FRED'S, INC.
                              4300 NEW GETWELL ROAD
                               MEMPHIS, TENNESSEE



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

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                     to be held on Wednesday, June 16, 2004

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



TO THE SHAREHOLDERS OF FRED'S, INC.:

     Notice is hereby given that the Annual Meeting of  Shareholders  of Fred's,
Inc. (the "Company" or "Fred's")  will be held at the Holiday Inn Express,  2192
S. Highway 441,  Dublin,  Georgia,  on  Wednesday,  June 16, 2004, at 6:00 p.m.,
Eastern Daylight Time, for the following purposes:

    1.    To elect the Company's Board of Directors;

    2.    To  approve  the  designation  of  Ernst  & Young  LLP as  independent
          auditors of the Company, as described in Proxy Statement; and

    3.    To approve the 2004 Employee Stock Purchase Plan.

     The accompanying Proxy Statement contains further  information with respect
to these matters.

     Only shareholders of record at the close of business on April 30, 2004 will
be entitled to vote at the meeting or any adjournment thereof.

WHETHER OR NOT YOU PLAN TO ATTEND THE  MEETING,  YOU ARE  REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES.


                                     By order of the Board of Directors,




                                     Charles S. Vail
                                     Secretary

May 21, 2004




                                  FRED'S, INC.
                              4300 NEW GETWELL ROAD
                            MEMPHIS, TENNESSEE 38118
                    ----------------------------------------

                                 PROXY STATEMENT

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

                For Annual Meeting of Shareholders, June 16, 2004


     The enclosed  proxy is solicited by the Board of Directors  (the "Board" or
"Board of Directors") of Fred's, Inc. (the "Company" or "Fred's") to be voted at
the Annual  Meeting of  Shareholders  to be held on June 16, 2004, at 6:00 p.m.,
Eastern Daylight Time, at the Holiday Inn Express,  2192 S. Highway 441, Dublin,
Georgia,  or any  adjournments  thereof  (the "Annual  Meeting").  At the Annual
Meeting,  the presence in person or by proxy of the holders of a majority of the
total number of shares of outstanding Class A common stock ("Common Stock") will
be necessary to constitute a quorum.

     All  shares  represented  by  properly  executed  proxies  will be voted in
accordance  with  the  instructions   indicated   thereon  unless  such  proxies
previously  have been revoked.  If any proxies of holders of Common Stock do not
contain  voting  instructions,  the shares  represented  by such proxies will be
voted  FOR  Proposals  1, 2 and 3. The Board of  Directors  does not know of any
business to be brought before the Annual Meeting, other than as indicated in the
notice,  but it is intended that, as to any other such business properly brought
before the meeting, votes may be cast pursuant to the proxies in accordance with
the judgment of the persons acting thereunder.

     Any shareholder who executes and delivers a proxy may revoke it at any time
prior to its use upon (a)  receipt by the  Secretary  of the  Company of written
notice of such revocation; (b) receipt by the Secretary of the Company of a duly
executed proxy bearing a later date; or (c) appearance by the shareholder at the
meeting (with proper identification) and his request for the return of his proxy
or his request for a ballot.

     A copy of this Proxy  Statement and the enclosed Proxy Card are first being
sent to shareholders on or about May 21, 2004.

                                Voting Securities

     Only  shareholders  of record at the close of business  on April 30,  2004,
will be entitled to vote at the Annual Meeting. As of such date, the Company had
outstanding  and  entitled to vote at the Annual  Meeting  39,167,627  shares of
Common Stock.  All references to shares and share prices reflect the stock split
effected on July 1, 2003. Each share of Common Stock is entitled to one vote for
all matters before the Annual Meeting.

     Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election  inspectors  appointed for the meeting. A quorum must be present in
order for the Annual Meeting to be held. In order for the quorum  requirement to
be satisfied,  a majority of the issued and  outstanding  shares of Common Stock
entitled  to vote at the  meeting  must be present in person or  represented  by
proxy. The election inspectors will treat abstentions as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.  If a
broker indicates on the proxy that it does not have  discretionary  authority as
to  specified  shares to vote on a particular  matter,  those shares will not be
considered  as present and  entitled to vote with  respect to that  matter.  The
nominees  for  Director  receiving a  plurality  of the votes cast at the Annual
Meeting in person or by proxy will be elected.  The  election  of the  Company's
Board  of  Directors,  the  designation  of Ernst &  Young,  LLP as  independent
auditors,  and the 2004  Employee  Stock  Purchase  Plan will be approved if the
votes cast  favoring  the action  exceed the votes  cast  opposing  the  action.
Abstentions and broker  non-votes have no effect on the vote for the election of
Directors,  the  designation of Ernst & Young LLP, or on the vote to approve the
2004 Employee Stock Purchase Plan.




                            Ownership of Common Stock
                                  by Directors,
                     Officers and Certain Beneficial Owners

     The  following  table  sets  forth the  beneficial  ownership  known to the
Company of Common Stock as of April 30, 2004, by (i)  beneficial  owners of more
than five percent of Common Stock, (ii) each director, (iii) each of the persons
named in the Summary  Compensation  Table,  and (iv) all directors and executive
officers of Fred's as a group.

                                                                                               

                                                                         Shares of Common
                                                                    Stock Beneficially Owned (1)
                                                -----------------------------------------------------------------
                                                           Number of Shares
                                                ---------------------------------------
Beneficial Owner                                Options(3)                     Total(4)                 Percent (2)
- ----------------                                ----------                     ---------                -----------

Michael J. Hayes (5)                               7,815                       2,595,554                  6.5

EARNEST Partners, LLC (6)                             --                       3,762,973                  9.5

John R. Eisenman                                  27,187                          30,701                   *

Roger T. Knox                                     27,187                          49,460                   *

John D. Reier                                    130,781                         144,843                   *

Thomas H. Tashjian                                14,532                         302,109                   *

John A. Casey                                         --                          53,631                   *

Charles A. Brunjes                                24,376                          24,376                   *

Jerry A. Shore                                    21,563                          30,937                   *

All Directors and Executive Officers
  as a Group (11 persons)                        288,447                       3,311,304                  8.3




*  Less than 1%
_____________________

(1)  As used in this table,  beneficial ownership means the sole or shared power
     to vote,  or direct the voting of, a security,  or the sole or shared power
     to dispose, or direct the disposition,  of a security.  Except as otherwise
     indicated,  all  persons  listed  above  have (i)  sole  voting  power  and
     investment  power with respect to their shares of Common  Stock,  except to
     the extent that  authority is shared by spouses under  applicable  law, and
     (ii) record and beneficial ownership with respect to their shares of Common
     Stock.

(2)  Calculated  as  the  number  of  shares  beneficially  owned,   divided  by
     39,782,157 which consists of the total  outstanding  shares of Common Stock
     (39,167,627) and options  (614,530)  exercisable  within sixty (60) days of
     April 30, 2004.

(3)  Represents  stock  options that are  exercisable  within sixty (60) days of
     April 30, 2004.

(4)  Includes stock options that are exercisable within sixty (60) days of April
     30, 2004.

(5)  Includes 159,018 shares owned by Mr. Hayes' wife and 56,832 shares owned by
     Memphis Retail Limited  Partnership which are attributable to Mr. Hayes and
     two of his children.

(6)  The  address  for all except  EARNEST  Partners  is 4300 New  Getwell  Rd.,
     Memphis, TN 38118. The address of EARNEST Partners is 75 14th Street, Suite
     2300, Atlanta, GA 30309.

                                       2


                       PROPOSAL 1 (ELECTION OF DIRECTORS)

     Five  directors,  constituting  the entire  Board of  Directors,  are to be
elected at the Annual  Meeting to serve one year or until their  successors  are
elected. The Board of Directors proposes the election of the following nominees:

                                                       

                                                                     Principal Occupation,
               Nominee                             Age             Business and Directorships
- --------------------------------------------       ---       -------------------------------------

Michael J. Hayes............................       62         Chairman and Chief Executive Officer
John R. Eisenman............................       62         Director
Roger T. Knox...............................       66         Director
John D. Reier...............................       64         Director and President
Thomas H. Tashjian..........................       49         Director



     Michael J. Hayes was elected a Director of the Company in January  1987 and
was named  Chairman  of the Board in  November  2001.  Mr.  Hayes has been Chief
Executive  Officer since  October 1989 and served as a Managing  Director of the
Company from 1989 to 2002 when that position was  eliminated.  He was previously
employed by Oppenheimer & Company, Inc. in various capacities from 1976 to 1985,
including Managing Director and Executive Vice President - Corporate Finance and
Financial Services.

     John R.  Eisenman is involved in real  estate  investment  and  development
located  in  Greensboro,  North  Carolina.  Mr.  Eisenman  has been  engaged  in
commercial  and industrial  real estate  brokerage and  development  since 1983.
Previously,  he founded and served as President of Sally's, a chain of fast food
restaurants,  from  1976 to 1983,  and prior  thereto  held  various  management
positions in manufacturing and in securities brokerage.  Mr. Eisenman has served
as a Director since the Company's initial public offering in March 1992.

     Roger T. Knox is President  Emeritus of the Memphis  Zoological Society and
was its President and Chief Executive Officer from January 1989 thru March 2003.
Mr. Knox was the President and Chief Operating Officer of Goldsmith's Department
Stores,  Inc. (a full-line  department store in Memphis and Jackson,  Tennessee)
from 1983 to 1987 and its Chairman of the Board and Chief Executive Officer from
1987 to 1989.  Prior  thereto,  Mr. Knox was with Foley's  Department  Stores in
Houston,  Texas for 20  years.  Mr.  Knox has  served  as a  Director  since the
Company's  initial public  offering in March 1992.  Additionally,  Mr. Knox is a
Director of Hancock Fabrics, Inc.

     John D. Reier is President and a Director.  Mr. Reier joined the Company in
May 1999 as President  and was elected a Director of the Company in August 2001.
Prior to joining  the  Company,  Mr.  Reier was  President  and Chief  Executive
Officer  of Sunny's  Great  Outdoors  Stores,  Inc.  from 1997 to 1999,  and was
President, Chief Operating Officer, Senior Vice President of Merchandising,  and
General Merchandise Manager at Family Dollar Stores, Inc. from 1987 to 1997.

     Thomas H. Tashjian was elected a Director of the Company in March 2001. Mr.
Tashjian is a private investor. Previously, he served as a managing director and
consumer group leader at Banc of America Montgomery Securities in San Francisco.
Prior to that, Mr. Tashjian held similar  positions at First Manhattan  Company,
Seidler  Companies,  and Prudential  Securities.  Mr. Tashjian's  earlier retail
operating  experience was in discount retailing at the Ayrway Stores, which were
acquired by Target, and in the restaurant business at Noble Roman's.

     If, for any  reason,  any of the  nominees  shall  become  unavailable  for
election,  the  individuals  named in the  enclosed  proxy  may  exercise  their
discretion to vote for any substitutes  chosen by the Fred's Board of Directors,
unless the Board of Directors should decide to reduce the number of directors to
be  elected  at the Annual  Meeting.  Fred's  has no reason to believe  that any
nominee will be unable to serve as a director.

     For  information  concerning  the number of shares of Common Stock owned by
each director,  and all directors and executive  officers as a group as of April
30, 2004,  see  "Ownership  of Common Stock by  Directors,  Officers and Certain
Beneficial Owners." There are no family  relationships  between any directors or
executive officers of Fred's.


                                       3


Section 16(a) Beneficial Ownership Reporting Compliance

     Based  solely upon a review of reports of  beneficial  ownership  of Fred's
Common Stock and written  representations  furnished to Fred's by its  officers,
directors and principal shareholders,  Fred's is not aware of any such reporting
person who or which failed to file with the Securities  and Exchange  Commission
(the  "Commission")  on a timely  basis  any  required  reports  of  changes  in
beneficial  ownership,  except as to incentive  stock option  grants (which were
reported  when the  option  grant was  executed,  not when  granted)  and in the
following  instances;.  Anita G. Ryan did not timely report one  transaction  on
December 10, 2003.  Joseph D. Prowell did not timely report one  transaction  on
November 24, 2003.

Board of Directors

     During the last fiscal year,  Fred's Board of Directors  held six meetings.
Messrs.  Hayes,  Eisenman,  Knox,  Reier and Tashjian  attended all of the Board
meetings.  All members  attended  the prior year annual  meeting.  Mr.  Hayes is
Chairman of the Board of  Directors.  Non-employee  Directors of Fred's are paid
for their services as such $20,000 per year plus reasonable expenses,  and stock
options from time to time, for meeting attendance.  Messrs.  Eisenman,  Knox and
Tashjian are considered  independent as defined in the listing  standards of the
National Association of Securities Dealers' Automated Quotation System's listing
standard.

     The  Board  of   Directors   has  a  process  for   shareholders   to  send
communications to the Board.  Shareholders may send  communications to our Board
by sending a letter to: Board of Directors,  Fred's Inc.,  c/o General  Counsel,
4300 New Getwell Rd., Memphis,  TN 37072. All communication  will be reviewed by
our Legal  Department  and  forwarded  to the Board of  Directors on a quarterly
basis,   unless  requested  by  the  Board  on  a  more  frequent  basis.   Your
communication  will be  treated  confidentially,  subject  to  applicable  laws,
regulations  or  legal  proceedings,  if so  marked  on the  envelope  or in the
communication.

Code of Ethics

     The  Company  has  adopted  a code of  ethics  that  applies  to all of its
directors,  officers  (including its chief  executive  officer,  chief financial
officer, chief information officer, controller and any person performing similar
functions) and employees. The Company Code of Ethics is attached as Appendix A.

Audit Committee

     The  Audit  Committee  of the Board of  Directors,  which is  comprised  of
Messrs. Eisenman, Knox and Tashjian, met four times during the last fiscal year,
and all Committee  members were in attendance.  Each of the members of the Audit
Committee is an Independent  Director as defined by the National  Association of
Securities Dealers' Automated Quotation System's listing standards. Mr. Eisenman
is the Chairman of the Audit  Committee.  Audit  Committee  members are paid for
their services  $4,000 per year for Mr.  Eisenman,  Chairman and $2,400 per year
for Messrs. Knox and Tashjian,  plus reasonable expenses for meeting attendance.
The Audit Committee is responsible for the engagement of the independent  public
auditors; considering the range of audit and non-audit fees; assisting the Board
in fulfilling its oversight  responsibilities by reviewing the financial reports
and other financial information provided by the Company to any governmental body
or the public;  reviewing the Company's systems of internal  controls  regarding
finance,  accounting,  legal compliance and ethics that management and the Board
have  established;  and  reviewing  the  Company's  auditing,   accounting,  and
financial reporting processes, generally.

     Audit Committee members have the requisite financial experience to serve on
the  Audit   Committee.   The   management   of  the  Company  has  the  primary
responsibility  for  the  financial   statements  and  reporting  process.   The
independent  auditors are  responsible for conducting and reporting on the audit
of the Company's  financial  statements in accordance  with  generally  accepted
auditing   standards.   The  Company's   independent   auditors  are  ultimately
accountable to the Audit Committee. The Board of Directors has adopted a written
charter for the Audit Committee,  a copy of which is attached as Appendix B. The
Board of Directors  has  determined  that Mr.  Tashjian  meets the  Commission's
definition of audit committee financial expert.


                                       4


Audit Committee Report

     In the context of the role of the Audit  Committee as outlined  above,  the
Audit  Committee  has reviewed and discussed  the  Company's  audited  financial
statements  for 2003 with  management of the Company.  The Audit  Committee also
discussed  with  Ernst & Young  LLP the  matters  required  to be  discussed  by
Statement  on  Auditing  Standards  ("SAS")  Nos.  61,  89 and 90  issued by the
Auditing   Standards  Board  of  the  American  Institute  of  Certified  Public
Accountants.  SAS Nos. 61, 89 and 90 set forth  requirements  pertaining  to the
independent  auditor's  communications  with the Audit  Committee  regarding the
conduct of the audit.  The Audit Committee has received the written  disclosures
and the letter  from Ernst & Young LLP as  required  by  Independence  Standards
Board   Standard  No.  1  and  has  discussed  with  Ernst  &  Young  LLP  their
independence,  including  consideration  of whether the payment to Ernst & Young
LLP of audit related,  tax, and  permissible  non-audit fees is compatible  with
maintaining  their  independence.  Based upon its review  and  discussions  with
Company management and Ernst & Young LLP, the Audit Committee has recommended to
the Board of Directors that Fred's, Inc. audited financial statements for fiscal
2003 be  included  in the annual  report on Form 10-K for 2003  filing  with the
Securities  and Exchange  Commission,  and that Ernst & Young be considered  for
selection as the Company's Independent Auditors for 2004.

     The members of the Audit  Committee are not  professionally  engaged in the
practice of  accounting  or  auditing  and, as such,  rely  without  independent
verification on the information provided to them and on the representations made
by  management  and  Ernst &  Young  LLP.  Accordingly,  the  Audit  Committee's
oversight does not provide an independent basis to determine that management has
maintained   appropriate   accounting  and  financial   reporting  processes  or
appropriate  internal controls and procedures designed to assure compliance with
the accounting standards and applicable laws and regulations.  Furthermore,  the
Audit Committee's  reviews and discussions  referred to above do not assure that
the  audit  of the  Company's  financial  statements  has  been  carried  out in
accordance  with  generally  accepted  auditing  standards,  that the  Company's
audited  consolidated  financial  statements  are presented in  accordance  with
generally accepted accounting  principles,  or that Ernst & Young LLP is in fact
independent.

                                  John R. Eisenman
                                  Roger T. Knox
                                  Thomas H. Tashjian

Nominating Committee

     The  Nominating  and  Governance  Committee of the Board of Directors  (the
"Nominating  Committee"),  which met one time during the Company's latest fiscal
year,  recommends  nominees for election to the Board by the stockholders at the
annual  meeting and makes  recommendations  to the Board of Directors  regarding
corporate governance matters and practices. The Nominating Committee operates in
accordance  with its  charter,  which is attached as Appendix C. The  Nominating
Committee Charter is not currently posted on the Company website. The Nominating
Committee is composed of Messrs. Tashjian,  Chairman of the Committee,  Eisenman
and Knox, all of whom meet the  independence  requirements of the Nasdaq listing
standards.

     The Nominating Committee identifies candidates for nominees based upon both
its criteria for evaluation and the candidate's  previous  service on the Board.
Additionally,  the Nominating Committee may use the services of a search company
in identifying  nominees.  Although the Nominating  Committee has not determined
specific minimum  qualifications for its nominees,  it evaluates candidates that
it has identified  based upon:
    -     character, personal and professional ethics, integrity and values;
    -     executive level business experience and acumen;
    -     relevant business experience or knowledge (although  preference may be
          shown for experience in or knowledge of the retail industry, it is not
          a prerequisite);
    -     skills and expertise  necessary to make  significant  contributions to
          the Company, its Board and its stockholders;
    -     business  judgment;
    -     availability  and  willingness to serve on the Board;
    -     independence requirements of the Nasdaq listing standards;
    -     potential  conflicts of interest with the Company or its  stockholders
          taken as a whole; and
    -     accomplishment within the candidate's own field.


                                       5


     The Nominating  Committee has adopted a policy with regard to considering a
shareholder's nominee. To submit a nominee for consideration, a shareholder must
provide the Nominating  Committee:
    -     proof  of  the  shareholder's   eligibility  to  submit  proposals  in
          accordance with Rule 14a-8(b) of the Exchange Act of 1934, as amended;
    -     a complete description of the candidate's  qualifications,  experience
          and background; and
    -     the candidate's signed consent to serve on the Board.

     In general,  the Nominating  Committee will evaluate a candidate identified
by a  shareholder  using  the  same  standards  as it  uses  for  candidates  it
identifies.  Before  recommending  a  shareholder's  candidate,  the  Nominating
Committee  may  also:
    -     consider whether the shareholder  candidate will  significantly add to
          the range of talents, skills and expertise of the Board;
    -     conduct appropriate  verifications of the background of the candidate;
          and
    -     interview  the   candidate  or  ask  the   candidate  for   additional
          information.

     The Nominating Committee has full discretion not to include a shareholder's
candidate  in its  recommendation  of nominees to the Board.  If the  Nominating
Committee does not recommend a shareholder's candidate to the Board, it will not
make public the reason or reasons for its decision.

                                            Thomas H. Tashjian
                                            John R. Eisenman
                                            Roger T. Knox


                                       6


Compensation Committee

     The  Compensation  Committee  reviews and  approves  the  salaries and cash
incentive  compensation  of  executive  officers  and  recommends  the grants of
stock-based  incentive  compensation under Fred's long-term  incentive plan. The
Compensation  Committee,  which is  comprised  of Messrs.  Knox,  Eisenman,  and
Tashjian,  met one time during the last fiscal year,  and all Committee  members
were in  attendance.  Mr. Knox is the  Chairman of the  Compensation  Committee.
Compensation  Committee  members are paid for their services $1,500 per year for
Mr. Knox,  Chairman and $750 per year for Messrs.  Eisenman and  Tashjian,  plus
reasonable expenses for meeting attendance.  The Board of Directors receives the
grant  recommendations  of the  Committee  and may approve,  amend or reject the
grant of restricted stock and stock options recommended by the Committee.

Executive Compensation

     The  following  table sets  forth the cash  compensation  paid,  as well as
certain other  compensation  paid or accrued,  to Fred's chief executive officer
and to each of the other four most highly  compensated  executive officers whose
aggregate cash compensation  exceeded $100,000 during the indicated fiscal years
(the "Named Executives").

                           SUMMARY COMPENSATION TABLE

                                                                                   

                                                                                Long-Term
                        Annual Compensation                                    Compensation
                        -------------------                                    ------------

                                                                        Restricted       Option       All Other
Name and                                  Salary           Bonus       Stock Awards      Awards      Compensation
Principal Position          Year           ($)              ($)          ($) (1)          (#)            ($)
- ------------------          ----          ------           -----       ------------      ------      ------------

Michael J. Hayes            2003          214,615         80,500           --              --             --
Chairman and                2002          200,000           --             --              --         17,651 (2)
Chief Executive Officer     2001          195,710           --             --            41,250       15,078 (2)

John D. Reier               2003          243,269         80,500           --            60,000           --
President                   2002          217,788         77,000           --              --             --
                            2001          197,860         84,000           --            16,875           --

Jerry A. Shore              2003          145,962         55,200           --            27,000           --
Executive Vice President-   2002          133,558         52,800           --              --             --
Chief Financial Officer     2001          130,000         10,000           --             7,500           --

John A. Casey               2003          131,298         49,484           --            27,000        1,170 (2)
Executive Vice President-   2002          119,447         48,400           --              --             --
Pharmacy Operations         2001          113,385         52,800           --             7,500           --

Charles A. Brunjes          2003          138,654         36,800            --           18,000          714 (2)
Executive Vice President &  2002          127,067         39,600            --             --             --
General Merchandise Manager 2001          118,654         24,000            --           11,250           --



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

(1)  The aggregate  restricted  stock  holdings for the above Named  Executives,
     using the  February 1, 2004 closing  price of $27.99 per share,  net of any
     consideration to be paid, was as follows:
                                                                       

                                                          Number                 Value
                                                          ------                --------
                         John D. Reier                    14,062                $393,595
                         Jerry A. Shore                    5,625                $157,444



     No  restricted  stock awards vest in less than three years from the date of
     grant.  All  restricted  stock  holdings pay dividends at the same dividend
     rate as the Company's Common Stock.

(2)  Consists of miscellaneous reimbursements.


                                       7


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

     The following table sets forth  information on stock option grants pursuant
to the Fred's,  Inc. 2002  Long-Term  Incentive Plan during the last fiscal year
for each of the Named Executives, all current executive officers as a group, the
non-employee  directors  as a group and all  other  recipients  as a group.  The
Company has not granted any Stock Appreciation Rights ("SARs").

                                                                                      

                                    Individual Grants                                      Potential Realizable
                     ------------------------------------------                              Value at Assumed
                                                                                             Annual Rates of
                     Options/SARs   % of Total         Exercise                                Stock Price
                      Granted to    Options/SARs       or Base                               Appreciation for
                      Employees       Granted           Price         Expiration              Option Term  (1)
       Name               (#)       in Fiscal Year     ($/Sh)            Date             5% ($)        10%  ($)
- ------------------   ------------   --------------     --------       ----------          -------       --------
Michael J. Hayes           --            --                --              --                --            --
John D. Reier            60,000         10.5              18.26          09/2010          435,053       1,070,582
Jerry A. Shore           27,000          4.7              18.26          09/2010          195,774         481,762
John A. Casey            27,000          4.7              18.26          09/2010          195,774         481,762
Charles Brunjes          18,000          3.1              18.26          09/2010          130,516         321,174
Executive Group
   (8 persons)          156,000         27.2              18.26          09/2010        1,140,838       2,801,588
Non-Executive
   Director Group
   (3 persons)           11,250          2.0              17.67          09/2010           45,326         109,283
Non-Executive Officer
   Employee Group
   (91 persons)         388,840         67.9              18.26          09/2010        2,879,125       7,040,629



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

(1)  The potential gain is calculated  from the closing price of Common Stock on
     the date of grants  until the end of the option  period at certain  assumed
     rates of  appreciation  set by the  Commission.  They are not  intended  to
     forecast  possible  future  appreciation in the Common Stock and any actual
     gains on exercise of options are dependent on the future performance of the
     Common Stock.


     The  following  table  shows  the  stock  option  exercises  by  the  Named
Executives  during the last fiscal year.  In addition,  this table  includes the
number of exercisable and unexercisable  stock options held by each of the Named
Executives as of February 1, 2004. The fiscal  year-end value of  "in-the-money"
stock options is the difference between the exercise price of the option and the
fair market  value of the Common Stock (not  including  options with an exercise
price  greater than the fair market value) on February 1, 2004 (the last trading
date before the fiscal year-end),  which was $27.99 per share. No SARs have been
granted.

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES
                                                                                             

                                                              Number of Securities
                            Stock Option Exercises            Underlying Unexercised                Value of Unexercised
                        Shares                                    Options/SARs                      In-The-Money Options
                       Acquired             Value             At Fiscal Year-end (#)                At Fiscal Year-end ($)
                      on Exercise(#)    Realized ($)(1)      Exercisable   Unexercisable         Exercisable   Unexercisable
                      --------------    ---------------      -----------   -------------         -----------   -------------
Michael J. Hayes             --               --                32,815          41,250              743,480        645,014
John D. Reier                --               --               130,781          65,625            2,968,325        671,996
Jerry A. Shore            3,749             71,581              21,563          34,500              488,546        380,043
John A. Casey            10,312            178,673                --            34,500                --           380,043
Charles A. Brunjes           --               --                24,376          21,750              499,630        233,850



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

(1)  "Value  Realized"  is the  difference  between the fair market value of the
     underlying  shares  on the  exercise  date  and the  exercise  price of the
     option.


                                       8


             COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The Compensation  Committee of the Board of Directors of Fred's,  Inc. (the
"Committee")  hereby  presents  its  report  on  executive  compensation.   This
Committee  report   documents  the  components  of  Fred's   executive   officer
compensation  programs and describes the basis on which fiscal 2003 compensation
determinations were made by the Committee with respect to the executive officers
of Fred's, including the Named Executives.

Compensation Philosophy and Overall Objectives of Executive Compensation
Programs

     It is the  philosophy of Fred's that  executive  compensation  be linked to
improvements in corporate  performance and increases in shareholder  value.  The
following  objectives  have been  adopted by the  Committee  as  guidelines  for
compensation decisions:

    -     Provide a competitive total  compensation  package that enables Fred's
          to attract and retain key executives.

    -     Integrate all pay programs  with Fred's annual and long-term  business
          objectives  and  strategy,   and  focus  executive   behavior  on  the
          fulfillment of those objectives.

    -     Provide variable  compensation  opportunities that are linked with the
          performance of Fred's and that align executive  remuneration  with the
          interests of shareholders.

Compensation Program Components

     The Committee reviews Fred's  compensation  program annually to ensure that
pay  levels  and  incentive   opportunities  are  competitive  and  reflect  the
performance of Fred's. The particular  elements of the compensation  program for
executive officers are further explained below.

     Base Salary - Base pay levels are largely  determined  through  comparisons
with  other  retailing  companies.  Actual  salaries  are  based  on  individual
performance  contributions within a salary structure that is established through
job evaluation and job market considerations.  Base pay levels for the executive
officers  are  competitive  within  the  middle  of a range  that the  Committee
considers to be reasonable and necessary.  Various increases in base salary were
recommended  by the Chief  Executive  Officer in fiscal 2003 for the other Named
Executives,  based  on  performance  and  competitive  considerations,  and  the
Committee considered and acted in accordance with the recommendation.

     Incentive  Compensation - Fred's officers are eligible to participate in an
annual incentive compensation plan with awards based primarily on the attainment
of various specified levels of operating profits.  The objective of this plan is
to deliver  competitive  levels of compensation  for the attainment of financial
objectives  that the  Committee  believes are primary  determinants  of earnings
growth.  Targeted  awards for  executive  officers of Fred's under this plan are
consistent with targeted awards of other retailing companies of similar size and
complexity to Fred's.  Specified  awards were recommended by the Chief Executive
Officer for the other Named Executives of Fred's for fiscal 2003, based upon the
Company's performance, and the Committee considered and acted in accordance with
the recommendation.

     Fred's Stock  Option  Program - The  Committee  strongly  believes  that by
providing those persons who have substantial  responsibility  for the management
and growth of Fred's with an opportunity  to increase their  ownership of Common
Stock,  the best  interests  of  shareholders  and  executives  will be  closely
aligned.  Therefore,  executives are eligible to receive stock options from time
to time,  giving them the right to purchase shares of Common Stock in the future
at a specified price. The number of stock options granted to executive  officers
is based on competitive  practices,  with the value of such options estimated by
using a Black-Scholes pricing model.

Discussion of Compensation for the Chief Executive Officer

     The  Committee  has  considered  Chief  Executive  Officer's  base  salary,
incentive  compensation and long-term incentives to be less than or equal to the
total compensation paid to other executives  similarly situated,  and has deemed
his beneficial ownership of Common Stock to provide adequate linkage between the
interests of Fred's shareholders and Mr. Hayes' personal interests.


                                       9


Summary

     After its review of all  existing  programs,  the  Committee  continues  to
believe  that the  total  compensation  program  for  executives  of  Fred's  is
competitive  with the  compensation  programs  provided by other  companies with
which Fred's  competes.  The Committee  believes that any amounts paid under the
incentive  compensation  plan will be  appropriately  related to  corporate  and
individual performance,  yielding awards that are linked to the annual financial
and  operational  results of Fred's.  The Committee also believes that the stock
option program provides  opportunities to participants  that are consistent with
the returns that are generated on behalf of Fred's shareholders.

                                                Roger T. Knox
                                                John R. Eisenman
                                                Thomas H. Tashjian

Employment Agreements

     We have entered into  employment  agreements  with each of Michael J. Hayes
and John D. Reier.  Messrs.  Hayes' and  Reier's  employment  agreements  became
effective as of April 30, 2003.

     Michael J. Hayes.  Mr. Hayes'  employment  agreement  provides that we will
employ him for a period of two years  commencing  on May 1, 2003.  The agreement
provides  that we will pay Mr.  Hayes an annual  salary of $250,000  and that he
will participate in any bonus plan of the Company.  The  Compensation  Committee
shall  annually  review his salary and bonus plan.  We may  terminate Mr. Hayes'
employment with or without cause.  However, if we terminate this agreement other
than for cause, he will receive continued payment of his most recent salary, and
other  Company-provided  benefits,  to the end of the term. Mr. Hayes has agreed
not to compete with us for a period of six months. In addition,  if we terminate
Mr. Hayes' employment  without cause, we will provide health and dental benefits
for Mr. and Mrs. Hayes.

     John D. Reier.  Mr.  Reier's  employment  agreement  provides  that we will
employ him for a period of two years  commencing  on May 1, 2003.  The agreement
provides  that we will pay Mr.  Reier an annual  salary of $250,000  and that he
will participate in any bonus plan of the Company.  The  Compensation  Committee
shall  annually  review his salary and bonus plan. We may terminate Mr.  Reier's
employment with or without cause.  However, if we terminate this agreement other
than for cause, he will receive continued payment of his most recent salary, and
other  Company-provided  benefits  for one year.  Mr.  Reier has  agreed  not to
compete  with us for a period of one year.  In  addition,  if we  terminate  Mr.
Reier's employment without cause, we will provide health and dental benefits for
Mr. and Mrs. Reier for five years.


                                       10





[SEE ATTACHED PDF FILE]






Comparison of Cumulative Total Return

     The total cumulative return on investment assumes that $100 was invested in
Fred's,  the Nasdaq Retail Trade Stocks Index and the Nasdaq Stock Market (U.S.)
Index on January 29, 1999, and that all dividends were reinvested.


       THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
             ELECTION OF THE NOMINEES TO FRED'S BOARD OF DIRECTORS.



                                       11


                   PROPOSAL 2 (APPROVE SELECTION OF AUDITORS)

     Ernst & Young LLP audited the Company's  consolidated  financial statements
for the year ended  January 31, 2004.  Ernst & Young LLP is a registered  public
accounting  firm. The Board of Directors is asking the  shareholders  to approve
the appointment of Ernst & Young LLP as such auditors for the fiscal year ending
January 29, 2005. Although not required by law, the NASD's listing standards, or
the  Company's  bylaws,  the Board of Directors is  submitting  the selection of
Ernst & Young  LLP to the  stockholders  for  ratification  as a matter  of good
corporate  practice.  Even if the selection is ratified,  the Audit Committee in
its discretion may select a different  registered  public accounting firm at any
time during the year if it  determines  that such a change  would be in the best
interests   of  the   Company   and   its   stockholders,   including   economic
considerations.

     The Board of  Directors  will offer a resolution  at the Annual  Meeting to
ratify  this  selection.  Ernst & Young  LLP,  which  has  acted as  independent
auditors of Fred's since May 2002, is expected to be  represented  at the Annual
Meeting, will have the opportunity to make a statement, if they desire to do so,
and will be available to respond to appropriate questions.

  THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
  SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR 2004.

Changes in Certifying Accountant

     On  May  9,  2002,  the  Company   dismissed   PricewaterhouseCoopers   LLP
("PricewaterhouseCoopers")  as its independent auditor and engaged Ernst & Young
LLP as its new independent auditor. The decision to change the independent audit
firm was  recommended by the Company's Audit Committee and approved by the Board
of Directors.  The audit reports of  PricewaterhouseCoopers  on the consolidated
financial  statements of the Company for the years in the two-year  period ended
February 2, 2002 did not contain any adverse  opinion or  disclaimer of opinion,
nor  were  they  qualified  or  modified  as to  uncertainty,  audit  scope,  or
accounting  principles.  During the two-year  period ended February 2, 2002, and
the  subsequent  interim period ended May 9, 2002,  there were no  disagreements
with PricewaterhouseCoopers on any matter of accounting principles or practices,
financial  statement  disclosure,   or  auditing  scope  or  procedures,   which
disagreements,  if not resolved to PricewaterhouseCoopers'  satisfaction,  would
have caused them to make reference to the subject matter of the  disagreement in
their reports on the consolidated  financial  statements for such years.  During
the last two  fiscal  years,  of their  engagement,  and  through  May 9,  2002,
PricewaterhouseCoopers  has not advised the Company of any reportable events (as
defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act
of 1934).  PricewaterhouseCoopers  was provided a copy of the above disclosures,
as set forth in the  Company's  Report on Form 8-K dated May 14, 2002 filed with
the Securities and Exchange Commission, and was requested to furnish the Company
with a letter  addressed to the  Commission  stating  whether it agreed with the
above  statement  and, if not,  stating the  respects in which it did not agree.
PricewaterhouseCoopers'  letter  concurring with the disclosures was filed as an
exhibit to such report.

     The Company engaged Ernst & Young as its new independent  auditor as of May
9, 2002.  During the two year period  ended  February 2, 2002 and through May 9,
2002,  the  Company  did not consult  with Ernst & Young  regarding  any matters
specified in Items  304(a)(2)(i)  or (ii) of Regulation S-K under the Securities
Exchange  Act of 1934.  Ernst & Young  was  also  provided  a copy of the  above
disclosures.

Fees Paid to Auditors

     The  following  table sets forth certain fees billed to us by Ernst & Young
LLP in fiscal 2003 and fiscal 2002 in connection with various services  provided
to us throughout those fiscal years:

                                                                

         Service                   2003 Aggregate Fees Billed         2002 Aggregate Fees Billed
         -------                   --------------------------         --------------------------

         Audit Fees                        $ 425,000                          $ 180,851
         Audit-Related Fees                       --                                 --
         Tax Fees                            244,610                            129,613
         All Other Fees                           --                                 --




                                       12


     The Audit  Committee has the  responsibility  to pre-approve  all audit and
permissible  non-audit  services  provided  by our  independent  auditor.  Where
feasible, the Audit Committee considers and, when appropriate, pre-approves such
services at regularly  scheduled  meetings after  disclosure by management as to
the nature of the services to be performed  and  projected  fees.  The Committee
also has authorized its Chairman to consider and, when appropriate,  pre-approve
audit and non-audit services in situations where pre-approval is necessary prior
to the  next  regularly  scheduled  meeting  of  the  Audit  Committee.  Company
management  and the  Chairman  must  report to the Audit  Committee  at its next
meeting with respect to all  services  pre-approved  by him since the last Audit
Committee meeting.

     In fiscal 2003, all audit and permissible  non-audit  services  provided by
our independent auditors were pre-approved by the Audit Committee.


         PROPOSAL 3 (APPROVAL OF THE 2004 EMPLOYEE STOCK PURCHASE PLAN)

     The  stockholders  are being asked to approve  the  adoption of the Fred's,
Inc. 2004 Employee  Stock Purchase Plan (the  "Employee  Stock Purchase  Plan"),
under  which  1,000,000  shares of Common  Stock will be reserved  for  issuance
initially.  The  Employee  Stock  Purchase  Plan  was  adopted  by the  Board of
Directors  on May 15,  2004,  and will  become  effective  on July 1,  2004,  if
approved by the stockholders at the Annual Meeting.

     The Employee Stock Purchase Plan is designed to allow eligible employees to
purchase  shares of  Common  Stock at  intervals  through  accumulated  periodic
payroll  deductions  under  the  Employee  Stock  Purchase  Plan.  The  Board of
Directors  believes  that the  Employee  Stock  Purchase  Plan will  promote the
interests of Fred's,  Inc. by providing  eligible employees with the opportunity
to acquire a  proprietary  interest in the Company  through  participation  in a
payroll  deduction based employee stock purchase plan while taking  advantage of
the benefits  provided by Section 423 of the Internal  Revenue Code of 1986,  as
amended (the "Internal Revenue Code").

Vote Required

     Approval of the Board of Directors'  action in adopting the Employee  Stock
Purchase  Plan  requires  the  affirmative  vote of the  holders  of at  least a
majority of the shares of the  Company's  issued and  outstanding  capital stock
represented and voting at the Annual Meeting and cast on this Proposal.

Summary Description of the Plan

     The following is a summary of the principal  features of the Employee Stock
Purchase  Plan.  The  summary,  however,  does  not  purport  to  be a  complete
description  of all the provisions of the Employee Stock Purchase Plan. The full
text of the Employee Stock Purchase Plan is attached as Appendix D to this proxy
statement.  The Board of Directors  encourages you to review it for more details
on the Employee Stock Purchase Plan.

Administration

     The Employee Stock Purchase Plan will be administered  by the  Compensation
Committee of the Board. Such committee,  as plan  administrator,  will have full
authority to adopt  administrative  rules and  procedures  and to interpret  the
provisions of the Employee Stock Purchase Plan.

Securities Subject to the Employee Stock Purchase Plan

     The number of shares of Common Stock initially  reserved for issuance under
the Employee Stock Purchase Plan will be limited to 1,000,000 shares. This share
reserve will increase,  if approved by the Board of Directors,  over the term of
the  Employee  Stock  Purchase  Plan on the first  trading  day of January  each
calendar year, beginning with calendar year 2005, by the lesser of 500,000 or an
amount  equal to two percent of the total  number of shares of the Common  Stock
outstanding  on the last  trading day in December in the  immediately  preceding
calendar year.


                                       13


     The shares  issuable  under the Employee  Stock  Purchase  Plan may be made
available from authorized but unissued shares of the Common Stock or from shares
of Common Stock repurchased by the Company,  including shares repurchased on the
open  market.  In the event  that any change is made to the  outstanding  Common
Stock (whether by reason of any recapitalization,  stock dividend,  stock split,
exchange  or  combination  of shares  or other  change  in  corporate  structure
effected without the receipt of consideration),  appropriate adjustments will be
made. Such  adjustments will be designed to preclude any dilution or enlargement
of benefits under the Employee Stock Purchase Plan or the  outstanding  purchase
rights thereunder.

Offering Periods and Purchase Rights

     The Plan will be  structured as a series of periods each of which will have
a  duration  of no more  than  twenty-seven  months  ("Offering  Period").  Each
Offering  Period will  include one or more  intervals at the end of which Common
Stock  will be  purchased  ("Purchase  Interval").  Each  individual  who is not
currently participating in an Offering Period and who is an eligible employee on
the start date of an Offering Period may enter that Offering Period on its start
date.  At the time a  participant  joins an Offering  Period,  he or she will be
granted a purchase right to acquire shares of the Common Stock of the Company on
the last day of each Purchase Interval within that Offering Period.  All payroll
deductions  collected from the  participant  for each Purchase  Interval will be
automatically  applied  to the  purchase  of  Common  Stock  at the  end of that
Purchase Interval, subject to certain limitations.

Eligibility and Participation

     Any  individual  who  is  employed  on a  basis  under  which  he or she is
regularly  expected  to work for more than  twenty  hours per week for more than
five months per calendar  year will be eligible to  participate  in the Employee
Stock Purchase Plan. Fred's believes that  approximately  6000 employees will be
eligible to participate.

Payroll Deductions and Stock Purchases

     Each  participant  may  authorize  periodic  payroll  deductions  up to the
maximum percent, determined by the Board of Directors, of his or her base salary
to be  applied  to the  acquisition  of  Common  Stock at the end of a  Purchase
Interval.

Purchase Price

     The purchase  price of the Common Stock acquired on each purchase date will
be equal to  eighty-five  percent of the lower of (i) the fair market  value per
share of the Common  Stock on the  participant's  entry  date into the  Offering
Period or (ii) the fair market value on the quarterly  purchase  date.  The fair
market  value per share of the  Common  Stock on any  particular  date under the
Employee Stock  Purchase Plan will be deemed to be equal to the closing  selling
price per share on such date on Nasdaq.  On May 12, 2004,  the fair market value
of the Common Stock determined on such basis was $18.19 per share.

Special Limitations

     The  Employee  Stock  Purchase  Plan  imposes  certain  limitations  upon a
participant's   rights  to  acquire   Common  Stock,   including  the  following
limitations:

    -     Purchase   rights  granted  to  a  participant  may  not  permit  such
          individual to purchase more than $25,000 worth of Common Stock (valued
          at the time each  purchase  right is granted) for each  calendar  year
          those purchase rights are outstanding at any time.

    -     Purchase  rights  may  not  be  granted  to  any  individual  if  such
          individual would, immediately after the grant, own or hold outstanding
          options or other rights to purchase stock possessing five percent (5%)
          or more of the total combined  voting power or value of all classes of
          the Company's outstanding stock.


                                       14


New Plan Benefits

     No purchase  rights will be granted and no shares will be issued  under the
Employee Stock Purchase Plan unless the Employee Stock Purchase Plan is approved
by our  shareholders.  The new plan benefits  under the Employee  Stock Purchase
Plan are not presently determinable.

Federal Tax Consequences

     The following discussion of federal income tax consequences is not intended
to  provide a  complete  analysis  of all of the  potential  tax  effects of the
Employee Stock Purchase  Plan. It is based upon laws,  regulations,  rulings and
decisions now in effect,  all of which are subject to change.  No information is
provided with respect to persons who are not citizens or residents of the United
States,  or  foreign,   state  or  local  tax  laws,  or  estate  and  gift  tax
considerations.  In addition,  the tax consequences to a particular  participant
may be affected  by matters not  discussed  below.  ACCORDINGLY,  WE URGE YOU TO
CONSULT YOUR OWN TAX ADVISOR CONCERNING THE TAX CONSEQUENCES TO YOU OF THE STOCK
INCENTIVE  PLAN,  INCLUDING THE EFFECTS OF STATE,  LOCAL,  FOREIGN AND OTHER TAX
LAWS.

     The  Employee  Stock  Purchase  Plan is intended to be an  "employee  stock
purchase  plan" within the meaning of Section 423 of the Internal  Revenue Code.
Under a plan which so  qualifies,  no taxable  income  will be  recognized  by a
participant, and no deductions will be allowable to the Company, upon either the
grant  or the  exercise  of the  purchase  rights.  Taxable  income  will not be
recognized  until there is a sale or other  disposition  of the shares  acquired
under the Employee  Stock Purchase Plan or in the event the  participant  should
die while still owning the purchased shares.

     If the  participant  sells or otherwise  disposes of the  purchased  shares
within two years after his or her entry date into the  Offering  Period in which
such shares were  acquired or within one year after the  purchase  date on which
those shares were actually  acquired,  the participant  will recognize  ordinary
income in the year of sale or disposition  equal to the amount by which the fair
market value of the shares on the purchase date exceeded the purchase price paid
for those shares,  and the Company will be entitled to an income tax  deduction,
for the taxable  year in which such  disposition  occurs,  in an amount equal to
such excess.

     If the participant  sells or disposes of the purchased shares more than two
years after his or her entry date into the  Offering  Period in which the shares
were  acquired and more than one year after the purchase  date of those  shares,
the  participant  will  recognize  ordinary  income  in  the  year  of  sale  or
disposition equal to the lesser of (i) the amount by which the fair market value
of the shares on the sale or  disposition  date exceeded the purchase price paid
for those shares or (ii) fifteen  percent of the fair market value of the shares
on the  participant's  entry date into that Offering Period;  and any additional
gain upon the disposition will be taxed as a long-term capital gain. The Company
will  not  be  entitled  to  an  income  tax  deduction  with  respect  to  such
disposition.

     The Employee Stock Purchase Plan is not subject to the Employee  Retirement
Income  Security Act of 1974, as amended and is not qualified  under Section 401
of the Internal Revenue Code.

Accounting Treatment

     Under current accounting  principles  applicable to employee stock purchase
plans qualified under Section 423 of the Internal  Revenue Code, the issuance of
Common  Stock  under the  Employee  Stock  Purchase  Plan  will not  result in a
compensation   expense  chargeable  against  the  Company's  reported  earnings.
However,  the Company must disclose in the Company's  financial  statements  the
impact the purchase  rights granted under the Employee Stock Purchase Plan would
have upon the  Company's  reported  earnings  were the  value of those  purchase
rights treated as compensation expense.


    THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
           THE PROPOSED ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN.


                                       15


Equity Compensation Plans

     The only other equity  compensation plan currently approved by shareholders
is the 2002 Long Term  Incentive  Plan. The following is a summary of the status
as of April 20, 2004.

                                                                                    

                                                                                              Number of securities
                                          Number of Securities                               remaining available for
                                           to be issued upon                                  future issuance under
                                        exercise of outstanding   Weighted-average-exercise    equity compensation
                                         options, warrants and     price of outstanding         plans (excluding
                                              other rights         options, warrants and     securities reflected in
            Plan Category                                                 rights                   column (a)
- ------------------------------------    ------------------------  -------------------------  -----------------------
                                                   (a)                       (b)                       (c)

Equity compensation plans                       1,337,328                  $13.18                   3,010,840
approved by security holders

Equity compensation plans not                      --                        --
approved by security holders

Total                                           1,337,328                  $13.18                   3,010,840




                                 OTHER BUSINESS

     The Board of Directors  knows of no other  business which will be presented
at the Annual  Meeting.  If any other  matters  properly  come before the Annual
Meeting,  it is intended that the persons  named in the proxy are  authorized by
you to act,  and will act,  in  respect  thereof in  accordance  with their best
judgment.

                              SHAREHOLDER PROPOSALS

     Shareholder  proposals  intended to be included in the proxy  statement and
presented  at the 2005 Annual  Meeting  must be received by the Company no later
than  January  21,  2005,  and  the  proposals  must  meet  certain  eligibility
requirements of the Securities and Exchange Commission.  Proposals may be mailed
to Fred's,  Inc.,  to the  attention of the  Secretary,  4300 New Getwell  Road,
Memphis,  Tennessee 38118. With regard to shareholder  proposals not included in
the Company's proxy  statement  which a shareholder  wishes to be brought before
the annual meeting of  shareholders,  notice of such a proposal must be received
by the Secretary of the Company by April 6, 2005.

                    SOLICITATION OF PROXIES AND COST THEREOF

     The cost of  solicitation  of the proxies will be borne by the Company.  In
addition to  solicitation  of the proxies by use of the mails,  employees of the
Company,  without  extra  remuneration,  may solicit  proxies  personally  or by
telecommunications.  The  Company  will  reimburse  brokerage  firms,  nominees,
custodians and fiduciaries for their out-of-pocket expenses for forwarding proxy
materials to beneficial owners and seeking instruction with respect thereto.

     SHAREHOLDERS  MAY OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
AS FILED WITH THE SECURITIES AND EXCHANGE  COMMISSION WITHOUT CHARGE (EXCEPT FOR
EXHIBITS), BY WRITING TO: FRED'S, INC., ATTN: SECRETARY,  4300 NEW GETWELL ROAD,
MEMPHIS, TENNESSEE 38118.

                                         By order of the Board of Directors,




                                         Charles S. Vail
                                         Secretary

May 21, 2004

                                       16


                                                                      APPENDIX A


                                  FRED'S, INC.
                       CODE OF BUSINESS CONDUCT AND ETHICS

Introduction

This  code of  Business  Conduct  and  Ethics  covers a wide  range of  business
practices and procedures.  It does not cover every issue that may arise,  but it
sets out basic  principles  to guide  all  employees  of  Fred's,  Inc.  and its
subsidiaries  (the  "Company').  All of our  employees  must conduct  themselves
accordingly  and seek to avoid even the  appearance of improper  behavior.  This
Code  should  also be  provided  to and  followed  by the  Company's  agents and
representatives, including consultants.

If a law  conflicts  with a policy in this Code,  you must  comply with the law;
however,  if a local custom or policy  conflicts with this Code, you must comply
with the Code. If you have any questions about these  conflicts,  you should ask
your supervisor how to handle the situation.  In addition,  the Company's Policy
Book contains information concerning specific applications of this Code.

Those who violate  the  standards  in this Code will be subject to  disciplinary
action,  if you are in a  situation  which you  believe  may  violate or lead to
violation of this Code,  follow the  guidelines  described in Section 16 of this
Code.

1.  Compliance with Laws, Rules and Regulations

Obeying the law,  both in letter and in spirit,  is the  foundation on which the
Company's  ethical  standards are built. All employees must respect and obey the
laws,  rules and  regulations  of the cities,  states and  countries in which we
operate.  Although not all  employees  are expected to know the details of these
laws,  it is  important  to know  enough to  determine  when to seek advice from
supervisors,   managers  or  other  appropriate  personnel.  The  Company  holds
information and training  sessions to promote  compliance  with laws,  rules and
regulations, including insider-trading laws.

2.  Conflicts of Interest

A "conflict of interest" exists when a person's  private interest  interferes in
any way with the interests of the Company.  A conflict  situation can arise when
an employee, officer or director takes actions or has interests that may make it
difficult  to perform  his or her  Company  work  objectively  and  effectively.
Conflicts of interest may also arise when an employee,  officer or director,  or
members of his or her family, receives improper personal benefits as a result of
his or her position in the Company.  Loans to, or guarantees of obligations  of,
employees and their family members may create conflicts of interest.

It is almost  always a  conflict  of  interest  for a Company  employee  to work
simultaneously  for a competitor,  customer or supplier.  You are not allowed to
work for a competitor  as a  consultant  or board  member.  You should avoid any
direct  or  indirect  business  connection  with  our  customers,  suppliers  or
competitors, except on our behalf. Under no circumstances is an employee to deal
directly or  indirectly  with the Company for personal  profit,  except with the
prior  approval  of the  Company's  CEO given after full  disclosure  of all the
circumstances.

Conflicts of interest are prohibited as a matter of Company policy, except under
guidelines  approved by the Board of  Directors.  Conflicts  of interest may not
always be clear-cut,  so if you have a question,  you should consult with higher
levels of management or the Company's Legal Department. Any employee, officer or
director who becomes aware of a conflict or potential  conflict  should bring it
to the attention of the Company's CEO and the Legal  Department  and consult the
procedures described in section 16 of this Code.

Officers  and certain  other  employees of the Company are required to submit an
annual statement disclosing actual and potential conflicts of interest.


                                      A-1


3.  Insider Trading

Employees who have access to  confidential  information are not permitted to use
or share that  information  for stock trading  purposes or for any other purpose
except the conduct of our business. All non-public information about the Company
is  considered  confidential  information.  To use  non-public  information  for
personal  financial  benefit or to "tip'  others  who might  make an  investment
decision  on the  basis  of this  information  is not  only  unethical  but also
illegal. If you have any questions, please consult the Company's Chief Financial
Officer and/or the Legal Department.

4.  Corporate Opportunities

Employees,  officers and directors  are  prohibited  from taking for  themselves
personally  opportunities  that  are  discovered  through  the use of  corporate
property, information or position without the consent of the Board of Directors.
No employee may use corporate  property,  information,  or position for improper
personal  gain,  and no  employee  may  compete  with the  Company  directly  or
indirectly.  Employees,  officers  and  directors  owe a duty to the  Company to
advance its legitimate interests when the opportunity to do so arises.

Without  limiting  the  generality  of the  foregoing,  employees,  officers and
directors should avoid  speculation or dealing in any kind of service or real or
personal  property  in a  market  or  during a period  that the  Company  may be
purchasing or dealing in services or property of the same or a similar kind.

5.  Competition and Fair Dealing

We seek to outperform our competition  fairly and honestly.  We seek competitive
advantages  through  superior  performance,  never through  unethical or illegal
business practices.  Stealing proprietary  information,  possessing trade secret
information  that was obtained  without the owner's  consent,  or inducing  such
disclosures by past or present employees of other companies is prohibited.  Each
employee  should  endeavor  to respect  the rights of and deal  fairly  with the
Company's customers,  suppliers,  competitors and employees.  No employee should
take unfair  advantage of anyone  through  manipulation,  concealment,  abuse of
privileged  information,  misrepresentation  of  material  facts,  or any  other
intentional unfair-dealing practice.

To maintain  the  Company's  valuable  reputation,  compliance  with our quality
processes  and  safety  requirements  is  essential.  In the  context of ethics,
quality  requires that our products and services be designed and manufactured to
meet our obligations to customers.  All inspection and testing documents must be
handled in accordance with all applicable regulations.

The purpose of business  entertainment  and gifts in a commercial  setting is to
create good will and sound working  relationships,  not to gain unfair advantage
with customers. No gift or entertainment should ever be offered, given, provided
or  accepted  by any  Company  employee,  family  member of an employee or agent
unless it: (1) is not a cash gift,  (2) is consistent  with  customary  business
practices,  (3) is not excessive in value, (4) cannot be construed as a bribe or
payoff and (5) does not violate any laws or  regulations.  Please  discuss  with
your  supervisor  any gifts or  proposed  gifts  which you are not  certain  are
appropriate.

6.  Employment Relationship

The diversity of the Company's  employees is a tremendous  asset.  We are firmly
committed to providing  equal  opportunity in all aspects of employment and will
not tolerate any illegal  discrimination  or  harassment  or any kind.  Examples
include  derogatory  comments  based on  racial or  ethnic  characteristics  and
unwelcome  sexual advances.  Supervisors  must be particularly  sensitive to the
maintenance  of  totally   professional   relations  with  subordinates.   Undue
pressures,  no  matter  how  subtle,  which  result  in less  than  professional
relations must be avoided, Evidence of violation of the letter or spirit of this
policy will result in appropriate disciplinary measures. The Company is entitled
to the  full  working  time  and  energy  of  each of its  full-time  employees.
Accordingly,  working in any capacity (including  self-employment) in or for any
business  activity  outside  the  Company is  prohibited,  except with the prior
approval  of  your   supervisor   given  after  full   disclosure   of  all  the
circumstances.  Special attention should be given to avoiding the conduct of any
outside  business  during Company working hours,  on Company  premises,  or in a
manner that involves fellow  employees  during their Company working hours,  and
the solicitation of fellow employees  (particularly  subordinates,  who could be
especially  vulnerable to what might be perceived as pressure from a supervisor)
to  participate  in or with such  business  in any way,  whether as a  customer,
employee, independent contractor, or otherwise.


                                      A-2


7.  Health and Safety

The Company  strives to provide each  employee  with a safe and  healthful  work
environment. Each employee has responsibility for maintaining a safe and healthy
workplace for all  employees by following  safety and health rules and practices
and reporting accidents, injuries and unsafe equipment, practices or conditions.
Violence and threatening behavior are not permitted.  Employees should report to
work in condition to perform  their  duties,  free from the influence of illegal
drugs or alcohol.  The use of illegal drugs and/or alcohol in the workplace will
not be tolerated.

8.  Record-Keeping

The Company requires honest and accurate  recording and reporting of information
in order to be able to make  responsible  business  decisions  and to be able to
make full, fair, accurate,  timely and understandable  disclosure in the reports
and documents the Company files with, or submits to, the Securities and Exchange
Commission and in its other public communications. It is the Company's policy to
make responsible business decisions and to make such disclosure.

All of the Company's books,  records,  accounts and financial statements must be
maintained  in  reasonable  detail,  must  appropriately  reflect the  Company's
transactions and must conform both to applicable  legal  requirements and to the
Company's  system of internal  controls.  Unrecorded or "off the books" funds or
assets  should  not  be  maintained   unless  permitted  by  applicable  law  or
regulation.  Many employees regularly use business expense accounts,  which must
be  documented  and recorded  accurately.  If you are not sure whether a certain
expense  is  legitimate,  ask  your  supervisor  or the  controller.  Rules  and
guidelines are available from the Accounting Department.

Business  records and  communications  often become public,  and we should avoid
exaggeration,  derogatory remarks, guesswork, or inappropriate characterizations
of people and  companies  that can be  misunderstood.  This  applies  equally to
e-mail, internal memos, and formal reports. Records should always be retained or
destroyed  according to the Company's record retention  policies.  In accordance
with those policies,  in the event of litigation or  governmental  investigation
please consult the Company's Chief Financial Officer.

9.  Confidentiality

Employees  must  maintain  the   confidentiality  of  confidential   information
entrusted to them by the Company or its  suppliers,  except when  disclosure  is
authorized by Senior Management or required by laws or regulations. Confidential
information  includes  all  nonpublic  information  that  might  be  of  use  to
competitors,  or harmful to the Company or its suppliers,  if disclosed. It also
includes  information  that  suppliers  have  entrusted to us. The obligation to
preserve confidential information continues even after employment ends.

10. Protection and Proper Use of Company Assets

All employees  should endeavor to protect the Company's  assets and ensure their
efficient  use.  Theft,  carelessness,  and  waste  have a direct  impact on the
Company's  profitability.  Any  suspected  incident of fraud or theft  should be
immediately reported for investigation. Company equipment should not be used for
non-Company business, though incidental personal use may be permitted.

The  obligation  of  employees  to protect the  Company's  assets  includes  its
proprietary information.  Proprietary information includes intellectual property
such as trade secrets, patents, trademarks, and copyrights, as well as business,
marketing and service plans, product and production ideas,  equipment,  designs,
databases,  records,  salary information and any unpublished  financial data and
reports.  Unauthorized  use or  distribution of this  information  would violate
Company  policy.  It could also be illegal and result in civil or even  criminal
penalties.

Except for  routine  ongoing  services,  all fees to  consultants,  agents,  and
attorneys  must be  approved  in advance  by the  Company's  Senior  Management.
Manifestly,  such fees must be solely for legitimate  company services  rendered
and must not be used as a device for making industry political  contributions or
other payments not allowed directly.


                                      A-3


11. Political Contributions

Contributions  by the  Company,  directly  or  indirectly,  to or on  behalf  of
candidates for federal office are not permitted.  Other political  contributions
are allowed only if permissible under applicable laws, rules and regulations, as
determined by the Company's Chief Financial Officer after  consultation with the
Legal Department, and only if approved in writing by the Company's CEO.

12. Payments to Government Personnel

The U.S.  Foreign  Corrupt  Practices  Act prohibits  giving  anything of value,
directly or indirectly, to officials of foreign governments or foreign political
candidates in order to obtain or retain business.  It is strictly  prohibited to
make illegal payments to government  officials of any country. In addition,  the
U.S.  government  has a  number  of  laws  and  regulations  regarding  business
gratuities  which may be accepted by U.S.  government  personnel.  The  promise,
offer or delivery to an official or employee of the U.S.  government  of a gift,
favor or other  gratuity in  violation  of these  rules  would not only  violate
Company  policy  but  could  also  be  a  criminal  offense.   State  and  local
governments,  as well as  foreign  governments,  may  have  similar  rules.  The
Company's Chief Financial Officer can provide guidance to you in this area.

13. Waivers of the Code of Business Conduct and Ethics

Any waiver of this Code for executive  officers or directors may be made only by
the Board or a Board  committee  and will be promptly  disclosed  as required by
applicable law, rule or regulation, including stock exchange regulation.

14. Reporting any Illegal or Unethical Behavior

Employees are encouraged to talk to supervisors,  managers or other  appropriate
personnel about observed  illegal or unethical  behavior and when in doubt about
the best course of action in a  particular  situation.  Violations  of this Code
should be reported promptly to a member of Senior  Management.  It is the policy
of the Company not to allow retaliation for reports of misconduct by others made
in good faith by  employees.  Employees  are  expected to  cooperate in internal
investigations  of misconduct.  Additionally,  the Company's  Senior  Management
should  always be informed of matters  which might  appear to risk damage to the
Company's reputation, as well as its financial condition or profitability.

15. Annual Statement

Officers  and certain  other  employees of the Company are required to submit an
annual  statement  disclosing  actual and  potential  conflicts  of interest and
including the following affirmation:

"I have  examined and  understand  the  Company's  Code of Business  Conduct and
Ethics (the "Code").  I undertake to report  promptly,  in  accordance  with the
Code, any circumstances in the Company's business or operations that may involve
a  violation  of  any   applicable   law,  rule  or  regulation  and  any  other
circumstances  that may involve a violation of the Code. I confirm that I do not
know of any such circumstances not previously reported."

16. Compliance Procedures

We must all work to ensure prompt and consistent  action  against  violations of
this Code. However, in some situations it is difficult to know right from wrong.
Since we cannot anticipate every situation that will arise, it is important that
we have a way to approach a new question or problem. These are the steps to keep
in mind:

     -    Make  sure you  have all the  facts.  In  order  to  reach  the  right
          solutions, we must be as fully informed as possible.
     -    Ask yourself:  What  specifically am I being asked to do? Does it seem
          unethical or  improper?  This will enable you to focus on the specific
          question you are faced with, and the  alternatives  you have, Use your
          judgment and common sense;  if something  seems unethical or improper,
          it probably is.
     -    Clarify your  responsibility  and role. In most  situations,  there is
          shared  responsibility.  Are your colleagues informed?  It may help to
          get others involved and discuss the problem.
     -    Discuss the problem with your  supervisor.  This is the basic guidance
          for  all  situations.  In many  cases,  your  supervisor  will be more
          knowledgeable  about the question,  and will appreciate  being brought
          into  the   decision-making   process.   Remember   that  it  is  your
          supervisor's responsibility to help solve problems.


                                      A-4


     -    Seek help from Company resources. In the rare case where it may not be
          appropriate to discuss an issue with your supervisor,  or where you do
          not feel  comfortable  approaching your supervisor with your question,
          discuss  it with any  member  of  management  above  the level of your
          supervisor,  including the Senior  Management of the Company.  If that
          also is not  appropriate,  call  901-238-2229,  the Company's  General
          Counsel,  which will put you in direct  contact  with the  appropriate
          people at Company headquarters.
     -    Submission of  confidential  information to the Audit  Committee.  The
          Audit  Committee is  responsible  for  overseeing  the  accounting and
          financial  reporting  process of the  Company.  In order to ensure the
          integrity of the Company's  financial reports,  the Committee welcomes
          and  encourages  employees  to report  directly to them any  practice,
          policy  or acts that  could  impair  the  integrity  of the  Company's
          financial records or reports.

         If you have any information that you believe would be beneficial to the
         Committee  please  send  communication  by  sending  a letter  to Audit
         Committee, Fred's Inc., c/o General Counsel, 4300 New Getwell, Memphis,
         TN 37072.  All  communication  will be reviewed by our Legal Department
         and  forwarded  to the Audit  Committee  on a quarterly  basis,  unless
         required by the Committee on a more frequent basis. Your  communication
         will be treated  confidentially,  subject to applicable law, regulation
         or  legal  proceedings,  if  so  marked  on  the  envelope  or  in  the
         communication.

         You may report  ethical  violations in  confidence  and without fear of
         retaliation.  If your  situation  requires  that your  identity be kept
         secret,  your anonymity will be protected.  The Company does not permit
         retaliation  of any kind against  employees  for good faith  reports of
         ethical violations.

          Always  ask first,  act later.  If you are unsure of what to do in any
          situation, seek guidance before you act.


                                      A-5


                                                                      APPENDIX B


                           CHARTER OF AUDIT COMMITTEE
                                       OF
                                  FRED'S, INC.

I. Organization:

There shall be an Audit  Committee (the  "Committee")  of the Board of Directors
(the "Directors") of Fred's,  Inc. (the  "Corporation").  The Committee shall be
composed of at least three  directors who meet the  independence  and experience
requirements of the Nasdaq Stock Market, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations of the Securities and
Exchange Commission (the "Commission"). If one member of the Committee is not an
"audit committee financial expert" as defined by the Commission,  then that fact
shall be disclosed as required by the Commission.

II. Statement of Policy:

The  purpose  of the  Committee  is to  oversee  the  accounting  and  financial
reporting  processes  of  the  Corporation  and  the  audits  of  the  financial
statements of the  Corporation.  In so doing,  it is the  responsibility  of the
Committee  to  maintain  free  and  open  means  of  communication  between  the
Directors,  the  independent  auditors,  the internal  audit  function,  and the
management of the Corporation.

III. Responsibilities:

In carrying out its  responsibilities,  the Committee  believes its policies and
procedures should remain flexible, in order to best react to changing conditions
and to ensure that the accounting and reporting practices of the Corporation are
in accordance with all requirements and are of the highest quality.

In carrying out these responsibilities, the Committee will:

1)        Have the sole  authority to appoint,  compensate,  replace and oversee
          the  work  of  the  independent   auditor,   including  resolution  of
          disagreements between management and the independent auditor regarding
          financial reporting.  The independent auditor shall report directly to
          the Committee.
2)        Establish  procedures for (a) the receipt,  retention and treatment of
          complaints received by the Corporation regarding accounting,  internal
          accounting  controls or auditing  matters,  and (b) the  confidential,
          anonymous  submission by employees of concerns regarding  questionable
          accounting or auditing practices.
3)        Pre-approve  all  audit  services  and  permitted  non-audit  services
          (including  the  fees  and  terms  thereof)  to be  performed  for the
          Corporation  by its  independent  auditor,  subject  to the de minimis
          exceptions for non-audit services described in Section 10A(i)(1)(B) of
          the  Exchange  Act which are  approved by the  Committee  prior to the
          completion of the audit,  pursuant to the  Corporation's  Pre-Approval
          Policy.
4)        Review the financial  statements and the Corporation's  disclosures in
          the "Management's  Discussion and Analysis of Financial  Condition and
          Results of Operations"  section  contained in the quarterly reports on
          Form  10-Q and the  annual  report on Form  10-K and  ensure  that the
          independent  auditor is satisfied  with the  disclosure and content of
          such reports. Review any changes in accounting principles.
5)        Review and discuss with management (including the head of the internal
          audit  function)  and the  independent  auditor:
          -    the  Corporation's  disclosure  controls and  procedures  and its
               internal   controls  and  procedures  for  financial   reporting,
               including the  conclusions of the  Corporation's  chief executive
               officer and chief financial  officer  regarding the effectiveness
               of both sets of controls and procedures  reached as part of their
               certification  process for the quarterly reports on Form 10-Q and
               the annual report on Form 10-K, and their evaluation process;
          -    the  Corporation's  internal  controls report and the independent
               auditor's attestation of the report; and
          -    any  recommendations for the improvement of such internal control
               procedures  or  particular  areas  where  new  or  more  detailed
               controls or procedures are desirable, with particular emphasis on
               the adequacy of such  internal  controls to expose any  payments,
               transactions,  or  procedures  that  might be deemed  illegal  or
               otherwise improper.


                                      B-1


6)        Have the  authority  to retain,  to the extent it deems  necessary  or
          appropriate,  independent  legal,  accounting or other  advisors.  The
          Corporation  shall provide for appropriate  funding,  as determined by
          the Committee,  for payment of compensation to the independent auditor
          for the  purpose of  rendering  or issuing an audit  report and to any
          advisors  employed  by  the  Committee,  and  ordinary  administrative
          expenses  of the  Committee  that  are  necessary  or  appropriate  in
          carrying out its duties.
7)        Pursuant to Independence Standards Board Standard 1:
          -    ensure that it  receives  from the  independent  auditor a formal
               written  statement  delineating  all  relationships  between  the
               independent auditor and the Corporation;
          -    actively engage in a dialogue with the  independent  auditor with
               respect  to any  disclosed  relationships  or  services  that may
               impact  the  objectivity  and  independence  of  the  independent
               auditor; and
          -    take, or recommend that the Directors take, appropriate action to
               oversee the independence of the independent auditor.

8)        Meet with the independent auditors and management of the Corporation
          to review the scope of the proposed audit for the current  year and
          the audit procedures to be utilized, and, at the conclusion thereof,
          review such audit, including any comments or recommendations of the
          independent auditors.
9)        Discuss with the independent auditors matters required to be discussed
          by Statement on Auditing  Standards  No. 61 relating to the conduct of
          the audit,  and in  particular  any  difficulties  encountered  in the
          course of the audit work, any  restrictions on the scope of activities
          or access to requested  information and any significant  disagreements
          with management.
10)       Review and  discuss  with the  independent  auditors:

          -    all critical accounting policies and practices to be used;

          -    all  alternative   treatments  of  financial  information  within
               generally accepted accounting  principles ("GAAP") that have been
               discussed  with  management,  ramifications  of the  use of  such
               alternative   disclosures  and  treatments,   and  the  treatment
               preferred by the independent auditor; and

          -    any  material  written  communications  between  the  independent
               auditor and management, such as any management letter or schedule
               of unadjusted differences.

11)       Review,  prior to each meeting,  a summary of findings from  completed
          internal audits,  and a progress report on the proposed internal audit
          plan, with explanations for any deviations from the original plan.
12)       Periodically review the Corporation's adherence to the code of conduct
          and investigate any matter brought to its attention within the scope
          of its duties.
13)       Each quarter,  provide  sufficient  opportunity for the internal audit
          function and the  independent  auditor to meet with the members of the
          Audit Committee without members of management present. Among the items
          to be  discussed  in  these  meetings  are the  independent  auditors'
          evaluation of the Corporation's  financial,  accounting,  and auditing
          personnel,  and the cooperation that the independent auditors received
          during the course of the audit.
14)       Ensure that the lead, concurring, and other audit partners are rotated
          off the independent  auditor's  audit  engagement team as necessary to
          assure the independence of the independent auditor.  Consider rotating
          the  independent  auditor  on a  regular  basis  in  order  to  assure
          continuing auditor independence.
15)       Obtain from the independent  auditor  assurance that Section 10A(b) of
          the  Exchange Act has not been  implicated.
16)       Submit the minutes of all  meetings of the audit committee to, or
          discuss  the  matters discussed at each committee meeting with, the
          Directors.
17)       Prepare   the  report  of  the   Committee   to  be  included  in  the
          Corporation's  annual proxy  statement as required by the rules of the
          Commission,   including   disclosures  of  pre-approval  policies  and
          auditors'  fees,  and cause this  Charter to be  included in the proxy
          statement periodically.
18)       Review and reassess the adequacy of this Charter on an annual basis.

While the Committee has the authority, powers, and responsibilities set forth in
this Charter,  it is not the duty of the Committee to plan or conduct  audits or
to determine that the  Corporation's  financial  statements and  disclosures are
complete and  accurate and are in  accordance  with GAAP and  applicable  legal,
accounting,  and  other  requirements.  These  are the  responsibilities  of the
Corporation's management and the independent auditor.


                                      B-2


                                                                      APPENDIX C


                                  FRED'S, INC.
                   NOMINATING AND GOVERNANCE COMMITTEE CHARTER

Purpose

The purpose of the Nominating and Governance Committee is to assist the Board of
Directors  (the  "Board") of Fred's,  Inc. (the  "Company")  in (1)  identifying
individuals qualified to become Board members, consistent with criteria approved
by the Board,  and  recommending  to the Board the  director  nominees  for each
annual meeting of stockholders  and the nominees for each Board  committee;  (2)
developing and  recommending  to the Board the Corporate  Governance  Principles
applicable to the Company; and (3) to lead the Board in its annual review of the
Board's performance.

Committee Membership

The Nominating and Governance Committee shall consist of at least three members.
The members of the  Committee  shall be  appointed by and may be replaced by the
Board. The members of the Committee shall meet the independence  requirements of
the rules of the Nasdaq Stock Market.

Authority and Responsibilities

The Committee shall actively seek individuals  qualified to become Board members
for recommendation to the Board, consistent with criteria approved by the Board.
The Committee shall recommend to the Board the director nominees for each annual
meeting of  stockholders,  and shall  recommend  to the Board the classes of the
directors.

The  Committee  shall  recommend  to  the  Board  the   establishment   of,  and
responsibilities  of, various  committees of the Board and make  recommendations
concerning membership on Board committees and the rotation of committee chairs.

The Committee shall develop and recommend to the Board the Corporate  Governance
Principles  applicable  to the Company,  review and reassess the adequacy of the
Corporate Governance Principles, and recommend any proposed changes to the Board
for approval.

The Committee  shall receive  comments from all directors and report annually to
the Board with an assessment of the Board's  performance,  to be discussed  with
the full Board.

The Committee may form and delegate authority to subcommittees when appropriate.

The Committee  shall have the sole  authority to retain and terminate any search
firm to be used to identify director candidates and shall have sole authority to
approve the search firm's fees and other retention terms.

The Committee shall make regular reports to the Board.

The  Committee  shall review and reassess the adequacy of this Charter  annually
and  recommend  any proposed  changes to the Board for  approval.  The Committee
shall annually review its own performance.


                                      C-1


                                                                      APPENDIX D



                                  FRED'S, INC.
                        2004 EMPLOYEE STOCK PURCHASE PLAN


                 Adopted by the Board of Directors May 14, 2004
                     Approved by Stockholders _____ __, 2004


1.   PURPOSE.

     (a) The purpose of the Plan is to provide a means by which Employees of the
Company and certain designated Related  Corporations may be given an opportunity
to purchase shares of the Common Stock of the Company.

     (b) The Company, by means of the Plan, seeks to retain the services of such
Employees,  to secure and retain the  services of new  Employees  and to provide
incentives  for such  persons to exert  maximum  efforts  for the success of the
Company and its Related Corporations.

     (c) The Company  intends that the Purchase Rights granted under the Plan be
considered options issued under an Employee Stock Purchase Plan.

2.   DEFINITIONS.

     (a) "Board" means the Board of Directors of the Company.

     (b) "Code" means the Internal Revenue Code of 1986, as amended.

     (c) "Committee" means a committee appointed by the Board in accordance with
Section 3(c) of the Plan.

     (d) "Common Stock" means the common stock of the Company.

     (e) "Company" means Fred's, Inc., a Tennessee corporation.

     (f) "Corporate  Transaction" means the occurrence,  in a single transaction
or in a series of related transactions, of any one or more of the events:

     (i) a sale, lease, license or other disposition of all or substantially all
of the consolidated assets of the Company;

     (ii) a sale or other  disposition  of at least ninety  percent (90%) of the
outstanding securities of the Company;

     (iii) a merger,  consolidation or similar  transaction  following which the
Company is not the surviving corporation; or

     (iv) a merger,  consolidation  or similar  transaction  following which the
Company is the surviving  corporation but the shares of Common Stock outstanding
immediately  preceding  the merger,  consolidation  or similar  transaction  are
converted  or  exchanged  by  virtue of the  merger,  consolidation  or  similar
transaction  into other  property,  whether in the form of  securities,  cash or
otherwise.

     (g) "Director" means a member of the Board.

     (h) "Eligible  Employee" means an Employee who meets the  requirements  set
forth in the Offering for  eligibility to participate in the Offering,  provided
that such Employee also meets the  requirements  for  eligibility to participate
set forth in the Plan.

     (i) "Employee" means any person,  including Officers and Directors,  who is
employed  for  purposes  of Section  423(b)(4)  of the Code by the  Company or a
Related  Corporation.  Neither service as a Director nor payment of a director's
fee shall be  sufficient  to make an  individual an Employee of the Company or a
Related Corporation.


                                      D-1


     (j) "Employee Stock Purchase Plan" means a plan that grants Purchase Rights
intended to be options issued under an "employee  stock purchase  plan," as that
term is defined in Section 423(b) of the Code.

     (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (l) "Fair Market  Value" means the value of a security,  as  determined  in
good faith by the Board.  If the  security  is listed on any  established  stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap  Market,
the Fair Market Value of the security, unless otherwise determined by the Board,
shall be the closing  sales price  (rounded  up where  necessary  to the nearest
whole cent) for such security (or the closing bid, if no sales were reported) as
quoted on such  exchange or market (or the  exchange or market with the greatest
volume of trading in the  relevant  security of the  Company) on the Trading Day
prior to the relevant determination date, as reported in The Wall Street Journal
or such other source as the Board deems reliable.

     (m)  "Offering"  means the grant of Purchase  Rights to purchase  shares of
Common Stock under the Plan to Eligible Employees.

     (n)  "Offering  Date" means a date selected by the Board for an Offering to
commence.

     (o)  "Officer"  means a person who is an officer of the Company  within the
meaning  of  Section  16 of the  Exchange  Act and  the  rules  and  regulations
promulgated thereunder.

     (p)  "Participant"  means an  Eligible  Employee  who holds an  outstanding
Purchase Right granted pursuant to the Plan.

     (q) "Plan" means this Fred's, Inc. 2004 Employee Stock Purchase Plan.

     (r) "Purchase Date" means one or more dates during an Offering  established
by the Board on which Purchase  Rights granted under the Plan shall be exercised
and as of which  purchases  of shares of Common  Stock  shall be carried  out in
accordance with such Offering.

     (s) "Purchase  Period" means a period of time specified  within an Offering
beginning  on the  Offering  Date or on the next day  following a Purchase  Date
within an  Offering  and ending on a Purchase  Date,  at the end of which  there
shall be purchased shares of Common Stock on behalf of Participants. An Offering
may consist of one or more Purchase Periods.

     (t)  "Purchase  Right"  means an option to purchase  shares of Common Stock
granted pursuant to the Plan.

     (u)  "Related  Corporation"  means any  parent  corporation  or  subsidiary
corporation,  whether now or hereafter  existing,  as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

     (v) "Securities Act" means the Securities Act of 1933, as amended.

     (w)  "Trading  Day" means any day the  exchange(s)  or  market(s)  on which
shares of Common Stock are listed, whether it be any established stock exchange,
the Nasdaq National Market, the Nasdaq SmallCap Market or otherwise, is open for
trading.

3.   ADMINISTRATION.

     (a) The  Board  shall  administer  the Plan  unless  and  until  the  Board
delegates administration to a Committee, as provided in Section 3(c). Whether or
not the Board has delegated administration, the Board shall have the final power
to  determine  all  questions  of policy  and  expediency  that may arise in the
administration of the Plan.

     (b) The Board (or the  Committee)  shall  have the power,  subject  to, and
within the limitations of, the express provisions of the Plan:

     (i) To determine when and how Purchase  Rights to purchase shares of Common
Stock  shall be granted and the  provisions  of each  Offering of such  Purchase
Rights (which need not be identical).

     (ii) To  designate  from time to time  which  Related  Corporations  of the
Company shall be eligible to participate in the Plan.


                                      D-2


     (iii) To construe and interpret the Plan and Purchase  Rights granted under
the Plan,  and to  establish,  amend and revoke  rules and  regulations  for the
administration  of the Plan.  The Board,  in the  exercise  of this  power,  may
correct any defect,  omission or  inconsistency  in the Plan, in a manner and to
the  extent  it shall  deem  necessary  or  expedient  to make  the  Plan  fully
effective.

     (iv) To amend the Plan as provided in Section 15.

     (v) Generally, to exercise such powers and to perform such acts as it deems
necessary  or  expedient  to promote the best  interests  of the Company and its
Related  Corporations and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.

     (c) The Board may delegate administration of the Plan to a Committee of the
Board  composed of one (1) or more members of the Board.  If  administration  is
delegated to a Committee,  the  Committee  shall have,  in  connection  with the
administration  of the Plan,  the  powers  theretofore  possessed  by the Board,
subject,  however, to such resolutions,  not inconsistent with the provisions of
the  Plan,  as may be  adopted  from  time to time by the  Board.  The Board may
abolish the Committee at any time and revest in the Board the  administration of
the Plan. If administration is delegated to a Committee, references to the Board
in this Plan and in the Offering  document  shall  thereafter be deemed to be to
the Board or the Committee, as the case may be.

4. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.

     (a) Subject to the  provisions of Section 14 relating to  adjustments  upon
changes  in stock,  the  shares of Common  Stock  that may be sold  pursuant  to
Purchase  Rights  granted  under the Plan shall not exceed in the  aggregate one
million  (1,000,000) shares of Common Stock, plus an annual increase to be added
on the first day of each calendar year, commencing on January 1, 2005 and ending
on (and including)  January 1, 2014,  equal to the least of (i) two percent (2%)
of the shares of Common Stock outstanding on each January 1 (rounded down to the
nearest whole share and  calculated on a fully diluted  basis,  that is assuming
the exercise of all outstanding stock options and warrants to purchase shares of
Common Stock);  (ii) five hundred thousand  (500,000) shares of Common Stock; or
(iii) such number of shares of Common Stock as  determined  by the Board,  which
number shall be less than each of (i) and (ii).  If any Purchase  Right  granted
under the Plan shall for any reason terminate without having been exercised, the
shares not purchased under such Purchase Right shall again become  available for
issuance under the Plan.

     (b) The shares of Common Stock  subject to the Plan may be unissued  shares
or shares that have been bought on the open market at  prevailing  market prices
or otherwise.

5.   GRANT OF PURCHASE RIGHTS; OFFERING.

     (a) The  Board  may from  time to time  grant or  provide  for the grant of
Purchase  Rights to purchase  shares of Common  Stock under the Plan to Eligible
Employees  in an Offering  (consisting  of one or more  Purchase  Periods) on an
Offering Date or Offering Dates selected by the Board. Each Offering shall be in
such form and shall  contain such terms and  conditions  as the Board shall deem
appropriate, which shall comply with the requirement of Section 423(b)(5) of the
Code that all Employees  granted  Purchase  Rights to purchase  shares of Common
Stock  under the Plan shall have the same rights and  privileges.  The terms and
conditions of an Offering shall be  incorporated  by reference into the Plan and
treated as part of the Plan.  The  provisions of separate  Offerings need not be
identical,  but  each  Offering  shall  include  (through  incorporation  of the
provisions of this Plan by reference in the document  comprising the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed  twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in Sections 6 through 9, inclusive.

     (b) If a Participant has more than one Purchase Right outstanding under the
Plan,  unless he or she otherwise  indicates in agreements or notices  delivered
hereunder:  (i) each agreement or notice delivered by that Participant  shall be
deemed to apply to all of his or her Purchase  Rights under the Plan, and (ii) a
Purchase  Right  with a lower  exercise  price (or an  earlier-granted  Purchase
Right,  if different  Purchase Rights have identical  exercise  prices) shall be
exercised to the fullest  possible  extent before a Purchase Right with a higher
exercise price (or a later-granted  Purchase Right, if different Purchase Rights
have identical exercise prices) shall be exercised.


                                      D-3


6.   ELIGIBILITY.

     (a) Purchase  Rights may be granted only to Employees of the Company or, as
the Board may  designate as provided in Section  3(b), to Employees of a Related
Corporation.  Except as  provided  in Section  6(b),  an  Employee  shall not be
eligible to be granted  Purchase  Rights under the Plan unless,  on the Offering
Date,  such  Employee  has been in the  employ  of the  Company  or the  Related
Corporation,  as the case may be,  for such  continuous  period  preceding  such
Offering  Date as the  Board may  require,  but in no event  shall the  required
period of continuous employment be greater than two (2) years. In addition,  the
Board may  provide  that no Employee  shall be  eligible to be granted  Purchase
Rights under the Plan unless,  on the Offering Date, such  Employee's  customary
employment with the Company or the Related  Corporation is more than twenty (20)
hours per week and more than five (5) months per calendar year.

     (b) The Board may provide  that each  person  who,  during the course of an
Offering, first becomes an Eligible Employee shall, on a date or dates specified
in the Offering  which  coincides  with the day on which such person  becomes an
Eligible  Employee or which occurs  thereafter,  receive a Purchase  Right under
that Offering,  which Purchase Right shall  thereafter be deemed to be a part of
that Offering.  Such Purchase Right shall have the same  characteristics  as any
Purchase Rights  originally  granted under that Offering,  as described  herein,
except that:

     (i) the date on which such Purchase Right is granted shall be the "Offering
Date" of such Purchase Right for all purposes,  including  determination  of the
exercise price of such Purchase Right;

     (ii) the period of the Offering with respect to such  Purchase  Right shall
begin on its Offering Date and end coincident with the end of such Offering; and

     (iii) the Board may provide that if such person  first  becomes an Eligible
Employee within a specified period of time before the end of the Offering, he or
she shall not receive any Purchase Right under that Offering.

     (c) No Employee  shall be  eligible  for the grant of any  Purchase  Rights
under the Plan if, immediately after any such Purchase Rights are granted,  such
Employee owns stock  possessing  five percent (5%) or more of the total combined
voting  power or value of all  classes of stock of the Company or of any Related
Corporation.  For purposes of this Section 6(c),  the rules of Section 424(d) of
the Code shall apply in  determining  the stock  ownership of any Employee,  and
stock which such Employee may purchase under all outstanding Purchase Rights and
options shall be treated as stock owned by such Employee.

     (d) As specified by Section 423(b)(8) of the Code, an Eligible Employee may
be granted Purchase Rights under the Plan only if such Purchase Rights, together
with any other rights  granted under all Employee  Stock  Purchase  Plans of the
Company and any Related  Corporations,  do not permit such  Eligible  Employee's
rights to purchase stock of the Company or any Related  Corporation to accrue at
a rate which exceeds twenty five thousand dollars ($25,000) of Fair Market Value
of such stock  (determined  at the time such rights are granted and which,  with
respect to the Plan, shall be determined as of their respective  Offering Dates)
for each calendar year in which such rights are outstanding at any time.

     (e) Officers of the Company and any designated Related Corporation, if they
are otherwise Eligible Employees,  shall be eligible to participate in Offerings
under the Plan.  Notwithstanding  the  foregoing,  the Board may  provide  in an
Offering that Employees who are highly compensated  Employees within the meaning
of Section 423(b)(4)(D) of the Code shall not be eligible to participate.

7.   PURCHASE RIGHTS; PURCHASE PRICE.

     (a) On each Offering Date, each Eligible Employee,  pursuant to an Offering
made under the Plan,  shall be granted a Purchase  Right to  purchase up to that
number of shares of Common Stock purchasable  either with a percentage or with a
maximum  dollar  amount,  as  designated  by the Board,  but in either  case not
exceeding fifteen percent (15%), of such Employee's  Earnings (as defined by the
Board in each  Offering)  during the period that begins on the Offering Date (or
such later date as the Board  determines for a particular  Offering) and ends on
the date  stated in the  Offering,  which date shall be no later than the end of
the Offering.

     (b) The Board shall  establish  one (1) or more  Purchase  Dates  during an
Offering as of which Purchase Rights granted under the Plan and pursuant to that
Offering  shall be  exercised  and  purchases of shares of Common Stock shall be
carried out in accordance with such Offering.


                                      D-4


     (c) In connection  with each Offering made under the Plan,  the Board shall
specify a maximum  number of shares of Common Stock that may be purchased by any
Participant on any Purchase Date during such Offering.  In connection  with each
Offering made under the Plan, the Board may specify a maximum  aggregate  number
of shares of Common Stock that may be purchased by all Participants  pursuant to
such Offering.  In addition, in connection with each Offering that contains more
than one  Purchase  Date,  the Board may specify a maximum  aggregate  number of
shares of Common Stock that may be purchased  by all  Participants  on any given
Purchase Date under the Offering.  If the aggregate purchase of shares of Common
Stock issuable upon exercise of Purchase Rights granted under the Offering would
exceed any such  maximum  aggregate  number,  then,  in the absence of any Board
action otherwise,  a pro rata allocation of the shares of Common Stock available
shall be made in as  nearly  a  uniform  manner  as  shall  be  practicable  and
equitable.

     (d) The  purchase  price of shares of Common  Stock  acquired  pursuant  to
Purchase Rights granted under the Plan shall be not less than the lesser of:

     (i) an amount equal to  eighty-five  percent (85%) of the Fair Market Value
of the shares of Common Stock on the Offering Date; or

     (ii) an amount equal to eighty-five  percent (85%) of the Fair Market Value
of the shares of Common Stock on the applicable Purchase Date.

8.   PARTICIPATION; WITHDRAWAL; TERMINATION.

     (a) An Eligible  Employee may become a Participant  in the Plan pursuant to
an Offering by delivering a  participation  agreement to the Company  within the
time  specified in the Offering,  in such form as the Company may provide.  Each
such  agreement  shall  authorize  payroll  deductions  of  up  to  the  maximum
percentage specified by the Board of such Participant's  Earnings (as defined in
each  Offering)  during  the  Offering.  The  payroll  deductions  made for each
Participant  shall be credited  to a  bookkeeping  account for such  Participant
under the Plan and shall be deposited with the general funds of the Company.  To
the extent  provided in the  Offering,  a Participant  may reduce  (including to
zero) or  increase  such  payroll  deductions  . To the extent  provided  in the
Offering, a Participant may begin such payroll deductions after the beginning of
the Offering. A Participant may make additional payments into his or her account
only if  specifically  provided for in the Offering and only if the  Participant
has not already had the maximum permitted amount withheld during the Offering.

     (b) At any time during an Offering,  a Participant may terminate his or her
payroll  deductions  under the Plan and withdraw from the Offering by delivering
to the Company a notice of  withdrawal  in such form as the Company may provide.
Such  withdrawal  may be elected  at any time prior to the end of the  Offering,
except as provided in the Offering.  Upon such withdrawal from the Offering by a
Participant,  the Company shall distribute to such Participant all of his or her
accumulated  payroll deductions  (reduced to the extent, if any, such deductions
have been used to acquire shares of Common Stock for the Participant)  under the
Offering,  without interest (unless  otherwise  specified in the Offering),  and
such Participant's interest in that Offering shall be automatically  terminated.
A  Participant's  withdrawal  from an  Offering  shall have no effect  upon such
Participant's  eligibility to participate in any other Offerings under the Plan,
but such Participant shall be required to deliver a new participation  agreement
in order to participate in subsequent Offerings under the Plan.

     (c) Purchase  Rights granted  pursuant to any Offering under the Plan shall
terminate  immediately  upon a  Participant  ceasing to be an  Employee  for any
reason or for no reason  (subject to any  post-employment  participation  period
required by law) or other lack of eligibility.  The Company shall  distribute to
such terminated or otherwise  ineligible  Employee all of his or her accumulated
payroll  deductions  (reduced to the extent,  if any, such  deductions have been
used to  acquire  shares  of  Common  Stock  for  the  terminated  or  otherwise
ineligible  Employee) under the Offering,  without  interest  (unless  otherwise
specified in the Offering).

     (d) Purchase  Rights granted under the Plan shall not be  transferable by a
Participant  otherwise than by will or the laws of descent and distribution,  or
by  a  beneficiary   designation  as  provided  in  Section  13  and,  during  a
Participant's lifetime, shall be exercisable only by such Participant.


                                      D-5


9.   EXERCISE.

     (a)  On  each  Purchase  Date  during  an  Offering,   each   Participant's
accumulated  payroll  deductions  and  other  additional  payments  specifically
provided for in the  Offering  (without  any  increase  for  interest)  shall be
applied to the  purchase of shares of Common  Stock up to the maximum  number of
shares  of  Common  Stock  permitted  pursuant  to the terms of the Plan and the
applicable  Offering,  at the  purchase  price  specified  in the  Offering.  No
fractional  shares shall be issued upon the exercise of Purchase  Rights granted
under the Plan unless specifically provided for in the Offering.

     (b)  If  any  amount  of  accumulated   payroll  deductions  remains  in  a
Participant's  account  after the  purchase  of shares of Common  Stock and such
remaining  amount is less than the  amount  required  to  purchase  one share of
Common  Stock on the final  Purchase  Date of an Offering,  then such  remaining
amount  shall be held in each such  Participant's  account  for the  purchase of
shares of Common  Stock  under the next  Offering  under the Plan,  unless  such
Participant  withdraws from such next Offering,  as provided in Section 8(b), or
is not eligible to participate  in such  Offering,  as provided in Section 6, in
which case such amount shall be distributed to the Participant  after said final
Purchase Date, without interest (unless otherwise specified in the Offering). If
any amount of accumulated payroll deductions remains in a Participant's  account
after the purchase of shares of Common Stock and such remaining  amount is equal
to the amount  required to purchase one (1) or more whole shares of Common Stock
on the final Purchase Date of the Offering,  then such remaining amount shall be
distributed  in  full to the  Participant  at the  end of the  Offering  without
interest (unless otherwise specified in the Offering).

     (c) No  Purchase  Rights  granted  under the Plan may be  exercised  to any
extent unless the shares of Common Stock to be issued upon such  exercise  under
the Plan are  covered by an  effective  registration  statement  pursuant to the
Securities  Act and the  Plan is in  material  compliance  with  all  applicable
federal,  state,  foreign and other  securities and other laws applicable to the
Plan. If on a Purchase  Date during any Offering  hereunder the shares of Common
Stock are not so registered or the Plan is not in such  compliance,  no Purchase
Rights  granted  under  the  Plan or any  Offering  shall be  exercised  on such
Purchase Date, and the Purchase Date shall be delayed until the shares of Common
Stock are subject to such an effective registration statement and the Plan is in
such  compliance,  except that the Purchase  Date shall not be delayed more than
twelve  (12)  months  and the  Purchase  Date  shall in no  event  be more  than
twenty-seven  (27) months from the Offering Date. If, on the Purchase Date under
any Offering hereunder, as delayed to the maximum extent permissible, the shares
of Common Stock are not  registered and the Plan is not in such  compliance,  no
Purchase  Rights  granted under the Plan or any Offering  shall be exercised and
all payroll  deductions  accumulated during the Offering (reduced to the extent,
if any, such  deductions have been used to acquire shares of Common Stock) shall
be distributed to the Participants, without interest (unless otherwise specified
in the Offering).

10.  COVENANTS OF THE COMPANY.

     (a) During the terms of the Purchase  Rights  granted  under the Plan,  the
Company  shall  ensure  that the amount of shares of Common  Stock  required  to
satisfy such Purchase Rights are available.

     (b) The Company shall seek to obtain from each federal,  state,  foreign or
other  regulatory  commission or agency having  jurisdiction  over the Plan such
authority  as may be  required  to issue and sell  shares of Common  Stock  upon
exercise of the Purchase  Rights  granted under the Plan.  If, after  reasonable
efforts, the Company is unable to obtain from any such regulatory  commission or
agency the authority that counsel for the Company deems necessary for the lawful
issuance and sale of shares of Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell shares of Common Stock
upon  exercise  of such  Purchase  Rights  unless  and until such  authority  is
obtained.

11. USE OF PROCEEDS FROM SHARES OF COMMON STOCK.

      Proceeds  from the sale of shares of Common  Stock  pursuant  to  Purchase
Rights granted under the Plan shall constitute general funds of the Company.


                                      D-6


12.  RIGHTS AS A STOCKHOLDER.

     A  Participant  shall not be deemed to be the  holder of, or to have any of
the  rights of a holder  with  respect  to,  shares of Common  Stock  subject to
Purchase Rights granted under the Plan unless and until the Participant's shares
of Common Stock acquired upon exercise of Purchase Rights granted under the Plan
are recorded in the books of the Company (or its transfer agent).

13.  DESIGNATION OF BENEFICIARY.

     (a) A Participant may file a written designation of a beneficiary who is to
receive any shares of Common Stock and/or cash, if any,  from the  Participant's
account under the Plan in the event of such  Participant's  death  subsequent to
the end of an Offering but prior to delivery to the  Participant  of such shares
of  Common  Stock  or cash.  In  addition,  a  Participant  may  file a  written
designation of a beneficiary  who is to receive any cash from the  Participant's
account  under  the Plan in the  event of such  Participant's  death  during  an
Offering.

     (b) The Participant may change such  designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary  validly designated under the Plan who is living at the time of
such Participant's  death, the Company shall deliver such shares of Common Stock
and/or cash to the executor or  administrator  of the estate of the Participant,
or if no such executor or administrator  has been appointed (to the knowledge of
the Company),  the Company,  in its sole discretion,  may deliver such shares of
Common  Stock  and/or  cash to the  spouse or to any one or more  dependents  or
relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.

14. ADJUSTMENTS UPON CHANGES IN SECURITIES; CORPORATE TRANSACTIONS.

     (a) If any  change is made in the  shares of Common  Stock,  subject to the
Plan, or subject to any Purchase Right,  without the receipt of consideration by
the Company (through merger,  consolidation,  reorganization,  recapitalization,
reincorporation,  stock  dividend,  dividend in property other than cash,  stock
split,  liquidating dividend,  combination of shares, exchange of shares, change
in  corporate  structure  or other  transaction  not  involving  the  receipt of
consideration by the Company),  the Plan shall be appropriately  adjusted in the
type(s),  class(es) and maximum  number of shares of Common Stock subject to the
Plan pursuant to Section 4(a), and the outstanding Purchase Rights granted under
the Plan shall be appropriately  adjusted in the type(s),  class(es),  number of
shares and purchase limits of such outstanding  Purchase Rights. The Board shall
make  such  adjustments,  and its  determination  shall be  final,  binding  and
conclusive.  (The conversion of any convertible  securities of the Company shall
not be treated as a "transaction  not involving the receipt of  consideration by
the Company.")

     (b) In the event of a Corporate  Transaction,  then:  (i) any  surviving or
acquiring  corporation may continue or assume Purchase Rights  outstanding under
the Plan or may substitute similar rights (including a right to acquire the same
consideration  paid to  stockholders  in the  Corporate  Transaction)  for those
outstanding  under the Plan, or (ii) if any  surviving or acquiring  corporation
does not assume such Purchase  Rights or does not substitute  similar rights for
Purchase Rights  outstanding under the Plan, then the Participants'  accumulated
payroll deductions (exclusive of any accumulated interest that cannot be applied
toward the purchase of shares of Common  Stock under the terms of the  Offering)
shall be used to  purchase  shares  of  Common  Stock  immediately  prior to the
Corporate Transaction under the ongoing Offering, and the Participants' Purchase
Rights  under the  ongoing  Offering  shall  terminate  immediately  after  such
purchase.

15.  AMENDMENT OF THE PLAN.

     (a) The  Board at any  time,  and from  time to time,  may  amend the Plan.
However,  except as provided in Section 14 relating to adjustments  upon changes
in securities and except as to amendments  solely to benefit the  administration
of the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory  treatment for Participants or the
Company or any Related  Corporation,  no  amendment  shall be  effective  unless
approved by the stockholders of the Company to the extent  stockholder  approval
is  necessary  for the Plan to satisfy  the  requirements  of Section 423 of the
Code, or other applicable laws or regulations.


                                      D-7


     (b) It is expressly  contemplated  that the Board may amend the Plan in any
respect the Board deems  necessary or advisable  to provide  Employees  with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan  and/or  Purchase  Rights  granted  under the Plan into
compliance therewith.

     (c) The rights and  obligations  under any Purchase  Rights  granted before
amendment of the Plan shall not be impaired by any  amendment of the Plan except
(i) with the consent of the person to whom such  Purchase  Rights were  granted,
(ii) as necessary to comply with any laws or governmental regulations,  or (iii)
as necessary to ensure that the Plan and/or  Purchase  Rights  granted under the
Plan comply with the requirements of Section 423 of the Code.

16.  TERMINATION OR SUSPENSION OF THE PLAN.

     (a) The Board in its  discretion  may suspend or terminate  the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares of Common Stock  reserved for issuance  under the Plan,  as increased
and/or adjusted from time to time, have been issued under the terms of the Plan.
No Purchase  Rights may be granted under the Plan while the Plan is suspended or
after it is terminated.

     (b) Any  benefits,  privileges,  entitlements  and  obligations  under  any
Purchase  Rights granted under the Plan while the Plan is in effect shall not be
impaired  by  suspension  or  termination  of the Plan  except (i) as  expressly
provided  in the Plan or with the  consent of the  person to whom such  Purchase
Rights were granted, (ii) as necessary to comply with any laws , regulations, or
listing  requirements,  or (iii) as  necessary  to ensure  that the Plan  and/or
Purchase  Rights granted under the Plan comply with the  requirements of Section
423 of the Code.

17.  EFFECTIVE DATE OF PLAN.

     The Plan shall become effective as determined by the Board, but no Purchase
Rights  granted under the Plan shall be exercised  unless and until the Plan has
been  approved  by the  stockholders  of the Company  within  twelve (12) months
before or after the date the Plan is adopted by the Board.

18.  MISCELLANEOUS PROVISIONS.

     (a) The Plan and Offering do not constitute an employment contract. Nothing
in the Plan or in the  Offering  shall in any way alter the at will  nature of a
Participant's  employment  or be  deemed to  create  in any way  whatsoever  any
obligation  on the part of any  Participant  to  continue  in the  employ of the
Company  or a Related  Corporation,  or on the part of the  Company or a Related
Corporation to continue the employment of a Participant.

     (b) The  provisions  of the Plan shall be governed by the laws of the State
of Tennessee without resort to that state's conflicts of laws rules.


                                      D-8


                                  FRED'S, INC.
                               Holiday Inn Express
                               2192 S. Highway 441
                                 Dublin, Georgia

          PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS - JUNE 16, 2004
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

Charles  S. Vail and  Jerry A.  Shore,  or  either  of them  with full  power of
substitution,  are hereby  authorized  to  represent  and vote all the shares of
common stock of the  undersigned  at the Annual Meeting of the  Shareholders  of
Fred's,  Inc., to be held June 16, 2004, at 6:00 p.m., Eastern Daylight Time, or
any adjournment thereof,  with all powers which the undersigned would possess if
personally present, in the following manner:

1. Election of Directors for the term of one year.

   [ ] FOR all nominees listed below        [ ] WITHHOLD ALL AUTHORITY *
(except as marked to the contrary below)   to vote for all nominees listed below

*INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
 THROUGH THE NOMINEE'S NAME BELOW.

       Michael J. Hayes          John R. Eisenman          Roger T. Knox
       John D. Reier             Thomas H. Tashjian

2.  Approval of Ernst & Young LLP as  independent  auditors of the  Company,  as
described in the Proxy Statement.

             [ ] FOR          [ ] AGAINST                [ ] ABSTAIN

3.  Approval of the 2004 Employee Stock Purchase Plan

             [ ] FOR          [ ] AGAINST                [ ] ABSTAIN

In their discretion, the Proxies are authorized to vote upon such other business
(none at the time of the solicitation of this Proxy) as may properly come before
the meeting or any adjournment thereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSITIONS.

WHEN PROPERLY EXECUTED, THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF
A CONTRARY  DIRECTION,  IT SHALL BE VOTED FOR THE  PROPOSALS AND THE PROXIES MAY
VOTE IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS PROPERLY MAY COME BEFORE THE
MEETING OR ADJOURNMENT THEREOF.

The  undersigned  acknowledges  receipt of Notice of said Annual Meeting and the
accompanying Proxy Statement, and hereby revokes all proxies heretofore given by
the undersigned  for said Annual Meeting.  THIS PROXY MAY BE REVOKED AT ANY TIME
PRIOR TO VOTING THEREOF.

                                      Dated:                              , 2004
                                             -----------------------------

                                      ------------------------------------------
                                      Signature of Shareholder

                                      ------------------------------------------
                                      Signature of Shareholder (if held jointly)

                    Please  Date this Proxy and Sign Your Name or Names  Exactly
                    as Shown  Hereon.  When  signing as an  Attorney,  Executor,
                    Administrator,  Trustee or  Guardian,  Please Sign Your Full
                    Title as Such. If There Are More than One Trustee,  or Joint
                    Owners, All must Sign. Please Return the Proxy Card Promptly
                    Using the Enclosed Envelope.