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

Results of Operations

Summary

Baldor  extended  its  growth  trend for the sixth  consecutive  year by posting
record sales and earnings for 1997. An 11% increase in sales was leveraged  into
a 14.8% increase in net earnings.  1997 saw the successful  introduction  of our
new  Standard-E  line of motors.  In  addition to  conforming  to the new Energy
Policy Act (EPAct)  efficiency  requirements,  this line offers improved overall
value to our  customers.  This  improved  value  includes  longer  service life,
reduced energy cost,  quieter running and less vibration  achieved by using more
and better materials and improved manufacturing methods.

During  1997,  Baldor  continued  to  focus  on  product  innovations,  service,
inventory  availability  and  shortened  lead  times.  We believe an emphasis on
taking better care of our customer (rather than emulating our competitors)  will
translate into a competitive advantage and continue to add shareholder value.


Net Sales

Baldor  reached a record sales level of $557.9  million in 1997, an 11% increase
over 1996 sales of $502.9 million.  Sales in 1995 were $473.1 million.  Sales to
distributor  customers in 1997 increased  8.8%,  while sales to OEM customers in
1997 increased 13.7%, continuing a good balance between OEM and distributors. In
1996,  sales to  distributors  increased  8.7%  over 1995  levels  and OEM sales
increased  5.9% over 1995 levels.  Baldor serves many  industries and geographic
regions be selling to a broad base of  distributors  and OEMs both  domestically
and in more than 55 countries around the world. No single customer accounted for
more than 4% of sales in any year covered by this report.

During  1997,  we saw  strong  growth  in  motor  products  for  blowers,  fans,
conveyers,  HVAC, pumps,  construction  machinery and crane and hoist equipment.
Sales of Super-E  premium-efficient  motors continued their history of more than
doubling the overall growth rate. In addition,  sales  increases for our drives,
DC motors,  hostile environment and pump motors continued to be strong. Sales of
products  introduced  in the previous  five years  accounted for 30% of 1997 and
1996  sales.  The  strong  sales  growth in 1997 was  generated  without a price
increase with the exception of the increase on EPAct-related  products effective
after October 24, 1997.

The overall modest sales increase in 1996 included good growth in farm products,
most of our drives and our Super-E  premium-efficient  motors.  Volume  increase
accounted for approximately 75% of the 1996 sales growth.


Net Earnings

Net  earnings  of $40.4  million in 1997  exceeded  1996 net  earnings  of $35.2
million by 15%. Net earnings in 1995 were $32.3 million.  In spite of an overall
softening in selling prices, net earnings during 1997 improved to a record level
primarily due to volume increases and slightly lower material costs.

The gross  margin  percentage  improved  to 30.2% in 1997 from 29.7% in 1996 and
29.3% in 1995. Manufacturing costs continued to improve in 1997 compared to 1996
and 1995. Selling and administrative  costs as a percent of sales remained level
at 16.8% in 1997 compared to 16.8% in 1996 and 16.9% in 1995.  Baldor  continues
to increase its sales volumes  without a  corresponding  increase in selling and
administrative  support costs.  Pre-tax  margins  improved to 11.8% in 1997 from
11.4% in 1996 and 11.2% in 1995. Our tax rate remained 38.5% in 1997 compared to
38.5% in 1996 and 39.0% in 1995.
<PAGE>


International Operations

Sales from international  operations (foreign affiliates and exports) were $84.2
million in 1997 up from $72.8 million in 1996,  and $66.0 million in 1995.  This
marks  our  sixth   consecutive  year  of  double  digit  sales  growth  in  our
international  operations.  Our export sales to many  countries,  especially  to
Canada,  continued  strong in 1997. We saw very strong sales increases in Mexico
and  increased  sales in Europe due in part to our  acquisition  of the UK-based
Optimised  Control Ltd. in April 1997.  Sales in Australia and the Far East were
weaker  in  1997  due to the  overall  weakening  of  these  economies  and  the
strengthening of the U.S. dollar during the year.  Foreign pre-tax earnings were
down in 1997  compared to 1996 and 1995 due to lower  earnings in Europe and the
Far East.


Environmental Remediation

Management believes, based on their internal reviews and other factors, that the
future costs relating to environmental  remediation and compliance will not have
a material effect on the capital expenditures, earnings, or competitive position
of the Company.


Year 2000

We are in the  process of  implementing  a new,  fully-integrated,  company-wide
information  system that will improve  visibility  and reaction time to customer
orders,   reduce  lead  times,   support   international   operations,   improve
productivity  and better manage our  inventory.  In addition,  the new system is
year 2000  certified.  Portions of the project  are  completed  and the rest are
scheduled to be completed by early 1999.  Hardware and networks are already year
2000 compliant.

Financial Position

Summary

In 1997,  Baldor  continued  to improve its strong  financial  position.  Baldor
continued to invest in its future by expanding  research and development for new
and  existing  products,   by  continuing  capital   investments  for  capacity,
productivity and cost improvements, and by making additional investments in both
its employees and customers through education and training.

Based on the Company's strong financial position, in 1997 the Board of Directors
approved a  four-for-three  stock  split and two cash  dividend  increases.  Our
financial strength is an important competitive advantage which provides a strong
base to better serve our customers and finance future growth opportunities.


Investments

Baldor  continues  to  believe  that the  investment  in our  employees  through
emphasis on training and  education  is a key to our  continuing  success.  This
investment  was  recognized  when we were  honored  to be  included  in  Fortune
magazine's list of "100 Best Companies to Work For In America."

Investments  in  property,  plant  and  equipment  for 1997 were  $26.9  million
compared to $23.2 million in 1996, and $23.1 million in 1995. Our 1997 property,
plant and equipment  investments were made for increased  capacity,  and quality
and productivity improvements.
<PAGE>

In 1997,  Baldor also increased its  investments in research and  development to
$22.9  million  compared  to $19.9  million  in 1996 and $17.2  million in 1995.
Baldor's commitment to research and development  continues to help it maintain a
leadership  position in the marketplace and to satisfy its customers'  needs. We
also  continue  to  make  investments  in  our  existing  products  for  greater
performance, energy efficiency improvements, and manufacturability.  In 1996 and
1997,  new  products  developed  in the last  five  years  as a result  of these
investments accounted for 30% of the Company's total sales.

Current Liquidity

Cash flow from  operations  improved to $58.1 million in 1997 from $42.6 million
in 1996  and  $24.2  million  in 1995.  In  1997,  we  increased  inventory  and
receivables  $10.5 million,  compared to $11.5 million in 1996 and $26.9 million
in 1995.  Working  Capital  was $141.3  million at the end of 1997  compared  to
$146.9 million in 1996, and $145.1 million in 1995. The current ratio was 2.8 in
1997  compared to 3.1 in 1996 and 3.2 at the end of 1995.  This decrease was due
to the  increased  volume of business and the  repayment of mid-term  borrowings
used for the  repurchase of stock in 1996.  Baldor also has  available  lines of
credit of $30 million to support operations.  There was no borrowing under these
lines at the end of 1997 or 1996.


Long-Term Debt and Shareholder's Equity

Long-term  obligations  decreased to 10.3% of total capitalization at the end of
1997  compared  to 18.4% in 1996 and 10.7% in 1995.  The 1997  weighted  average
interest  rate on long-term  debt was 6.0%.  Shareholders'  equity  continued to
increase  and  reached  a record  level  of  $243.4  million  at the end of 1997
compared to $200.3 million in 1996 and $211.4 million at the end of 1995. Return
on average  shareholders' equity increased to 18.2% in 1997 compared to 17.1% in
1996 and 16.3% in 1995.

<PAGE>

Dividend Policy

In 1997,  the Board of Directors  approved  two cash  dividend  increases.  A 9%
increase was approved in the second  quarter and an 11% increase was approved in
the fourth  quarter.  The cash dividend was also increased 21% in 1996 and 12.5%
in 1995. There have been ten dividend increases since the first quarter of 1992.
These  increases  were  in  line  with  Baldor's  policy  of  making   increases
periodically,  as earnings and financial  strength  warrant,  and  reinvesting a
major portion of earnings to finance growth opportunities.  The objective is for
shareholders to obtain dividend  increases over time while also participating in
the growth of the Company.


<PAGE>


CONSOLIDATED BALANCE SHEETS
BALDOR ELECTRIC COMPANY AND AFFILIATES

                                                    JANUARY 3    DECEMBER 28
                                                       1998         1996
                                                       ----         ----
ASSETS (In thousands)

CURRENT ASSETS:
     Cash and cash equivalents .................   $   9,575    $   7,950
     Marketable securities .....................      11,900       17,892
     Receivables, less allowances
       of $3,525 and $3,200, respectively ......      88,740       80,183
     Inventories:
        Finished products ......................      71,616       66,528
        Work-in-process ........................      10,675       13,483
        Raw materials ..........................      41,793       39,162
                                                      ------       ------
                                                     124,084      119,173
           LIFO valuation adjustment (deduction)     (27,543)     (26,786)
                                                     -------      ------- 
                                                      96,541       92,387
       Other current and deferred tax assets ...      12,684       19,745
                                                     ------       ------
                   TOTAL CURRENT ASSETS .........    219,440      218,157
OTHER ASSETS ...................................      32,352       11,965
PROPERTY, PLANT AND EQUIPMENT:
     Land and improvements .....................       4,533        3,869
     Buildings and improvements ................      33,227       32,059
     Machinery and equipment ...................     190,009      166,542
     Allowances for depreciation and
       amortization (deduction) ................    (123,672)    (107,106)
                                                    --------     -------- 
                 NET PROPERTY, PLANT AND
                    EQUIPMENT ..................     104,097       95,364
                                                     -------       ------
                                                   $ 355,889   $  325,486
                                                   =========   ==========
 
See notes to consolidated financial statements .


<PAGE>


CONSOLIDATED BALANCE SHEETS
BALDOR ELECTRIC COMPANY AND AFFILIATES

                                                   JANUARY 3    DECEMBER 28
                                                      1998          1996
                                                      ----          ----
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except share data)

CURRENT LIABILITIES:
     Accounts payable ............................ $  19,935    $  20,314
     Employee compensation .......................     5,684        5,932
     Profit sharing ..............................     8,858        7,645
     Anticipated warranty costs ..................     5,200        4,500
     Accrued insurance obligations ...............    13,836       14,286
     Other accrued expenses ......................    22,003       16,626
     Income taxes ................................     1,586          766
     Current maturities of long-term obligations .     1,070        1,113
                                                   ---------    ---------
                  TOTAL CURRENT LIABILITIES ......    78,172       71,182

LONG-TERM OBLIGATIONS ............................    27,929       45,027

DEFERRED INCOME TAXES ............................     6,354        8,952

SHAREHOLDERS' EQUITY:
     Preferred stock, $0.10 par value
       Authorized shares: 5,000,000
       Issued and outstanding shares: None
     Common stock, $0.10 par value
       Authorized shares: 50,000,000
       Issued shares:
       1997- 37,951,901; 1996-37,351,160 .........     3,795        2,862
     Additional capital ..........................    44,606       37,112
     Retained earnings ...........................   233,637      207,064
     Cumulative translation adjustments ..........      (617)         346
     Treasury stock at cost
            (1,923,142 shares in 1997 and
             2,417,247 shares in 1996) ...........   (37,987)     (47,059)
                                                   ---------    ---------
                  TOTAL SHAREHOLDERS' EQUITY .....   243,434      200,325
                                                   ---------    ---------
                                                   $ 355,889    $ 325,486
                                                   =========    =========

See notes to consolidated financial statements.


<PAGE>



CONSOLIDATED STATEMENT OF EARNINGS
BALDOR ELECTRIC COMPANY AND AFFILIATES


                                                    YEARS ENDED
                                      ----------------------------------------
                                        JANUARY 3    DECEMBER 28    DECEMBER 30
                                           1998           1996          1995
                                           ----           ----          ----
(In thousands, except share data)

Net sales .........................   $   557,940   $   502,875   $   473,103 
Other income, net .................         1,843         2,497         2,596
                                            -----         -----         -----
                                          559,783       505,372       475,699
Costs and expenses:
   Cost of goods sold .............       389,711       353,345       334,306
   Selling and administrative .....        93,455        84,522        80,019
   Profit sharing .................         8,858         7,645         7,168
   Interest .......................         2,124         2,668         1,260  
                                            -----         -----         ----- 
                                          494,148       448,180       422,753
Earnings Before Income Taxes ......        65,635        57,192        52,946
Income taxes ......................        25,270        22,019        20,641  
                                           ------        ------        ------  
        NET EARNINGS ..............   $    40,365   $    35,173   $    32,305
                                      ===========   ===========   ===========

NET EARNINGS PER SHARE-DILUTED ....   $      1.09   $      0.97   $      0.84
                                      ===========   ===========   ===========

NET EARNINGS PER SHARE-BASIC ......   $      1.13   $      1.00   $      0.88
                                      ===========   ===========   ===========

Weighted average shares
   outstanding - diluted ..........    37,062,624    36,290,312    38,521,714
                                       ==========    ==========    ==========
Weighted average shares
  outstanding - basic .............    35,691,572    35,091,161    36,862,329
                                       ==========    ==========    ==========

See notes to consolidated financial statements 


<PAGE>





SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (Unaudited)
BALDOR ELECTRIC COMPANY AND AFFILIATES

                                                QUARTER
                          -----------------------------------------------------
                              FIRST    SECOND      THIRD     FOURTH      TOTAL
                              -----    ------      -----     ------      -----
(In thousands,
except per share data):

1997:
  Net sales .............   $129,914   $141,929   $142,494   $143,605   $557,940
  Gross profit ..........     39,077     42,841     42,983     43,328    168,229
  Net  earnings .........      9,392     10,258     10,291     10,424     40,365
  Net  earnings per
    share-Diluted .......       0.26       0.28       0.27       0.28       1.09
 Net earnings per
    share-Basic .........       0.27       0.29       0.29       0.29       1.13

1996:
  Net sales .............   $121,553   $129,906   $125,111   $126,305   $502,875
  Gross profit ..........     35,811     38,425     37,310     37,984    149,530
  Net earnings ..........      8,327      8,971      8,733      9,142     35,173
  Net earnings per
   share-Diluted ........       0.22       0.25       0.25       0.25       0.97
  Net earnings per
    share-Basic .........       0.23       0.26       0.25       0.26       1.00


<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
BALDOR ELECTRIC COMPANY AND AFFILIATES
                                                      YEARS ENDED
                                          ------------------------------------
                                           JANUARY 3  DECEMBER 28 DECEMBER 30
                                              1998       1996        1995
                                              ----       ----        ----
In thousands)
Operating activities:
 Net earnings ...........................  $ 40,365    $ 35,173    $ 32,305
  Adjustments to reconcile net
   earnings to net cash provided by
   operating activities:
     Depreciation and amortization .......   19,337      17,277      15,583
     Deferred income taxes ...............    5,316      (1,943)     (1,979)
   Changes in operating assets
    and liabilities:
     Receivables .........................   (7,295)     (2,815)     (7,315)
     Inventories .........................   (3,181)     (8,698)    (19,591)
     Other current assets ................     (813)     (2,826)     (3,020)
     Accounts payable ....................   (1,093)      1,318         194
     Accrued expenses ....................    7,558       7,149       4,967
     Income taxes ........................      447      (1,201)       (810)
     Other, net ..........................   (2,498)        873       3,851
                                             ------         ---       -----
Net  cash  from  operating activities ....   58,143      42,561      24,185

Investing activities:
  Additions to property, plant
   and equipment .........................  (26,857)    (23,183)    (23,112)
 Marketable securities purchased .........  (14,847)    (33,315)    (50,881)
 Marketable securities sold ..............   20,839      43,910      48,987
 Acquisition of Optimised Control Ltd. ...   (7,597)
                                             ------     -------     --------
Net cash used in investing activities ....  (28,462)    (12,588)    (25,006)

Financing activities:
  Additional long-term borrowings ........               38,000
  Reduction of long-term obligations .....  (17,141)    (18,093)       (995)
  Unexpended debt proceeds ...............     (367)        353       5,641
  Dividends paid .........................  (12,958)    (10,498)     (9,416)
  Stock option plans .....................    2,410       3,902       3,065
  Common stock repurchased ...............              (42,009)
                                            -------     -------      ------- 
Net cash used in financing activities ....  (28,056)    (28,345)     (1,705)
                                            -------     -------      ------ 
Net increase (decrease) in cash and
  cash equivalents .......................    1,625       1,628      (2,526)
Beginning cash and cash equivalents ......    7,950       6,322       8,848
                                              -----       -----       -----
Ending cash and cash equivalents ......... $  9,575    $  7,950    $  6,322
                                           ========    ========    ========

 See notes to consolidated financial statements 
<PAGE>

<TABLE>


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BALDOR ELECTRIC COMPANY AND AFFILIATES
<CAPTION>
                                                                                               Cumulative    Treasury
                                                 Common Stock       Additional     Retained    Translation     Stock
                                              Shares      Amount      Capital      Earnings    Adjustments   (at cost)      Total
                                              ------      ------      -------      --------    -----------   ---------      -----
<S>                                           <C>       <C>          <C>          <C>          <C>          <C>          <C>      
(In thousands, except per share amounts)
BALANCE AT DECEMBER 31, 1994 ...........      18,310    $   1,847    $  25,871    $ 160,024    $     449    $  (3,929)   $ 184,262
Stock option plans (net of shares
  exchanged) ...........................         332           47        6,605                                 (3,587)       3,065
Translation adjustments ................                                                             797                       797
Net earnings ...........................                                             32,305                                 32,305
Securities valuation adjustment,
  net of deferred taxes of $233 ........                                                364                                    364
Three-for-two common stock
  split effected in the form of
  a 50% stock dividend .................       9,228          923                      (923)
Cash dividends at $0.26
  per common share .....................                                             (9,416)                                (9,416)
                                              ------       ------       ------       ------        -----       ------      -------
BALANCE AT DECEMBER 30, 1995 ...........      27,870        2,817       32,476      182,354        1,246       (7,516)     211,377

Stock option plans (net of shares
  exchanged) ...........................         380           45        5,290                                 (1,433)       3,902
Translation adjustments ................                                                            (900)                     (900)
Net earnings ...........................                                             35,173                                 35,173
Securities valuation adjustment,
  net of deferred taxes of $11 .........                                                 35                                     35
Cash dividends at $0.30
  per  common share ....................                                            (10,498)                               (10,498)
Common stock repurchased ...............      (2,210)                                                         (42,009)     (42,009)
Contributions to benefit plans .........         160                      (654)                                 3,899        3,245
                                                 ---         ----        -----      -------      -------      -------      --------
BALANCE AT DECEMBER 28, 1996 ...........      26,200        2,862       37,112      207,064          346      (47,059)     200,325

Stock option plans (net of shares
  exchanged) ...........................         263           33        4,365                                 (1,988)       2,410
Translation adjustments ................                                                            (963)                     (963)
Net earnings ...........................                                             40,365                                 40,365
Four-for-three common stock
  split effected in the form of
  a 33% stock dividend .................       8,999          900                      (900)
Cash dividends at $0.36
  per common share .....................                                            (12,958)                               (12,958)
Contributions to benefit plans .........         115                       647                                  2,242        2,889
Acquisitions ...........................         452                     2,482                                  8,818       11,300
Miscellaneous adjustments ..............                                                 66                                     66
                                              ------     --------      -------      -------     --------      -------      -------
BALANCE AT JANUARY 3, 1998 .............      36,029    $   3,795      $44,606     $233,637    $    (617)   $ (37,987)   $ 243,434 
                                              ======    =========      =======     ========    =========    =========    ========= 
</TABLE>
See notes to consolidated financial statements.
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BALDOR ELECTRIC COMPANY AND AFFILIATES
January 3, 1998



NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

Line of Business:  The Company operates  primarily in one industry segment which
includes the design, manufacture and sale of electric motors and drives.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that  affect  the  amounts  reported  in  the  statements  and
accompanying notes. Actual results may differ from those estimates.

Consolidation: The consolidated financial statements include the accounts of the
Company and all its affiliates. Intercompany accounts and transactions have been
eliminated in consolidation.

Fiscal Year: The Company's  fiscal year ends on the Saturday nearest to December
31 which results in a 52- or 53- week year.  Fiscal year 1997 contained 53 weeks
and fiscal years 1996 and 1995 each contained 52 weeks.

Cash Equivalents:  Cash equivalents  consist of highly liquid investments having
original  maturities  of three  months  or less  and are  valued  at cost  which
approximates market.

Marketable   Securities:   All   marketable   securities   are   classified   as
available-for-sale  and are available to support  current  operations or to take
advantage of other  investment  opportunities.  Those  securities  are stated at
estimated fair value based upon market quotes.  Unrealized gains and losses, net
of tax, are computed on the basis of specific identification and are included in
Retained  Earnings.  Realized  gains,  realized  losses,  and declines in value,
judged to be  other-than-temporary,  are included in Other  Income.  The cost of
securities  sold is based on the  specific  identification  method and  interest
earned is included in Other Income.

Inventories: The Company values inventories at the lower of cost or market, cost
being determined principally by the last-in, first-out method (LIFO), except for
$13,882,000 in 1997 and $14,166,000 in 1996 at foreign locations,  valued by the
first-in, first-out method (FIFO).


Property, Plant and Equipment:  Property, plant and equipment,  including assets
under capital leases,  are stated at cost.  Depreciation  and  amortization  are
computed  principally using the  straight-line  method over the estimated useful
lives of the assets and the remaining term of capital leases, respectively.

Long-Lived  Assets:  Impaired  losses are  recognized on long-lived  assets when
information  indicates the carrying amount of these assets,  intangibles and any
goodwill  related to  long-lived  assets will not be  recovered  through  future
operations or sale.

Benefit  Plans:  The Company has a profit  sharing plan covering most  employees
with over two years service.  Baldor  contributes  12% of earnings before income
taxes of participating companies to the Plan.
<PAGE>

Income  Taxes:  Income  taxes  are  provided  based on the  liability  method of
accounting.  Deferred  income taxes are  provided  for the  expected  future tax
consequences  of  temporary   differences   between  the  basis  of  assets  and
liabilities reported for financial and tax purposes.

Net Earnings Per Common Share: The Company has historically reported diluted net
earnings per common share.  Diluted net earnings per common share is computed by
dividing net earnings by the weighted  average  number of shares of common stock
and common stock  equivalents  (dilutive stock options)  outstanding  during the
year.  Basic net  earnings per common share is computed by dividing net earnings
by the weighted average number of shares of common stock outstanding  during the
year.  Basic net  earnings  per share  gives no  consideration  to common  stock
equivalents.

Stock-Based Compensation:  In fiscal year 1996, the Company adopted Statement of
Financial Accounting Standards No.123 (SFAS No. 123), Accounting for Stock-Based
Compensation, which establishes financial accounting and reporting standards for
stock-based  employee  compensation  plans.  SFAS No. 123 requires that the fair
value of employee  stock-based  compensation plans be recorded as a component of
compensation  expense as of the grant  date or, in lieu of  expense  recognition
under SFAS No. 123,  companies  may follow  current  guidance  under  Accounting
Principals  Board  Opinion  No. 25 (APB  25),  Accounting  for  Stock  Issued to
Employees.  Companies  electing to remain with APB 25  accounting  guidance must
provide pro forma  disclosures  of net income and  earnings  per share as if the
fair  value  based  method  defined in SFAS No.  123 had not been  applied.  The
Company has  elected to continue  accounting  for its  stock-based  compensation
under the provisions of APB 25. As such,  SFAS No. 123 did not have an effect on
the Company's reported financial results for 1997.


Research  and  Engineering:   Costs   associated  with  research,   new  product
development and product cost  improvements are treated as expenses when incurred
and amounted to  approximately  $22,900,000  in 1997,  $19,900,000  in 1996, and
$17,200,000 in 1995.

Reclassification: The Company has reclassified the presentation of certain prior
year information to be consistent with the presentation in the current year.

Comprehensive  Income:  In June 1997, the Financial  Accounting  Standards Board
Issued  Statement  of  Financial   Accounting   Standards  No.  130,   Reporting
Comprehensive  Income. This statement becomes effective for fiscal year 1998 and
requires companies to classify components of other comprehensive income by their
nature in a financial  statement and disclose the  accumulated  balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity section of the balance sheet. The Company's  comprehensive
income items are not material.  Therefore, the Company does not believe adopting
this statement will have a material effect.

Segment Reporting: In June 1997, the Financial Accounting Standards Board issued
Statement of Financial  Accounting Standards No. 131, Disclosures About Segments
of  an  Enterprise  and  Related  Information.  The  statement  requires  public
companies to report financial and descriptive information about their reportable
operating  segments.  Currently,  the Company has only one  reportable  segment;
therefore,  management expects the adoption of this statement in 1998 to have no
material effect.
<PAGE>

NOTE B -- LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:
                                                 1997       1996   
                                                 ----       ----   
(In thousands)
Industrial Development Bonds:
 due through 1997 at 6.0% fixed rate 
   (paid in 1997) ..........................   $         $   113
 due through 2004 at 5.29% fixed rate ......     4,515     5,030
 due through 2004 at 3.95% variable rate ...     2,300     2,300
 due through 2004 at 6.0% fixed rate .......        24        57
 due through 2009 at 7.75% fixed rate ......     2,860     3,000
 due through 2009 at 7.875% fixed rate .....     6,860     7,200
 due through 2010 at 3.95% variable rate ...     3,440     3,440
Notes payable to banks:
   due March 1, 1999 at 6.175% variable rate     9,000    25,000
                                               -------   -------
                                                28,999    46,140
 Less current maturities ...................     1,070     1,113
                                               -------   -------
                                               $27,929   $45,027
                                               =======   =======

At January 3, 1998,  Industrial  Development  Bond  proceeds of  $6,757,000  are
included in Other Assets.  Certain long-term  obligations are  collateralized by
property, plant and equipment with a net book value of $10,209,000 at January 3,
1998.

Maturities of long-term  obligations during each of the five fiscal years ending
2002     are:     1998--$1,070,000;     1999--$10,145,000;     2000--$1,215,000;
2001--$1,290,000;  and  2002--$2,470,000.  Industrial  Development Bonds include
capital lease  obligations  of $2,883,000 at January 3, 1998.  Aggregate  future
minimum  capital lease  payments at January 3, 1998,  are  $4,641,000  including
interest of 1,758,000.

Certain  long-term  obligations  require,  among other things,  that the Company
maintain  certain  financial  ratios and restrict  cumulative cash dividends and
other  distributions.  Retained earnings of $21,180,000 at January 3, 1998, were
unrestricted.  At January 3, 1998, the Company had outstanding letters of credit
totaling $6,709,000.

Interest  paid was  $3,577,000 in 1997,  $2,988,000  in 1996 and,  $1,730,000 in
1995.
The Company had lines of credit aggregating  $30,000,000 available at January 3,
1998.  These  arrangements  do not  have  termination  dates  but  are  reviewed
annually.  Interest on these lines of credit is at rates mutually agreed upon at
the time of borrowing. There were no outstanding borrowings under these lines at
January 3, 1998.
<PAGE>
NOTE C -- MARKETABLE SECURITIES

Baldor currently invests in only high-quality,  short-term  investments which it
classifies as available-for-sale.  There were no significant differences between
amortized  cost and  estimated  fair value at January 3, 1998,  or December  28,
1996. Because investments are predominantly short-term and are generally allowed
to mature, realized gains and losses for both years have been minimal.

The following table presents the estimated fair value
breakdown of investments by category:

                                   January 3   December 28
                                      1998          1996
                                      ----          ----
(In thousands)
Municipal debt securities .......   $ 3,858       $12,843
U.S. corporate debt securities ..     5,213         2,925
U.S. Treasury & agency securities     5,500         7,331
Other debt securities ...........       563         5,039
                                    -------       -------
                                     15,134        28,138
Less cash equivalents ...........     3,234        10,246
                                    -------       -------
                                    $11,900       $17,892
                                    =======       =======

The estimated fair value of marketable debt and equity  securities at January 3,
1998,  was  $2,167,000  due in one year or less,  $4,911,000 due in one to three
years, and $4,849,000 due after three years. Because of the short-term nature of
the investments, expected maturities and contractual maturities are normally the
same.

NOTE D -- INCOME TAXES

The Company  made income tax payments of  $24,101,000  in 1997,  $22,718,000  in
1996, and $21,643,000 in 1995. Income tax expense consists of the following:

                                1997        1996        1995
                              -------      ------      ------
(in thousands)
Current:    Federal .....    $ 22,879    $ 19,887    $ 19,125
            State .......       2,949       2,591       2,614
            Foreign .....         573         637         776
Deferred ................      (1,131)     (1,096)     (1,874)
                               ------      ------      ------ 
                             $ 25,270    $ 22,019    $ 20,641
                             ========    ========    ========

Deferred income taxes reflect the net effects of temporary  differences  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts used for income tax purposes.  The sources of these  differences
relate primarily to depreciation, certain liabilities, and bad debt expense.

The following table  reconciles the difference  between the Company's  effective
income tax rate and the federal corporate statutory rate:

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

Statutory federal income tax rate ....... 35.0%      35.0%      35.0%
State taxes, net of federal benefit .....  2.9        3.0        3.3
Other ...................................  0.6        0.5        0.7
                                           ---        ---        ---
Effective income tax rate ............... 38.5%      38.5%      39.0%
                                          ====       ====       ==== 
<PAGE>
NOTE E -- FINANCIAL DERIVATIVES

Hedging of Foreign Exchange Risks

As a result of having  various  foreign  operations,  the  Company  engages in a
limited  amount of hedging  to  minimize  the  effects  of  fluctuating  foreign
currencies on its  intercompany  pricing.  The  Company's  investment in foreign
currency  options is included in Other Current  Assets at cost,  net of realized
gains  deferred,  and is  amortized  to Other  Income  over the  period in which
intercompany sales of foreign  affiliates occur,  generally within the following
twelve months.

At January 3, 1998,  and December 28, 1996,  the Company had no  investments  in
foreign currency derivatives.


Hedging of Copper and Aluminum Requirements

The  Company  purchases   significant  amounts  of  copper  and  aluminum,   key
ingredients in its motor production, under short-term firm price contracts which
are  renegotiated  annually.  In order to hedge  itself  from  exposure to price
fluctuations on these two metals,  the Company utilizes  options  and swaps for
quantities of metal estimated to be used in our product in the future.  Any cost
is carried in Other  Current  Assets,  net of realized  gains  deferred,  and is
amortized to Cost of Goods Sold over the period that the metal is used.

The net unamortized  costs with respect to the Company's metal hedging  programs
were not material at January 3, 1998, and December 28, 1996.


NOTE F -- SHAREHOLDERS' EQUITY

On  November  13,  1997,   the  Company's   Board  of  Directors   authorized  a
four-for-three  stock split effected in the form of a 33% stock dividend payable
December 15, 1997, to  shareholders of record on December 1, 1997. This resulted
in the issuance of 8,999,078  additional  shares of common stock.  All per share
and weighted  average  share  amounts  have been  restated to reflect this stock
split.

The  Company  maintains  a  shareholder  rights  plan  intended  to  encourage a
potential  acquirer  to  negotiate  directly  with the Board of  Directors.  The
purpose  of  the  plan  is  to  ensure  the  best  possible  treatment  for  all
shareholders.  Under the terms of the plan,  one Common Stock  Purchase Right (a
Right)  is  associated  with  each  outstanding  share of  common  stock.  If an
acquiring  person  acquires  20%  or  more  of  the  Baldor  common  stock  then
outstanding, the Rights become exercisable and would cause substantial dilution.
Effectively,  each such Right would entitle its holder (excluding the 20% owner)
to purchase  shares of Baldor  common stock for half of the then current  market
price,  subject  to  certain  restrictions  under  the  plan.  Until a Right  is
exercised,  the holder of the Right is not  entitled  to any of the  benefits of
being a shareholder of the Company. The Rights, which expire in May 2008, may be
redeemed  by the Company at any time prior to someone  acquiring  20% or more of
Baldor's outstanding common stock and in certain events thereafter.


NOTE G -- COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases  certain  computers,  buildings,  and other  equipment  under
operating  lease  agreements.  Related  rental  expense was  $5,500,000 in 1997,
$4,800,000  in  1996,  and  $4,300,000  in 1995.  Future  minimum  payments  for
operating  leases  having  noncancelable  lease terms in excess of one year are:
1998--$2,843,000;     1999--$2,652,000;     2000--$1,958,000;    2001--$764,000,
2002--$640,000; and decline substantially thereafter.
<PAGE>

Legal  Proceedings

The  Company  is subject to a number of legal  actions  arising in the  ordinary
course of business.  In management's  opinion,  the ultimate resolution of these
actions will not materially affect the Company's  financial  position or results
of operations.

NOTE H -- FOREIGN OPERATIONS

The Company's  foreign  operations  include both export sales and the results of
its foreign affiliates in Europe, Australia,  Singapore and Mexico. Consolidated
sales,  earnings  before income taxes,  and  identifiable  assets consist of the
following:

                                              1997          1996          1995
                                              ----          ----          ----
(In thousands)
Net Sales:
    United States Companies
       Domestic customers ............      $473,702      $430,014      $407,078
       Export customers ..............        38,762        30,831        25,068
                                              ------        ------        ------
                                             512,464       460,845       432,146
    Foreign Affiliates ...............        45,476        42,030        40,957
                                              ------        ------        ------
                                            $557,940      $502,875      $473,103
                                            ========      ========      ========
Earnings Before Income Taxes:
    United States Companies ..........      $ 64,710      $ 55,160      $ 51,723
     Foreign Affiliates ..............           925         2,032         1,223
                                                 ---         -----         -----
                                            $ 65,635      $ 57,192      $ 52,946
                                            ========      ========      ========
Assets:
    United States Companies ..........      $322,245      $297,496      $285,381
    Foreign Affiliates ...............        33,644        27,990        28,081
                                              ------        ------        ------
                                            $355,889      $325,486      $313,462
                                            ========      ========      ========

Assets and liabilities of foreign affiliates are translated into U.S. dollars at
year-end  exchange rates.  Income  statement  items are generally  translated at
average exchange rates prevailing during the period. Translation adjustments are
recorded  in the  Cumulative  Translation  Adjustment  account in  Shareholders'
Equity.

<PAGE>

NOTE I -- STOCK PLANS

The Company  accounts for stock option grants in accordance with APB Opinion No.
25,  Accounting  for Stock  Issued to  Employees,  and related  interpretations.
Incentive  stock  options to purchase  shares at prices not less than the market
value at the date of grant and non-qualified stock options to purchase shares of
restricted  stock equal to and less than the stock's market value at the date of
grant have been  granted.  The grants  made from each plan  expire 10 years from
date of grant  except for grants made from the 1990 Plan which  expire six years
from date of grant.  A summary of the  Company's  current  stock option plans is
below:

                                  PLAN
PLAN                          ADMINISTRATOR              RECIPIENTS
----                          -------------              ----------
Compensatory Plans (see note 1)
1987 (see note 3           Stock Option Committee        Employees
1989 (see note 3)          Executive Committee           Non-employee directors
1994                       Stock Option Committee        Employees
1996                       Executive Committee           Non-employee directors

Non-compensatory Plans (see note 2)
1981 (see note 3)          Board of Directors            Employees
1990                       Stock Option Committee        District Managers

Note 1:  Under the 1987 Plan and the 1994 Plan,  incentive stock options vest
         and become fully exercisable at the end of six months or three years of
         continued  employment  for  officers  and  non-officers,  respectively.
         Grants  can  include  incentive  stock  options,   non-qualified  stock
         options,   restricted   shares,   formula  price   shares,   and  stock
         appreciation  rights.   Restrictions  on  non-qualified  stock  options
         normally  lapse after a period of five years or earlier  under  certain
         circumstances. Related compensation expense for the non-qualified stock
         options is amortized over the restriction period.

         Under the 1996 Plan,  each  non-employee  director is granted an annual
         grant  consisting  of a  non-qualified  stock option to purchase  2,160
         shares at prices  equal to the market  value at the date of grant and a
         non-qualified  stock option to purchase 3,240 shares at prices equal to
         50% of the  market  value at the date of grant.  These  options  become
         exercisable in five equal  installments  beginning on the grant's first
         anniversary. Related compensation expense on the options granted at 50%
         of market is amortized over the restriction period.

Note 2:  Under the 1990 Plan, only  non-qualified  options can be granted and
         options vest and become 50% exercisable at the end of one year and 100%
         exercisable at the end of two years.  There are no charges to income in
         connection with the non-compensatory stock option plans.
<PAGE>
Note 3:  This plan has expired except for unexercised options outstanding.

The alternative fair value accounting  provided for under Statement of Financial
Accounting  Standards  No.  123  (SFAS  No.  123),  Accounting  for  Stock-Based
Compensation,  requires the use of option valuation models. The Company uses the
Black-Scholes  option  valuation model which was developed for use in estimating
the fair value of traded  options.  Traded options have no vesting  restrictions
and are fully  transferable.  The Black-Scholes model also requires the input of
highly subjective  assumptions including the expected stock price volatility and
the  estimated  life of the option.  The Company's  employee  stock options have
characteristics significantly different from those of traded options and changes
in the  subjective  input  assumptions  can  materially  affect  the fair  value
estimate.  Therefore,  in  management's  opinion,  the  existing  models  do not
necessarily  provide a reliable single measure of the fair value of its employee
stock options.

The pro forma  information  regarding net income and earnings per share required
by SFAS No. 123 has been  determined  as if the  Company had  accounted  for its
employee  stock  options  under the fair value  method of SFAS No. 123. The fair
value  for  these  options  was  estimated  as of the  date  of  grant  using  a
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions for 1997 and 1996, respectively:

                                                     1997        1996
                                                     ----        ----
Volatility factors of the expected market
     price of the Company's common stock ......      22.4%       19.2%
Risk-free interest rates ......................       6.4%        7.9%
Dividends yields ..............................       1.7%        1.8%
Weighted-average expected option life .........    7.0 years   7.1 years

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting periods. The initial impact on
pro forma net income and net income per share may not be  representative  of the
compensation  expense in future  years when the  effect of the  amortization  of
multiple awards would be reflected in the pro forma disclosure.
<PAGE>

A summary of the  Company's  stock option  activity and the  Company's pro forma
earnings information for fiscal 1997 and fiscal 1996 follows:

                                            1997                 1996  
                                    -------------------    -------------------  
                                               Weighted               Weighted
                                            Average Price         Average Price
STOCK OPTION ACTIVITY                Shares   per Share     Shares   per Share
---------------------                ------   ---------     -------   ---------
Total options outstanding:
         Beginning Balance ......  2,804,114    $ 9.60     2,784,838    $ 7.27
         Granted ................    446,618     17.80       813,066     13.89
         Exercised ..............   (426,641)     5.56      (728,640)     4.94
         Canceled ...............    (58,086)    14.92       (65,151)    10.85
                                     -------                 -------    
          Ending Balance ........  2,766,005     11.44     2,804,114      9.60
                                   =========               =========     

Shares authorized for grant: ....  9,991,600               9,991,600
Shares exercisable: .............  1,955,856               1,811,808
Shares reserved for 
   future grants: ...............  1,133,103               1,539,506

Weighted average
 remaining contractual life: ....  6.4 years               6.6 years
Weighted average fair value
 per share of options granted
  during the year
      At market price ...........               $ 6.21               $ 4.01
      At less than market .......               $10.26               $ 7.93


PRO FORMA INFORMATION (in thousands, except for earnings per share information)
-------------------------------------------------------------------------------

Pro forma net income                            $37,537         $33,989
Pro forma earnings per share                      $1.02           $0.95
<PAGE>
Note J--EARNINGS PER SHARE

In 1997,  the Financial  Accounting  Standards  Board issued  Statement No. 128,
Earnings per Share.  Statement 128 replaced the calculation of primary and fully
diluted  earnings  per share with basic and diluted  earnings  per share.  Basic
earnings  per share  excludes  any dilutive  effects of options,  warrants,  and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously reported fully diluted earnings per share.

Baldor has  historically  presented  diluted earnings per share in all financial
reports.  The  presentation  of  financial  results now  includes  both  diluted
earnings per share and basic earnings per share.

                                            1997           1996          1995
                                            ----           ----          ----
Numerator Reconciliation:
 The numerator is the same for
            diluted and basic EPS:
    Net earnings (in thousands) ......  $    40,365   $    35,173   $    32,305
                                        ===========   ===========   ===========
Denominator Reconciliation:
 The denominator for basic 
              earnings per share:
    Weighted average shares ............ 35,691,572    35,091,161    36,862,329

    Effect of dilutive securities:
        Stock options ..................  1,371,052     1,199,151     1,659,385
                                          ---------     ---------     ---------
  The denominator for diluted 
              earnings per share:
        Adjusted weighted 
              average shares .........   37,062,624    36,290,312    38,521,714
                                         ==========    ==========    ==========

Basic earnings per share .............  $      1.13   $      1.00   $      0.88
Diluted earnings per share ...........  $      1.09   $      0.97   $      0.84

Note K--ACQUISITIONS

On April 5, 1997, Baldor Electric Company acquired Optimised  Control  Ltd. for
cash  and  shares  of the  Company's  common  stock.  The  acquisition  has been
accounted for as a purchase and the results of operations of Optimised Control
Ltd. have been included in the accompanying financial statements beginning April
1997.  Optimised  Control  Ltd.'s operations are not material to the Company's
results of operations in prior years.  Goodwill  associated with the acquisition
is being amortized on a straight-line basis over 25 years.

NOTE L--SUBSEQUENT EVENTS

On March  3,  1998,  the  Company  reached  an  agreement  to  acquire  Northern
Magnetics,  Inc., a motor manufacturer.  The financial results of operations for
Northern  Magnetics for the years 1997, 1996, and 1995 are not anticipated to be
material to Baldor's results of operations.
<PAGE>


                          REPORT OF ERNST & YOUNG, LLP
                              INDEPENDENT AUDITORS

SHAREHOLDERS AND BOARD OF DIRECTORS
BALDOR ELECTRIC COMPANY AND AFFILIATES

We have audited the accompanying  consolidated balance sheets of Baldor Electric
Company and  affiliates  as of January 3, 1998 and December  28,  1996,  and the
related consolidated statements of earnings, cash flows and shareholders' equity
for each of the three years in the period ended January 3, 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 Baldor Electric
Company  and  affiliates  at  January 3, 1998 and  December  28,  1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended January 3, 1998, in  conformity  with  generally
accepted accounting principles.



/s/  Ernst & Young LLP
----------------------------------
Ernst & Young LLP
Little Rock,  Arkansas
February 3, 1998, 
except for Note L,
as to which the date 
is March 3, 1998

<PAGE>

REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING

Baldor  management  is  responsible  for the integrity  and  objectivity  of the
financial   information  contained  in  this  Annual  Report.  The  accompanying
financial  statements have been prepared in conformity  with generally  accepted
accounting   principles,   applying  informed  judgements  and  estimates  where
appropriate.

Baldor  maintains  a  system  of  internal   accounting  control  that  provides
reasonable  assurance that assets are safeguarded and  transactions are executed
in accordance with  management's  authorization  and recorded properly to permit
the preparation of financial  statements in accordance  with generally  accepted
accounting principles.

The Audit  Committee  of the Board of  Directors  is composed  solely of outside
directors  and is  responsible  for  recommending  to the Board the  independent
accounting  firm to be retained for the coming year. The Audit  Committee  meets
regularly with the independent auditors,  with the Manager of Audit Services, as
well as  with  Baldor  management,  to  review  accounting,  auditing,  internal
accounting controls and financial reporting matters.  The independent  auditors,
Ernst & Young LLP, and the Manager of Audit  Services  have direct access to the
Audit  Committee  without the presence of  management  to discuss the results of
their audits.

Ernst & Young  LLP,  independent  certified  public  accountants,  have  audited
Baldor's  financial  statements.  Management has made available to Ernst & Young
LLP all of the  Company's  financial  records and related  data,  as well as the
minutes of shareholders' and directors' meetings.


  /s/  R. S. Boreham, Jr.                   /s/  R. L. Qualls
-------------------------------------    -------------------------------
       R. S. Boreham, Jr.                   R. L. Qualls
       Chairman of the Board                Vice Chairman

  /s/  John McFarland                       /s/  Lloyd G. Davis  
-------------------------------------     ------------------------------
       John McFarland                        Lloyd G. Davis
       President                             Executive Vice President-Finance,
                                             Chief Financial Officer,
                                             Secretary and Treasurer


<PAGE>



                             SHAREHOLDER INFORMATION

STOCK SPLITS
Baldor Electic Company distributed a four-for-three  stock split effected in the
form of a 33% stock  dividend on December 15,  1997.  All  applicable  financial
reports have been restated to reflect this stock split.

DIVIDEND POLICY

Baldor's dividend policy is to periodically  increase  dividends as earnings and
financial strength warrant,  but also to reinvest a major portion of earnings to
help finance  growth  opportunities.  The objective  is for  shareholders  to
obtain dividend  increases over time, while also  participating in the growth of
the Company.

DIVIDENDS PAID 

Baldor's dividend rate was increased twice in 1997. There have been ten dividend
increases since the 1st quarter of 1992.

                           1997                    1996                   1995
                           ----                    ----                   ----
1st quarter               $0.08                   $0.07                  $0.06
2nd quarter                0.09                    0.07                   0.06
3rd quarter                0.09                    0.08                   0.07
4th quarter                0.10                    0.08                   0.07
                          -----                   -----                  -----
Year                      $0.36                   $0.30                  $0.26
                          =====                   =====                  =====

COMMON STOCK PRICE RANGE
                                  1997                      1996
                                  ----                      ----
                            High         Low          High       Low
                            ----         ---          ----       ---
1st quarter               19.9688     18.1875        16.7813    13.8750
2nd quarter               22.3125     18.4688        18.7500    14.2500
3rd quarter               23.8125     21.7969        16.8750    14.3438
4th quarter               23.4844     21.2500        18.5625    13.9688

SHAREHOLDERS
At January  3,  1998,  there  were  4,921  shareholders  of record and  employee
shareholders through participation in the benefit plans.
<PAGE>

INDEPENDENT AUDITORS
Ernst & Young LLP
425 West Capitol - Suite 3600
Little Rock,  Arkansas 72201

GENERAL COUNSEL
Peper, Martin, Jensen, Maichel and Hetlage
720 Olive Street
St. Louis, Missouri  63101

TICKER
The  common  stock of  Baldor  Electric  Company  trades  on the New York  Stock
Exchange (NYSE) with the ticker symbol BEZ.

FORM 10-K  REPORT  
Baldor's Form 10-K report is filed with the Securities and Exchange  Commission.
Shareholders  may  obtain a copy of the Form 10-K  report  (without  charge)  by
contacting the Company's Investor Relations Department.

SHAREHOLDER INQUIRIES
To request additional  copies of the Annual  Report,  or other  materials and
information  about Baldor Electric Company, please contact us at:

          Baldor Electric  Company
          Attn:  Investor Relations
          P.O. Box 2400
          Fort Smith, Arkansas 72902
          Phone: (501) 646-4711
          Fax: (501) 648-5752
          Internet: www.baldor.com

TRANSFER AGENT AND REGISTRAR
Wachovia Bank of North Carolina, N.A.
Wachovia Shareholder Services
P.O. Box 8218
Boston, Massachusetts  02266-8218
(800) 633-4236

SHAREHOLDERS'  ANNUAL MEETING 
The  Company's  Annual  Meeting  of  Shareholders  will be held at  10:30  a.m.,
Saturday,  May 2, 1998,  at the  Holiday  Inn,  700 Rogers  Avenue,  Fort Smith,
Arkansas.


<PAGE>