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FRED’S, INC.

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4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on Wednesday, June 18, 2008

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 18, 2008, at 5:00 p.m., Eastern Daylight Time, for the following purposes:

	1.		To elect the Company’s Board of Directors;
	2.		To ratify the designation of BDO Seidman, LLP as our independent registered public accounting firm of the Company, as described in the Proxy Statement; and
	3.		To consider and act upon any other matters which properly come before the Annual Meeting or any adjournment of the meeting.

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

     Only shareholders of record at the close of business on May 2, 2008, will be entitled to vote at the meeting or any adjournment thereof.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL 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 27, 2008

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

PROXY STATEMENT

For Annual Meeting of Shareholders, June 18, 2008

     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 18, 2008, at 5:00 p.m., Eastern Daylight Time, at the Holiday Inn Express, 2192 S. Highway 441, Dublin, Georgia, or any adjournment 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proxies will be voted in accordance with the instructions indicated thereon unless such proxies previously have been revoked.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 and 2. 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 27, 2008.

Voting Securities

     Only shareholders of record at the close of business on May 2, 2008, 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 39,922,983 shares of Common Stock. 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 and the designation of BDO Seidman, LLP as our independent registered public accounting firm 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 and the designation of BDO Seidman, LLP as the independent registered public accounting firm of Fred’s.

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

     The following table sets forth the Common Stock beneficial ownership known to the Company as of May 2, 2008, by (i) beneficial owners of more than five percent of the outstanding 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)
Dimensional Fund Advisors LP (5)			—				2,901,082				7.3
Rutabaga Capital Management (6)			—				2,726,157				6.8
Heartland Advisors, Inc. (7)			—				2,604,025				6.5
Franklin Resources, Inc. (8)			—				2,304,800				5.7
Barclays Global Investors NA (9)			—				2,038,238				5.1
Michael J. Hayes (10)			21,488				2,370,573				5.9
Bruce A. Efird (11)			—				35,000				*
John R. Eisenman			15,000				25,544				*
Roger T. Knox			15,000				37,080				*
John D. Reier (12)			35,168				119,471				*
Thomas H. Tashjian			15,000				309,609				*
B. Mary McNabb			12,000				12,000				*
Michael T. McMillan			8,500				8,500				*
Jerry A. Shore			16,000				67,130				*
James Fennema			9,119				32,219				*
Rick A. Chambers			6,270				19,383				*
All Directors and Executive Officers As a Group (15 persons)			187,105				3,154,063				7.9

PROPOSAL 1 — ELECTION OF DIRECTORS

     Seven 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 and qualified. The Board of Directors proposes the election of the following nominees:

Nominee		Age				Title
Michael J. Hayes			66			Chairman and Chief Executive Officer
John R. Eisenman			66			Director
Roger T. Knox			70			Director
Thomas H. Tashjian			53			Director
B. Mary McNabb			59			Director
Michael T. McMillan			48			Director
Bruce A. Efird			49			Director Nominee and President

Principal Occupation, Business, and Directorships

     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 through 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.

     Thomas H. Tashjian was elected a Director of the Company in March 2001. Mr. Tashjian is a private investor. Prior to 2001, 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 Corporation, and in the restaurant business at Noble Roman’s.

     B. Mary McNabb was elected a Director of the Company in April 2005. She currently serves as Chief Executive Officer for Kid’s Outlet, California. Previously, she served as Executive Vice President and a Director of The Mowbray Group from 2004-2005, a California-based retail consulting firm that specializes in problem-solving, cost reductions, importing, and retail management. She has served as a member of the Board of Directors of C-ME (Cyber Merchants Exchange), a public company since 2001, and now as an advisor to that board is involved in the development of the company’s ASAP Trade Show. McNabb was formerly Executive Vice President of merchandising and marketing for Factory 2-U, Vice President of sourcing for S-Q of California, and West Coast Manager/Buyer for One Price Clothing, Inc.

     Michael T. McMillan was elected a Director of the Company in February 2007. Mr. McMillan currently serves as Director of Sales Operations for Pepsi-Cola North America, a Division of PepsiCo, where he has spent the last 22 years in various roles including marketing, sales, franchise development, and general management of its bottling operations.

     Bruce A. Efird is a Director nominee of the Company. Mr. Efird joined the company September 22, 2007 as President. Prior to joining the Company, Mr. Efird was Executive Vice-President-Merchandising at Meijer, Inc. as well as being responsible for marketing and advertising. Before joining Meijer, Inc. in 2005, Mr. Efird was Executive Vice-President /General Manager for Bruno’s Supermarkets, Inc. in Birmingham, AL beginning in 2003. He began his retail career with Food Lion, Inc. in 1984.

     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 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.

     John D. Reier is currently a director; and his one (1) year term expires at the Annual Shareholders Meeting in June 2008.

     Although the Company does not have a formal policy regarding attendance by members of the Board of Directors at the Annual Meeting, the Company encourages all of its directors to attend. All directors attended the 2007 Annual Meeting of Shareholders.

     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 May 2, 2008, 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.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
ELECTION OF THE NOMINEES TO FRED’S BOARD OF DIRECTORS.

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 during fiscal year 2007 except for the following instances of untimely reporting: Erin Christensen as to the cancellation of restricted shares on January 25, 2008 pursuant to her termination, James Sanders as to the grant of stock options and restricted stock on April 30, 2007 pursuant to his employment and Michael Hayes as to a gift of Fred’s shares on June 29, 2007.

Board of Directors

     During the last fiscal year, Fred’s Board of Directors held twelve (12) meetings. All of the then directors attended all of the Board meetings and the prior year’s annual meeting. Mr. Hayes is Chairman of the Board of Directors. Non-employee Directors of Fred’s are paid for their services as such $22,260 per year plus reasonable expenses for meeting attendance, and are granted stock options from time to time. John R. Eisenman, Roger T. Knox, Thomas H. Tashjian, B. Mary McNabb, and Michael T. McMillan were considered independent as defined in the listing standards of the National Association of Securities Dealers’ Automated Quotation System (“NASDAQ”) as of the end of fiscal 2007.

     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 38118. All communication will be reviewed by our Legal Department and appropriate communications will be forwarded to the Board of Directors on a quarterly basis, unless requested by the Board on a more frequent basis. Shareholder communications will be treated confidentially, subject to applicable laws, regulations or legal proceedings, if so marked on the envelope or in the communication.

Corporate Governance

     The Board of Directors believes the Company has observed sound corporate governance practices in the past. However, following enactment of the Sarbanes-Oxley Act of 2002 and the adoption of new rules and regulations by the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission, the Company, like many public companies, has addressed the changing governance environment by reviewing its policies and procedures and, where appropriate, adopting new practices. The Company’s practice in this area is governed by the formal written charter of the Nominating and Governance Committee.

     The Company has a code of ethics that applies to all of its directors, officers (including its Chief Executive Officer, President, Chief Financial Officer, Chief Information Officer, Senior Vice President of Finance, Controller and any person performing similar functions) and employees. Also, the Company has a vendor code of conduct that applies to its vendors.

     The Company’s code of ethics, vendor code of conduct, and all of the current board committee charters are available on the Company’s website, and can be found under the Investor Relations and Governance links. The Company’s website is www.fredsinc.com. The information contained on the website is not incorporated by reference in, or considered part of, this Proxy Statement.

Audit Committee

     The Audit Committee of the Board of Directors, which is comprised of John R. Eisenman, Chairman of the Committee, Roger T. Knox, Thomas H. Tashjian, B. Mary McNabb, and Michael T. McMillan met four (4) times during the last fiscal year. All of the members attended all of the Committee meetings. Each of the members of the Audit Committee is an independent director as defined in the NASDAQ listing standards. Audit Committee members are paid for their services $4,000 per year for Mr. Eisenman, Chairman and $2,400 per year for members Knox, Tashjian, McNabb, and McMillan plus reasonable expenses for meeting attendance.

     The Audit Committee is responsible for the engagement of the independent registered public accounting firm; 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 system 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 registered public accounting firm is responsible for conducting and reporting on the audit of the Company’s financial statements and internal controls over financial reporting in accordance with generally accepted auditing standards. The Company’s independent registered public accounting firm is ultimately accountable to the Audit Committee. The Board of Directors has adopted a written charter for the Audit Committee, which is available Company’s website at www.fredsinc.com. The Board of Directors has determined that Mr. Tashjian meets the Commission’s definition of audit committee financial expert.

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 2007 with management of the Company. BDO Seidman, LLP, the Company’s independent registered public auditing firm, is responsible for performing independent audits of the consolidated financial statements in accordance with generally accepted auditing standards and the effectiveness of the Company’s internal control over financial reporting. The Audit Committee also discussed with BDO Seidman, LLP the matters required to be discussed by Statement on Auditing Standards (“SAS”) No. 61, “Communication with Audit Committees” as amended, the Sarbanes-Oxley Act of 2002, and other matters required by the Audit Committee’s charter. The Audit Committee has received the written disclosures and the letter from BDO Seidman, LLP as required by Independence Standards Board Standard No. 1 “Independence Discussions with Audit Committees” and has discussed with BDO Seidman, LLP their independence, including consideration of whether the payment to BDO Seidman, 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 BDO Seidman, LLP, the Audit Committee has recommended to the Board of Directors that Fred’s, Inc. audited financial statements for fiscal 2007 be included in the 2007 Annual Report on Form 10-K for filing with the Securities and Exchange Commission, and that BDO Seidman, LLP be considered for selection as the Company’s independent registered public accounting firm for 2008.

     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 BDO Seidman, 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 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 BDO Seidman, LLP is in fact independent.

John R. Eisenman
Roger T. Knox
Thomas H. Tashjian
B. Mary McNabb
Michael T. McMillan

Nominating and Governance Committee

     The Nominating and Governance Committee of the Board of Directors (the “Nominating and Governance Committee”), which met three (3) times during the Company’s latest fiscal year, recommends nominees for election to the Board by the shareholders at the annual meeting and makes recommendations to the Board of Directors regarding corporate governance matters and practices. The Nominating and Governance Committee is comprised of Thomas H. Tashjian, Chairman of the Committee, John R. Eisenman, Roger T. Knox, B. Mary McNabb, and Michael T. McMillan, all of whom meet the independence requirements of NASDAQ listing standards. Nominating and Governance Committee members are paid for their services $3,000 per year for Mr. Tashjian, and $1,500 per year for the other members, plus reasonable expenses for meeting attendance.

     The Nominating and Governance Committee identifies candidates for nominees based upon both its criteria for evaluation and the candidate’s previous service on the Board. Additionally, the Nominating and Governance Committee may use the services of a search company in identifying nominees. Although the Nominating and Governance Committee has not determined specific minimum qualifications for its nominees, it evaluates candidates that it has identified based upon:

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character, personal and professional ethics, integrity and values;

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executive level business experience and acumen;

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relevant business experience or knowledge (although preference may be shown for experience in or knowledge of the retail industry, it is not a prerequisite);

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skills and expertise necessary to make significant contributions to the Company, its Board and its shareholders;

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business judgment;

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availability and willingness to serve on the Board;

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independence requirements of NASDAQ listing standards;

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potential conflicts of interest with the Company or its shareholders taken as a whole; and

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accomplishment within the candidate’s own field.

     The Nominating and Governance 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 and Governance Committee:

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proof of the shareholder’s eligibility to submit proposals in accordance with Rule 14a-8(b) of the Securities Exchange Act of 1934, as amended;

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a complete description of the candidate’s qualifications, experience and background; and

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the candidate’s signed consent to serve on the Board.

     In general, the Nominating and Governance 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 and Governance Committee may also:

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consider whether the shareholder candidate will significantly add to the range of talents, skills and expertise of the Board;

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conduct appropriate verifications of the background of the candidate; and

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interview the candidate or ask the candidate for additional information.

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

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 B. Mary McNabb, Chairperson of the Committee, John R. Eisenman, Thomas H. Tashjian, Roger T. Knox, and Michael T. McMillan, met two times during the last fiscal year. All of the members attended all of the Committee meetings. Compensation Committee members are paid for their services $1,500 per year for Ms. McNabb, Chairperson and $750 per year for the other members, 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. The Board of Directors has adopted a written charter for the Compensation Committee, which is available on the Company’s website at www.fredsinc.com.

Transactions with Related Persons and the Company’s Approval Policy

During the year ended February 2, 2008, Atlantic Retail Investors, LLC, which is partially owned by Michael J. Hayes, a director and officer of the Company, purchased the land and buildings occupied by thirteen Fred’s stores. The stores were purchased by Atlantic Retail Investors, LLC from an independent landlord/developer. Prior to the purchase by Atlantic Retail Investors, LLC the Company was offered the right to purchase the same stores and declined the offer. The terms and conditions of the leases on these stores are consistent in all material respects with other leases of the Company. The total rental payments related to these leases was approximately $585,000 for the year ended February 2, 2008. Total future commitments under related party leases are $7.078 million. Any future transactions described in Item 404(a) of Regulation S-K that may arise will be reviewed and approved by the Board of Directors.

Compensation Discussion and Analysis

Introduction

     This section of the Proxy Statement details the compensation plans for our executive team. In it we describe our compensation philosophy, policies and practices as they relate to our management team and especially to our chief executive officer (CEO), chief financial officer (CFO) and the four most highly compensated executive officers (collectively, the “Named Executive Officers”). The Named Executive Officers for 2007 include: Michael J. Hayes (CEO), Bruce A. Efird (President), Jerry A. Shore (CFO), John D. Reier (Former President), James R. Fennema (EVP & General Merchandise Manager), and Rick A. Chambers (EVP Pharmacy Operations).

     Changes to executive compensation as well as general guidelines for other employees are considered and approved by the Compensation Committee of the Company. The Compensation Committee consists of all five of the non-employee directors. Ms. B. Mary McNabb chairs the committee. The Committee met two times during 2007 to consider the compensation plan as well as option and restricted stock grant recommendations.

Objective

     It is the philosophy of Fred’s that executive compensation be linked to 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.

Role of Compensation Committee

     The Compensation Committee is responsible for evaluating and monitoring adherence to the compensation philosophy of the Company. It is responsible for balancing the financial requirements of the Company with the need to attract and retain high caliber individuals for key roles within the Company.

     After its review of all relevant programs, the Compensation 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.

Executive Compensation Philosophy

     The Compensation Committee is charged with the oversight of the Company’s executive compensation strategy and practices. In 2000, the Company engaged the Centre Group, an independent consulting firm, for the purpose of evaluating the annual review process. They provided a standardized structure for salary performance reviews, tailoring reviews to be more pertinent to the job function. In 2004, The Hay Group was appointed as an independent consultant to define and add structure to the review process. The evaluation consisted of interviews with key employees to determine the job responsibilities, skill level requirements and importance of the function within the organization.

Employment Agreements

     We have entered into employment agreements with Michael J. Hayes (April 30, 2003) and Bruce A. Efird (September 22, 2007).

     Michael J. Hayes. Mr. Hayes’ employment agreement provides that we will employ him for an initial term of two years commencing on May 1, 2003, which automatically extends daily. Mr. Hayes has agreed not to compete with us for a period of six months after any termination. The agreement provides that we will pay Mr. Hayes an annual salary of up to $250,000 and that he will participate in any bonus plan of the Company. The Compensation Committee shall annually review his salary and bonus. We may terminate Mr. Hayes’ employment with or without cause. However, if the Company or Mr. Hayes terminates this agreement, he will receive continued payment of his most recent salary and other Company-provided benefits (including a monthly allowance of $6,000 to defray costs of an office and assistant) for three years from the effective date of the termination. If the Company terminates the agreement for cause, that period shall be reduced by one-half. Regardless of the reason for termination, we will provide health and dental benefits for the remainder of Mr. and Mrs. Hayes’ lives.

     Bruce A. Efird. Mr. Efird’s employment agreement provides that we will employ him for a period of two years commencing on September 22, 2007, with automatic employment extensions of one year unless terminated by either party. The agreement provides that we will pay Mr. Efird an annual base salary of $595,000, which will increase to $650,000 annually when and if he is also elected to the office of Chief Executive Officer of the Company. Also, Mr. Efird will participate in any bonus plans of the Company. The Compensation Committee shall annually review his salary and bonus. We may terminate Mr. Efird’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 the balance of the term, with a minimum payment of twelve months, plus immediate vesting of all stock option grants and restricted stock grants. Mr. Efird has agreed not to compete with the Company for a period of one year following the termination of the employment agreement.

     John D. Reier. Mr. Reier’s employment agreement as President ceased on September 22, 2007 and he provides services on a daily or as-needed basis until December 31, 2008. Mr. Reier will receive continued payment of his salary for one year from January 1, 2008. The company will provide health benefits for Mr. and Mrs. Reier for five years.

Perquisites and Other Personal Benefits

     Other than the following item discussed, the Company does not provide perquisites or other personal benefits for its executive officers. Mr. Hayes is permitted to use the Company plane for personal use, but has done so infrequently and not at all during 2007. The value of past usage was recorded as a taxable item in the year in which it occurred.

Employee Compensation Components

     The Company believes that pairing the attainment of Company objectives with executive compensation results in both long and short term improvement in the Company’s ultimate earnings performance. Employee incentives of cash bonus and stock awards are predicated upon achieving both employee goals and Company goals. Base salary and cash bonus are geared to near term performance, whereas stock awards blend near-term performance with longer-term earnings that result in share price growth.

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 2007 for the other Named Executives Officers, based on performance and competitive considerations, and the Committee considered those recommendations in making its determinations.

     In general, the Committee believes that base salary should make up approximately 55% to 65% of the compensation package for its executives.

Incentive Compensation

     Fred’s officers are eligible to participate in an annual incentive compensation plan with awards based primarily on the attainment of a specified level of operating profit for each fiscal year. Bonuses were not awarded for 2002 through 2005 fiscal years due to non-attainment of the required operating profit. The plan objective for corporate executives was modified for 2006 to include a component for individual goals in addition to the previous objective of the attainment of financial objectives of the Company that the Committee believes are primary determinants of earnings growth.

     A maximum bonus compensation of 45% of salary was established, with 10% (Base) of the bonus contingent upon the Company making its Earnings Per Share (“EPS”) corporate goal for the prior year. The Target component of 35% of salary is contingent upon the Company making its EPS corporate goal and achievement of the employee’s individual or department goals. Per Mr. Efird’s employment agreement, he is eligible for an incentive bonus of 40% to 100% of his base salary. Should the Company fail to achieve its EPS corporate goal, all other components of the bonus would be in jeopardy. For 2006, the Compensation Committee adjusted the EPS requirement due to a one-time restructuring effect and strong operating performance in the fourth quarter. Participants achieving their stated personal goals were awarded some portion of the bonus, but none were higher than 40%. Non-performance of personal goals resulted in no bonus awarded. In 2007, the Company did not achieve its EPS corporate goal.

     The Company’s Merchandising Division management bonus compensation is based on specific product departmental profit and inventory turn goals.

     The Compensation Committee believes that targeted awards for executive officers of Fred’s under these plans 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 Officers of Fred’s for fiscal 2006, based upon the Company’s performance, and the Committee considered these recommendations in making its determination.

     In general, the Committee believes that incentive non-equity compensation should make up approximately 25% to 35% of the compensation package for its executives.

2002 Long Term Incentive Plan

     Stock Options. 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 interests of shareholders and executives will be closely aligned. Therefore, executives and certain other senior employees are eligible to participate and receive stock options.

     Annually, the Incentive Plan participants may receive an option grant which is contingent upon achieving the EPS corporate goal, which gives them the right to purchase shares of Common Stock in the future at a specified price. The awarding of the options to the executive group is tied to the first Board meeting after the beginning of the fiscal year so as to provide ample time for performance of stated targets and goals. New hire and promotion grants are made as of the effective date of the employment/promotion date. 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.

     Since 2005, the Company has tied the stock option grants to the Company’s performance for the respective fiscal year. After achieving the operating profit goal, the stock options then commence vesting on a specified schedule over time. Vesting is intended to not only retain the employee, but provide an incentive to continually improve the profitability of the Company.

     The EPS corporate goal for the 2006 Stakeholder Grant was not achieved, but the Compensation Committee waived the requirement due to the extraordinary effort and achievement in the fourth quarter of 2006. No annual grant for 2007 was made.

     Additional Restricted Stock. Restricted stock is granted as a component of some executive employment arrangements as well as special purpose incentives. A special purpose incentive was granted on January 18, 2005, and has a ten-year restriction period but allows accelerated vesting if the Operating Profit Margin reaches a specified goal.

     In general, the Committee believes that the 2002 Long Term Incentive Plan compensation should make up approximately 10% to 15% of the compensation package for its executives.

Other Compensation

     Guaranteed bonus. Certain positions, particularly newly hired, may be provided with a guaranteed bonus equal to 20% of the employee’s annual compensation upon their annual review.

Director Compensation

Base Salary

     Non-employee Directors of Fred’s are paid for their services as such $22,260 per year plus reasonable expenses for meeting attendance. Also, the non-employee Directors are paid an additional amount for their service on the Audit, Compensation and Nominating and Governance committees.

2002 Long Term Incentive Plan

     Annually, the Directors are awarded a non qualified stock option grant of 3,000 shares of immediately vested stock with a five year expiration.

Compensation Committee Interlocks and Insider Participation

     The Compensation Committee which is currently comprised of B. Mary McNabb, Chairperson of the Committee, John R. Eisenman, Thomas H. Tashjian, Roger T. Knox and, Michael T. McMillan. None of the members of the Compensation Committee has at any time during the past year been one of our officers or employees. Furthermore, no member of the Compensation Committee has any relationship requiring disclosure under Item 404 of Regulation S-K. Finally, no executive officer of the Company served during 2007 as a director or a member of a compensation committee of any entity that had an executive officer serving as a director of the Company or a member of the Compensation Committee.

Compensation Committee Report

     The Compensation Committee has reviewed and discussed the above Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

B. Mary McNabb, Compensation Committee Chairperson
John R. Eisenman
Thomas H. Tashjian
Roger T. Knox
Michael T. McMillan

Summary Compensation Table

     The following Summary Compensation Table sets forth the compensation earned by or paid to the Named Executive Officers for services rendered to us during the fiscal years indicated.

																										Change in
																										Pension Value
																										and Non-Qualified
																						Non-Equity				Deferred
														Stock				Option				Incentive Plan				Compensation				All Other
						Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation
Name & Principle Position		Year				$				$ (1)				$ (2)				$ (3)				$ (4)				$				$ (5)				Total
Michael J. Hayes			2007			$	220,000											$	31,888											$	18,405			$	270,293
Chairman & Chief Executive Officer			2006			$	224,231											$	44,590			$	75,000							$	12,927			$	356,748
Jerry A. Shore			2007			$	200,577							$	15,255			$	43,134											$	800			$	259,766
Executive Vice President & Chief Financial Officer			2006			$	192,885							$	16,286			$	55,370			$	50,000							$	1,142			$	315,683
Bruce A. Efird			2007			$	217,404							$	19,151			$	181,875											$	500			$	418,930
President (6)
John D. Reier			2007			$	250,000							$	22,890			$	127,829											$	1,200			$	401,919
Former President (7)			2006			$	254,808							$	22,890			$	120,504			$	50,000							$	900			$	449,102
James R. Fennema			2007			$	192,000							$	40,571			$	41,140											$	1,400			$	275,111
Executive Vice President & General Merchandise Manager			2006			$	190,384							$	40,571			$	54,082			$	28,800							$	1,050			$	314,887
Rick A. Chambers			2007			$	170,961							$	15,255			$	22,634			$	61,250							$	1,183			$	271,283
Executive Vice President - Pharmacy Operations			2006			$	143,654							$	15,255			$	30,218			$	62,750							$	2,063			$	253,940

	•		Matching contributions to the Fred’s 401(k) plan, which all participating employees receive.
	•		Dividends paid on restricted stock awards that have not vested.
	•		Perquisites, which include personal use of Company car, airline tickets for non-business commuting, repair and maintenance costs on personal car and medical insurance premium payments. Aside from personal use of Company car for Mr. Chambers, all other perquisites relate to Mr. Hayes, none of which exceed $10,000 individually.

Grants of Plan-Based Awards

     The following table presents information with respect to the grants of plan-based awards made by the Company to each of its Named Executive Officers during the fiscal year ended February 2, 2008.

All Other

All Other

Stock

Option

Grant

Awards:

Awards:

Exercise

Date Fair

Number of

Number of

or Base

Value of

Shares of

Securities

Price of

Stock and

Estimated Future Payouts Under

Stock or

Underlying

Option

Option

Grant

Award

Non-Equity Incentive Plan Awards

Estimated Future Payouts Under

Units

Options

Awards

Awards

Name

Date

Type

(1)

Equity Incentive Plan Awards

(#)

(#)

($/Sh) (2)

$ (3)

Threshold

Target

Maximum

Threshold

Target

Maximum

$

$

$

#

#

#

Michael J. Hayes

50,000

87,500

112,500

Jerry A. Shore

40,000

70,000

90,000

Bruce A. Efird

9/22/2007

Stock Options

86,962

152,183

217,404

245,052

$

10.61

$

1,105,185

John D. Reier

James R. Fennema

27,300

45,500

63,700

Rick A. Chambers

35,000

61,250

78,750

Outstanding Equity Awards at 2007 Fiscal Year-End

     The following table reflects stock option and restricted stock awards granted to the Named Executive Officers under the Company’s 2002 Long-Term Incentive Plan that were outstanding as of February 2, 2008.

		Option Awards																								Stock Awards
																																										Equity Incentive
										Equity																																Plan Awards:
										Incentive																												Equity Incentive				Market or
										Plan Awards:																												Plan Awards:				Payout Value
		Number of				Number of				Number of																Number of				Market								Number of				of Unearned
		Securities				Securities				Securities																Shares or				Value of								Unearned Shares,				Shares, Units
		Underlying				Underlying				Underlying																Units of				Shares or								Units or				or Other
		Unexercised				Unexercised				Unexercised				Option												Stock That				Units that								Other rights				Rights That
		Options				Options				Unearned				Exercise				Option								Have Not				Have Not								That Have				Have Not
		(#)				(#)				Options				Price				Expiration								Vested				Vested								Not Vested				Vested
Name		Exercisable				Unexercisable				(#)				($)				Date								(#)				($)								(#) (7)				($)
Michael J. Hayes			14,000											$	14.60				9/8/2011				(3	)
			3,744				14,976							$	13.25				3/21/2013				(4	)
Jerry A. Shore			8,640				12,960							$	17.67				9/11/2010				(1	)
			2,160				3,240							$	20.60				9/19/2010				(2	)
			1,800				4,200							$	14.60				9/8/2011				(3	)
			1,700				6,800							$	13.25				3/21/2013				(4	)
																																							10,000			$	96,500
Bruce A. Efird							245,052							$	10.61				9/22/2014				(8	)
																											25,000			$	241,250				(9	)
John D. Reier			19,200				28,800							$	17.67				9/11/2010				(1	)
			4,800				7,200							$	20.60				9/19/2010				(2	)
			4,200				9,800							$	14.60				9/8/2011				(3	)
			3,484				13,936							$	13.25				3/21/2013				(4	)
																																							15,000			$	144,750
James R. Fennema			6,000				14,000							$	16.90				12/13/2009				(6	)
			1,560				6,240							$	13.25				3/21/2013				(4	)
																											7,500			$	72,375				(5	)			10,000			$	96,500
Rick A. Chambers			1,200				1,800							$	17.67				9/11/2010				(1	)
			300				450							$	20.60				9/19/2010				(2	)
			1,650				3,850							$	14.60				9/8/2011				(3	)
			1,560				6,240							$	13.25				3/21/2013				(4	)
																																							10,000			$	96,500

Option Exercises and Stock Vested

     There were no options exercised or restricted stock that vested during the fiscal year ended February 2, 2008, with respect to each of the Named Executive Officers.

Director Compensation

     We pay three primary components of compensation to our non-management directors: a cash retainer, committee chair or member fee and stock options. Members of Company management who also serve as members of the Board of Directors are not eligible for compensation for their services in their capacity as a director. The following table sets forth the types and amounts of compensation paid to our directors:

Annual Retainer
Standard		$	22,260
Committee Chair Fees
Audit		$	4,000
Nominating and Governance		$	3,000
Compensation		$	1,500
Committee Member Fees
Audit		$	2,400
Nominating and Governance		$	1,500
Compensation		$	750
Annual Stock Option Grant (1)		3,000 Shares

     Non-management directors also receive reimbursement for reasonable out-of-pocket expenses incurred in connection with their Board or committee service.

     The following table sets forth the compensation paid to directors during the fiscal year ended February 2, 2008.

														Change in
														Pension Value
														and Non-Qualified
														Deferred
		Fees earned or				Stock				Option				Compensation
		Paid in Cash				Awards				Awards				Earnings
Name		$				$				$ (1)				$				Total
John R. Eisenman		$	28,510				—			$	19,530				—			$	48,040
Roger T. Knox		$	26,910				—			$	19,530				—			$	46,440
Thomas H. Tashjian		$	28,410				—			$	19,530				—			$	47,940
B. Mary McNabb		$	27,660				—			$	19,530				—			$	47,190
Michael T. McMillan		$	26,910				—			$	35,430				—			$	62,340

		Stock
Name		Options
John R. Eisenman			15,750
Roger T. Knox			15,750
Thomas H. Tashjian			15,750
B. Mary McNabb			9,000
Michael T. McMillan			5,500

Potential Post Employment Payments or Benefits

     This section explains the payments and benefits to which the Named Executive Officers (except Mr. Reier) are entitled in various termination of employment scenarios. These are hypothetical situations only, as all of our Named Executive Officers are currently employed by the Company. For purposes of this explanation, we have assumed that termination of employment occurred on February 2, 2008, the last day of our 2007 fiscal year.

     The intent of this section is to isolate those payments and benefits for which the amount, vesting or time of payment is altered by a termination of employment. This section does not cover all amounts the Named Executive Officers would receive following termination. Specifically, the Named Executive Officers are entitled to retain their vested stock option awards, and if they meet specified minimum age at the time of termination, the unvested portion of certain stock option awards are not forfeited, and vesting will continue according to the original schedule. The minimum age is 65 and Mr. Hayes has reached the minimum age as of 2007 fiscal year end.

     The following table provides for a range of potential separation events for each of the Named Executive Officers, other than Mr. Reier, calculated as if the separation event occurred on February 2, 2008. The actual amounts to be paid can only be determined at the time of the actual event.

						Involuntary
		Change in				(Not for Cause)
		Control				Termination				Retirement				Death
Name		($) (1)				($) (2)				($) (3)				($)
Michael J. Hayes Salary (4)						$	966,000			$	966,000			$	966,000
Stock Options (5) Health Benefits (6)
Totals		$	0			$	966,000			$	966,000			$	966,000
Jerry A. Shore Salary Stock Options (5) Health Benefits
Totals		$	0			$	0			$	0			$	0
Bruce A. Efird Salary (7)		$	595,000			$	992,000							$	992,000
Stock Options (5) Restricted Stock (8)		$	241,250			$	241,250							$	241,250
Health Benefits
Totals		$	836,250			$	1,233,250			$	0			$	1,233,250
James R. Fennema Salary Stock Options (5) Health Benefits
Totals		$	0			$	0			$	0			$	0
Rick A. Chambers Salary Stock Options (5) Health Benefits
Totals		$	0			$	0			$	0			$	0

PROPOSAL 2 — APPROVE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     BDO Seidman, LLP audited the Company’s consolidated financial statements and internal control over financial reporting for the year ended February 2, 2008. BDO Seidman, LLP is an independent registered public accounting firm. The Board of Directors is asking the shareholders to approve the appointment of BDO Seidman, LLP as such independent registered public accounting firm for the fiscal year ending February 2, 2008. Although not required by law, NASDAQ listing standards, or the Company’s bylaws, the Board of Directors is submitting the selection of BDO Seidman, LLP to the shareholders 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 independent 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 shareholders, including economic considerations.

     The Board of Directors will offer a resolution at the Annual Meeting to ratify this selection. BDO Seidman LLP, which has acted as independent registered public accounting firm of Fred’s since July 30, 2004, is expected to be represented at the Annual Meeting and 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 BDO SEIDMAN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR FISCAL YEAR 2008.

Fees Paid to Independent Registered Public Accounting Firms

     The following table sets forth certain fees billed and to be billed to us by BDO Seidman, LLP in fiscal 2006 and 2007 in connection with various services provided to us throughout those fiscal years:

Service		2007 Aggregate Fees Billed				2006 Aggregate Fees Billed
Audit Fees (1)		$	938,859			$	873,003
Audit-Related Fees (2)			97,491				30,945
Tax Fees (3)			176,022				86,310
All Other Fees			—				—

     The Audit Committee has the responsibility to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. 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 2007, all audit and permissible non-audit services provided by our independent registered public accounting firm were pre-approved by the Audit Committee.

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 recommendations of management and their best judgment.

SHAREHOLDER PROPOSALS

     Shareholder proposals intended to be included in the proxy statement and presented at the 2009 Annual Meeting must be received by the Company no later than January 26, 2009, 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.

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 mail systems, 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 27, 2008

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

 

PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS — JUNE 18, 2008
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 18, 2008, at 5:00 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.

 

 

* INSTRUCTION: To withhold authority to vote for any individual nominee, strike through the nominee’s name below.

 

 

 

 

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” PROPOSALS 1 AND 2.

 

WHEN PROPERLY EXECUTED, THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF A CONTRARY DIRECTION, IT SHALL BE VOTED FOR THE PROPOSALS 1 AND 2. 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.

 

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.