and issue equity securities.
The Company is also required to maintain certain financial ratios as defined
in the agreements.
      The carrying amounts of the Company's outstanding long-term debt and
notes payable to banks approximate their fair values at December 31, 1998.

5.    PENSION AND OTHER
      POSTRETIREMENT BENEFITS
      The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees.  The plan provides retirement benefits
based on an employee's final average earnings and years of service.
Employees become 100% vested after five years of service, regardless of age.
The Company's funding policy is to contribute the net periodic pension cost
accrued each year, provided that the contribution will not be less than the
ERISA minimum or greater than the maximum tax deductible amount.

                                                                             27

<PAGE> 30

                       CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

      The Company and its subsidiaries provide certain health care and life
insurance benefits for retired employees through the Retiree Welfare Plan
(the Plan).  Substantially all of the Company's employees may become eligible
to participate in the Plan if they reach normal retirement age while working
for the Company.  Benefits are provided through insurance coverage with
premiums based on the benefits paid during the year.  The Company funds the
Plan on a pay-as-you-go basis, and accordingly, the Plan has no assets at
December 31, 1998 or 1997.
      The following table sets forth information regarding the Company's
pension and other postretirement benefits as of December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                           Postretirement
                           Pension Benefits                   Benefits
                        ----------------------          -------------------
                          1998           1997           1998           1997
                      -----------------------------------------------------
<S>                   <C>            <C>            <C>            <C>
Accumulated
  benefit
  obligation          $116,000       $101,500       $ 90,000       $ 87,800
                      --------       --------       --------       --------
Projected benefit
  obligation           151,300        135,000            --             --
Fair value of
  plan assets          122,133        110,251            --             --
                      --------       --------       --------       --------
Funded status          (29,167)       (24,749)       (90,000)       (87,800)
                      --------       --------       --------       --------
Prepaid (accrued)
  benefit cost
  recognized in
  the balance
  sheet               $ 17,705       $ 10,635       $(77,708)      $(77,300)
</TABLE>

    Weighted average assumptions as of December 31 are:

<TABLE>
<CAPTION>
                                                         Postretirement
                           Pension Benefits                 Benefits
                        --------------------           -----------------
                         1998           1997           1998         1997
                       -------------------------------------------------
<S>                      <C>            <C>            <C>          <C>
Discount rate            6.75%          7.25%          6.75%        7.25%
Expected return
  on plan assets         9.50%          9.50%           --           --
Rate of
  compensation
  increase               4.00%          4.25%           --           --
Health care cost
  trend on
  covered charges         --             --            6.00%        6.50%
</TABLE>

    The following presents information regarding the plans for the years
ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                           Postretirement
                           Pension Benefits                   Benefits
                        ----------------------          ------------------
                          1998          1997           1998           1997
                      ----------------------------------------------------
<S>                   <C>            <C>            <C>            <C>
Employer
  contributions       $ 13,953       $ 9,492        $ 7,211        $ 6,521
Participant
  contributions            --            --             180            146
Benefits paid         $(10,723)      $(9,165)       $(7,391)       $(6,667)
                      --------       -------        -------        -------
</TABLE>

      The net periodic cost recognized for the defined benefit pension plan
was $6,883, $6,112 and $5,981 for each of the three years ended December 31,
1998, 1997 and 1996, respectively.
      The net periodic cost recognized for the postretirement benefit plan
was $6,811, $6,817 and $6,763 for each of the three years ended December 31,
1998, 1997 and 1996, respectively.
      For measurement of the net periodic postretirement benefit cost, a 6.5%
annual rate of increase in per capita cost of covered health care benefits
was assumed for 1998 with the rate assumed to remain at that level.
      The Company also provides a defined contribution profit sharing and
savings plan covering substantially all of its full-time employees.  Annual
contributions by the Company to the plan are at the discretion of management
and are generally determined based on the profitability of the Company.
Employees may also contribute to the plan subject to limitations imposed by
federal tax law and ERISA.

6.    NET INCOME PER SHARE
      OF COMMON STOCK
      The computation of net income per share of common stock is based on the
weighted average number of common shares outstanding during each year.  The
average numbers of shares used in computing net income per share of common
stock were 5,304,646, 5,549,325 and 5,714,458 in 1998, 1997 and 1996,
respectively, adjusted for the declaration of 5%, 10% and 5% stock dividends
in 1998, 1997 and 1996, respectively.

7.    COMMITMENTS
      Rental expense was $16,372, $12,673 and $10,119 in 1998, 1997 and 1996,
respectively.
      Future minimum rental payments required under operating leases that
have either initial or remaining noncancellable lease terms in excess of one
year as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>

YEARS ENDING DECEMBER 31:
---------------------------------------------------------------------------
<S>                                                                 <C>
1999                                                                $18,003
2000                                                                 13,700
2001                                                                  9,823
2002                                                                  6,270
2003                                                                  4,502
Subsequent to 2003                                                   16,432
---------------------------------------------------------------------------
</TABLE>

8.    STATEMENTS OF CASH FLOWS
      During 1998, 1997 and 1996 income taxes paid totaled $36,602, $26,773
and $31,468; interest paid totaled $22,349, $19,834 and $16,252; and
liabilities assumed in connection with capitalized leases totaled $9,962, $0
and $4,500, respectively.
      The 1997 statement of cash flows includes the effect of the Company's
majority ownership position in Harris & Roome Supply Limited as a result of
additional shares purchased in May 1997.

28

<PAGE> 31

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

[LOGO] ERNST & YOUNG LLP       Gateway One                  Phone: 314-259-1000
                               Suite 1400
                               701 Market Street
                               St. Louis, Missouri 63101





                        Report of Independent Auditors


To the Shareholders and
   the Board of Directors
Graybar Electric Company, Inc.

We have audited the accompanying consolidated balance sheets of Graybar
Electric Company, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of income and retained earnings, changes in
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Graybar
Electric Company, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.


                                           /s/ Ernst & Young LLP

February 19, 1999

                                                                              29

<PAGE> 32

                   DISTRICT MANAGEMENT AS OF JANUARY 1, 1999
------------------------------------------------------------------------------

---------------------------------------
NEW YORK DISTRICT
---------------------------------------

Frank Mossa
Vice President

  [PHOTO]

Keith E. Davis
Operating Manager

James (Chip) Bateman
Financial Manager

---------------------------------------
BOSTON DISTRICT
---------------------------------------

William L. King
Vice President

  [PHOTO]

Donald M. Block
Sales Manager

Gerald G. Pollick
Operating Manager

Joseph P. Peduto
Financial Manager

---------------------------------------
PITTSBURGH DISTRICT
---------------------------------------

Steven M. Schooley
Vice President

  [PHOTO]

Wade V. Leidecker
Sales Manager

C. Robert Smith
Operating Manager

Peter M. Wingrove
Financial Manager

---------------------------------------
CINCINNATI DISTRICT
---------------------------------------

Kenneth L. Netherton
Vice President

  [PHOTO]

James D. Hooper
Sales Manager

J. William Grindle
Operating Manager

Stephen C. Beckmann
Financial Manager

---------------------------------------
ATLANTA DISTRICT
---------------------------------------

D. Steven Smith
Vice President

  [PHOTO]

Bertie M. Wilson
Operating Manager

Darrel D. Schilling
Financial Manager

---------------------------------------
RICHMOND DISTRICT
---------------------------------------

Thomas S. Gurganous
Vice President

  [PHOTO]

J. Wayne Andrews
Sales Manager

Wallace H. Hancock
Sales Manager

T. N. (Nick) Fleming
Operating Manager

David E. Metz
Financial Manager

---------------------------------------
TAMPA DISTRICT
---------------------------------------

Michael W. Fowler
Vice President

  [PHOTO]

Robert C. Lyons
Sales Manager

Robert D. Wombacher
Operating Manager

Richard C. Hird
Financial Manager

---------------------------------------
CHICAGO DISTRICT
---------------------------------------

Richard A. Cole
Vice President

  [PHOTO]

Thomas E. Walsh
Sales Manager

John C. Fischer
Operating Manager

Martin J. Beagen
Financial Manager

---------------------------------------
MINNEAPOLIS DISTRICT
---------------------------------------

Robert L. Nowak
Vice President

  [PHOTO]

Terrence J. Innes
Sales Manager

Christopher O. Olsen
Operating Manager

Thomas E. Kinate
Financial Manager

30

<PAGE> 33

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

---------------------------------------
ST. LOUIS DISTRICT
---------------------------------------

Thomas F. Williams
Vice President

  [PHOTO]

John P. Mills
Operating Manager

Reiders L. Abel
Financial Manager

---------------------------------------
DALLAS DISTRICT
---------------------------------------

Lawrence R. Giglio
Vice President

  [PHOTO]

Peter J. Roettinger
Sales Manager

Francis B. Roderick
Sales Manager

Thomas T. Townsend
Operating Manager

George D. Zackey
Financial Manager

---------------------------------------
SEATTLE DISTRICT
---------------------------------------

John C. Loff
Vice President

  [PHOTO]

Larry T. Christensen
Sales Manager

T. Peter Girard, Jr.
Operating Manager

Randall R. Harwood
Financial Manager

---------------------------------------
PHOENIX DISTRICT
---------------------------------------

Gary D. Hodges
Vice President

  [PHOTO]

Richard A. Mitchell
Sales Manager

Michael D. Gaines
Operating Manager

Ronald J. Grabar
Financial Manager

---------------------------------------
NORTHEASTERN COMM/DATA DISTRICT
---------------------------------------

Gerard J. McCrea
Vice President

  [PHOTO]

---------------------------------------
SOUTHEASTERN COMM/DATA DISTRICT
---------------------------------------

Richard D. Offenbacher
Vice President

  [PHOTO]

---------------------------------------
CENTRAL COMM/DATA DISTRICT
---------------------------------------

Alan L. Eddings
Vice President

  [PHOTO]

---------------------------------------
WESTERN COMM/DATA DISTRICT
---------------------------------------

Kenneth B. Sparks
Vice President

  [PHOTO]

                                                                             31

<PAGE> 34

                        LOCATIONS AS OF JANUARY 1, 1999
------------------------------------------------------------------------------

CORPORATE OFFICE
34 North Meramec Avenue
St. Louis, Missouri 63105
314 512-9200

---------------------------------------
NEW YORK DISTRICT
---------------------------------------

21-15 Queens Plaza North
Long Island City,
New York 11101
718 392-2000

BRANCHES
New York: Manhattan,
 Rochester, Albany, Syracuse,
 Hauppauge, Buffalo, Jericho
 New Jersey: Newark,
 North Brunswick, Teterboro,
 Hackettstown, Parsippany,
 Wanamassa, Hamilton


INFORMATION SYSTEMS
11828 Lackland Road
St. Louis, Missouri 63146
314 569-0006

---------------------------------------
PITTSBURGH DISTRICT
---------------------------------------

900 Ridge Avenue
Pittsburgh, Pennsylvania
15212
412 323-5200

BRANCHES
Ohio: Youngstown, Cleveland,
 Akron, Canton, Mansfield
 Pennsylvania: Greensburg,
 Harrisburg, Allentown,
 Philadelphia, Erie
West Virginia: Wheeling
Delaware: New Castle


MID-ATLANTIC ZONE
SERVICE CENTER
2124 Avenue "C"
Bethlehem, Pennsylvania 18017
610 266-0220

---------------------------------------
ATLANTA DISTRICT
---------------------------------------

2050 Nancy Hanks Drive
Norcross, Georgia 30071
770 441-5580

BRANCHES
Georgia:  Atlanta
 Midtown, Marietta,
 Fayetteville, Savannah,
 Cartersville
Alabama: Birmingham,
 Huntsville, Mobile
South Carolina: Columbia,
 Greenville, Spartanburg,
 Hilton Head, Beaufort
Tennessee: Knoxville,
 Chattanooga
Florida: Pensacola
Mississippi: Jackson

MIDWEST ZONE
SERVICE CENTER
2424 A North Main Street
East Peoria, Illinois 61611
309 694-2341

---------------------------------------
TAMPA DISTRICT
---------------------------------------

801 North Rome Avenue
Tampa, Florida 33606
813 253-8881

BRANCHES
Florida: Sarasota, Lakeland,
 Orlando, Pinellas, Melbourne,
 North Tampa, Tallahassee,
 Jacksonville,
 South Jacksonville,
 Daytona Beach, Perrine,
 Miami, West Palm Beach,
 Florida City, Fort Myers,
 Fort Pierce, Naples,
 Pompano Beach, Gainesville

---------------------------------------
BOSTON DISTRICT
---------------------------------------

345 Harrison Avenue
Boston, Massachusetts 02118
617 482-9320

BRANCHES
Rhode Island: Cranston
Massachusetts: Worcester,
 Springfield, Somerville,
 Lucent Merrimack Valley
Maine: Portland
New Hampshire: Manchester
Vermont: Rutland, Williston
Connecticut: Hamden

---------------------------------------
CINCINNATI DISTRICT
---------------------------------------

1022 West Eighth Street
Cincinnati, Ohio 45203
513 621-0600

BRANCHES
West Virginia: Charleston
Ohio: Columbus, Dayton,
 Lima
Kentucky: Lexington,
 Louisville
Tennessee: Nashville

---------------------------------------
RICHMOND  DISTRICT
---------------------------------------

1510 Tomlynn Street
Richmond, Virginia 23230
804 354-1300

BRANCHES
Virginia: Norfolk, Roanoke,
 Hampton, Chantilly
North Carolina: Asheville,
 Raleigh, Winston-Salem,
 Charlotte, Greensboro,
 Wilmington
South Carolina: Rock Hill
Tennessee: Bristol, Johnson City
Maryland: Baltimore, Lanham

---------------------------------------
CHICAGO DISTRICT
---------------------------------------

900 Regency Drive
Glendale Heights, Illinois
60139
630 893-3600

BRANCHES
Illinois: Naperville, Chicago
 Downtown, Morton Grove
Indiana: Fort Wayne,
 South Bend, Hammond,
 Indianapolis
Michigan: Flint, Lansing,
 Grand Rapids, Kalamazoo,
 Auburn Hills, Kentwood,
 Livonia
Ohio: Toledo

32

<PAGE> 35

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

---------------------------------------
NORTHEASTERN
COMM/DATA DISTRICT
---------------------------------------

1550 South Warfield Street
Philadelphia, Pennsylvania 19146
215 336-2211

---------------------------------------
MINNEAPOLIS DISTRICT
---------------------------------------

2300 East 25th Street
Minneapolis, Minnesota 55406
612 721-3545

BRANCHES
Minnesota: St. Paul, Duluth,
 Brooklyn Park, Burnsville,
 Plymouth, Rochester, Mankato
Montana: Billings
North Dakota: Fargo
South Dakota: Sioux Falls,
 Brookings
Wisconsin: Green Bay,
 West Allis, Marinette,
 Manitowoc, Madison,
 Neenah

---------------------------------------
SOUTHEASTERN
COMM/DATA DISTRICT
---------------------------------------

2050 Nancy Hanks Drive
Norcross, Georgia 30071
770 441-5580

---------------------------------------
DALLAS DISTRICT
---------------------------------------

4601 Cambridge Road
Ft. Worth, Texas 76155
817 213-1200

BRANCHES
Texas: San Antonio,
 Fort Worth Counter, Amarillo,
 Austin, Abilene, Cypress,
 Beaumont, Corpus Christi,
 Houston, Houston (Counter),
 North Dallas, Sherman, Lubbock,
 Kilgore, LaMarque, Dallas (Royal
 Lane Counter),
 Texas Instruments,
 Houston Distribution Center,
 Houston (Tellepsen), Dallas
 Major Metro
Oklahoma: Oklahoma City,
 Lucent Oklahoma City, Tulsa
Arkansas: Little Rock, Conway,
 Springdale
Louisiana: Shreveport,
 Baton Rouge, Lake Charles,
 Harahan

---------------------------------------
CENTRAL
COMM/DATA DISTRICT
---------------------------------------

8170 Lackland Road
Bel Ridge, Missouri 63114
314 512-0100

---------------------------------------
PHOENIX DISTRICT
---------------------------------------

3350 West Earll Drive
Phoenix, Arizona 85017
602 269-2131

BRANCHES
Arizona: Mesa, Tucson,
 Scottsdale
Colorado: Colorado Springs,
 Denver, Englewood
New Mexico: Albuquerque
Texas: El Paso
Nevada: Las Vegas, Henderson
Utah: Salt Lake City, Orem
California: Los Angeles,
 Anaheim, Costa Mesa,
 Long Beach, San Bernardino,
 San Diego, Santa Barbara,
 Van Nuys, Bakersfield,
 San Marcos, Santa Maria,
 San Diego (Downtown),
 Los Angeles Distribution
 Center

---------------------------------------
WESTERN
COMM/DATA DISTRICT
---------------------------------------

1600 132nd Avenue, Northeast
Bellevue, Washington 98005
425 468-5548

REGIONAL ZONES
---------------------------------------
DALLAS REGIONAL ZONE
---------------------------------------

4601 Cambridge Road
Fort Worth, Texas 76155
817 213-1450

---------------------------------------
ATLANTA REGIONAL
AND NATIONAL ZONE
---------------------------------------

Woodlands Business Park
Building 100
8180 Troon Circle
Austell, Georgia 30168
678 945-9970

---------------------------------------
ST. LOUIS DISTRICT
---------------------------------------

8170 Lackland Road
Bel Ridge, Missouri 63114
314 512-0100

BRANCHES
Iowa: Davenport,
 Des Moines,
 Cedar Rapids
Illinois: East Peoria,
 Springfield
Missouri: Jefferson City,
 Kansas City, Springfield,
 St. Louis (Counter)
Indiana: Evansville
Kansas: Olathe, Wichita
Nebraska: Omaha
Tennessee: Memphis, Jackson

---------------------------------------
SEATTLE DISTRICT
---------------------------------------

1919 Sixth Avenue South
Seattle, Washington 98134
206 292-4848

BRANCHES
Washington: Spokane,
 Tacoma, Everett, Bellevue
Oregon: Portland, Beaverton,
 Eugene
Idaho: Boise
Alaska: Anchorage, Fairbanks
California: Oakland Counter,
 Fresno, Modesto,
 Sacramento, San Jose,
 Martinez, Hayward,
 San Francisco Downtown,
 Visalia, San Carlos
 (Counter)
Nevada: Sparks
Hawaii: Aiea

---------------------------------------
INTERNATIONAL
---------------------------------------

34 North Meramec Avenue
St. Louis, Missouri 63105
314 512-9211

Miami International
10500 Southwest 186th St.
Perrine, Florida 33157
305 252-0400

San Francisco International
2368 Lincoln  Avenue
Hayward, California 94545
510 259-0122

Houston International
6161 Bingle Road
Houston, Texas 77092
713 970-9450

LOCATIONS
San Juan, Puerto Rico
Singapore
Mexico City, Mexico
Santiago, Chile
Kitchener, Ontario
Hamilton, Ontario
Guelph, Ontario
Mississauga, Ontario
Niagara Falls, Ontario
Windsor, Ontario
Halifax, Nova Scotia
Dartmouth, Nova Scotia
Bridgewater, Nova Scotia
Kentville, Nova Scotia
New Glasgow, Nova Scotia
Sydney, Nova Scotia
Truro, Nova Scotia
Yarmouth, Nova Scotia
Charlottetown, Prince
  Edward Island
Bathurst, New Brunswick
Florenceville, New Brunswick
Fredericton, New Brunswick
Moncton, New Brunswick
Saint John, New Brunswick
Corner Brook, Newfoundland
Grand Falls-Windsor,
  Newfoundland
St. John's, Newfoundland
Wabush, Newfoundland

<PAGE> 36



                        Graybar Electric Company, Inc.
                            34 North Meramec Avenue
                           St. Louis, Missouri 63105
                                www.graybar.com