MEYER FRED INC, 10-K, 1997-04-30

MEYER FRED INC
10-K, 1997-04-30
DEPARTMENT STORES

Previous: NAPA NATIONAL BANCORP, DEF 14A, 1997-04-30

Next: OPPENHEIMER INTEGRITY FUNDS, 497, 1997-04-30

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 1, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-11274

FRED MEYER, INC.
(Exact name of registrant as specified in its charter)

Delaware 93-0798201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3800 SE 22nd Avenue
Portland, Oregon 97202
(Address of principal executive offices) (Zip Code)

(503) 232-8844
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each Exchange
Title of class on which registered

Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at March 1, 1997: $1,025,998,079

Number of shares of Common Stock outstanding at March 1, 1997: 26,298,768

Documents Incorporated by Reference

Part of Form 10-K into
Document which incorporated

Portions of Proxy Statement for Part III
1997 Annual Meeting of Shareholders

Fred Meyer, Inc. and Subsidiaries
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
Item of Form 10-K
Page

Part I

Item 1 Business ................................................... 3

Item 2 Properties .................................................12

Item 3 Legal Proceedings ..........................................12

Item 4 Submission of Matters to a Vote of Security Holders ........12

Item 4(a) Executive Officers of the Registrant .......................13

Part II

Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters ........................................15

Item 6 Selected Financial Data ....................................16

Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................18

Item 8 Financial Statements and Supplementary Data ................21

Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................37

Part III

Item 10 Directors and Executive Officers of the Registrant .........38

Item 11 Executive Compensation .....................................38

Item 12 Security Ownership of Certain Beneficial Owners
and Management .............................................38

Item 13 Certain Relationships and Related Transactions .............38

Part IV

Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ....................................39

Signatures ............................................................43

2 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Part I
- --------------------------------------------------------------------------------

Item 1. Business.
- -----------------

General

Fred Meyer, Inc. (the "Company") is a leading regional retailer of a wide
range of food, apparel, fine jewelry, and products for the home. As of
February 1, 1997, the Company operated 109 multidepartment stores in six
states under the name "Fred Meyer" and 110 specialty stores in 17 states.
All but five of the specialty stores are mall jewelry stores operating
under the names "Fred Meyer Jewelers" or "Merksamer Jewelers." The
multidepartment stores are unique in the Pacific Northwest in combining
food with a wide range of nonfood merchandise under one roof. These stores
average approximately 144,000 square feet of retail space and emphasize
one-stop-shopping for necessities and items of everyday use. The
multidepartment stores accounted for approximately 97.4% and 96.6% of the
Company's total sales and operating income, respectively, for the fiscal
year ended February 1, 1997 ("1996"). For 1996, food and nonfood sales were
41.1% and 58.9% of total sales, respectively.

The following table sets forth the states in which the Company operates
and the number of multidepartment and specialty stores in each state as of
February 1, 1997:

<TABLE>
<CAPTION>
Multidepartment Specialty Total
State Stores Stores Stores
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Oregon ............................................. 45 9 54
Washington ......................................... 38 20 58
Utah ............................................... 10 4 14
Alaska ............................................. 7 3 10
Idaho .............................................. 8 2 10
Montana ............................................ 1 1 2
California ......................................... -- 50 50
Michigan ........................................... -- 5 5
Maryland ........................................... -- 4 4
Missouri ........................................... -- 2 2
Ohio ............................................... -- 2 2
Virginia ........................................... -- 2 2
Wisconsin .......................................... -- 2 2
Arizona ............................................ -- 1 1
Illinois ........................................... -- 1 1
Kansas ............................................. -- 1 1
New Mexico ......................................... -- 1 1
-------------------------
Total ........................................... 109 110 219
--------------------------------------------------------------------------------
</TABLE>

The Company's principal business strategy is to operate
one-stop-shopping stores that provide convenient shopping for a broad
selection of products in one location. Stores are organized into distinct
departments that specialize in the sale of particular products.
Multidepartment stores that include food, apparel and general merchandise
are the Company's primary focus. The Company believes that its food
departments increase the shopping frequency of area residents, build
customer loyalty and enable its nonfood departments to generate higher
levels of sales through increased customer traffic. In more recent years,
the Company added food to previously nonfood multidepartment stores and
replaced some of its older nonfood stores with new full-service stores
which include food departments. The Company promotes cross-shopping by
providing convenient access between departments and sections, by making
each of these a strong competitor in the market for its products and by
facilitating easy customer checkout through a common cash register system
that allows customers to

Fred Meyer, Inc. and Subsidiaries 3
<PAGE>
purchase merchandise from most departments at any checkstand location. The
strength of the individual departments and sections, with their breadth and
depth of product selection, national and private-label brands and emphasis
on products of everyday use, distinguishes the Company's stores from other
retailers and enables the Company to compete with supermarkets, drug
stores, discount stores, mass merchandisers, department stores and
specialty stores, including category-dominant retailers.

The following table sets forth certain statistical information with
respect to the Company's operations for the periods indicated:

<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------
February 1, February 3, January 28, January 29, January 30,
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Percent of net sales:
Nonfood sales........................ 58.9% 59.0% 61.7% 62.5% 63.3%
Food sales........................... 41.1% 41.0% 38.3% 37.5% 36.7%
Sales per square foot of selling space
(weighted average)................... $328 $316 $304 $312 $304
Total stores sales growth.............. 10.5%/2 7.7%/2 5.0% 4.4% 5.6%
Comparable store sales growth:/1
Total Company........................ 3.8%/3 2.1%/3,4 (2.0%)/3,4 2.4% 3.0%
Food................................. 4.7%/3 6.6%/3,4 (3.0%)/3,4 3.4% 2.8%
Nonfood.............................. 3.1%/3 (0.9%)/3,4 (1.4%)/3,4 1.9% 3.2%
Number of multidepartment stores:
At beginning of period............... 102 100 97 94 94
Opened............................... 7 6 5 5 2
Closed............................... -- 4 2 2 2
-----------------------------------------------------------------------
At end of period..................... 109 102 100 97 94
-----------------------------------------------------------------------
Remodeled............................ 4 8 7 7 5
-----------------------------------------------------------------------
Number of stores at end of period:
Multidepartment with food............ 101 94 86 77 70
Multidepartment without food......... 8 8 14 20 24
Specialty............................ 110/5 34 31 30 29
-----------------------------------------------------------------------
Total................................ 219 136 131 127 123
-----------------------------------------------------------------------
Total retail square feet
(to nearest thousand):
At beginning of period...............14,857 14,194 13,423 12,646 12,679
Added by new stores opened........... 1,019/5 948 795 811 295
Added by remodeling of
existing stores.................... 59 96 174 80 39
Less closed stores................... -- 381 198 114 367/6
-----------------------------------------------------------------------
At end of period.....................15,935 14,857 14,194 13,423 12,646
-----------------------------------------------------------------------------------------------------------------
<FN>
/1 Includes only sales of stores operating throughout each of the periods
compared.

/2 Excludes 53rd week in the fiscal year ended February 3, 1996.

/3 The calculation for comparable store sales for the year ended February 3,
1996, a 53-week year, is computed by adding a 53rd week to 1994's sales
base. For 1996, two 52-week periods are compared.

/4 If sales at the 27 multidepartment stores in the Portland, Oregon and
Vancouver, Washington metropolitan area directly affected by the labor
strikes during 1994 were excluded, comparable store sales growth during
the periods when the strike occurred would have been:

February 3, January 28,
1996 1995
-------------------------------------------------------
Total Company ................... (.6%) 1.5%
Food ............................ 3.1% 1.7%
Nonfood ......................... (3.0%) 1.3%
-------------------------------------------------------

/5 Includes 71 mall jewelry stores, comprising approximately 94,000 square
feet, acquired by the Company during the year ended February 1, 1997.

/6 Includes approximately 73,000 feet of space for 30 restaurants converted
to tenant space.
</FN>
</TABLE>

4 Fred Meyer, Inc. and Subsidiaries
<PAGE>
During the last three years, the Company has made significant capital
investments to (1) expand its operations by opening new multidepartment
stores in existing markets and remodeling existing stores; (2) improve its
Management Information Systems ("MIS") and (3) expand and improve its
distribution infrastructure. In 1995, the Company also initiated a
remerchandising program to reposition some of its departments to address
increasing competition and changing customer preferences and developed
smaller store formats for use in certain locations. Capital expenditures
(before land sales and excluding real estate financed on leases), which
amounted to approximately $236,000,000 in fiscal 1995, declined to
approximately $147,000,000 in 1996 and are expected to increase moderately
over the next two years. The Company presently intends to use all available
cash flow to reinvest in the business of the Company and to reduce debt.

The Company was incorporated in Delaware in 1981 as a successor to the
business of a company which opened its first store in downtown Portland,
Oregon in 1922 and was incorporated in Oregon in 1923. The Company's
principal executive offices are located at 3800 SE 22nd Avenue, Portland,
Oregon 97202, and its telephone number is (503) 232-8844. References in
this Form 10-K to the Company mean Fred Meyer, Inc., including its
subsidiaries, unless the context requires otherwise.

Retail Operations

The Company's principal business strategy is to operate one-stop-shopping
stores that provide convenient shopping for a broad selection of products
in one location. In most of its stores, the Company sells over 225,000
items, with an emphasis on necessities and items of everyday use. The
Company takes advantage of the high and diverse customer traffic in its
stores to sell many categories of goods that are purchased on a
discretionary basis, such as fine jewelry, home electronics and fashion
apparel. Within many categories of apparel, products for the home, jewelry
and home electronics, the Company offers customers the breadth of selection
normally afforded by department or specialty stores. Its selection of food
and groceries is comparable to that of large supermarkets. The Company
emphasizes the sale of popular brands and its own private-label brands.

The Company's large stores are organized into departments and sections
within departments that specialize in the sale of particular products. The
Company endeavors to create individual, recognizable identities for each
department and section through specialized design, fixtures and decor. Most
of the Company's departments and sections are self-service, except in areas
where special sales assistance is required, such as service delicatessens,
service meat and/or fish, home electronics, fine jewelry and pharmacy.

The following table sets forth the number of departments and sections
in the Company's 109 multidepartment stores at February 1, 1997:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
<S> <C>
Food ......................................................................................101
Grocery Delicatessen Meat Service Fish/1
Produce Service Delicatessen Bakery Service Meat/1
Nonfood
The Home ...............................................................................109
Domestics Closet and Storage Home Decor Housewares
Office and School Furniture Automotive Garden
Home Improvement Sporting Goods Toys Seasonal
Home Electronics .......................................................................109
Apparel ................................................................................105
Apparel for Men, Women, Youth and Children
Cosmetics Shoes Accessories
Pharmacy ...............................................................................108
Health and Beauty Aids .................................................................109
Cards and Books ........................................................................109
Nutrition ..............................................................................104
Fine Jewelry ........................................................................... 98
----------------------------------------------------------------------------------------------
/1 Eighty multidepartment stores include Service Fish and 41 include
Service Meat.
</TABLE>

Fred Meyer, Inc. and Subsidiaries 5
<PAGE>
The Food Department is typically the same size as free-standing super
food stores of competitors and carries a wide variety of national brands,
together with the Company's private-label brands of grocery items, which
include First Choice, Fred Meyer and FMV (Fred Meyer Value). The average
size of the Company's food departments is approximately 38,000 square feet.
This square footage does not include space devoted to pharmacies, health
and beauty aids, cards and books, nutrition and all other general
merchandise. Beginning in 1992, the Company implemented a program to
increase sales of its private-label grocery items. As a result, sales of
private-label grocery items as a percentage of total grocery sales have
increased to approximately 20% from 12% in 1991. Private-label items
generally are sold at lower prices to the customer and generate higher
margins for the Company than national-brand products. The Company also
carries fresh produce, meat, dairy products, bakery products, candy and
tobacco, all generally sold on a self-selection basis. In many
multidepartment stores, the Company operates in-store bakeries and service
departments that offer fresh seafood, delicatessen items and meat products.
The Company's newer stores include sit-down eating areas near the service
delicatessens and take-out departments.

The Home Department offers a wide selection of home decor, housewares,
small appliances, domestics, furniture, sporting goods, floral products,
power lawn mowers, garden tools, fertilizers and chemicals, toys, seasonal
and holiday merchandise, hardware, tools, paint, building materials,
plumbing and electrical fixtures, automotive supplies and related
accessories. Some of the national brands featured are Braun, Kitchen-Aid,
Coleman, Glidden and Weber. Home improvement, garden and automotive
sections feature many items for the do-it-yourself customer. High-quality
private-label products under the Fred Meyer, Northwest Home, Everyday
Living, Turf King, and Kraft King labels complement the national-brand
offerings.

The Apparel Department offers moderately priced national-brand and
private-label apparel, sportswear, cosmetics, accessories and family and
active shoes. Major national brands carried by the apparel departments
include Levi's, Jockey, Maidenform, Vanity Fair, Carter's, Danskin, Nike,
Reebok, Adidas, Gotcha, Eastland, Union Bay, Columbia Sportswear, Fila,
Lee, Bali and Keds. High-quality private-label products such as Fred Bear,
Cascade Kids, Katherine Bishop and Great Northwest complement the
national-brand offerings.

The Company's private-label sales in the Home and Apparel Departments
represented 16 to 18% of these departments' sales in 1996, with a long-term
goal of approximately 20%. The strategy employed in nonfood departments is
to use private-label products for both entry-level price points and better
offerings at value prices. In 1995 and 1996, the Company introduced
additional private-label items in the Home and Apparel Departments to bring
additional value to its customers and to improve gross margins in these
areas.

The Home Electronics Department offers a large selection of compact
discs, for-sale videos and video games and the latest name-brand
merchandise, including televisions, VCR's, digital satellite systems, audio
components, cellular phones, computer software and telephones. Some of the
national brands featured are Sony, JVC, Pioneer and Magnavox. One-hour
photo-finishing has been added to numerous locations.

The Pharmacy Department sells a full line of name-brand and generic
prescription drugs dispensed by full-time licensed pharmacists and
participates with all major third-party Health Maintenance Organization and
Preferred Provider Organization plans.

The Health and Beauty Aids section offers a wide selection of
national- and private-label brands of health and beauty aid products. It
also offers candy and confections and dietary food products. A new line of
private-label toiletry and personal-care products called Personal Choice
was introduced in 1995.

The Cards and Books section offers a large selection of greeting
cards, gift wrap, giftware, paperback books and magazines.

6 Fred Meyer, Inc. and Subsidiaries
<PAGE>
The Nutrition section offers name-brand and generic natural foods,
dairy products, juices, vitamins, supplements, sugar-free and fat-free
products and meat substitutes. Certain items, such as grains, nuts, fruits
and natural snacks, are also displayed in bulk to enable customers to buy
any amount and package their own purchases.

The Company entered the fine jewelry business in 1973 with its
acquisition of a retailer which had existing jewelry operations. Since that
time, the Company has expanded its jewelry operations through the
establishment of Fine Jewelry Departments within its multidepartment stores
and through the leasing of individual locations, averaging approximately
1,300 square feet, in major regional shopping malls. The Company's Fine
Jewelry Departments and mall jewelry stores offer an extensive selection of
bridal and fashion jewelry, including precious and semi-precious stones. In
addition, these departments and mall stores offer name-brand watches and an
assortment of 14-carat gold chains and earrings. During the first half of
1996, the Company acquired 71 leased jewelry locations in major shopping
malls in 11 states. With these acquisitions, as of February 1, 1997, the
Company operated 105 mall jewelry stores under the names "Fred Meyer
Jewelers" or "Merksamer Jewelers" and had 98 Fine Jewelry Departments in
its multidepartment stores. The recent expansion of the Company's jewelry
business is expected to improve the Company's ability to purchase inventory
on favorable terms and reduce overhead costs on a per unit basis.

Most of the Company's multidepartment stores open at 7:00 a.m. and
close between 10:00 p.m. and 11:00 p.m., seven days a week, including all
holidays except Christmas. Most of the multidepartment store locations have
complementary third-party tenants (such as banks, optical centers, gourmet
coffee bars, restaurants and video rental stores) that attract high
customer traffic. The Company's specialty store hours vary depending on
location.

Each multidepartment store is managed by a sales director who is
responsible for store sales, operations, profitability and departmental
cross-merchandising. Departments within multidepartment stores have
managers who report to the sales directors. Each sales director and
department manager is supported by a regional supervisor and other senior
managers who specialize in the market for products sold in the stores. The
Company has regional management teams that work closely with the stores in
their regions to enhance sales and profit opportunities. As a result of
this management structure, the Company believes that each of its stores and
the departments within each store serve customers better and are able to
respond quickly to market changes.

The Company honors most nationally recognized credit cards for sales
in all departments. In addition, the Company has its own credit card
program, which is serviced by a national credit card processor. The Company
also accepts debit cards that are associated with nationally recognized
credit card processors. In 1996, the Company's multidepartment stores and
selected jewelry stores began accepting debit cards that use personal
identification number ("PIN") pads which process electronic benefits
online.

Distribution and Processing

The Company primarily purchases goods using centralized merchandise buyers.
It operates a 1,528,000-square-foot distribution center in Clackamas,
Oregon, near Portland, a 310,000-square-foot flow-through distribution
facility in Chehalis, Washington and a 600,000-square-foot food
distribution center in Puyallup near Seattle, Washington. Approximately
two-thirds of the merchandise the Company sells is shipped to the stores
from these facilities, with the balance shipped directly by vendors to the
Company's stores or, in the case of food products for its Utah stores,
purchased from a major wholesale supplier. The Company operates a large
fleet of trucks and trailers for distribution of goods to its retail
stores.

The Company has made significant capital investments in its
distribution centers which, together with the MIS improvements, are
designed to improve operations, permit better inventory management and
reduce distribution costs. During 1993 through 1995 the Company has spent
approximately $85,000,000 to build and upgrade its distribution centers.

Fred Meyer, Inc. and Subsidiaries 7
<PAGE>
The Company opened a flow-through retail service center in April 1994
in Chehalis, Washington to serve as the centralized distribution facility
for certain apparel, music, seasonal and other nonfood items. This facility
minimizes the required handling and processing of goods received from
vendors and distributed to the Company's stores. It has improved inventory
management and reduced distribution costs for the goods shipped through
this facility.

In 1995 the Company opened a 600,000-square-foot centralized food
distribution facility in Puyallup near Seattle, Washington to serve stores
in the Puget Sound Region and Alaska. This facility reduces the cost of
transporting goods into the Puget Sound and Alaska markets and affords the
Company increased forward-buying opportunities for its food operations.

The Company believes that its existing distribution facilities enable
it to meet expected nonfood and food distribution needs until at least the
year 2000. As the Company opens additional stores, it expects to utilize
the excess capacity currently available at its existing distribution
facilities and achieve improved operating efficiencies as distribution
facility costs are spread over more sales. Additional acreage is owned or
leased at each site to accommodate future expansion.

As a result of its recent investment in information systems and
distribution facility improvements, the Company has been able to establish
electronic data interchange ("EDI") and automated replenishment programs
with many vendors. These quick response capabilities improve inventory
management and reduce handling of inventory in the distribution process,
which results in lower markdowns and lower distribution costs as a
percentage of sales.

The Company believes that its distribution and related information
systems provide several additional advantages. First, they permit stores to
maintain proper inventory levels for more than 190,000 items supplied
through its central distribution facilities. Second, centralized purchasing
and distribution reduce the Company's cost of merchandise and related
transportation costs. Third, because distribution can be made to stores
frequently, the Company is able to reduce the in-store stockroom space and
maximize the square footage available for retail selling.

The Company owns and operates a bakery and a dairy. Products processed
by the Company are sold primarily through its own retail stores. The
Company also sells products from these two manufacturing facilities to
third parties.

Management Information Systems

The Company operates a centralized computer system which is linked to store
and distribution facility operations through an upgraded network. Stores
are supported by the latest technology in store point-of-sale systems. Over
the last six years the Company has undertaken a major modernization of its
MIS capabilities. In 1994 through 1996 the Company spent approximately
$56,000,000 on its centralized computer operations. New merchandising and
buying systems have been installed for the Company's food and jewelry
operations, with the remaining nonfood categories being converted to a new
merchandising system in 1997. Completion of the nonfood merchandising
system will allow the Company to combine all computer operations from the
two systems it operates today onto one mainframe in 1997, saving
approximately $2,000,000 annually in operating costs. When combined with
the Company's improved distribution capabilities and new financial systems,
the merchandising and buying systems will enhance the Company's quick
response inventory capabilities and will improve future inventory
management and profitability. The Company believes that these systems will
be able to support its growth into the next century.

8 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Store Expansion and Development

The Company enlarges, remodels, closes or sells stores in light of their
past performance or the Company's assessment of their potential. The
Company continually evaluates its position in various market areas to
determine whether it should expand or consolidate its operations in those
areas. New store sites are determined based on a review of information on
demographics and the competitive environment for the market area in which a
proposed site is located. The Company's expansion focus is in existing
areas of operation, primarily in or near well-populated residential areas.
The Company determines store size and designs stores with a view toward
making each store a very convenient, one-stop-shopping store in the area it
serves. The Company is flexible in its store design where land sites
require specialized designs, such as two-level or smaller stores.

During the last three years, the Company increased new store
development in its existing markets and the level of remodeling of existing
stores. Total retail space, net of closures, increased 663,000 square feet,
or approximately 4.7%, during 1995, and increased 1,078,000 square feet, or
approximately 7.3%, during 1996. New multidepartment store openings during
1996 representing 917,000 square feet were as follows (in thousands):

<TABLE>
<CAPTION>
Total Retail
Location Square Footage Opened
-------------------------------------------------------------------------------------
<S> <C> <C>
Tillamook, Oregon ..................................... 127 First Quarter

Hillsboro, Oregon ..................................... 163 Second Quarter

Meridian, Idaho ....................................... 168 Second Quarter

Twin Falls, Idaho ..................................... 168 Second Quarter

Silverdale, Washington/1 .............................. 70 Second Quarter

Seattle, Washington/1 ................................. 62 Second Quarter

Scappoose, Oregon ..................................... 159 Third Quarter
-------------------------------------------------------------------------------------
/1 Marketplace stores emphasizing food.
</TABLE>

Five new multidepartment stores are planned or scheduled to be opened
during each of 1997 and 1998. The planned openings for 1997 are as follows
(in thousands):

<TABLE>
<CAPTION>
Total Retail Scheduled
Location Square Footage to Open
-------------------------------------------------------------------------------------
<S> <C> <C>
Idaho Falls, Idaho/1 .................................. 157 First Quarter

Covington, Washington ................................. 163 First Quarter

South Hill (Puyallup), Washington ..................... 168 First Quarter

Orem, Utah ............................................ 157 First Quarter

Coeur d'Alene, Idaho .................................. 157 First Quarter
-------------------------------------------------------------------------------------
/1 Replacement store
</TABLE>

The Company currently plans to remodel five stores in each of 1997 and
1998. The major remodeling programs during the last three years included
(1) adding food departments to nine existing stores that previously sold
only nonfood merchandise; (2) removing walls between departments to
facilitate cross-shopping and common checkout for customers; and (3) adding
food service departments, such as deli and bakery, to its stores. As a
result of these efforts, total square footage for multidepartment stores
increased from 12,486,000 square feet at the end of fiscal 1992 to
15,717,000 square feet as of February 1, 1997. As of February 1, 1997, 51%
of the multidepartment stores had been built or remodeled within the last
five years. The portion of the remodeling program involving the addition of
food departments to multidepartment stores will be substantially complete
in 1997.

Fred Meyer, Inc. and Subsidiaries 9
<PAGE>
Promotion and Advertising

The Company aggressively promotes sales for all departments through weekly
advertising, primarily in local and area newspapers, radio and television.
Advertising often features many high-demand products at competitive prices.
The Company emphasizes everyday low prices in its food departments and
generally offers promotional pricing in its nonfood departments. By opening
new stores in existing market areas and by remodeling and expanding
existing stores, the Company leverages its advertising budget. In 1996, the
Company reduced the number of pages of weekly print advertising and
increased radio and television advertising in order to reach more
customers.

Strategic Changes

The Company reviews its competitive position on a location-by-location
basis and analyzes the contribution that each department makes to overall
profitability. In 1995, in response to increasing competition from discount
retailers and from category-dominant competitors, particularly in the home
improvement and home electronics categories, the Company began a
remerchandising program in some departments to improve the overall
profitability of the Company's operations. These repositioning efforts
included: (1) reducing the space allocated to building materials in those
stores affected by category-dominant home improvement centers and utilizing
this space for other product categories (such as expanded garden centers);
(2) reducing computer hardware in a majority of stores and increasing the
selection of higher-margin items in home electronics, such as computer
software and accessories, compact discs, video games and cellular
telephones; (3) refining the apparel selection to emphasize brands, key
basic and fashion essentials and casual sportswear; (4) adding additional
private-label products to the apparel selection, home products and personal
care products; (5) adding new product categories (such as pet centers, bath
boutiques, "FM elements" clothing shops for young adults and tool and
accessory centers) to certain stores; and (6) increasing the amount of
space leased to complementary third-party tenants (such as banks, optical
centers, gourmet coffee bars, restaurants and video rental stores) that
attract high customer traffic.

Competition

The retail merchandising business is highly competitive. Because of the
broad range of merchandise sold by the Company, it competes with many types
of retail companies, including national, regional and local supermarkets,
discount stores, drug stores, conventional department stores, mall jewelry
stores and specialty stores, including category-dominant stores. The
Company's competitive position in the retail business varies by type of
goods and the communities in which its stores are located. During the last
five years, approximately 500 new competitor stores opened in the Company's
markets according to a survey conducted by the Company. These competitors
included Wal-Mart, Walgreens, Home Depot, HomeBase, Eagle, Sam's Club,
Circuit City, Good Guys, Future Shops, Costco, Mervyn's, PayLess, J.C.
Penney, Kmart, Target, ShopKo, BiMart, Toys-R-Us, Food 4 Less, Cub Foods,
Safeway, Albertson's, Smiths Foods, Carrs and Quality Food Centers. Many of
these companies have substantially greater financial and other resources
than the Company. The Company's recent competitors include
category-dominant stores, particularly in the home improvement and home
electronics categories. The Company has responded to the influx of
category-dominant stores and other competitors by reducing some product
offerings, including computers and building materials, and expanding other
offerings to improve overall profitability. No assurance can be given that
the Company's strategy will be effective and that the Company will be able
to effectively compete against the category-dominant stores or other
competitors. In addition, while the Company is the only multidepartment
store with significant food departments in most of its markets, some retail
companies operate stores under this general format in other regions and
could enter the Company's existing markets.

The Company emphasizes customer satisfaction, large selections of
high-quality popular products and competitive pricing. In addition, the
Company believes that the convenience, attractiveness, and cleanliness of
its stores, together with a sales staff knowledgeable in specialty areas,
enhances its retail sales efforts and competitive position.

10 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Employees

The Company employs approximately 28,000 full- and part-time employees.
Approximately 50% of the Company's employees are represented by 25
different labor unions or locals. These employees are covered by 111
different collective bargaining agreements, none of which covers more than
2,500 employees. The Company believes that it has satisfactory relations
with the many unions representing these employees.

The last work stoppages the Company experienced involved the
multiemployer bargaining unit for food clerks, checkers, and meatcutters in
Portland, Oregon and Vancouver, Washington in 1994, which lasted 88 days.
At the same time, Company union employees at its Clackamas distribution
facilities, trucking operation, dairy and a small portion of its office
employees went on strike. Coos Bay, Oregon nonfood employees went on strike
in late 1994 and returned to work on January 14, 1995.

In 1996, the Company reached agreement on contracts covering nonfood
employees in Portland, Oregon and settled its Vancouver, Washington food
contracts early. Of the 28 contracts that expired in 1996, 26 have
satisfactorily completed negotiations; and two that expired toward the
latter part of the year are still in negotiations. These two contracts
cover less than one percent of total employees. Approximately 21 labor
agreements, covering approximately 6% of the labor force, will expire
during fiscal 1997, including agreements with the common checkout workers
in the Portland, Oregon metropolitan area and employees in other large
metropolitan and smaller non-metropolitan areas where the Company operates.
The multiemployer grocery and meat worker contracts in the Portland, Oregon
metropolitan area, covering approximately 1,500 Fred Meyer employees, that
were scheduled to expire in July 1997 were renegotiated in April 1997 to
run through July 2000. While the Company is optimistic about reaching
agreements with the employees covered by contracts expiring in the
immediate future, no assurance can be given that the parties will be able
to reach a final conclusion without the occurrence of a work stoppage and
the related disruption of the Company's business or that any agreements
reached will be on terms that are favorable to the Company.

Forward-looking Statements

Information set forth in this Annual Report on Form 10-K and in the 1996
Annual Report to Shareholders regarding the Company's plans for future
operations, including the Company's expectations relating to store
expansion and remodeling, capital spending, expense reduction, debt/capital
ratios, improvements in sales and inventory turns, reduced markdowns,
reduced working capital needs and increases in sales, earnings per share
and shareholder value constitutes "forward-looking statements" that involve
a number of risks and uncertainties within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. In addition, from
time to time the Company may issue other forward-looking statements. The
following factors are among the factors that could cause actual results to
differ materially from the forward-looking statements: business and
economic conditions generally in the regions in which the Company's stores
are located, including the rate of inflation; population and job growth in
the Company's markets; competitive factors, such as increased penetration
in the Company's markets of large national food and nonfood chains, large
category-dominant stores and large national and regional discount retailers
and competitive pricing pressures generally; results of the Company's
programs to decrease costs as a percent of sales; relations with the union
bargaining units representing the Company's employees; factors that might
affect the Company's cost and availability of capital; and unusual weather
conditions. Any forward-looking statements should be considered in light of
these factors. For additional information regarding competition, see
"Competition" above and for additional information regarding labor
relations see "Employees" above.

Fred Meyer, Inc. and Subsidiaries 11
<PAGE>
Item 2. Properties.
- -------------------

As of February 1, 1997, the Company owned 22 store locations and four other
facilities, including its corporate headquarters. The balance of the
Company's locations are leased from Metropolitan Life Insurance Company
("MetLife") or third parties. Of the Company's 109 multidepartment stores,
86% have either been built or received a major remodel in the last ten
years. The Company also owns six parcels of land on which it has or is
constructing new stores and three parcels of land which are being held for
development of future stores. Additionally, it owns one vacant store and
two parcels of land in California and two parcels of land in Washington
which are being held for sale.

The following table as of February 1, 1997, summarizes the remaining
lease years, assuming the exercise of all options, for store locations,
distribution and other facilities:

<TABLE>
<CAPTION>
Distribution
(In thousands, except percentages) Store Locations and other Facilities
----------------------------------------------------------------------------- ----------------------------
Remaining Number Square Ft. of % of Total Square Ft. of % of Total
of Lease Years Retail Space Square Ft. Facility Space Square Ft.
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than 5 years ............................... 445 2.8% 6 0.2%

5 through 15 years .............................. 501 3.1 -- --

16 through 25 years ............................. 1,436 9.0 -- --

Over 25 years ................................... 7,944 49.9 1,528 52.3
-------------------------------------------------------
Total Leased .................................... 10,326 64.8 1,534 52.5

Owned Properties ................................ 5,609 35.2 1,390 47.5
-------------------------------------------------------

Total ........................................... 15,935 100.0% 2,924 100.0%
----------------------------------------------------------------------------------------------------------------
</TABLE>

The Company has no obligation to exercise any options beyond the
primary lease terms.

Item 3. Legal Proceedings.
- --------------------------

The Company and its subsidiaries are parties to various legal claims,
actions and complaints which have arisen in the ordinary course of
business. Although the Company is unable to predict with certainty whether
it will ultimately be successful in these legal proceedings or, if not,
what the impact might be, management presently believes that disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or consolidated results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------

Not applicable.

12 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Item 4(a). Executive Officers of the Registrant.
- ------------------------------------------------

As of April 10, 1997, the executive officers of the Company were as set
forth below.

<TABLE>
<CAPTION>
Original
Date of
Name Position Age Employment
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert G. Miller ................ Chairman of the Board and Chief Executive Officer 52 1991
Kenneth Thrasher ................ Executive Vice President and Chief Administrative Officer 47 1982
Wayne W. Abbott ................. Senior Vice President, Home Group 48 1970
R. Eric Baltzell ................ Senior Vice President, Store Sales 57 1962
Roger A. Cooke .................. Senior Vice President, General Counsel and Secretary 48 1992
Edward A. Dayoob ................ Senior Vice President, President, Fred Meyer Jewelers 57 1973
Michael H. Don .................. Senior Vice President, Chief Executive Officer,
Fred Meyer Jewelers 41 1987
Sammy K. Duncan ................. Senior Vice President, Food Group 45 1992
Joseph Intile ................... Senior Vice President, Distribution and Trucking 38 1988
David R. Jessick ................ Senior Vice President, Finance and Chief Financial Officer 43 1997
Keith W. Lovett ................. Senior Vice President, Human Resources 53 1992
Norman O. Myhr .................. Senior Vice President, Sales Promotion and Marketing 49 1978
Cheryl D. Perrin ................ Senior Vice President, Public Affairs 58 1976
Mary F. Sammons ................. Senior Vice President, Apparel and Home Electronics Group 50 1973
Scott L. Wippel ................. Senior Vice President, Corporate Facilities 43 1992
---------------------------------------------------------------------------------------------------------------------
</TABLE>

The executive officers of the Company are elected annually for one
year and hold office until their successors are elected and qualified.
There are no family relationships among the executive officers of the
Company.

Mr. Miller became Chairman of the Board and Chief Executive Officer of
the Company in August of 1991. Prior to that time he was employed by
Albertson's, where his most recent positions were Executive Vice President
of Retail Operations from 1989 to 1991 and Senior Vice President and
Regional Manager from 1985 to 1989. Mr. Miller has more than 30 years of
experience in the retail food industry.

Mr. Thrasher became Executive Vice President and Chief Administrative
Officer in January of 1997. Prior to that time, he was Senior Vice
President, Finance and Chief Financial Officer from March 1989 until
January 1997, Vice President Finance, Chief Financial Officer and Secretary
from 1987 until 1989 and Vice President, Corporate Treasurer from 1982
until 1987.

Mr. Abbott became Senior Vice President, Home Group in February 1996.
Prior to that time, he served as Vice President, Home Group from September
1994 through February 1996 and Vice President, Food Group from 1989 through
August 1994.

Mr. Baltzell became Senior Vice President, Store Sales in 1996. Prior
to that time he was Senior Vice President, Store Sales and Operations
Division from June 1989 until 1996 and Vice President, Food Operations of
the Company from 1982 until June 1989.

Mr. Cooke became Senior Vice President, General Counsel and Secretary
in April 1993. Prior to that time he was Vice President, General Counsel
and Secretary of the Company from August 1992 until April 1993. From 1982
to 1992, he was an officer of Pan American World Airways, Inc., serving as
Senior Vice President and General Counsel from 1990 to 1992. From 1973 to
1980, he was associated with the law firm Simpson Thacher and Bartlett.

Fred Meyer, Inc. and Subsidiaries 13
<PAGE>
Mr. Dayoob became Senior Vice President, President, Fred Meyer
Jewelers in June 1996. Prior to that time, he served as Senior Vice
President, Jewelry Division from 1993 until June 1996 and Senior Vice
President, Photo Electronics and Jewelry Group from 1989 to 1993. The Home
Electronics Division was merged into the General Group in 1993. From 1979
until 1989, Mr. Dayoob served as Vice President, Jewelry Division.

Mr. Don became Senior Vice President, Chief Executive Officer Fred
Meyer Jewelers in June 1996. Prior to that time, he served as Senior Vice
President, Strategic Planning and Asset Management from June 1995 to June
1996 and Vice President, Corporate Treasurer from October 1987 to June
1995. Before joining the Company in 1987, he was Controller and Treasurer
for two real estate development and management companies.

Mr. Duncan became Senior Vice President, Food Group in February 1996.
Prior to that time, he served as Food Group Division Vice President from
1994 to February 1996 and Vice President Grocery Merchandiser from 1992 to
1994. During 1991 and prior to joining the Company in 1992, he was Director
of Operations for Albertson's.

Mr. Intile became Senior Vice President, Distribution and Trucking in
June 1996. Prior to that time, he served as Vice President of Distribution
from 1991 to 1996 and Assistant Vice President of Industrial Engineering
from 1988 to 1991. Before joining the Company in 1988, he worked for
PayLess Drug Stores in their distribution center operations from 1975 to
1988.

Mr. Jessick became Senior Vice President, Finance and Chief Financial
Officer in January of 1997. Prior to that time, he was employed by Thrifty
PayLess Holdings Inc., where his most recent positions were Executive Vice
President and Chief Financial Officer from 1994 to 1996 and Senior Vice
President, Finance and Chief Financial Officer from 1990 until 1994.

Mr. Lovett became Senior Vice President, Human Resources of the
Company in February 1992. Prior to that time he was employed by Eagle Food
Centers, where he was Senior Vice President of Human Resources and Vice
President of Industrial Relations.

Mr. Myhr became Senior Vice President, Sales Promotion and Marketing
in 1991. Prior to that time he was Senior Vice President, Strategic
Marketing from 1989 until 1991 and Vice President, Sales Promotion from
1982 until 1989.

Ms. Perrin became Senior Vice President, Public Affairs in April 1992.
Prior to that time she was Vice President, Public Affairs from 1988 until
1992 and Vice President, Government Affairs from 1985 until 1988.

Ms. Sammons became Senior Vice President, Apparel and Home Electronics
Group in 1995. Prior to that time she was Senior Vice President, General
Group from June 1989 until 1995, Senior Vice President, Soft Goods Division
from January 1986 until June 1989 and Vice President within the Soft Goods
Division from 1980 until January 1986.

Mr. Wippel became Senior Vice President, Corporate Facilities in April
1993. Prior to that time he was Vice President, Corporate Facilities from
June 1992 until April 1993. Before joining the Company, he was employed by
Albertson's where his most recent positions were Vice President of Real
Estate from 1990 to 1992 and Director of Real Estate from 1988 to 1990.

14 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Part II
- --------------------------------------------------------------------------------

Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
- ------------------------------------------------------------------------

Common Stock Information

The Company's common stock is traded on the New York Stock Exchange (NYSE)
under the symbol "FMY." At February 1, 1997, the Company had approximately
1,300 shareholders of record.

The Company has not paid dividends since its incorporation in 1981,
and it is the current policy of the Board of Directors that all available
cash flow be used for reinvestment in the business of the Company and for
the reduction of debt.

<TABLE>
<CAPTION>
Price Ranges of Common Stock
-----------------------------------------------------------------
1996 1995 1994
------------------ ------------------- -------------------
Fiscal Quarter High Low High Low High Low
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First .......................... $29 7/8 $22 1/4 $33 3/8 $23 1/2 $42 1/2 $35 5/8

Second ......................... 32 26 1/8 29 23 1/2 38 3/4 35

Third .......................... 37 5/8 28 3/4 26 7/8 18 5/8 37 3/8 31 1/4

Fourth ......................... 36 3/4 29 7/8 23 5/8 17 3/8 35 3/4 29 1/4
------------------------------------------------------------------------------------------------------
</TABLE>

Fred Meyer, Inc. and Subsidiaries 15
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
- --------------------------------
(Page 1 of 3)
Fiscal Year Ended
-------------------------------------------------------------
(In thousands, except per-share data, February 1, February 3, January 28, January 29,
percentages and number of stores) 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data
Net sales ......................................... $3,724,839 $3,422,718 $3,122,635 $2,973,825
Gross margin ...................................... 1,105,527 973,514 861,320 885,257/6
Operating and administrative expenses ............. 971,667 885,087 807,924 747,151
Writedown of California assets/restructuring
charge (reversal) ............................... -- -- 15,978/5 --
Income from operations ............................ 133,860 88,427 37,418/5 138,106/6
Interest expense, net of interest income/1 ........ 39,432 39,578 25,857 17,604
Income (loss) before income taxes ................. 94,428 48,849 11,561/5 120,502
Provision for (benefit from) income taxes ......... 35,883 18,563 4,393/5 49,598/7
Net income (loss) before accounting
change/extraordinary item ....................... 58,545 30,286 7,168/5 70,904/6,7
Accounting change/extraordinary item .............. -- -- -- (2,588)/8
---------- ---------- ---------- ----------
Net income (loss) ................................. $ 58,545 $ 30,286 $ 7,168/5 $ 68,316/6,7,8
========== ========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before accounting
change/extraordinary item ..................... $2.09 $1.07 $.25/5 $2.50/6,7
Accounting change/extraordinary item ............ -- -- -- (.09)/8
---------- ---------- ---------- ----------
Net income (loss) ............................... $2.09 $1.07 $.25/5 $2.41/6,7,8
========== ========== ========== ==========
Balance Sheet Data
Total assets ...................................... $1,693,414 $1,671,592 $1,562,672 $1,326,076
========== ========== ========== ==========
Capitalization:
Long-term debt .................................. $ 521,512 $ 656,260 $ 540,166 $ 321,398
Capital lease obligations ....................... 59,882 58,318 63,229 65,955
---------- ---------- ---------- ----------
Total long-term debt and capital lease
obligations ................................. 581,394 714,578 603,395 387,353
Stockholders' equity ............................ 567,298 571,234 538,620 527,686
---------- ---------- ---------- ----------
Total capitalization .......................... $1,148,692 $1,285,812 $1,142,015 $ 915,039
========== ========== ========== ==========
Statistical Information
Percent of net sales:
Nonfood sales ................................... 58.9% 59.0% 61.7% 62.5%
Food sales ...................................... 41.1% 41.0% 38.3% 37.5%
Net income (loss) ............................... 1.6% .9% .2%/5 2.3%/6,7,8
Total stores sales growth ......................... 8.8% 9.6% 5.0% 4.4%
Comparable stores sales percentage increase
(decrease)/2 .................................... 3.8%/3 2.1%/4 (2.0)% 2.4%
Long-term debt and capital leases as a
percent of total capitalization ................. 50.6% 55.6% 52.8% 42.3%
Number of multidepartment and specialty
stores operated at year end ..................... 219 136 131 127
Total retail square feet at end of year ........... 15,935 14,857 14,194 13,423
Selling square feet at end of year ................ 11,704 10,817 10,490 9,999
Sales per selling square foot (weighted average)... $328 $316 $304 $312
Common shares outstanding (weighted average)....... 27,962 28,333 28,625 28,375
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

16a Fred Meyer, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
- --------------------------------
(Page 2 of 3)
Fiscal Year Ended
-------------------------------------------------------------
(In thousands, except per-share data, January 30, February 1, February 2, February 3,
percentages and number of stores) 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data
Net sales ......................................... $2,849,521 $2,700,550 $2,474,327 $2,283,187
Gross margin ...................................... 852,821 807,729 739,992 669,696
Operating and administrative expenses ............. 738,581 724,446 672,484 619,605
Writedown of California assets/restructuring
charge (reversal) ............................... -- (8,289)/9 -- 49,277/9
Income from operations ............................ 114,240 91,572/10 67,508 814/12
Interest expense, net of interest income/1 ........ 18,070 20,577 15,974 13,947
Income (loss) before income taxes ................. 96,170 70,995/9,10 51,534 (13,133)/12
Provision for (benefit from) income taxes ......... 35,583 25,768 17,951 (6,285)/12
Net income (loss) before accounting
change/extraordinary item ....................... 60,587 45,227/9,10 33,583 (6,848)/12
Accounting change/extraordinary item .............. -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) ................................. $ 60,587 $ 45,227/9,10 $ 33,583 $ (6,848)/12
========== ========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before accounting
change/extraordinary item ..................... $2.21 $1.80/9,10 $1.37 $(.28)/12
Accounting change/extraordinary item ............ -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) ............................... $2.21 $1.80/9,10 $1.37 $(.28)/12
========== ========== ========== ==========
Balance Sheet Data
Total assets ...................................... $1,081,627 $974,780 $905,756 $796,894
========== ========== ========== ==========
Capitalization:
Long-term debt .................................. $195,837 $240,968 $232,881 $188,441
Capital lease obligations ....................... 70,313 67,387 67,664 66,393
---------- ---------- ---------- ----------
Total long-term debt and capital lease
obligations ................................. 266,150 308,355 300,545 254,834
Stockholders' equity ............................ 450,128 335,154 285,299 251,546
---------- ---------- ---------- ----------
Total capitalization .......................... $ 716,278 $ 643,509 $ 585,844 $ 506,380
========== ========== ========== ==========
Statistical Information
Percent of net sales:
Nonfood sales ................................... 63.3% 63.7% 64.3% 66.8%
Food sales ...................................... 36.7% 36.3% 35.7% 33.2%
Net income (loss) ............................... 2.1% 1.7% 1.4% (.3)%/12
Total stores sales growth ......................... 5.6% 9.2% 11.6%/11 8.4%/11
Comparable stores sales percentage increase
(decrease)/2 .................................... 3.0% 4.0% 3.6%/11 4.5%/11
Long-term debt and capital leases as a
percent of total capitalization ................. 37.2% 47.9% 51.3% 50.3%
Number of multidepartment and specialty
stores operated at year end ..................... 123 122 122 125
Total retail square feet at end of year ........... 12,646 12,679 12,213 11,743
Selling square feet at end of year ................ 9,471 9,657 9,361 9,056
Sales per selling square foot (weighted average)... $304 $283 $269 $261/11
Common shares outstanding (weighted average)....... 27,446 25,182 24,500 24,801
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

16b Fred Meyer, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
- --------------------------------
(Page 3 of 3)
Fiscal Year Ended
-------------------------------------------
(In thousands, except per-share data, January 28, January 30, January 31,
percentages and number of stores) 1989 1988 1987
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data
Net sales ......................................... $2,072,507 $1,847,104 $1,687,674
Gross margin ...................................... 609,378 546,418 487,295
Operating and administrative expenses ............. 543,188 485,083 429,935
Writedown of California assets/restructuring
charge (reversal) ............................... -- -- --
Income from operations ............................ 66,190 61,335 57,360
Interest expense, net of interest income/1 ........ 9,291 7,449 11,945
Income (loss) before income taxes ................. 56,899 53,886 45,415
Provision for (benefit from) income taxes ......... 20,238 21,850 21,350
Net income (loss) before accounting
change/extraordinary item ....................... 36,661 32,036 24,065
Accounting change/extraordinary item .............. -- -- (1,530)/13
---------- ---------- ----------
Net income (loss) ................................. $ 36,661 $ 32,036 $ 22,535
========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before accounting
change/extraordinary item ..................... $1.50 $1.31 $1.15
Accounting change/extraordinary item ............ -- -- (.07)/13
---------- ---------- ----------
Net income (loss) ............................... $1.50 $1.31 $1.08
========== ========== ==========
Balance Sheet Data
Total assets ...................................... $ 686,806 $ 626,522 $ 533,986
========== ========== ==========
Capitalization:
Long-term debt .................................. $ 92,180 $ 87,730 $ 76,874
Capital lease obligations ....................... 50,774 46,904 36,093
---------- ---------- ----------
Total long-term debt and capital lease
obligations ................................. 142,954 134,634 112,967
Stockholders' equity ............................ 258,188 221,056 186,692
---------- ---------- ----------
Total capitalization .......................... $ 401,142 $ 355,690 $ 299,659
========== ========== ==========
Statistical Information
Percent of net sales:
Nonfood sales ................................... 68.2% 67.6% 66.1%
Food sales ...................................... 31.8% 32.4% 33.9%
Net income (loss) ............................... 1.8% 1.7% 1.3%
Total stores sales growth ......................... 12.2% 9.5% 6.6%
Comparable stores sales percentage increase
(decrease)/2 .................................... 7.9% 6.6% 4.3%
Long-term debt and capital leases as a
percent of total capitalization ................. 35.6% 37.9% 37.7%
Number of multidepartment and specialty
stores operated at year end ..................... 112 99 93
Total retail square feet at end of year ........... 10,925 10,494 9,738
Selling square feet at end of year ................ 8,388 8,064 7,497
Sales per selling square foot (weighted average)... $253 $239 $228
Common shares outstanding (weighted average)....... 24,470 24,403 20,870
- -----------------------------------------------------------------------------------------------
<FN>
/1 Interest income was $858, $1,060, $885, $707, $544, $517, $467, $482, $336,
$350 and $1,679, respectively.
/2 Includes only sales of stores operating throughout each of the periods
compared.
/3 The calculation for comparable store sales for the year ended February 1,
1997 is computed on a 52-week basis for both years.
/4 The calculation for comparable store sales for the year ended February 3,
1996, a 53-week year, is computed by adding a 53rd week to 1994's sales
base.
/5 In 1994, the Company recorded a pretax charge of $15,978 to writedown to
their estimated net realizable value one multidepartment store and three
land parcels in California. Excluding this writedown, income from
operations, income before income taxes, provision for income taxes, net
income and earnings per common share would have been $53,396, $27,539,
$10,465, $17,074 and $.60, respectively; and net income as a percent of net
sales would have been .5%.
/6 Includes a nonrecurring LIFO credit of $6,178.
/7 Includes $3,588 from the resolution of an IRS audit ($2,286) related to the
LIFO credit and a 38% tax rate.
/8 Effect of adopting Statement of Financial Accounting Standards No. 109
relating to income taxes.
/9 In 1989, the Company took a pretax charge of $49,277 related to closing
some of its stores and for conversion of its management information systems
from Honeywell to IBM. In 1991, the Company reversed $8,289 of this charge
based on a decision not to close as many stores as previously provided for.
/10 Excluding the benefit from the restructuring charge reversal of $8,289 and
a charge against expenses for previously capitalized software development
costs of $8,748, income from operations, net income and earnings per common
share would have been $92,031, $45,516 and $1.81 respectively.
/11 Excludes 53rd week in the fiscal year ended February 3, 1990.
/12 Excluding the restructuring charge of $49,277, income from operations,
income before income taxes, provision for income taxes, net income,
earnings per common share and net income as a percent of net sales would
have been $50,091, $36,144, $11,947, $24,197, $.98 and 1.1%, respectively.
/13 Prepayment costs of $1,530 ($.07 per share) from early extinguishment of
17% Senior and Subordinated Notes, net of taxes.
</FN>
</TABLE>

Fred Meyer, Inc. and Subsidiaries 17
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
- ----------------------------------------------

The following discussion summarizes Fred Meyer, Inc.'s operating results
for the fiscal year ended February 1, 1997 ("1996") compared with the
fiscal year ended February 3, 1996 ("1995") and for 1995 compared with the
fiscal year ended January 28, 1995 ("1994"). Also included are discussions
of the Company's liquidity, capital resources, effect of LIFO, effect of
inflation and recent accounting changes. This discussion and analysis
should be read in conjunction with the Company's consolidated financial
statements.

Results of Operations--1996 Compared with 1995

Net sales for 1996 (52 weeks) increased $302,121,000, or 8.8%, over 1995
(53 weeks). This increase reflects openings of five full-size
multidepartment stores, two marketplace stores, and five jewelry stores in
malls and the acquisition of 71 mall jewelry stores. Comparable store
sales, measured on a 52-week corresponding period for both years, increased
3.8% for 1996. Comparable food sales increased 4.7%, and comparable nonfood
sales increased 3.1%. Food sales as a percent of net sales were 41.1% and
41.0%, respectively for 1996 and 1995.

Gross margin as a percent of net sales was 29.7% in 1996 compared with
28.4% in 1995. Gross margins increased primarily due to significant
reductions in markdowns in 1996 versus 1995, the effects of increased sales
of higher-margin jewelry, primarily from the 71 acquired fine jewelry
stores, and lower distribution costs as a percent of sales.

Operating and administrative expenses increased 9.8% to $971,667,000
in 1996 from $885,087,000 in 1995, and as a percent of net sales were 26.1%
in 1996 and 25.9% in 1995. Operating and administrative expenses increased
as a percent of sales due to the higher expense structure at the fine
jewelry stores and increased wages for additional staffing in some nonfood
sections of the multidepartment stores. These increases were partially
offset by reduced advertising expense as a percent of sales.

Net interest expense decreased to $39,432,000 in 1996 from $39,578,000
in 1995. The decrease primarily reflects lower borrowings due to the impact
of the Company's third quarter $108,000,000 sale-leaseback of 10 stores and
to improved cash flow from operations, offset in part by the third quarter
repurchase of $70,000,000 of common stock.

The effective tax rate was 38.0% for both 1996 and 1995.

Net income was $58,545,000 for 1996 and $30,286,000 for 1995. This
increase is primarily the result of the above-mentioned factors.

Results of Operations--1995 Compared with 1994

Net sales for 1995 (53 weeks) increased $300,083,000, or 9.6%, over 1994
(52 weeks). This increase reflects openings of six full-size
multidepartment stores, three jewelry stores in malls and the addition of
food to three previously nonfood stores, offset in part by the closure of
four multidepartment stores. Comparable store sales increased 2.1% for
1995. Comparable food sales increased 6.6% and comparable nonfood sales
decreased .9%. These sales comparisons were aided by the negative impact of
labor strikes on 1994 sales. Excluding store sales during the three-month
period in 1994 affected by the strikes, total comparable store sales
decreased .6% in 1995, with comparable food sales increasing 3.1% and
comparable nonfood sales decreasing 3.0%. Comparable sales are measured on
a 53-week corresponding period for both years. Food sales as a percent of
net sales were 41.0% and 38.3%, respectively, for 1995 and 1994. The
increase in food sales as a percent of net sales was primarily due to an
increase in the number of the Company's stores that sell food.

18 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Gross margin as a percent of net sales was 28.4% in 1995 compared with
27.6% in 1994. 1995's fourth quarter gross margins increased as a percent
of sales primarily due to the comparison to reduced 1994 fourth quarter
margins, which were affected by factors associated with labor strikes and
increased promotional activities. Gross margins for 1995, however, were
negatively affected by slow nonfood sales, a high level of nonfood
promotions and a greater portion of sales being in food where margins are
typically lower, partially offset by a lower LIFO charge and the impact of
increased utilization of new flow-through distribution facilities.

Operating and administrative expenses increased 9.6% to $885,087,000
in 1995 from $807,924,000 in 1994, and as a percent of net sales were 25.9%
for both years. This comparison was prior to reflecting 1994's writedown of
California assets of $15,978,000, covering one store and three land
parcels.

Net interest expense was $39,578,000 for 1995 and $25,857,000 for
1994, an increase of 53.1%. This increase primarily reflects interest on
debt associated with increased capital spending, and to a lesser extent,
interest on debt incurred as a result of 1994's labor disputes.

The effective tax rate was 38.0% for both 1995 and 1994.

Net income was $30,286,000 for 1995 and $7,168,000 for 1994. This
increase is primarily the result of the above-mentioned factors. Excluding
the writedown of California assets, 1994 net income was $17,074,000.

Liquidity and Capital Resources

The Company funded its working capital and capital expenditure needs in
1996 through internally generated cash flow and sale-leaseback proceeds,
supplemented by borrowings under committed and uncommitted bank lines of
credit and unrated commercial paper. Cash provided by operating activities
was approximately $33,192,000 higher in 1996 than 1995. This was mainly due
to a decrease in working capital (primarily through increased accounts
payable) and the increase in net income. Changes in cash flows from
investing and financing activities are primarily the result of the timing
of borrowing and capital expenditures. Additionally, in 1996 the Company
repurchased 2,200,000 shares of its common stock for $70,099,000, including
expenses.

On September 5, 1996 with respect to 10 of its stores, the Company
closed a sale-leaseback which generated $108,000,000 in net proceeds used
to pay down credit lines. The leases are for an initial term of 21 years,
subject to renewal at the option of the Company; and the average rent,
including amortization of fees and a deferred gain, is approximately
$8,200,000 annually.

The Company renewed its credit facility in 1996 with several domestic
and foreign banks for a committed line of credit which provides for
borrowings of up to $500,000,000. This agreement continues through June 30,
2000, at which time the agreement terminates and any outstanding amounts
must be paid in full. In addition to this committed credit facility, at
February 1, 1997 the Company had $105,000,000 of uncommitted money market
lines with several foreign banks and $120,000,000 of uncommitted money
market lines with banks which are also in the committed credit facility.
The bank lines and unrated commercial paper are used primarily for seasonal
inventory requirements, new store construction and financing, existing
store remodeling, acquisition of land, and major projects such as the
development of MIS. At February 1, 1997 the Company had unrated commercial
paper outstanding in the amount of $283,040,000 and a total of
approximately $216,960,000 available for borrowings that would be supported
by its committed credit facility.

In 1995, the Company entered into operating lease agreements covering
existing leased stores and the construction of new stores, with costs
aggregating $160,000,000. Lease payments are based on a spread over LIBOR
on the utilized portion of the facility. As of February 1, 1997,
$136,307,000 was utilized under the agreement. After the initial five-year
noncancelable lease term, the leases may be extended by agreement of the
parties or the Company may purchase the properties.

Fred Meyer, Inc. and Subsidiaries 19
<PAGE>
In 1992, the Company's Board of Directors adopted a derivative policy
recognizing derivative financial instruments as an integral part of its
risk management program. Management periodically reviews the use of
derivative transactions and market positions, including assessments of
compliance with the policy.

The Company has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate
long-term debt. At February 1, 1997, the Company had outstanding four
interest rate contracts, for a total notional principal amount of
$75,000,000, with commercial banks. Two swap agreements effectively fix the
Company's interest rate on unrated commercial paper, floating rate
facilities and uncommitted lines of credit at rates between 5.20% and
7.595% on a notional principal amount of $40,000,000. These contracts
expire through 1998. Two cap agreements effectively limit the maximum
interest rate the Company will pay at rates between 5.0% and 9.0% on
notional principal amounts totaling $35,000,000. These contracts expire
through 1999. The Company has entered into swap and cap agreements to
reduce the impact of changes in rent expense on its two lease lines of
credit. At February 1, 1997, the Company had outstanding seven rent rate
contracts, for a total notional principal amount of $80,000,000, with
commercial banks. Three of these agreements effectively fix the Company's
rental rate on the lease lines at rates between 6.2775% and 6.537% on
notional principal amounts of $40,000,000. The remaining four agreements
effectively limit the maximum rental rate the Company will pay at 7.25% on
notional principal amounts totaling $40,000,000. All seven of these
contracts expire in 2000. The Company is exposed to credit loss in the
event of nonperformance by the counterparties to the interest rate and rent
rate swap and cap agreements. The Company requires an A or better rating of
the counterparties and, accordingly, does not anticipate nonperformance by
the counterparties.

During 1996, capital expenditures totaled $146,917,000, net of real
estate financed on leases. The Company opened five full-size
multidepartment stores, two marketplace stores and five jewelry stores in
malls, acquired 71 jewelry stores in malls and remodeled four
multidepartment stores. In addition, the Company is continuing its program
of replacing and upgrading its MIS. During 1996, the Company also began
construction of four multidepartment stores and one replacement store
scheduled to open in 1997. At least five major remodels are planned for
completion in 1997. The Company believes that a combination of cash flow
from operations, proceeds from sale-leasebacks, lease facilities and
borrowings under its credit facilities will permit it to finance its
capital expenditure requirements for 1997, estimated at $165,000,000, net
of estimated real estate financed on leases.

Effect of LIFO

During each year, the Company estimates the LIFO adjustment for the year
based on estimates of three factors: inflation rates (calculated by
reference to the Department Stores Inventory Price Index published by the
Bureau of Labor Statistics for soft goods and jewelry and to internally
generated indices based on Company purchases during the year for all other
departments), expected inventory levels, and expected markup levels (after
reflecting permanent markdowns and cash discounts). At year-end, the
Company makes the final adjustment reflecting the difference between the
Company's prior quarterly estimates and actual LIFO amount for the year.

Effect of Inflation

While management believes that some portion of the increase in sales is due
to inflation, it is difficult to segregate and to measure the effects of
inflation because of changes in the types of merchandise sold year-to-year
and other pricing and competitive influences. By attempting to control
costs and efficiently utilize resources, the Company strives to minimize
the effects of inflation on its operations.

Recent Accounting Changes

There are no issued and pending accounting changes which will have a
material effect on the Company's financial reporting.

20 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------

<TABLE>
<CAPTION>
Statements of Consolidated Operations

Fiscal Year Ended
----------------------------------------------
February 1, February 3, January 28,
(In thousands, except per-share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales .................................................... $3,724,839 $3,422,718 $3,122,635
---------------------------------------------
Cost of Goods Sold:
General .................................................. 2,613,746 2,443,531 2,255,749
Related party lease (Note 3) ............................. 5,566 5,673 5,566
---------------------------------------------
Total cost of goods sold ..................................... 2,619,312 2,449,204 2,261,315
---------------------------------------------
Gross Margin ................................................. 1,105,527 973,514 861,320
Operating and Administrative Expenses:
General .................................................. 920,713 829,486 750,888
Related party leases (Notes 3 and 8) ..................... 50,954 55,601 57,036
---------------------------------------------
Total operating and administrative expenses .............. 971,667 885,087 807,924
---------------------------------------------
Writedown of California Assets (Note 4) ...................... -- -- 15,978
---------------------------------------------
Income from Operations ....................................... 133,860 88,427 37,418
Interest Expense, net of interest income of $858,
$1,060 and $885 .......................................... 39,432 39,578 25,857
---------------------------------------------
Income before Income Taxes ................................... 94,428 48,849 11,561
Provision for Income Taxes (Note 6) .......................... 35,883 18,563 4,393
---------------------------------------------
Net Income ................................................... $ 58,545 $ 30,286 $ 7,168
=============================================
Net Income per Common Share .................................. $2.09 $1.07 $.25
=============================================
Weighted Average Number of Common Shares Outstanding ......... 27,962 28,333 28,625
- ------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>

Fred Meyer, Inc. and Subsidiaries 21
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets

Assets
February 1, February 3,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................................. $ 48,769 $ 41,849
Receivables ................................................................ 23,729 24,683
Inventories ................................................................ 604,910 520,555
Prepaid expenses and other ................................................. 43,149 23,680
Current portion of deferred taxes (Note 6) ................................. 17,226 22,046
----------------------------
Total current assets ....................................................... 737,783 632,813
----------------------------
Property and Equipment:
Buildings, fixtures and equipment .......................................... 1,397,872 1,366,511
Property held under capital leases (Note 8) ................................ 17,523 17,523
Land ....................................................................... 139,474 160,657
----------------------------
Total property and equipment ............................................... 1,554,869 1,544,691
Less accumulated depreciation and amortization ............................. 625,104 530,543
----------------------------
Property and equipment--net ................................................. 929,765 1,014,148
----------------------------
Other Assets:
Goodwill--net ............................................................... 4,599 4,907
Other ...................................................................... 21,267 19,724
----------------------------
Total other assets ......................................................... 25,866 24,631
----------------------------
Total assets ............................................................... $1,693,414 $1,671,592
- -------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>

22 Fred Meyer, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets

Liabilities and Stockholder's Equity
February 1, February 3,
(In thousands, except per share data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Outstanding checks ......................................................... $ 112,991 $ 63,177
Accounts payable ........................................................... 285,439 193,896
Current portion of long-term debt and lease obligations (Notes 5 and 8) 1,038 1,468
Income taxes payable ....................................................... 5,115 4,857
Accrued expenses:
Compensation ........................................................... 58,347 48,743
Insurance and other .................................................... 41,651 37,590
----------------------------
Total current liabilities .................................................. 504,581 349,731
----------------------------
Long-term Debt (Note 5) ........................................................ 521,512 656,260
----------------------------
Capital Lease Obligations (Note 8) ............................................. 13,227 13,298
----------------------------
Deferred Lease Transactions (Note 8) ........................................... 46,318 42,271
----------------------------
Deferred Income Taxes (Note 6) ................................................. 35,176 30,814
----------------------------
Other Long-term Liabilities (Notes 8 and 10) ................................... 5,302 7,984
----------------------------
Commitments and Contingencies (Notes 8 and 12)
Stockholders' Equity (Note 7):
Preferred stock, $.01 par value (authorized, 5,000 shares;
outstanding, none) ..................................................... -- --
Common stock, $.01 par value (authorized, 100,000 shares;
issued--28,404 shares and 26,705 shares;
outstanding--26,204 shares and 26,705 shares) ........................... 287 270
Additional paid-in capital ..................................................... 203,314 195,593
Treasury stock 1996--2,200 shares and other ..................................... (70,425) (206)
Retained earnings .............................................................. 434,122 375,577
----------------------------
Total stockholders' equity ..................................................... 567,298 571,234
----------------------------
Total liabilities and stockholders' equity ..................................... $1,693,414 $1,671,592
- -------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>

Fred Meyer, Inc. and Subsidiaries 23
<PAGE>
<TABLE>
<CAPTION>
Statements of Consolidated Cash Flows

Fiscal Year Ended
----------------------------------------------
February 1, February 3, January 28,
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ................................................................. $ 58,545 $ 30,286 $ 7,168
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment ................ 116,546 107,077 89,474
Amortization of goodwill ............................................... 308 308 308
Writedown of California assets ......................................... -- -- 15,978
Deferred lease transactions ............................................ (4,944) (3,384) (2,599)
Deferred income taxes .................................................. 9,182 1,626 (3,526)
Other liabilities ...................................................... (2,682) (2,085) (347)
Inventories ............................................................ (84,355) (6,082) (37,358)
Other current assets ................................................... (17,714) 13,705 1,552
Accounts payable and accrued expenses .................................. 105,210 (28,890) 11,613
Income taxes ........................................................... 258 19,878 (33,681)
Other .................................................................. (14,110) 613 1,458
-------------------------------------------
Net cash provided by operating activities .................................. 166,244 133,052 50,040
-------------------------------------------
Cash Flows from Financing Activities:
Issuance of common stock - net ............................................. 7,498 2,278 3,369
Stock repurchase and related expenses ...................................... (70,099) -- --
Collection of notes receivable ............................................. 794 515 364
Increase in notes receivable ............................................... (857) (2,391) (213)
Increase/(decrease) in outstanding checks .................................. 49,814 (18,162) 8,968
Long-term financing:
Borrowings ............................................................. -- 158,500 258,871
Repayments ............................................................. (135,249) (42,652) (40,093)
-------------------------------------------
Net cash (used for) provided by financing activities ....................... (148,099) 98,088 231,266
-------------------------------------------
Cash Flows from Investing Activities:
Net sales (purchases) of investment securities ............................. 12,340 1,110 (935)
Purchases of property and equipment ........................................ (146,917) (236,052) (284,193)
Proceeds from sale of property and equipment ............................... 123,352 10,783 4,636
-------------------------------------------
Net cash used for investing activities ..................................... (11,225) (224,159) (280,492)
-------------------------------------------
Net Increase in Cash and Cash Equivalents for the Year ......................... 6,920 6,981 814
Cash and Cash Equivalents, Beginning of Year ................................... 41,849 34,868 34,054
-------------------------------------------
Cash and Cash Equivalents, End of Year ......................................... $ 48,769 $ 41,849 $ 34,868
-------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid (refunded) during the year for:
Interest (including interest capitalized of $121, $3,629, and $2,520) $ 40,458 $ 45,228 $ 31,022
Income taxes ........................................................... 25,744 (3,256) 40,757
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>

24 Fred Meyer, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Consolidated Stockholders' Equity

Common Stock Treasury Stock
--------------------------------------------------
Number Additional Number
of Paid-in of Retained
(In thousands) Shares Amount Capital Shares Amount Other Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994 ................ 26,415 $267 $189,949 -- $ -- $(653) $338,123 $527,686
Issuance of common stock:
Stock options exercised .................. 153 1 2,611 -- -- -- -- 2,612
Tax benefits from stock options .......... -- -- 757 -- -- -- -- 757
Amortization of unearned compensation .... -- -- -- -- -- 397 -- 397
Net income ............................... -- -- -- -- -- -- 7,168 7,168
--------------------------------------------------------------------------------------
Balance, January 28, 1995 ................ 26,568 268 193,317 -- -- (256) 345,291 538,620
Issuance of common stock:
Stock options exercised .................. 137 2 2,016 -- -- -- -- 2,018
Tax benefits from stock options .......... -- -- 260 -- -- -- -- 260
Amortization of unearned compensation .... -- -- -- -- -- 50 -- 50
Net income ............................... -- -- -- -- -- -- 30,286 30,286
--------------------------------------------------------------------------------------
Balance, February 3, 1996 ................ 26,705 270 195,593 -- -- (206) 375,577 571,234
Issuance of common stock:
Stock options exercised .................. 1,689 17 7,244 -- -- -- -- 7,261
Stock bonus .............................. 10 -- 166 -- -- (566) -- (400)
Treasury stock ........................... -- -- (326) 2,200 (69,773) -- -- (70,099)
Tax benefits from stock options .......... -- -- 637 -- -- -- -- 637
Amortization of unearned compensation .... -- -- -- -- -- 120 -- 120
Net income ............................... -- -- -- -- -- -- 58,545 58,545
--------------------------------------------------------------------------------------
Balance, February 1, 1997 ................ 28,404 $287 $203,314 2,200 $(69,773) $(652) $434,122 $567,298
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>

Fred Meyer, Inc. and Subsidiaries 25
<PAGE>
Notes to Consolidated Financial Statements

1. The Company

Fred Meyer, Inc., a Delaware corporation, and its subsidiaries operate a
chain of retail stores offering a wide range of food, products for the
home, apparel, fine jewelry, and home improvement items, with emphasis on
necessities and items of everyday use. At February 1, 1997 the Company
operated 219 stores, of which 109 are large multidepartment stores (101
with food departments), located in Oregon, Washington, Utah, Alaska, Idaho
and Montana; and the balance are smaller specialty stores (including 105
jewelry stores in malls).

2. Summary of Significant Accounting Policies

Principles of Consolidation--The accompanying financial statements include
the consolidated accounts of the Company and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.

Fiscal Year--The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years 1996, 1995 and 1994 ended on February 1, 1997,
February 3, 1996 and January 28, 1995, respectively. Fiscal years 1996,
1995 and 1994 were 52, 53 and 52 weeks, respectively.

Unless otherwise stated, references to years in this report relate to
fiscal years rather than to calendar years.

Business Segment--The Company's operations consist of one segment, retail
sales.

Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.

Receivables--Receivables are reported net of allowances for potential
uncollected accounts of $1,348,000 and $1,294,000 at February 1, 1997 and
February 3, 1996, respectively.

Inventories--Inventories consist principally of items held for sale in its
retail operations and substantially all inventories are stated at the lower
of last-in, first-out (LIFO) cost or market. If the first-in, first-out
method, which approximates replacement cost, had been used in determining
inventory values, they would have been $52,774,000 and $53,940,000 higher
at February 1, 1997 and February 3, 1996, respectively.

Property and Equipment--Property and equipment is stated at cost.
Depreciation on buildings and equipment is provided using the straight-line
method over the estimated useful lives of the related assets of three to 31
years. Amortization of property under capital leases is provided using the
straight-line method over the remaining related lease terms of 16 to 40
years.

Goodwill--Goodwill is being amortized on a straight-line basis over 30
years. Management periodically evaluates the recoverability of goodwill
based upon current and anticipated net income and undiscounted future cash
flows. Accumulated amortization was $4,659,000 and $4,352,000 at February
1, 1997 and February 3, 1996, respectively.

Investment Securities--As of January 28, 1995, the Company adopted SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. SFAS
No. 115 requires the classification of securities at acquisition into one
of three categories: held to maturity, available for sale, or trading. At
February 1, 1997, the carrying value of all debt and equity securities
approximated their aggregate fair value. Debt securities are classified as
held to maturity and are included in Other Assets.

Outstanding Checks--Checks that are issued and that have not yet cleared
the banks are included in current liabilities.

Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from those
estimates.

26 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Buying and Promotional Allowances--Vendor allowances and credits that
relate to the Company's buying and merchandising activities are recognized
as earned.

Self-insurance--The Company is primarily self-insured for general
liability, property loss, worker's compensation and non-union health and
welfare. Liabilities for these costs are based on actual claims and
actuarial statements for estimates of claims that have been incurred but
not reported.

Pre-opening Costs--All noncapital expenditures incurred in connection with
the opening of new or acquired stores and other facilities or the
remodeling of existing stores are expensed as incurred.

Income Taxes--Deferred income taxes are provided for those items included
in the determination of income or loss in different periods for financial
reporting and income tax purposes. Targeted jobs and other tax credits are
recognized in the year realized.

Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense is
the tax payable for the period and the change during the period in deferred
tax assets and liabilities (see note 6).

Stock-based Compensation--The Company adopted SFAS No. 123, Accounting for
Stock-based Compensation, effective January 1, 1996. The Company will
continue to measure compensation expense for its stock-based employee
compensation plans using the method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, but will provide pro forma
disclosures of net income and earnings per share as if the method
prescribed by SFAS No. 123 had been applied in measuring compensation
expense.

Earnings Per Common Share--Fully diluted earnings per common share are
computed by dividing net income by the weighted average number of common
and common equivalent shares outstanding. Weighted average shares reflect
the dilutive effect of outstanding stock options using the treasury stock
method.

Reclassifications--Certain prior year amounts have been reclassified to
conform to current year presentation. The reclassifications have no effect
on reported net income.

3. Related-party Transactions

The Company leases 56 store locations (one of which is closed) and a
distribution center from MetLife, which is a major beneficial shareholder
of the Company's stock, and other related parties. Rents paid to related
parties on these properties were $61,762,000; $64,010,000 and $65,804,000;
respectively for 1996, 1995 and 1994. (See note 8.)

Total rents included in operating and administrative expenses for
locations leased or subleased from related parties were based on the
average rental paid during the primary term of the leases. Rents associated
with the Company's main distribution center and central bakery are included
in cost of goods sold.

In 1995, the Company offered interest-free loans of up to $100,000
each to 19 executives for the purpose of acquiring common stock of the
Company. Repayment of these loans is required by June 1998 or upon
termination of employment or sale of stock. At February 1, 1997 and
February 3, 1996, outstanding loans under this program amounted to
$1,394,000 and $1,839,000, respectively.

4. Writedown of California Assets

During 1994, the Company incurred a charge of $15,978,000 ($9,906,000 after
a deferred tax benefit of $6,072,000) related to the writedown of certain
assets and other costs associated with the Company's decision to exit the
northern California market except for mall jewelry locations.

Fred Meyer, Inc. and Subsidiaries 27
<PAGE>
5. Long-term Debt

<TABLE>
<CAPTION>
Long-term debt consisted of the following (in thousands):

1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper with maturities through July 1997,
classified as long-term, interest rates of 5.44% to
6.11% at February 1, 1997 ................................... $283,040 $283,344
Uncommitted bank borrowings classified as long-term ............ -- 123,500
Long-term notes secured by trust deeds, due through 2012,
fixed interest rates from 9.00% to 9.52% .................... 41,819 42,536
Long-term notes, unsecured:
Due 1997 through 1998, interest rate is periodically
reset, 6.10% at February 1,1997, paid quarterly ........... 70,000 70,000
Due 1996, fixed interest rate of 7.74%, paid quarterly ...... -- 10,000
Due 2000, fixed interest rate of 6.775%, paid quarterly ..... 20,000 20,000
Senior notes, unsecured, due 1999 through 2007,
fixed interest rates from 7.25% to 7.98% .................... 107,500 107,500
Other .......................................................... -- 159
--------------------------
Total .......................................................... 522,359 657,039
Less current portion............................................ (847) (779)
--------------------------
Total .......................................................... $521,512 $656,260
-----------------------------------------------------------------------------------------------
</TABLE>

The Company has the ability to support commercial paper, uncommitted
bank borrowings, and other debt on a long-term basis through its Bank
Credit Agreement and therefore, based upon management's intent, has
classified these borrowings, which total $283,040,000 at February 1, 1997,
as long-term debt.

The Company has a Bank Credit Agreement which provides for, among
other things: (1) a revolving credit commitment of $500,000,000 with
payment of the unpaid balance at June 30, 2000; (2) interest at a spread
over LIBOR on such borrowings or various other pricing options; and (3) a
facility fee of .15% of the amount of the commitment. This agreement
requires the maintenance of specified ratios and restricts the amounts of
cash dividends paid. The Company bought back $69,773,000 of its stock in
1996 under provisions of this agreement. At February 1, 1997 and through
June 14, 1997, the Company is restricted from payment of dividends or
repurchase of Company stock under this provision. As of June 15, 1997 the
Company may pay cash dividends or repurchase Company stock based on 40% of
net income for the year ending January 31, 1998.

The Company has established uncommitted lines of credit for
$105,000,000 with foreign banks and has uncommitted bid lines of credit for
$120,000,000 with certain banks within its committed bank group. These
lines, which generally have terms of one year, allow the Company to borrow
from the banks at mutually agreed upon rates, usually below the rates
offered under the Bank Credit Agreement. The Company has unrated commercial
paper programs with maturities ranging up to 270 days in amounts up to a
maximum of $500,000,000. The Company also has available letters of credit
lines for $66,000,000, of which $24,330,000 had been issued at February 1,
1997.

The Company has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate
long-term debt. At February 1, 1997, the Company had outstanding four
interest rate contracts, for a total notional principal amount of
$75,000,000, with commercial banks. The two swap agreements effectively fix
the Company's interest rate on unrated commercial paper, floating rate
facilities and uncommitted lines of credit at rates between 5.20% and
7.595% on a notional principal amount of $40,000,000. These contracts
expire through 1998. The two cap agreements effectively limit the maximum
interest rate the Company will pay at rates between 5.0% and 9.0% on
notional principal amounts totaling $35,000,000. These contracts expire
through 1999. The Company has entered into swap and cap agreements to
reduce the impact of changes in rent expense on its two lease lines of
credit. At February 1, 1997, the Company had outstanding seven rent rate
contracts, for a total notional principal amount of $80,000,000, with
commercial banks. Three of these agreements effectively fix the Company's
rental rate on the lease lines at rates between 6.2775% and 6.537% on
notional amounts of $40,000,000. The remaining four agreements effectively
limit the maximum rental rate the Company will pay at 7.25% on notional
amounts totaling $40,000,000. All seven of these contracts expire in 2000.
Gains and losses on swaps

28 Fred Meyer, Inc. and Subsidiaries
<PAGE>
and caps are amortized over the life of the instruments. The Company is
exposed to credit loss in the event of nonperformance by the other parties
to the interest rate swap and cap agreements. The Company requires an "A"
or better rating of the counterparties and, accordingly, does not
anticipate nonperformance by the counterparties.

Annual estimated long-term debt maturities for the five fiscal years
subsequent to February 1, 1997 are: 1997, $847,000; 1998, $60,428,000;
1999, $8,516,000; 2000, $314,743,000; 2001, $16,228,000; and thereafter,
$121,597,000.

6. Income Taxes

The provision for income taxes includes the following (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current ....................................... $26,701 $16,937 $7,919
Deferred ...................................... 9,182 1,626 (3,526)
------------------------------------------
Total ......................................... $35,883 $18,563 $4,393
------------------------------------------------------------------------------------------
</TABLE>

A reconciliation between the statutory federal income tax rate to the
provision for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at the statutory rate .... $33,050 $17,097 $4,046
State income taxes ............................ 2,833 1,466 347
------------------------------------------
Provision for income taxes .................... $35,883 $18,563 $4,393
------------------------------------------------------------------------------------------
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 1, 1997 and February 3, 1996 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs ................. $ 8,627 $ 7,150
Accrued expenses ............................ 23,954 20,369
Restructuring related charges ............... 4,215 5,124
Deferred lease transactions ................. 13,644 16,063
Other ....................................... 8,552 10,058
--------------------------
Total deferred tax assets ................. 58,992 58,764
--------------------------
Deferred tax liabilities:
Accumulated depreciation .................... 55,782 54,170
Prepaid expenses ............................ 12,748 5,918
LIFO inventory .............................. 8,412 7,444
--------------------------
Total deferred tax liabilities ............ 76,942 67,532
--------------------------
Net deferred income taxes ..................... $ 17,950 $ 8,768
--------------------------
Current deferred income taxes--asset .......... $(17,226) $(22,046)
Noncurrent deferred income taxes--liability ... 35,176 30,814
--------------------------
Net deferred income taxes ..................... $ 17,950 $ 8,768
--------------------------------------------------------------------------
</TABLE>

Fred Meyer, Inc. and Subsidiaries 29
<PAGE>
7. Stockholders' Equity

Stock Incentive Plans--At February 1, 1997, 4,113,000 shares of common
stock were reserved for issuance to employees, including officers and
directors, and nonemployee agents, consultants and advisors, under stock
incentive plans. These plans provide for the granting of incentive stock
options, nonqualified stock options, stock bonuses, stock appreciation
rights, cash bonus rights and performance units.

Under the terms of the plans, the option price is determined by the
Board of Directors at the time the option is granted. The option price for
incentive stock options cannot be less than the fair value of the Company's
stock on the day prior to the date of grant. Nonqualified stock options may
not be granted at less than 50% of the fair value on the day prior to the
date of grant.

Stock Options--Activity under the plans was as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
Weighted
Average
Option Price
Shares Per Share Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option:
Balance, January 28, 1995 ..................... 2,358 $25.90 $61,057
Options granted ............................ 457 24.47 11,181
Options exercised .......................... (137) 14.76 (2,018)
Options cancelled ......................... (121) 32.51 (3,929)
------- ------- -------
Balance, February 3, 1996 ..................... 2,557 25.93 66,291
Options granted ............................ 1,628 27.83 45,309
Options exercised .......................... (123) 17.74 (2,181)
Options cancelled .......................... (891) 33.41 (29,778)
------- ------- -------
Balance, February 1, 1997 ..................... 3,171 25.12 $79,641
--------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes information concerning currently
outstanding and exercisable options at February 1, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ------------------------------------
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices (in thousands) Contractual Life Exercise Price (in thousands) Exercise Price
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12 to $20 343 2.7 $14.61 337 $14.58
21 to 30 2,339 7.7 24.94 774 23.28
31 to 42 489 9.4 33.36 40 34.52
----- -----
12 to 42 3,171 7.4 25.12 1,151 21.13
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Shares available for option as of February 1, 1997 and February 3,
1996 were 943,000 and 1,679,000, respectively.

The Company issued a replacement grant election program in 1996 that
allowed stock option holders with options granted at more than $26.00 per
share to reset the price at $26.00, on up to 984,000 options that were
previously granted at prices ranging from $27.25 to $41.25. For those who
elected to reset their option price to $26.00, the vesting period started
over.

30 Fred Meyer, Inc. and Subsidiaries
<PAGE>
The Company has adopted the disclosure-only provisions of SFAS No.
123. Accordingly, no compensation cost has been recognized for stock
options granted at the fair value on the date of grant. Had compensation
cost for the Company's stock option plans been determined based on the
estimated fair value of the options at the date of grant, the Company's net
income and income per share would have been reduced to the pro forma
amounts below:

<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
Actual Pro forma Actual Pro forma
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (in thousands) ........................... $58,545 $56,946 $30,286 $30,078
Net income per common share ......................... $2.09 $2.04 $1.07 $1.06
------------------------------------------------------------------------------------------------------
</TABLE>

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants awarded in 1996 and 1995:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C>
Weighted average expected volatility (based on historical volatility) ...............32.35%
Weighted average risk-free interest rate .............................................5.98%
Expected term ......................................................................5 years
-------------------------------------------------------------------------------------------
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to stock options
granted prior to 1995. It is anticipated that additional stock options will
be granted in future years.

Other Option--FMI Associates, which was the Company's principal shareholder
in 1996, exercised an option in 1996 for the purchase of 1,566,441 shares
with an aggregate value of $5,080,349.

Management Bonus--In 1992, the Company awarded a stock bonus to a corporate
officer for 5,000 shares totaling $124,000. Shares vest annually over five
years.

In 1996, the Company awarded a stock bonus to a corporate officer for
10,000 shares totaling $291,250. Shares vest annually over five years.

Nonemployee Directors Stock Compensation Plan--In 1992, the Company
purchased 4,016 shares of its common stock at market prices for the benefit
of two of its nonemployee directors in lieu of a portion of current and
future Board of Director fee payments. The shares total $125,000 and vest
annually over five years.

In 1996, the Company purchased 12,558 shares of its common stock at
market prices for the benefit of six of its nonemployee directors in lieu
of a portion of current and future Board of Director fee payments. The
shares total $400,103 and vest annually over five years.

8. Leases

The Company leases or subleases a substantial portion of the real property
used in its operations.

In 1986, the leases and subleases for a distribution center, 71 store
locations and certain other properties were amended and restated to
provide, among other things, an initial lease term of 20 years for 36
locations (with cash rents of $38,476,000 for the first seven years and
$46,070,000 for the remaining 13 years). The average rent over the primary
lease term is charged to rent expense.

As a result of the above transaction: (1) five previously capitalized
leases qualified as operating leases, resulting in a decrease in property
held under capital leases and capital lease obligations of $53,678,000 and
$72,160,000 respectively, with the resulting $18,482,000 gain deferred and
amortized over the 20-year lease period; and (2) the difference between the
amount of the cash rent paid and the expense charged to operations on the
36 locations described above is included in deferred lease transactions.

Fred Meyer, Inc. and Subsidiaries 31
<PAGE>
In 1992, the Company amended leases for nine store locations, with
cash rent escalating over the term of the leases. The difference between
cash rent paid and the expense charged to operations is included in
deferred lease transactions. The average rent over the primary lease term,
which is lower than the prior rents paid, is charged to rent expense.

At February 1, 1997, deferred lease transactions consisted of
$9,008,000 unamortized gain on capital leases, $27,784,000 of excess of
rent expense over cash rents for the aforementioned leases and unamortized
deferred gain on a sale-leaseback transaction of $9,526,000.

On September 5, 1996, the Company closed a sale-leaseback with respect
to 10 of its stores which generated $108,000,000 in net proceeds used to
pay down its credit lines. The leases are for an initial term of 21 years,
subject to renewal at the option of the Company; and the average rent,
including amortization of fees and a deferred gain, is approximately
$8,200,000 annually.

Subsequent to year end in a series of transactions with MetLife, the
Company purchased, for approximately $49,000,000, six stores leased from
MetLife, including one store that was previously closed, plus an option to
purchase 25 parcels at 18 of the 29 stores it will continue to lease from
MetLife. An agreement has been entered into for new 25-year leases on these
29 stores that will result in reduced rents for accounting purposes. The
Company's Clackamas Distribution Center has been sold by MetLife for
approximately $63,000,000 to a third party and leased to Fred Meyer at
reduced rates. An agreement with another lessor covered acquisition of
fixed assets and utilized funds totaling $8,585,000.

The terms of certain operating leases require the payment of executory
costs such as property taxes, utilities, insurance and maintenance. Certain
leases provide for percentage rents. Portions of the properties are
subleased to others for periods of from one to 20 years.

Minimum rentals under noncancelable leases for future fiscal years
were (in thousands):

<TABLE>
<CAPTION>
Operating Capitalized Less Net
Fiscal Year Leases Leases Subleases Rentals
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 .............................. $ 94,687 $1,759 $10,300 $ $86,146
1998 .............................. 93,324 1,880 9,314 85,890
1999 .............................. 90,553 1,880 8,012 84,421
2000 .............................. 83,311 1,880 6,452 78,739
2001 .............................. 78,338 1,880 3,410 76,808
2002 and thereafter ............... 859,220 26,334 19,635 865,919
-----------------------------------------------------
Total ............................. $1,299,433 35,613 $57,123 $1,277,923
---------- ----------------------
Less imputed interest ............. (22,315)
Present value of minimum --------
rental payments ................. 13,298
Less current portion .............. (71)
--------
Capitalized lease obligations ..... $13,227
------------------------------------------------------------------------------------------
</TABLE>

As of February 1, 1997, the leases for eight store locations and
certain equipment were accounted for as capitalized leases. The amounts
representing interest expense on these capitalized lease obligations were
included in operating and administrative expenses and were $1,628,000,
$1,701,000, and $1,848,000 in 1996, 1995, and 1994, respectively.

Accumulated amortization of property under capitalized leases was
$7,186,000 and $6,556,000, at February 1, 1997 and February 3, 1996,
respectively.

32 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Rent expense under operating leases, including executory costs, and
payments under capitalized leases were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross rent expense .................................. $109,393 $100,986 $101,163
Rent income from subleases .......................... (15,261) (13,941) (12,803)
--------------------------------
Net rent expense .................................... 94,132 87,045 88,360
Payments under capitalized leases ................... 1,718 1,807 1,947
--------------------------------
Total ............................................... $ 95,850 $ 88,852 $ 90,307
----------------------------------------------------------------------------------------
</TABLE>

Included in gross rent expense for 1996, 1995, and 1994 were
contingent rents of $1,467,000, $1,264,000, and $1,421,000, respectively.

9. Employee Benefit Plans

Employees' Profit-sharing Plan--Profit-sharing contributions under this
Plan, which covers the Company's nonunion employees, are made to a trust
fund held by a third-party trustee. Contributions are based on the
Company's pretax income, as defined, at rates determined by the Board of
Directors and are not to exceed amounts deductible under applicable
provisions of the Internal Revenue Code. In 1994, the Company added a 1%
basic contribution to all eligible employees' accounts each year subject to
normal plan vesting. The Company expensed $7,723,000, $6,438,000, and
$5,891,000 in 1996, 1995, and 1994, respectively, for these contributions.

Multiemployer Pension Plans--The Company contributes to multiemployer
pension plan trusts at specified rates in accordance with collective
bargaining agreements. Contributions to the trusts were $10,358,000,
$9,938,000, and $8,498,000 in 1996, 1995, and 1994, respectively. The
Company's relative positions in these plans with respect to the actuarial
present value of the accumulated benefit obligation and the projected
benefit obligation, net assets available for benefits and the assumed rates
of return used by the plans are not determinable.

Employee Stock Purchase Plan--The Company has a noncontributory employee
stock purchase plan. The plan allows employees to purchase stock in the
Company via payroll deductions. The Company pays all brokerage fees
associated with the purchase of the stock. The plan is available to all
employees over age 18 who have completed six months of continuous
employment with the Company.

Supplemental Retirement Program--The Company has a supplemental retirement
program for senior management, selected vice presidents and selected key
individuals. Program provisions are as follows:

Senior Management--The plan is funded with life insurance contracts on
the lives of the participants. The Company is the owner of the contracts
and makes annual contributions of $25,000 per participant. Total
contributions were $400,000 in 1996, $350,000 in 1995 and $325,000 in 1994.
Retirement age under the plan is normally 62 with an alternative age of 65,
at which point the Company will make 15 annual benefit payments to the
executive.

Selected Vice Presidents and Selected Key Individuals--The Company
will contribute annually a percentage of each participant's gross salary.
The plan is funded with life insurance contracts on participants age 54 and
younger and variable annuity contracts for participants age 55 and older.
Each participant is the owner of his/her respective contract.

Fred Meyer, Inc. and Subsidiaries 33
<PAGE>
10. Other Postretirement Benefits

For employees who qualified prior to January 1, 1994, the Company sponsored
a retiree health plan for postretirement health care coverage with
eligibility requirements and benefits varying by region of the Company.

Under this plan, the Company contributes 100% of the premiums of the
basic plan for retired salaried employees qualifying under eligibility
requirements which specify minimum age and years of continuous service at
age 60 with 25 years of service, age 62 with 20 years of service and age 65
with 15 years of service.

For retired salaried and hourly employees between the ages of 62 to 65
years and having completed minimum continuous service of 15 years, the
retiree pays premiums at current employee rates.

As of January 1, 1994, the Company changed the eligibility
requirements and benefits available under the retiree health plan. For all
salaried and non-union hourly employees in all regions who retire after
January 1, 1994, eligibility requirements changed to a minimum of 60 years
of age with 10 years of continuous service. Under the revised plan, the
retiree pays premiums at current employee rates.

The following table sets forth the plan's funded status, reconciled
with the amount shown in the Company's balance sheet (in thousands):

<TABLE>
<CAPTION>
February 1, 1997 February 3, 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees ................................................... $1,289 $1,326
Fully eligible plan participants ................................... 877 912
Other active plan participants ..................................... 3,598 3,312
--------------------------
Accumulated postretirement benefit obligation
in excess of plan assets ......................................... 5,764 5,550
Unrecognized transition obligation ................................... (1,253) (1,337)
Unrecognized prior service cost ...................................... (283) (324)
Unrecognized net gain/(loss) ......................................... 257 (211)
--------------------------
Accrued postretirement benefit cost ................................ $4,485 $3,678
--------------------------
Weighted average discount rate ....................................... 8.0% 7.5%
Net periodic postretirement benefit cost included
the following components:
Service cost--benefits attributed to service during the period ..... $411 $284
Interest cost on accumulated postretirement benefit obligation ..... 410 332
Amortization of transition obligation over 20 years ................ 125 125
Amortization of unrecognized gain .................................. -- (19)
--------------------------
Net periodic postretirement benefit cost ............................. $ 946 $ 722
---------------------------------------------------------------------------------------------------
</TABLE>

The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation were as follows:

Under Medicare Retirement Age--6% for one year, then grading down to
4.5% by the year 2000, and

Medicare Retirement Age and Over--5% for one year, then grading down
to 4.5% in 1998.

The health care cost trend rate assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of February 1, 1997 and
February 3, 1996 and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for 1996 and
1995 as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Increase in accumulated postretirement benefit obligation......... $1,053 $990
Increase in service and interest costs............................ 169 121
----------------------------------------------------------------------------------------
</TABLE>

34 Fred Meyer, Inc. and Subsidiaries
<PAGE>
11. Estimated Fair Value of Financial Instruments

The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies
as shown below. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could actually realize.

Management is not aware of any factors that would significantly change
the estimated fair value amounts shown below. A comprehensive revaluation
for purposes of these financial statements has not been performed since
February 1, 1997, and current estimates of fair value may differ from the
amounts presented herein. The Company is not subjected to a concentration
of credit risk.

Cash and Cash Equivalents, Receivables, Prepaid Expenses and Other Current
Assets, Other Long-term Assets, Outstanding Checks and Accounts
Payable--The carrying amounts of these items are a reasonable estimate of
their fair value.

Long-term Debt and Interest Rate Agreements--The carrying amount and
estimated fair value of long-term debt at February 1, 1997 are $522,359 and
$535,891, respectively. The fair value of notes, mortgages and real estate
assessments payable is estimated by discounting expected future cash flows.
The discount rate used is the rate currently available to the Company for
issuance of debt with similar terms and remaining maturities. For
commercial paper and bid lines of credit under the revolving credit
agreement (see Note 5), the carrying amounts are a reasonable estimate of
their fair value.

The fair value of interest rate swap and cap agreements is the
estimated amount at which they could be settled. At February 1, 1997, the
Company could settle the swap agreements at a loss of $550,000 and cap
agreements at a gain of $573,000.

12. Commitments and Contingencies

The Company and its subsidiaries are parties to various legal claims,
actions and complaints, certain of which involve material amounts. Although
the Company is unable to predict with certainty whether or not it will
ultimately be successful in these legal proceedings or, if not, what the
impact might be, management presently believes that disposition of these
matters will not have a material adverse effect on the Company's
consolidated financial position or consolidated results of operations.

13. Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
1996 Fiscal Quarters 1995 Fiscal Quarters
(In thousands, except --------------------------------------------- -------------------------------------------
per-share data) Fourth Third Second First Fourth/3 Third Second First
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... $995,755 $835,142 $853,914 $1,040,028 $963,650 $749,015 $774,702 $935,351
Gross margin ............ 303,642/1 244,427 255,386 302,072 280,228/4 207,791 220,783 264,712
Income from operations... 53,401/1 18,472 33,651 28,336 41,676/4 5,393 25,233 16,125
Net income (loss)........ 27,636/1 6,292 15,173 9,444 18,839/4 (2,309) 10,673 3,083
Net income (loss)
per common share....... $1.03/1,2 $.23/2 $.53/2 $.33/2 $.67/4 $(.08) $.37 $.11
Weighted average number
of shares outstanding.. 26,722 27,693 28,703 28,539 28,199 28,254 28,369 28,465
-------------------------------------------------------------------------------------------------------------------------

/1 The LIFO adjustment in the fourth quarter of 1996 increased gross
margin and income from operations by $5,386, net income by $3,339 and
earnings per common share by $.12.

/2 In 1996, the sum of the four quarters net income per common share does
not equal the annual amount due to the purchase by the Company in
October 1996 of 2,200,000 shares of its common stock.

/3 The fourth quarter of 1995 is a 13-week period.

/4 The LIFO adjustment in the fourth quarter of 1995 increased gross
margin and income from operations by $6,737, net income by $4,177 and
earnings per common share by $.15.
</TABLE>

Fred Meyer, Inc. and Subsidiaries 35
<PAGE>
Management's Report on Responsibility for Financial Statements
- --------------------------------------------------------------

The management of Fred Meyer, Inc. has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity.
The statements were prepared in accordance with generally accepted
accounting principles. The financial statements include amounts that are
based on management's best estimates and judgments. Management also
prepared other information in the annual report and is responsible for its
accuracy and consistency with the financial statements.

The Company's financial statements have been audited by Deloitte &
Touche LLP, independent auditors. Management has made available to Deloitte
& Touche LLP all the Company's financial records and related data, as well
as the minutes of shareholders' and directors' meetings.

Management has established and maintains an internal control structure
that provides reasonable assurance as to the integrity and reliability of
the financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial
reporting. The internal control structure provides for the appropriate
division of responsibility, which is monitored for compliance.

The Company maintains an internal auditing program that assesses the
effectiveness of the internal control structure and recommends
improvements.

Deloitte & Touche LLP also considered the internal control structure
in connection with its audit. Management has considered the internal
auditors' and Deloitte & Touche LLP's recommendations concerning the
Company's internal control structure and has taken the appropriate actions
to respond to these recommendations.

The Company's principles of business conduct address, among other
things, potential conflicts of interests and compliance with laws,
including those relating to financial disclosure and the confidentiality of
proprietary information.

The Board of Directors pursues its responsibility for the quality of
the Company's financial reporting primarily through its Audit Committee,
which is comprised of outside directors. The Audit Committee meets
approximately three times a year with management, the corporate internal
audit manager, and the independent auditors to ensure that each is meeting
its responsibilities and to discuss matters concerning internal controls
and accounting and financial reporting. The corporate internal audit
manager and independent auditors have unrestricted access to the Audit
Committee.

DAVID R. JESSICK

David R. Jessick
Senior Vice President, Finance and Chief Financial Officer

36 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Independent Auditors' Report
- ----------------------------

To the Shareholders and Board of Directors of Fred Meyer, Inc.:

We have audited the accompanying consolidated balance sheets of Fred
Meyer, Inc. and subsidiaries as of February 1, 1997 and February 3, 1996,
and the related statements of consolidated operations, changes in
consolidated stockholders' equity, and consolidated cash flows for each of
the three fiscal years in the period ended February 1, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Fred Meyer, Inc. and
subsidiaries at February 1, 1997 and February 3, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended February 1, 1997, in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Portland, Oregon

March 12, 1997

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
- -----------------------------------------------------

Not applicable.

Fred Meyer, Inc. and Subsidiaries 37
<PAGE>
Part III
- --------------------------------------------------------------------------------

Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------

Information with respect to directors of the Company is included under
"Election of Directors" in the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders and is incorporated herein by reference.
Information with respect to executive officers of the Company is included
under Item 4(a) of Part I of this Report.

Item 11. Executive Compensation.
- --------------------------------

Information with respect to executive compensation is included under
"Executive Compensation" in the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders and is incorporated herein by reference,
except for items appearing under the subheadings "Compensation Committee
Report on Executive Compensation" and "Comparison of Five Year Cumulative
Total Return" which are not incorporated herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------

Information with respect to security ownership of certain beneficial owners
and management is included under "Voting Securities and Principal
Shareholders" and "Election of Directors" in the Company's Proxy Statement
for its 1997 Annual Meeting of Shareholders and is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------

Information required by this item is included under "Certain Transactions"
in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders and is incorporated herein by reference.

38 Fred Meyer, Inc. and Subsidiaries
<PAGE>
Part IV
- --------------------------------------------------------------------------------

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------

(a)(1) Financial Statements.
The information required by this item is listed in Item 8, Part II of this
Annual Report on Form 10-K.

(a)(2) Financial Statement Schedules.
All schedules are omitted as the required information is inapplicable or is
presented in the financial statements or related notes thereto.

(a)(3) Exhibits.
-----------------------------------------------------------------------------
3A Restated Certificate of Incorporation of Fred Meyer, Inc. Incorporated
by reference to Exhibit 3A to the Company's Registration Statement on
Form S-1, Registration No. 33-8574.

3B Amended and Restated Bylaws of Fred Meyer, Inc. Incorporated by
reference to Exhibit 4B to the Company's Registration Statement on Form
S-8, Registration No. 33-49638.

4A Specimen Stock Certificate. Incorporated by reference to Exhibit 4C to
the Company's Registration Statement on Form S-3, Registration No.
33-67670.

4B Term Promissory Notes in an original aggregate principal amount of
$70,000,000, including the Intercreditor Agreement dated June 29, 1993
among the Company, and various banks and financial institutions named
therein. Incorporated by reference to Exhibit 4E to the Company's
Registration Statement on Form S-3, Registration No. 33-67670.

4C Note agreement dated as of June 1, 1994, in an original aggregate
principal amount of $57,500,000, among Fred Meyer, Inc., and various
life insurance companies. Incorporated by reference to Exhibit 4D to the
Company's Annual Report on Form 10-K for the year ended January 28,
1995.

4D Amended and Restated Credit Agreement dated as of October 30, 1995 among
Fred Meyer, Inc., Various Financial Institutions, Bank of America
National Trust & Savings Association, as Agent, and the Bank of Nova
Scotia as co-Agent; arranged by BA Securities, Inc. Incorporated by
reference to Exhibit 4F to the Company's Quarterly Report on Form 10-Q
for the quarter ended November 4, 1995 (File No. 0-15023).

4E Note Agreement, dated April 25, 1995, in an original aggregate principal
amount of $50,000,000, among Fred Meyer, Inc., and The Prudential
Insurance Company of America and Pruco Life Insurance Company.
Incorporated by reference to Exhibit 4G to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 12, 1995 (File No.
0-15023).

*10A-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended. Incorporated by
reference to Exhibit 10D to the Company's Annual Report on Form 10-K for
the year ended January 28, 1989 (File No. 0-15023).

*10A-2 Amended Fred Meyer, Inc. 1990 Stock Incentive Plan. Incorporated by
reference to Exhibit 22 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 12, 1995 (File No. 0-15023).

*10B Fred Meyer, Inc. Bonus Plan Description, as amended.

Fred Meyer, Inc. and Subsidiaries 39
<PAGE>
10C Assumption Agreement and Unconditional Guaranty of Certain Obligations,
dated December 11, 1981, among Fred Meyer, Inc., The Predecessor
Company, DTC Acquisition Corporation, and Real Estate Properties Limited
Partnership (formerly Fred Meyer Real Estate Properties, Ltd.).
Incorporated by reference to Exhibit 10FF to the Company's Registration
Statement on Form S-1, Registration No. 2-87139.

*10D Non-Employee Directors Stock Compensation Plan, adopted November 17,
1992. Incorporated by reference to Exhibit 10F to the Company's Annual
Report on Form 10-K for the year ended January 30, 1993.

*10E Form of contract for Senior Executive Long-Term Disability Program.
Incorporated by reference to Exhibit 10G to the Company's Annual Report
on Form 10-K for the year ended January 30, 1993.

*10F Fred Meyer Supplemental Income Plan dated January 1, 1994. Incorporated
by reference to Exhibit 10H to the Company's Annual Report on Form 10-K
for the year ended January 29, 1994.

*10G Employment Agreement between Fred Meyer, Inc. and Robert G. Miller, as
amended by Amendment No. 1. Incorporated by reference to Exhibit 10G to
the Company's Annual Report on Form 10-K for the year ended January 28,
1995.

*10H Indemnity Agreement. Incorporated by reference to Exhibit 10I to the
Company's Registration Statement on Form S-1, Registration No. 33-8574.

10I Form of Lease Agreement for substantially identical leases covering 36
stores and other locations leased by Fred Meyer, Inc. (or a wholly owned
subsidiary) from Real Estate Properties Limited Partnership (formerly
Fred Meyer Real Estate Properties, Ltd.) including form of Assignment of
Master Lease wherein Fred Meyer Real Estate Properties, Ltd. (now Real
Estate Properties Limited Partnership) assigned its interest to
Metropolitan Life Insurance Company and a First Amendment to Lease
Agreement, dated November 25, 1986, with appendices containing certain
nonstandard provisions of the Lease Agreement and the First Amendment;
Collateral Matters Agreement and Indemnification Agreement, each dated
November 25, 1986, between Fred Meyer, Inc. and Metropolitan Life
Insurance Company. Incorporated by reference to Exhibit 10I to the
Company's Annual Report on Form 10-K for the year ended January 31, 1987
(File No. 0-15023). Memorandum of First Amendment to Lease Agreement,
dated March 6, 1987, between Metropolitan Life Insurance Company
("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant; and Assignment
of Master Lease, dated March 6, 1987, between Real Estate Properties
Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.)
(Assignor) and Metropolitan (Assignee) for Nampa, Idaho. Incorporated by
reference to Exhibit 10I to the Company's Annual Report on Form 10-K for
the year ended January 30, 1988 (File No. 0-15023).

10J Form of Lease Agreement for substantially identical leases covering 27
stores and other locations subleased by Fred Meyer, Inc. (or a wholly
owned subsidiary) from Real Estate Properties Limited Partnership
(formerly Fred Meyer Real Estate Properties, Ltd.) with appendices
containing certain nonstandard provisions contained in the Lease
Agreement. Incorporated by reference to Exhibit 10J to the Company's
Annual Report on Form 10-K for the year ended January 31, 1987 (File No.
0-15023). Appendices containing certain additional nonstandard
provisions. Incorporated by reference to Exhibit 10J to the Company's
Annual Reports on Form 10-K for the years ended January 28, 1989,
February 3, 1990, and February 2, 1991 (File No. 0-15023). Certain lease
modifications for Burien, Washington facility. Incorporated by reference
to Exhibit 10K to the Company's Annual Report on Form 10-K for the year
ended January 30, 1993. Second Lease Modification Agreement for
Cornelius store, dated

40 Fred Meyer, Inc. and Subsidiaries
<PAGE>
as of August 16, 1994; and Second Lease Modification Agreement for
Fairbanks store, dated as of March 18, 1994. Incorporated by reference
to Exhibit 10J to the Company's Annual Report on Form 10-K for the year
ended January 28, 1995. Lease Amendment No. 2 (AN-Northern Lights,
Boulevard Store) between Fred Meyer and Real Estate Properties Limited
Partnership, and Memorandum of Modification to Lease/Short-Form Lease
(AN-Northern Lights, Anchorage, Alaska) between Fred Meyer and Real
Estate Properties Limited Partnership, dated December 20, 1996; Lease
Amendment No. 4 (Burien, Washington) by and between Real Estate
Properties Limited Partnership and Roundup Co., a Washington corporation
("Roundup"), and Memorandum of Modification to Lease/Short-Form Lease
(Burien, Washington) by and between Real Estate Properties Limited
Partnership and Roundup, dated December 20, 1996;Lease Amendment No. 3
(Clackamas, Oregon) by and between Real Estate Properties Limited
Partnership and Fred Meyer, and Memorandum of Modification to
Lease/Short-Form Lease (CK-Clackamas, Oregon) by and between Real Estate
Properties Limited Partnership and Fred Meyer dated December 20,
1996;Lease Amendment No. 3 (Cornelius, Oregon) by and between Real
Estate Properties Limited Partnership and Fred Meyer, and Memorandum of
Modification to Lease/Modification to Lease/Short-Form Lease
(CN-Cornelius, Oregon) by and between Real Estate Properties Limited
Partnership, Fred Meyer Real Estate Properties and Fred Meyer dated
December 20, 1996; Lease Amendment No. 3 (Fairbanks, Alaska) by and
between Real Estate Properties Limited Partnership and Fred Meyer of
Alaska, Inc., an Alaskan corporation ("Fred Meyer-Alaska"), and
Memorandum of Modification to Lease/Short-Form Lease (FB Fairbanks,
Alaska) by and between Real Estate Properties Limited Partnership and
Fred Meyer-Alaska, dated December 20, 1996 and Lease Assignment
Agreement (Stark Street, Portland) between Fred Meyer, Inc., a Delaware
corporation and Real Estate Properties Limited Partnership, an Oregon
limited partnership and made as of December 16, 1996 and Agreement and
Supplement to Leasehold Assignment and Modification Agreement (Stark
Street, Portland, Oregon).

10K Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties,
Ltd. (now Real Estate Properties Limited Partnership), Lessor to Roundup
Co., Lessee for Photo Plant Parking Lot. Incorporated by reference to
Exhibit 10J(7) to the Company's Registration Statement on Form S-1,
Registration No. 33-8574.

10L Lease Agreement, dated October 22, 1986, including Amendment, dated
April 30, 1987, between Fred Meyer Real Estate Properties, Ltd. (now
Real Estate Properties Limited Partnership), and Roundup Co. for Midway
store. Incorporated by reference to Exhibit 10N to the Company's Annual
Report on Form 10-K for the year ended January 31, 1987 (File No.
0-15023).

10M Lease Agreement, dated February 19, 1987, including Addendum, dated
September 16, 1987, between Fred Meyer, Inc., as Lessee, and REC
Resolution Co. as successor in interest to Duane Company, as Lessor, for
the Gateway store. Incorporated by reference to Exhibit 10Q to the
Company's Annual Report on Form 10-K for the year ended January 30, 1988
(File No. 0-15023). Addendum No. 2 to Lease Agreement. Incorporated by
reference to Exhibit 10Q to the Company's Annual Report on Form 10-K for
the year ended February 2, 1991 (File No. 0-15023).

10N Lease Cancellation Agreement between the Company and Real Estate
Properties Limited Partnership, regarding termination of the lease of
the photo plant facility, dated as of January 17, 1995. Incorporated by
reference to Exhibit 10Q to the Company's Annual Report on Form 10-K for
the year ended January 28, 1995.

Fred Meyer, Inc. and Subsidiaries 41
<PAGE>
10O Lease for Swan Island Parking Lot between the Company as lessee and Real
Estate Properties Limited Partnership as lessor, dated November 16,
1994. Incorporated by reference to Exhibit 10R to the Company's Annual
Report on Form 10-K for the year ended January 28, 1995. Rider to Lease
dated as of November 1, 1994. Incorporated by reference to Exhibit 10R
to the Company's Annual Report on Form 10-K for the year ended
February 3, 1996 (File No. 0-15023).

10P Fred Meyer Excess Deferral and Benefit Equalization Plan. 1994
Restatement dated as of January 1, 1994. Incorporated by reference to
Exhibit 10T to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 4, 1995 (File No. 0-15023).

10Q Settlement Agreement and Mutual Release dated as of August 10, 1995
between REPL, REC Resolution Co., and the Company and certain of its
subsidiaries and restated Second Lease Modification Agreement dated
October 12, 1995 between the Company and REPL, with respect to the
Gresham, Oregon store, and Second Lease Modification Agreement dated
October 12, 1995 between the Company and REPL with respect to the
Clackamas, Oregon store. Incorporated by reference to Exhibit 10W
to the Company's Annual Report on Form 10-K for the year ended
February 3, 1996 (File No. 0-15023).

11 Computation of Earnings per Common Share.

21 List of Subsidiaries.

23 Consent of Deloitte & Touche LLP.

24 Powers of Attorney.

27 Financial Data Schedule.

- --------------------------------------------------------------------------------
* This exhibit constitutes a management contract or compensatory plan or
arrangement.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by the Company during the last quarter of
the year ended February 1, 1997.

Fred Meyer, Inc. and Subsidiaries 42
<PAGE>
Signatures
- ----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 25, 1997 FRED MEYER, INC.

By DAVID R. JESSICK
-------------------------------------
David R. Jessick
Chief Financial Officer and
Senior Vice President, Finance

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 25, 1997.

Signature Title

(1) Principal Executive Officer

ROBERT G. MILLER Chairman of the Board and Chief
----------------------------- Executive Officer
Robert G. Miller

(2) Principal Financial Officer

DAVID R. JESSICK Chief Financial Officer and Senior
----------------------------- Vice President, Finance
David R. Jessick

(3) Principal Accounting Officer

THOMAS R. HUGHES Vice President and Controller
-----------------------------
Thomas R. Hughes

(4) Directors

*ROGER S. MEIER Director
-----------------------------
Roger S. Meier

*A.M. GLEASON Director
-----------------------------
A.M. Gleason

*JAMES J. CURRAN Director
-----------------------------
James J. Curran

*DAVID L. JOHNSON Director
-----------------------------
David L. Johnson

*VIVIAN A. BULL Director
-----------------------------
Vivian A. Bull

*STEVEN R. ROGEL Director
-----------------------------
Steven R. Rogel

*By ROGER A. COOKE
-----------------------------
Roger A. Cooke
As Attorney in Fact

Fred Meyer, Inc. and Subsidiaries 43
<PAGE>
EXHIBIT INDEX

Exhibit
No. Description
--- -----------

3A Restated Certificate of Incorporation of Fred Meyer, Inc.
Incorporated by reference to Exhibit 3A to the Company's
Registration Statement on Form S-1, Registration No. 33-8574.

3B Amended and Restated Bylaws of Fred Meyer, Inc. Incorporated by
reference to Exhibit 4B to the Company's Registration Statement
on Form S-8, Registration No. 33-49638.

4A Specimen Stock Certificate. Incorporated by reference to Exhibit
4C to the Company's Registration Statement on Form S-3,
Registration No. 33-67670.

4B Term Promissory Notes in an original aggregate principal amount
of $70,000,000, including the Intercreditor Agreement dated June
29, 1993 among the Company, and various banks and financial
institutions named therein. Incorporated by reference to Exhibit
4E to the Company's Registration Statement on Form S-3,
Registration No. 33-67670.

4C Note agreement dated as of June 1, 1994, in an original
aggregate principal amount of $57,500,000, among Fred Meyer,
Inc., and various life insurance companies. Incorporated by
reference to Exhibit 4D to the Company's Annual Report on Form
10-K for the year ended January 28, 1995.

4D Amended and Restated Credit Agreement dated as of October 30,
1995 among Fred Meyer, Inc., Various Financial Institutions,
Bank of America National Trust & Savings Association, as Agent,
and the Bank of Nova Scotia as co-Agent; arranged by BA
Securities, Inc. Incorporated by reference to Exhibit 4F to the
Company's Quarterly Report on Form 10-Q for the quarter ended
November 4, 1995 (File No. 0-15023).

4E Note Agreement, dated April 25, 1995, in an original aggregate
principal amount of $50,000,000, among Fred Meyer, Inc., and The
Prudential Insurance Company of America and Pruco Life Insurance
Company. Incorporated by reference to Exhibit 4G to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 12, 1995 (File No. 0-15023).

*10A-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10D to the Company's Annual
Report on Form 10-K for the year ended January 28, 1989 (File
No. 0-15023).

*10A-2 Amended Fred Meyer, Inc. 1990 Stock Incentive Plan. Incorporated
by reference to Exhibit 22 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 12, 1995 (File No.
0-15023).

*10B Fred Meyer, Inc. Bonus Plan Description, as amended.

Fred Meyer, Inc. and Subsidiaries
<PAGE>
10C Assumption Agreement and Unconditional Guaranty of Certain
Obligations, dated December 11, 1981, among Fred Meyer, Inc.,
The Predecessor Company, DTC Acquisition Corporation, and Real
Estate Properties Limited Partnership (formerly Fred Meyer Real
Estate Properties, Ltd.). Incorporated by reference to Exhibit
10FF to the Company's Registration Statement on Form S-1,
Registration No. 2-87139.

*10D Non-Employee Directors Stock Compensation Plan, adopted November
17, 1992. Incorporated by reference to Exhibit 10F to the
Company's Annual Report on Form 10-K for the year ended January
30, 1993.

*10E Form of contract for Senior Executive Long-Term Disability
Program. Incorporated by reference to Exhibit 10G to the
Company's Annual Report on Form 10-K for the year ended January
30, 1993.

*10F Fred Meyer Supplemental Income Plan dated January 1, 1994.
Incorporated by reference to Exhibit 10H to the Company's Annual
Report on Form 10-K for the year ended January 29, 1994.

*10G Employment Agreement between Fred Meyer, Inc. and Robert G.
Miller, as amended by Amendment No. 1. Incorporated by reference
to Exhibit 10G to the Company's Annual Report on Form 10-K for
the year ended January 28, 1995.

*10H Indemnity Agreement. Incorporated by reference to Exhibit 10I to
the Company's Registration Statement on Form S-1, Registration
No. 33-8574.

10I Form of Lease Agreement for substantially identical leases
covering 36 stores and other locations leased by Fred Meyer,
Inc. (or a wholly owned subsidiary) from Real Estate Properties
Limited Partnership (formerly Fred Meyer Real Estate Properties,
Ltd.) including form of Assignment of Master Lease wherein Fred
Meyer Real Estate Properties, Ltd. (now Real Estate Properties
Limited Partnership) assigned its interest to Metropolitan Life
Insurance Company and a First Amendment to Lease Agreement,
dated November 25, 1986, with appendices containing certain
nonstandard provisions of the Lease Agreement and the First
Amendment; Collateral Matters Agreement and Indemnification
Agreement, each dated November 25, 1986, between Fred Meyer,
Inc. and Metropolitan Life Insurance Company. Incorporated by
reference to Exhibit 10I to the Company's Annual Report on Form
10-K for the year ended January 31, 1987 (File No. 0-15023).
Memorandum of First Amendment to Lease Agreement, dated March 6,
1987, between Metropolitan Life Insurance Company
("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant; and
Assignment of Master Lease, dated March 6, 1987, between Real
Estate Properties Limited Partnership (formerly Fred Meyer Real
Estate Properties, Ltd.) (Assignor) and Metropolitan (Assignee)
for Nampa, Idaho. Incorporated by reference to Exhibit 10I to
the Company's Annual Report on Form 10-K for the year ended
January 30, 1988 (File No. 0-15023).

Fred Meyer, Inc. and Subsidiaries
<PAGE>
10J Form of Lease Agreement for substantially identical leases
covering 27 stores and other locations subleased by Fred Meyer,
Inc. (or a wholly owned subsidiary) from Real Estate Properties
Limited Partnership (formerly Fred Meyer Real Estate Properties,
Ltd.) with appendices containing certain nonstandard provisions
contained in the Lease Agreement. Incorporated by reference to
Exhibit 10J to the Company's Annual Report on Form 10-K for the
year ended January 31, 1987 (File No. 0-15023). Appendices
containing certain additional nonstandard provisions.
Incorporated by reference to Exhibit 10J to the Company's Annual
Reports on Form 10-K for the years ended January 28, 1989,
February 3, 1990, and February 2, 1991 (File No. 0-15023).
Certain lease modifications for Burien, Washington facility.
Incorporated by reference to Exhibit 10K to the Company's Annual
Report on Form 10-K for the year ended January 30, 1993. Second
Lease Modification Agreement for Cornelius store, dated as of
August 16, 1994; and Second Lease Modification Agreement for
Fairbanks store, dated as of March 18, 1994. Incorporated by
reference to Exhibit 10J to the Company's Annual Report on Form
10-K for the year ended January 28, 1995. Lease Amendment No. 2
(AN-Northern Lights, Boulevard Store) between Fred Meyer and
Real Estate Properties Limited Partnership, and Memorandum of
Modification to Lease/Short-Form Lease (AN-Northern Lights,
Anchorage, Alaska) between Fred Meyer and Real Estate Properties
Limited Partnership, dated December 20, 1996; Lease Amendment
No. 4 (Burien, Washington) by and between Real Estate Properties
Limited Partnership and Roundup Co., a Washington corporation
("Roundup"), and Memorandum of Modification to Lease/Short-Form
Lease (Burien, Washington) by and between Real Estate Properties
Limited Partnership and Roundup, dated December 20, 1996;Lease
Amendment No. 3 (Clackamas, Oregon) by and between Real Estate
Properties Limited Partnership and Fred Meyer, and Memorandum of
Modification to Lease/Short-Form Lease (CK-Clackamas, Oregon) by
and between Real Estate Properties Limited Partnership and Fred
Meyer dated December 20, 1996;Lease Amendment No. 3 (Cornelius,
Oregon) by and between Real Estate Properties Limited
Partnership and Fred Meyer, and Memorandum of Modification to
Lease/Modification to Lease/Short-Form Lease (CN-Cornelius,
Oregon) by and between Real Estate Properties Limited
Partnership, Fred Meyer Real Estate Properties and Fred Meyer
dated December 20, 1996; Lease Amendment No. 3 (Fairbanks,
Alaska) by and between Real Estate Properties Limited
Partnership and Fred Meyer of Alaska, Inc., an Alaskan
corporation ("Fred Meyer-Alaska"), and Memorandum of
Modification to Lease/Short-Form Lease (FB Fairbanks, Alaska) by
and between Real Estate Properties Limited Partnership and Fred
Meyer-Alaska, dated December 20, 1996 and Lease Assignment
Agreement (Stark Street, Portland) between Fred Meyer, Inc., a
Delaware corporation and Real Estate Properties Limited
Partnership, an Oregon limited partnership and made as of
December 16, 1996 and Agreement and Supplement to Leasehold
Assignment and Modification Agreement (Stark Street, Portland,
Oregon).

10K Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate
Properties, Ltd. (now Real Estate Properties Limited
Partnership), Lessor to Roundup Co., Lessee for Photo Plant
Parking Lot. Incorporated by reference to Exhibit 10J(7) to the
Company's Registration Statement on Form S-1, Registration No.
33-8574.

Fred Meyer, Inc. and Subsidiaries
<PAGE>
10L Lease Agreement, dated October 22, 1986, including Amendment,
dated April 30, 1987, between Fred Meyer Real Estate Properties,
Ltd. (now Real Estate Properties Limited Partnership), and
Roundup Co. for Midway store. Incorporated by reference to
Exhibit 10N to the Company's Annual Report on Form 10-K for the
year ended January 31, 1987 (File No. 0-15023).

10M Lease Agreement, dated February 19, 1987, including Addendum,
dated September 16, 1987, between Fred Meyer, Inc., as Lessee,
and REC Resolution Co. as successor in interest to Duane
Company, as Lessor, for the Gateway store. Incorporated by
reference to Exhibit 10Q to the Company's Annual Report on Form
10-K for the year ended January 30, 1988 (File No. 0-15023).
Addendum No. 2 to Lease Agreement. Incorporated by reference to
Exhibit 10Q to the Company's Annual Report on Form 10-K for the
year ended February 2, 1991 (File No. 0-15023).

10N Lease Cancellation Agreement between the Company and Real Estate
Properties Limited Partnership, regarding termination of the
lease of the photo plant facility, dated as of January 17, 1995.
Incorporated by reference to Exhibit 10Q to the Company's Annual
Report on Form 10-K for the year ended January 28, 1995.

10O Lease for Swan Island Parking Lot between the Company as lessee
and Real Estate Properties Limited Partnership as lessor, dated
November 16, 1994. Incorporated by reference to Exhibit 10R to
the Company's Annual Report on Form 10-K for the year ended
January 28, 1995. Rider to Lease dated as of November 1, 1994.
Incorporated by reference to Exhibit 10R to the Company's Annual
Report on Form 10-K for the year ended February 3, 1996 (File
No. 0-15023).

10P Fred Meyer Excess Deferral and Benefit Equalization Plan. 1994
Restatement dated as of January 1, 1994. Incorporated by
reference to Exhibit 10T to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 4, 1995 (File No.
0-15023).

10Q Settlement Agreement and Mutual Release dated as of August 10,
1995 between REPL, REC Resolution Co., and the Company and
certain of its subsidiaries and restated Second Lease
Modification Agreement dated October 12, 1995 between the
Company and REPL, with respect to the Gresham, Oregon store, and
Second Lease Modification Agreement dated October 12, 1995
between the Company and REPL with respect to the Clackamas,
Oregon store. Incorporated by reference to Exhibit 10W to the
Company's Annual Report on Form 10-K for the year ended February
3, 1996 (File No. 0-15023).

11 Computation of Earnings per Common Share.

21 List of Subsidiaries.

23 Consent of Deloitte & Touche LLP.

24 Powers of Attorney.

27 Financial Data Schedule.

Fred Meyer, Inc. and Subsidiaries

EXHIBIT 10B

FRED MEYER, INC. BONUS PLAN DESCRIPTION

AS AMENDED TO FEBRUARY 1, 1997

INTRODUCTION:

The Fred Meyer, Inc. Bonus Plan for 1996 compensates selected
employees based on goals and objectives determined periodically by the Company.
Under the Bonus Plan, bonuses are allocated based on programs prescribed for
each of two categories of participants: (1) Regional and Store bonusable
participants, and (2) all other bonusable participants.

REGIONAL AND STORE BONUSABLE PARTICIPANTS PROGRAM:

Awards for regional and store bonusable participants are based upon
predetermined and preapproved objectives for store contribution income,
corporate net inventory control (inventory less payables), and corporate pretax
income. Each quarter and year the Company sets objectives for sales,
contribution income, net inventory, and pretax income based upon the Company's
projections, each region/store manager's projections and historical results.
These objectives are reviewed and approved by the Company's Compensation
Committee. The actual bonus awarded each quarter and for the year is based on a
predefined percentage of the participant's regular salary for the year, as
adjusted for actual versus budgeted results. Budgeted results give rise to a
target bonus, while greater than budgeted results give rise to a larger bonus
(up to 237.5 percent of target bonus), and lower than budgeted results will
result in a smaller bonus (as low as 0 percent of target bonus). A portion of
each participant's bonus is generally calculated on how well the participant's
area of responsibility does, and a smaller portion is based on how well the
Company does. The Company portion is capped at 200 percent and the store/region
portion is capped at 250 percent.

ALL OTHER BONUSABLE PARTICIPANTS PROGRAM:

The program applicable to all other management/supervisory and other
bonusable participants not included in the regional and store program is based
on the following formula: The bonus paid is based on the Company's
<PAGE>
objectives for sales, pretax income, net inventory, and various departmental
budgets as prepared by the department's management, and approved by the
Compensation Committee. The bonus amount paid is determined as a percentage of
each participant's salary (target bonus), adjusted upward or downward based on
performance. Participants can achieve a maximum of 200 percent of their target
bonus for exceeding their performance goals or a minimum of 0 percent of target
bonus for lower than predefined results. A portion of a participant's bonus is
generally based on his/her department's results, with the larger portion based
on the Company's pretax income results. Both the department and Company portion
is capped at 200 percent. Eighty percent of the annual bonus payable to each
executive officer at bonus plan targeted pretax income, net inventory,
operational income, and/or departmental expense is paid in cash. The remaining
twenty percent is withheld pursuant to the Company's Capital Bonus Plan and paid
in the form of restricted shares of Company Common Stock over three years,
subject to the officer being an employee at the time of vesting. The shares also
vest on the retirement, death or disability of the officer.

YEAR-END REVIEW AND PAYMENT:

Bonuses are generally paid in April following the year in which
performance goals are measured. The Compensation Committee approves the final
amount of total bonuses to be paid and the amount paid to executive officers
prior to such payment. The Compensation Committee of the Board of Directors can
approve discretionary amounts resulting from unusual circumstances affecting the
Company.

SUPERIOR PERFORMANCE BONUS PLAN:

Vice Presidents, Senior Vice Presidents, the Chief Operating Officer
and Chief Executive Officer are eligible to receive stock bonuses based on the
Company achieving superior performance levels as approved in advance by the
Compensation Committee of the Board of Directors. The number of shares paid as a
bonus, which vest one-third per year over a three-year period, is based on the
ratio of shareholder value added as a percent of total assets.

EXHIBIT 10J

A standard form of Lease Agreement, dated October 22, 1986 between Fred
Meyer, Inc. (or a wholly owned subsidiary) and Real Estate Properties Limited
Partnership (REP) (formerly Fred Meyer Real Estate Properties, Ltd.) under which
28 stores and other locations are subleased by the Company (or a wholly owned
subsidiary) from REP at the date hereof. Each individual Lease Agreement
contains nonstandard provisions. See Appendices and certain supplemental
appendices containing nonstandard provisions described below which were previous
filed. Certain lease modifications are submitted herewith.

Appendix of
Nonstandard
No.** Location Provisions
----- -------- ----------

1 Anchorage Appendix 10J (1)*
2 Bellevue Appendix 10J (2)
3 Burien Appendix 10J (3)*
5 Clackamas Appendix 10J (5)*
6 Cornelius Appendix 10J (6)*
8 Fairbanks Appendix 10J (8)*
9 Parking Lot Appendix 10J (9)
11 Glisan Appendix 10J (11)
12 Greenwood Appendix 10J (12)
13 Gresham Appendix 10J (13)
14 Hawthorne Appendix 10J (14)
15 Hazel Dell Appendix 10J (15)
17 Interstate Appendix 10J (17)
19 Lake City Appendix 10J (19)
23 Oak Grove Appendix 10J (23)
24 Peninsula Appendix 10J (24)
25 Photo Plant Appendix 10J (25)
27 Raleigh Hills Appendix 10J (27)
28 Rockwood Appendix 10J (28)
30 Sixth & Alder Appendix 10J (30)
31 Southeast Appendix 10J (31)
32 Spokane Francis Appendix 10J (32)
33 Spokane Sprague Appendix 10J (33)
34 Stadium Appendix 10J (34)
35 Stark Appendix 10J (35)*
36 Swan Island Appendix 10J (36)
37 Tigard Appendix 10J (37)
38 Totem Lake Appendix 10J (38)
39 White Center Appendix 10J (39)

- -----------
* Certain lease modifications submitted herewith.
** Lease numbers relate to numbers assigned to original exhibit filing for
standard form of Lease Agreement.
<PAGE>
APPENDIX 10J(1)

ANCHORAGE

RECORDING REQUESTED
BY AND WHEN RECORDED
RETURN TO:

FRED MEYER, INC.
P.O. Box 42121
Portland, Oregon 97242
Attn: Corporate Legal Department (Real Estate)

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

LEASE AMENDMENT NO. 2
(AN - Northern Lights Boulevard Store, Anchorage, Alaska

THIS LEASE AMENDMENT NO. 2 (the "Amendment") is made as of December 16,
1996, by and between REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, successor to
FRED MEYER REAL ESTATE PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 ("Landlord"), and FRED MEYER OF ALASKA,
INC., an Alaska corporation, whose address is P.O. Box 42121, Portland, Oregon
97242-0121 (Street address 3800 SE 22nd Avenue, Portland, Oregon 97202)
("Tenant").

R E C I T A L S

A. By a certain Lease dated October 22, 1986, as amended by an agreement
dated February 7, 1992 (as so amended, the "Lease"), Landlord leased to Tenant
certain land, described on Exhibit A, and the related improvements described in
the Lease (the "Premises"). Capitalized terms not otherwise defined herein have
the meanings set forth in the Lease.

B. The Lease currently provides for a Primary Term that ends on September
30, 2015. The Lease does not presently provide for any Renewal Terms.

C. The parties desire to modify certain terms of the Lease, as set forth in
this Agreement.

A G R E E M E N T

NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. Renewal Term. Landlord agrees that Tenant shall have the right to one
Renewal Term of ten (10) years, which shall be exercised in the manner and
subject to the conditions set forth in Section 3.2 of the Lease; provided,
however, that the "Fixed Rent" during the additional Renewal Terms provided in
this Amendment shall be the greater of (1) the fair market rental value for the
Premises (including buildings), or (2) the total of rent owing under Landlord's
existing underlying ground lease for the property between Landlord and George
Gregson, as trustee under a Declaration of Trust dated October 31, 1986 (the
"Ground

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93
<PAGE>
Lease") and the rent owing under Landlord's existing underlying improvements
sublease for the Property between Gail E. Mumma and Ida M. Mumma, Tenants in
Common, as Sublessor and Landlord as sublessee (the "Improvements Lease"),
including any percentage rent and/or stipulated step increases. The procedure
for determining fair market rental value for the Premises hereunder shall be the
same as the procedure for determining the fair market rental value of the ground
under the Ground Lease.

2. Continuing Agreement. This Amendment amends and supplements the Lease
and the terms of this Amendment are hereby incorporated into the Lease. Except
as expressly amended or supplemented by this Amendment, the Lease is and shall
remain in full force and effect according to its terms.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove set forth.

LANDLORD: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an
Oregon limited partnership, by FMGP Associates, an
Oregon limited partnership, its general partner,
by FMGP Incorporated, a Delaware corporation,
its general partner

By: DAVID W. RAMUS
-----------------------------------------------
Title: Vice President
--------------------------------------------
Date Executed: 12/13/96
----------------------------------------------

TENANT: FRED MEYER OF ALASKA, INC., an Alaska corporation

By: SCOTT L. WIPPEL
-----------------------------------------------
Scott L. Wippel, Senior Vice President
Date Executed:
----------------------------------------------

STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )

This instrument was acknowledged before me this 13th day of December, 1996,
by Scott L. Wippel, as Vice President of FRED MEYER OF ALASKA, INC., an Alaska
corporation, on behalf of the corporation.

ELLEN M. SMITH
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 5/4/98
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-2-
<PAGE>
STATE OF OREGON )
) ss.
COUNTY OF Multnomah )

This instrument was acknowledged before me this 13th day of December, 1996,
by David W. Ramus, as Vice President of FMGP Incorporated, a Delaware
corporation, the general partner of FMGP Associates, an Oregon limited
partnership, the general partner of REAL ESTATE PROPERTIES LIMITED PARTNERSHIP,
an Oregon limited partnership, on behalf of the corporation in such capacity.

(NOTARIAL SEAL) LUDELL E. CORNILSEN
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 6/8/99
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-3-
<PAGE>
Exhibit A

ANCHORAGE

Real property situated in the Anchorage Precinct, Third Judicial District, State
of Alaska, more particularly described as follows:

The North one-half (N 1/2) of the Northwest one-quarter (NW 1/4) of the
Northwest one-quarter (NW 1/4) of Section 29, Township 13 North (T 13 N) Range 3
West (R 3 W), Seward Meridian (S. M.), in the Anchorage Recording District,
Third District, State of Alaska, EXCEPTING THEREFROM the East 330 feet, and
further excepting therefrom that portion described as follows:

Beginning at a point bearing South 84 degrees 48'20" East a distance of 331.4
feet from the Northwest corner of Section 29, T 13 N, R 3 W; thence South a
distance of 20.0 feet; thence West a distance of 214.9 feet; thence South
34 degrees 56' West a distance of 61.1 feet; thence South 0 degrees 08' East a
distance of 560.0 feet; thence South 89 degrees 52' West a distance of 50.00
feet; thence North 0 degrees 08' West a distance of 607.9 feet; thence along a
260 degrees 27'16" curve to the right (radius = 22.0 feet) through an arc of
90 degrees 08' a distance of 34.6 feet; thence East a distance of 277.9 feet to
the point of beginning, and

ALSO EXCEPTING THEREFROM the property conveyed to the State of Alaska by
Quitclaim Deed dated October 29, 1965, and recorded December 7, 1965 in book 316
at page 136, described as follows:

Beginning at a point on the Southerly line of the N 1/2 of the NW 1/4 of the NW
1/4 of Section 29, T 13 N, R 3 W, S. M., said point bears South 7 degrees 02'40"
East a distance of 664.8 feet from the Northwest corner of said Section 29;
thence North 0 degrees 08' West a distance of 560.0 feet; thence North
34 degrees 56' East a distance of 34.8 feet; thence South 0 degrees 08' East a
distance of 588.5 feet to a point on the Southerly line of the N 1/2 of the NW
1/4 of the NW 1/4 of said Section 29, thence westerly along said Southerly line
a distance of 20.0 feet to the point of beginning, containing 0.264 of an acre,
more or less, and

ALSO EXCEPTING THEREFROM the property leased to Standard Oil Company of
California, recorded August 1, 1966, in Misc. book 130 at page 165, and
described as follows:

Commencing at the section corner common to Sections 19, 20, 29 and 30, T 13 N, R
3 W, S. M.; thence South 0 degrees 06'30" East along the line common to said
Sections 29 and 30 a distance of 660.17 feet to the Southwest corner of said N
1/2 of the NW 1/4 of the NW 1/4 of said Section 29; thence South 89 degrees
58'15" East along the South boundary of the N 1/2 of the NW 1/4 of the NW 1/4 of
said

<PAGE>
Section 29 a distance of 100.0 feet to a point on the East Right of Way
line of the Seward Highway and the true point of beginning; thence North 0
degrees 06'30" West along the East Right of Way line of the Seward Highway a
distance of 180.00 feet ; thence South 89 degrees 58'15" East a distance of
150.00 feet; thence South 0 degrees 06'30" East a distance of 180 feet; thence
North 89 degrees 58'15" West along the South boundary of the N 1/2 of the NW 1/4
of the NW 1/4 of said Section 29 a distance of 150.00 feet to the true point of
beginning, and

ALSO EXCEPTING THEREFROM the property leased to Phillips Petroleum Company,
recorded June 12, 1967, in Misc. book 145 at page 224, described as follows:

Commencing at the Northwest corner of said Section 29; thence East a distance of
115.14 feet; thence South 0 degrees 06'30 East a distance of 50.00 feet to the
Southerly right of way of Northern Lights Boulevard and the true point of
beginning; thence East a distance of 134.92 feet along the Southerly right of
way of Northern Lights Blvd.; thence South 0 degrees 06'30" East a distance of
165.00 feet; thence West a distance of 150.00 feet to the Easterly Right of Way
of the Seward Highway, as described in "Quitclaim Deed dated October 29, 1965,
by Growth Enterprises, Inc., to the State of Alaska, recorded December 7, 1965,
in book 316 at page 136, Records of Anchorage Recording District"; thence North
0 degrees 06'30" West a distance of 143.46 feet along the Easterly Right of Way
of the Seward Highway; thence North 34 degrees 56' East a distance of 26.27 feet
to the true point of beginning, and

ALSO EXCEPTING THEREFROM that portion thereof lying within the boundaries of the
Seward Highway and Northern Lights Boulevard.
<PAGE>
Recordation requested by:

Fred Meyer, Inc.

After recordation return to:

Stoel Rives L.L.P.
700 NE Multnomah, Suite 950
Portland, Oregon 97232
Att'n: David W. Green

- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)

MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
(AN - Northern Lights, Anchorage, Alaska)

THIS MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
("Memorandum"), dated as of December 20, 1996, by and between REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, formerly known as
FRED MEYER REAL ESTATES PROPERTIES, LTD., whose address is Suite 200, 15115 SW
Sequoia Parkway, Portland, OR 97224 (hereinafter referred to as "Landlord") and
FRED MEYER OF ALASKA, INC., an Alaskan corporation, with an office at 3800 SE
22nd Avenue, PO Box 42121, Portland, Oregon 97242-0121 (hereinafter referred to
as "Tenant"), as lessee under the Lease described below.

FOR VALUE RECEIVED, Landlord and Tenant do hereby covenant and agree
as follows:

1. Demised Premises. Landlord has leased to Tenant, and Tenant has leased
from Landlord, for the lease term specified below, certain real property located
in Anchorage, Alaska which is described in the attached Exhibit A (the
"Property"), pursuant to the terms of a Lease Agreement, between Landlord and
Tenant, dated October 22, 1986, as amended (the "Lease"). The Lease includes a
Lease Amendment No. 2 between the parties, dated December 16, 1996, which adds a
renewal option term.

2. Term. The current term of the Lease ("Current Term") ends on September
29, 2015, unless the Current Term is extended or earlier terminated in
accordance with the provisions of

- --------------------------------------------------------------------------------
Until a change is requested, all tax statements shall be sent to the following
address: Fred Meyer, Inc., 3800 SE 22nd Avenue, PO Box 42121, Portland, OR
97242 - Property Tax Account No. __________
- --------------------------------------------------------------------------------

FM Form - Memorandum of Modification of Lease
1/2/97
<PAGE>
the Lease. Subject to the conditions stated in the Lease, Tenant has one (1)
additional option to extend the term thereafter for an additional option term of
ten (10) years.

3. Effect of Memorandum. The purpose of this instrument is to give notice
of the Lease and its terms, covenants and conditions to the same extent as if
the Lease were fully set forth herein. This Memorandum shall not modify in any
manner the terms, conditions or intent of the Lease, and the parties agree that
this Memorandum is not intended nor shall it be used to interpret the Lease or
determine the intent of the parties under the Lease.

IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first written.

LANDLORD: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP,
an Oregon limited partnership,

By FMGP ASSOCIATES, an Oregon limited
partnership, its General Partner

By FMGP INCORPORATED, a Delaware
corporation,
its General Partner

By: DAVID W. RAMUS
--------------------------------
Name: David W. Ramus
------------------------------
Its: V.P.
-------------------------------

TENANT: FRED MEYER OF ALASKA, INC.

By: ROGER A. COOKE
------------------------------------------
Name: Roger A. Cooke
---------------------------------------
Its: Vice President and Secretary
----------------------------------------

FM Form - Memorandum of Modification of Lease
12/20/96

2
<PAGE>

STATE OF OREGON )
) ss.
County of Washington )

On this 31st day of January, 1997, before me, the
undersigned, a Notary Public in and for the State of Oregon, duly commissioned
and sworn, personally appeared David W. Ramus, to me known to be the person who
signed as V.P. of FMGP INCORPORATED, a Delaware corporation, the corporation
that executed the within and foregoing instrument as the general partner of FMGP
ASSOCIATES, an Oregon limited partnership, itself the limited partnership that
executed the within and foregoing instrument as a general partner of REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, and acknowledged
said instrument to be the free and voluntary act and deed of said corporation,
and that said corporation executed the same, pursuant to its bylaws or a
resolution of its board of directors, as the general partner of said limited
partnership; and that said limited partnership executed the same as a general
partner of said partnership, and that said partnership executed the same.

(NOTARIAL SEAL) JENNIFER SEIFERT
-----------------------------------------
Notary Public for Oregon
Residing at: Portland, OR
----------------------------
My commission expires:
------------------

STATE OF OREGON )
) ss.
County of Multnomah )

On this 20th day of December, 1996, before me, David W. Green
[notary's name], a Notary Public of the State of Oregon, duly commissioned and
sworn, personally appeared ROGER A. COOKE, to me personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the written instrument, as the Vice President and Secretary of FRED
MEYER OF ALASKA, INC., an Alaskan corporation, of and on behalf of such
corporation and acknowledged to me that such corporation executed the same.

(NOTARIAL SEAL) DAVID W. GREEN
-----------------------------------------
Notary Public for Oregon
Residing at: Beaverton, Oregon
----------------------------
My commission expires: 03/02/97
------------------

FM Form - Memorandum of Modification of Lease
12/20/96

3
<PAGE>
EXHIBIT A
---------

Legal Description
of
Property

Lot 1, GREGSON SUBDIVISION, according to the official plat thereof, filed under
Plat Number 81-15, Records of Anchorage Recording District, Third Judicial
District, State of Alaska.

Such property is also described of record as follows:
- -----------------------------------------------------

Real property situated in the Anchorage Precinct, Third Judicial District, State
of Alaska, more particularly described as follows:

ALSO EXCEPTING THEREFROM the property conveyed to the State of Alaska by
Quitclaim Deed dated October 29, 1965, and recorded December 7, 1965 in book 316
at page 136, described as follows:

ALSO EXCEPTING THEREFROM the property leased to Standard Oil Company of
California, recorded August 1, 1966, in Misc. book 130 at page 165, and
described as follows:

Commencing at the section corner common to Sections 19, 20, 29 and 30, T 13 N, R
3 W, S. M.; thence South 0 degrees 06'30" East along the line common to said
Sections 29 and 30 a distance of 660.17

FM Form - Memorandum of Modification of Lease
1/2/97

4
<PAGE>
feet to the Southwest corner of said N 1/2 of the NW 1/4 of the NW 1/4 of said
Section 29; thence South 89 degrees 58'15" East along the South boundary of the
N 1/2 of the NW 1/4 of the NW 1/4 of said Section 29 a distance of 100.0 feet to
a point on the East Right of Way line of the Seward Highway and the true point
of beginning; thence North 0 degrees 06'30" West along the East Right of Way
line of the Seward Highway a distance of 180.00 feet ; thence South 89 degrees
58'15" East a distance of 150.00 feet; thence South 0 degrees 06'30" East a
distance of 180 feet; thence North 89 degrees 58'15" West along the South
boundary of the N 1/2 of the NW 1/4 of the NW 1/4 of said Section 29 a distance
of 150.00 feet to the true point of beginning, and

ALSO EXCEPTING THEREFROM the property leased to Phillips Petroleum Company,
recorded June 12, 1967, in Misc. book 145 at page 224, described as follows:

ALSO EXCEPTING THEREFROM that portion thereof lying within the boundaries of the
Seward Highway and Northern Lights Boulevard.

FM Form - Memorandum of Modification of Lease
1/2/97

5
<PAGE>
APPENDIX 10J(3)

BURIEN

RECORDING REQUESTED
BY AND WHEN RECORDED
RETURN TO:

FRED MEYER, INC.
P.O. Box 42121
Portland, Oregon 97242
Attn: Corporate Legal Department (Real Estate)

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

LEASE AMENDMENT NO. 4
(Burien, Washington)

THIS LEASE AMENDMENT NO. 4 (the "Amendment") is made as of December 16,
1996, by and between REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, successor to
FRED MEYER REAL ESTATE PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 ("Landlord"), and ROUNDUP CO., a Washington
corporation, whose address is P.O. Box 42121, Portland, Oregon 97242-0121
(Street address 3800 SE 22nd Avenue, Portland, Oregon 97202) ("Tenant").

R E C I T A L S

A. By a certain Lease dated October 22, 1986, as amended by agreements
dated February 7, 1992, October 16, 1992, and October 26, 1994 (as so amended,
the "Lease"), Landlord leased to Tenant certain land, described on Exhibit A,
and the related improvements described in the Lease (the "Premises").
Capitalized terms not otherwise defined herein have the meanings set forth in
the Lease.

B. The Lease currently provides for a Primary Term that ends on March 14,
2014. The Lease presently does not have any unexercised Renewal Terms.

C. The parties desire to modify certain terms of the Lease, as set forth in
this Agreement.

A G R E E M E N T

NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. Landlord agrees that Tenant shall have the right to six (6) Renewal
Terms of five (5) years each, which shall be exercised in the manner and subject
to the conditions set forth in Section 3.2 of the Lease; provided, however, that
the "Fixed Rent" during the additional Renewal Terms provided in this Amendment
shall be the Fair Market Rental Value for the Premises, determined in the manner
provided in Section 2 of this Amendment.

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-1-
<PAGE>
2. Fair Market Rental Value of the Premises will be determined in the
following manner:

2.1 No later than thirteen (13) months prior to the last day allowed
for the exercise by Tenant of its right to renew the term of the Lease, Tenant
will provide Tenant's written opinion of the Fair Market Rental Value of the
Premises ("Tenant's Notice"). The Fair Market Rental Value shall be based on the
retail use of the Premises subject to the terms of the Lease.

2.2 If Landlord does not accept Tenant's opinion of the Fair Market
Rental Value of the Premises, Landlord shall state its opinion of the Fair
Market Rental Value in a notice delivered to Tenant ("Landlord's Notice") within
30 days of receipt of Tenant's Notice. The parties shall then seek an agreement
on the Fair Market Rental Value.

2.3 If Landlord and Tenant are unable to agree on the Fair Market
Rental Value within forty-five (45) days after Tenant's receipt of Landlord's
Notice, Landlord and Tenant shall each appoint an appraiser who shall be a
member of the American Institute of Real Estate Appraisers with at least five
(5) years' experience in appraising commercial real property in the market area
in which the Premises are located (an "M.A.I. appraiser") and notify the other
party in writing of the name and address of said appraiser. If a party fails or
refuses to appoint an appraiser and provide written notice thereof to the other
party within fifteen (15) days after receipt of the name and address of the
other party's appraiser, the single appraiser appointed shall constitute the
sole appraiser for the purpose of determining the applicable Fair Market Rental
Value. If both parties appoint an appraiser in accordance with the foregoing
procedure, the two (2) appraisers shall immediately proceed to determine and
agree upon the Fair Market Rental Value. If the two appraisers cannot agree and
if the higher of the two appraisals is no more than 110% of the lower appraisal,
the Fair Market Rental Value shall be the average of the two appraisals. If the
higher of the two appraisals is more than 110% of the lower appraisal, the two
appraisers shall together promptly appoint a third M.A.I. appraiser. If the two
appraisers are unable to agree upon a third appraiser, either party shall have
the right, upon ten (10) days prior written notice to the other party, to apply
to the American Institute of Real Estate Appraisers or to the presiding judge of
the court of general jurisdiction in the county in which the Premises are
located, or other appropriate tribunal, for appointment of the third appraiser.
That appraiser shall immediately proceed to determine the applicable Fair Market
Rental Value and a value agreed upon by a majority of the three appraisers shall
be the Fair Market Rental Value. If a majority of the three appraisers are
unable to agree upon the Fair Market Rental Value, the value obtained by
averaging the three appraisals shall constitute the Fair Market Rental Value but
any appraisal that is more than fifteen percent (15%) greater or lesser than the
middle appraisal shall be disregarded in calculating such average. Each party
will pay its respective appraiser's fee plus one-half (1/2) of the third
appraiser's fee (if any) plus all reasonable costs and attorney's fees incurred
by it in any judicial proceeding or any proceeding before the American Institute
of Real Estate Appraisers which is not attributable to the default of the other
party. The appraisal process described in this clause 2.3 shall be completed
within one hundred twenty (120) days after Tenant's receipt of Landlord's
Notice.

3. Continuing Agreement. This Amendment amends and supplements the Lease
and the terms of this Amendment are hereby incorporated into the Lease. Except
as expressly amended or supplemented by this Amendment, the Lease is and shall
remain in full force and effect according to its terms.

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove set forth.

LANDLORD: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an
Oregon limited partnership, by FMGP Associates,
an Oregon limited partnership, its general partner,
by FMGP Incorporated, a Delaware corporation,
its general partner

By: DAVID W. RAMUS
-----------------------------------------------
Title: Vice President
--------------------------------------------
Date Executed: 12/13/96
------------------------------------

Assignee: ROUNDUP CO., a Washington corporation

By: SCOTT L. WIPPEL
-----------------------------------------------
Scott L. Wippel, Senior Vice President
Date Executed: 12/13/96
------------------------------------

STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )

This instrument was acknowledged before me this 13th day of December, 1996,
by Scott L. Wippel, as Vice President of ROUNDUP CO., a Washington corporation,
on behalf of the corporation.

(NOTARIAL SEAL) ELLEN M. SMITH
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 5/4/98
------------------

STATE OF OREGON )
) ss.
COUNTY OF Multnomah )

(NOTARIAL SEAL) LUDELL E. CORNILSEN
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 6/8/99
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-3-
<PAGE>
Exhibit A

BURIEN

All that portion of the SW 1/4 of the SW 1/4 of Section 17, Township
23 North, Range 4 East of W.M., in King County, Washington, described as
follows:

Commencing at the southwest corner of said subdivision, thence N 89
degrees 57'56" E along the south line thereof a distance of 45.01 feet to the
east margin of 1st Avenue South and the Point of Beginning; thence continuing N
89 degrees 57'56" E along said south line 662.80 feet to the proposed westerly
right of way of Secondary State Highway No. 1-K, Burien to JCT. P.S.H. No. 1,
also to be known as S.R. 509; thence N 26 degrees 36'20" E along the westerly
right of way line of said Secondary State Highway 254.50 feet; thence N 20
degrees 13'42" E 653.76 feet to the south line of the north 2.00 acres of the S
1/2 of the NW 1/4 of the SW 1/4 of the SW 1/4 produced easterly; thence N 89
degrees 43'22" W along said line 336.12 feet to the east line of the west 50.00
feet of the NE 1/4 of the SW 1/4 of the SW 1/4 of said section; thence N 1
degrees 17'03" E along said line 431.37 feet to the south line of the north
30.00 feet of said subdivision; thence N 89 degrees 37'09 W 50.01 feet; thence S
1 degrees 17'03" W along the west line of the east one-half of the SW 1/4 of the
SW 1/4 566.82 feet to the south line of the north 4.0 acres of the S 1/2 of the
NW 1/4 of the SW 1/4 of the SW 1/4; thence N 89 degrees 43'22" W 460.01 feet to
a point that lies equi-distant between the east margin of 1st Avenue South and
the centerline produced southerly of Occidental Avenue South, as per the plat of
Magnuson's Addition as recorded in Volume 44 of Plats on page 51, records of
said county; thence S 1 degrees 13'27" W along said line 112.38 feet; thence N
89 degrees 55'50" W 138.60 feet to the east margin of 1st Avenue South; thence S
1 degrees 12'45" W along said margin 598.10 feet to the Point of Beginning.

SUBJECT to and TOGETHER with the restrictions and reservations of
record.

Containing 629,545 sq. ft. or 14.452 acres.
<PAGE>
Recordation requested by:

Fred Meyer, Inc.

After recordation return to:

Stoel Rives L.L.P.
700 NE Multnomah, Suite 950
Portland, Oregon 97232
Att'n: David W. Green

- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)

MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
(Burien, Washington)

THIS MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
("Memorandum"), dated as of December 20, 1996, by and between REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, formerly known as
FRED MEYER REAL ESTATES PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 (hereinafter referred to as "Landlord") and
ROUNDUP CO., a Washington corporation, with an office at 3800 SE 22nd Avenue, PO
Box 42121, Portland, Oregon 97242-0121 (hereinafter referred to as "Tenant"), as
lessee under the Lease described below.

FOR VALUE RECEIVED, Landlord and Tenant do hereby covenant and agree
as follows:

1. Demised Premises. Landlord has leased to Tenant, and Tenant has leased
from Landlord, for the lease term specified below, certain real property located
in Burien, Washington which is described in the attached Exhibit A (the
"Property"), pursuant to the terms of a Lease Agreement, between Landlord and
Tenant, dated October 22, 1986, as amended (the "Lease"). The Lease includes a
Lease Amendment No. 4 between the parties, dated December 16, 1996, which adds
six additional renewal option terms.

2. Term. The current term of the Lease ("Current Term") ends on March 14,
2014, unless the Current Term is extended or earlier terminated in accordance
with the provisions of the Lease. Subject to the conditions stated in the Lease,
Tenant has six (6) consecutive options to extend the term thereafter for
additional option terms of five (5) years each.

- --------------------------------------------------------------------------------
Until a change is requested, all tax statements shall be sent to the following
address: Fred meyer, Inc., 3800 SE 22nd Avenue, PO Box 42121, Portland, OR
97242 - Property Tax Account No. __________
- --------------------------------------------------------------------------------

FM Form - Memorandum of Modification of Lease
12/20/96
<PAGE>
3. Effect of Memorandum. The purpose of this instrument is to give notice
of the Lease and its terms, covenants and conditions to the same extent as if
the Lease were fully set forth herein. This Memorandum shall not modify in any
manner the terms, conditions or intent of the Lease, and the parties agree that
this Memorandum is not intended nor shall it be used to interpret the Lease or
determine the intent of the parties under the Lease.

IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument as of the day and year first written.

LANDLORD: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP,
an Oregon limited partnership,

By FMGP ASSOCIATES, an Oregon limited
partnership, its General Partner

By FMGP INCORPORATED, a Delaware
corporation,
its General Partner

By: DAVID W. RAMUS
--------------------------------
Name: David W. Ramus
------------------------------
Its: V.P.
-------------------------------

TENANT: ROUNDUP CO.

By: ROGER A. COOKE
------------------------------------------
Name: Roger A. Cooke
Its: Vice President and Secretary

FM Form - Memorandum of Modification of Lease
12/20/96

2
<PAGE>
STATE OF OREGON )
) ss.
County of Washington )

(NOTARIAL SEAL) JENNIFER SEIFERT
-----------------------------------------
Notary Public for Oregon
Residing at: Portland, OR
----------------------------
My commission expires:
------------------

STATE OF OREGON )
) ss.
County of Multnomah )

On this 20th day of December, 1996, before me, David W. Green
[notary's name], a Notary Public of the State of Oregon, duly commissioned and
sworn, personally appeared ROGER A. COOKE, to me personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the written instrument, as the Vice President and Secretary of ROUNDUP
CO., a Washington corporation, of and on behalf of such corporation and
acknowledged to me that such corporation executed the same.

DAVID W. GREEN
-----------------------------------------
Notary Public for Oregon
Residing at: Beaverton, Oregon
----------------------------
My commission expires: 03/02/97
------------------

FM Form - Memorandum of Modification of Lease
12/20/96
3
<PAGE>
EXHIBIT A
---------

Legal Description
of
Property

All that portion of the SW 1/4 of the SW 1/4 of Section 17, Township 23
North, Range 4 East of W.M., in King County, Washington, described as follows:

Commencing at the southwest corner of said subdivision, thence N 89 degrees
57'56" E along the south line thereof a distance of 45.01 feet to the east
margin of 1st Avenue South and the Point of Beginning; thence continuing N 89
degrees 57'56" E along said south line 662.80 feet to the proposed westerly
right of way of Secondary State Highway No. 1-K, Burien to JCT. P.S.H. No. 1,
also to be known as S.R. 509; thence N 26 degrees 36'20" E along the westerly
right of way line of said Secondary State Highway 254.50 feet; thence N 20
degrees 13'42" E 653.76 feet to the south line of the north 2.00 acres of the S
1/2 of the NW 1/4 of the SW 1/4 of the SW 1/4 produced easterly; thence N 89
degrees 43'22" W along said line 336.12 feet to the east line of the west 50.00
feet of the NE 1/4 of the SW 1/4 of the SW 1/4 of said section; thence N 1
degrees 17'03" E along said line 431.37 feet to the south line of the north
30.00 feet of said subdivision; thence N 89 degrees 37'09 W 50.01 feet; thence S
1 degrees 17'03" W along the west line of the east one-half of the SW 1/4 of the
SW 1/4 566.82 feet to the south line of the north 4.0 acres of the S 1/2 of the
NW 1/4 of the SW 1/4 of the SW 1/4; thence N 89 degrees 43'22" W 460.01 feet to
a point that lies equi-distant between the east margin of 1st Avenue South and
the centerline produced southerly of Occidental Avenue South, as per the plat of
Magnuson's Addition as recorded in Volume 44 of Plats on page 51, records of
said county; thence S 1 degrees 13'27" W along said line 112.38 feet; thence N
89 degrees 55'50" W 138.60 feet to the east margin of 1st Avenue South; thence S
1 degrees 12'45" W along said margin 598.10 feet to the Point of Beginning.

SUBJECT to and TOGETHER with the restrictions and reservations of record.

Containing 629,545 sq. ft. or 14.452 acres.

FM Form - Memorandum of Modification of Lease
1/2/97
4
<PAGE>
APPENDIX 10J(5)

CLACKAMAS

RECORDING REQUESTED
BY AND WHEN RECORDED
RETURN TO:

FRED MEYER, INC.
P.O. Box 42121
Portland, Oregon 97242
Attn: Corporate Legal Department (Real Estate)

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

LEASE AMENDMENT NO. 3
(Clackamas, Oregon)

THIS LEASE AMENDMENT NO. 3 (the "Amendment") is made as of December 16,
1996, by and between REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, successor to
FRED MEYER REAL ESTATE PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 ("Landlord"), and FRED MEYER, INC., a
Delaware corporation, whose address is P.O. Box 42121, Portland, Oregon
97242-0121 (Street address 3800 SE 22nd Avenue, Portland, Oregon 97202)
("Tenant").

R E C I T A L S

A. By a certain Lease dated October 22, 1986, as amended by agreements
dated February 7, 1992, and October 12, 1995 (as so amended, the "Lease"),
Landlord leased to Tenant certain land, described on Exhibit A, and the related
improvements described in the Lease (the "Premises"). Capitalized terms not
otherwise defined herein have the meanings set forth in the Lease.

B. The Lease currently provides for a Primary Term that ends on August 31,
1999. The Lease presently provides for three (3) five-year Renewal Terms.

C. The parties desire to modify certain terms of the Lease, as set forth in
this Agreement.

A G R E E M E N T

NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. In addition to any existing Renewal Terms, Landlord agrees that Tenant
shall have the right to three (3) additional Renewal Terms of five (5) years
each, which shall be exercised in the manner and subject to the conditions set
forth in Section 3.2 of the Lease; provided, however, that the "Fixed Rent"
during the additional Renewal Terms provided in this Amendment shall be the Fair
Market Rental Value for the Premises, determined in the manner provided in
Section 2 of this Amendment.

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93
<PAGE>
2. Fair Market Rental Value of the Premises will be determined in the
following manner:

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove set forth.

LANDLORD: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an
Oregon limited partnership, by FMGP Associates,
an Oregon limited partnership, its general partner,
by FMGP Incorporated, a Delaware corporation,
its general partner

By: DAVID W. RAMUS
-----------------------------------------------
Title: Vice President
--------------------------------------------
Date Executed: 12/13/96
------------------------------------

Assignee: FRED MEYER, INC., a Delaware corporation

By: SCOTT L. WIPPEL
-----------------------------------------------
Scott L. Wippel, Senior Vice President
Date Executed: 12/13/96
---------------------------------

STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )

This instrument was acknowledged before me this 13th day of December, 1996,
by Scott L. Wippel, as Senior Vice President of FRED MEYER, INC., a Delaware
corporation, on behalf of the corporation.

(NOTARIAL SEAL) ELLEN M. SMITH
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 5/4/96
------------------

STATE OF OREGON )
) ss.
COUNTY OF Multnomah )

(NOTARIAL SEAL) LUDELL E. CORNILSEN
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 6/8/99
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-3-
<PAGE>
EXHIBIT A

CLACKAMAS

2. IN THE COUNTY OF CLACKAMAS AND STATE OF OREGON

A tract of land located in the southwest one-quarter, Section 9, T. 2 S.,
R. 2 E., of the W. M.; and the northwest one-quarter, Section 16, T. 2 S.,
R. 2 E., of the W. M., described as follows:

Beginning at a point on the westerly right-of-way of 82nd Drive (Cascade
Highway) and the southerly boundary line of that tract of land described in
Fee No. 70 20685, said point bears North 87 degrees 46'28" West 30.02 feet
and South 04 degrees 18'02" West 80.15 feet from the one-quarter corner
between Sections 9 and 16, T. 2 S., R. 2 E., of the W. M.; thence North 88
degrees 40'53" West 603.69 feet along said southerly boundary and parallel
with the south line of Roots Addition to Marshfield, Clackamas County,
Oregon, to a point on the easterly right-of-way line of Interstate Highway
205 (I-205); thence along said easterly right-of-way line the following
bearings and distances: along the arc of a spiral curve offset in an
easterly direction, 135.00 feet distance from the reference spiral defined
as being 500 feet in length, having a central angle of 3 degrees 45' and an
"a" valve of 0.3 (the offset spiral chord bears North 13 degrees 43'46"
West 210.12 feet) to the point of change from spiral to circular curve,
along the arc of a 3,954.72 foot curve left (the long chord bears North 10
degrees 58'32" East 197.47 feet) through a central angle of 2 degrees
51'41", 197.50 feet to a point situated 135.00 feet easterly on a radial
line from OSHD reference line at I-205 Engineers' Station 542+50, North 15
degrees 11'42" East 262.50 feet to a point situated 170.00 feet easterly on
a radial line from said reference line at I-205 Engineers' Station 540+00,
North 12 degrees 13'43" East 517.40 feet to the point of intersection of
said easterly right-of-way with the north right-of-way of Roots Webster
Road (vacated), vacation of said street recorded in Book 661, page 828,
Deed Records; thence along said north right-of-way and north right-of-way
extended South 88 degrees 40'53" East 251.01 feet to a point which lies
North 88 degrees 40'53" West, a distance of 97.02 feet from said Southeast
82nd Drive westerly right-of-way line; thence South 0 degrees 13'31" West
parallel with said westerly right-of-way line a distance of 281.00 feet;
thence south 88 degrees 40'53" east parallel with said north right of way
line a distance of 85.02 feet to a point which lies westerly a distance of
12.00 feet from said westerly right of way line; thence north 0 degrees
13'31" east parallel with said westerly right of way line, a distance of
155.94 feet; thence along the arc of a 208.33 foot radius curve to the
right (the long chord of which bears North 7 degrees 07'03" East a distance
of 50.00 feet) through a central angle of 13 degrees 47'03" an arc distance
of 50.12 feet; thence along the arc of a 208.33 radius curve to the left
(the long chord of which bears North 7 degrees 07'03" East a distance of
50.00 feet) through a central angle of 13 degrees 47'03" an arc distance of
50.12 feet to a point on said westerly right-of-way line which lies South 0
degrees 13'31" West a distance of 25.55 feet from the north right-of-way
line of said Roots-Webster Road; thence South 0 degrees 13'31" West along
said westerly right-of-way line a distance of 1057.37 feet to an angle
point; thence continuing along said westerly right-of-way line South 4
degrees 18'02" West a distance of 80.15 feet to the point of beginning.
<PAGE>
Recordation requested by:

Fred Meyer, Inc.

After recordation return to:

Stoel Rives L.L.P.
700 NE Multnomah, Suite 950
Portland, Oregon 97232
Att'n: David W. Green

- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)

MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
(CK - Clackamas, Oregon)

THIS MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
("Memorandum"), dated as of December 20, 1996, by and between REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, formerly known as
FRED MEYER REAL ESTATES PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 (hereinafter referred to as "Landlord") and
FRED MEYER, INC., a Delaware corporation, with an office at 3800 SE 22nd Avenue,
PO Box 42121, Portland, Oregon 97242-0121 (hereinafter referred to as "Tenant"),
as lessee under the Lease described below.

FOR VALUE RECEIVED, Landlord and Tenant do hereby covenant and agree
as follows:

1. Demised Premises. Landlord has leased to Tenant, and Tenant has leased
from Landlord, for the lease term specified below, certain real property located
in Clackamas, Oregon which is described in the attached Exhibit A (the
"Property"), pursuant to the terms of a Lease Agreement, between Landlord and
Tenant, dated October 22, 1986, as amended (the "Lease"). The Lease includes a
Lease Amendment No. 3 between the parties, dated December 16, 1996, which adds
three additional renewal option terms.

2. Term. The current term of the Lease ("Current Term") ends on August 31,
1999, unless the Current Term is extended or earlier terminated in accordance
with the provisions of the Lease. Subject to the conditions stated in the Lease,
Tenant has six (6) additional consecutive options

Fm Form - Memorandum of Modification of Lease
12/20/96
<PAGE>
to extend the term thereafter for additional option terms of five (5) years
each.

IN WITNESS WHEREOF, the parties hereto have duly executed this instrument
as of the day and year first written.

LANDLORD: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP,
an Oregon limited partnership,

By FMGP ASSOCIATES, an Oregon limited
partnership, its General Partner

By FMGP INCORPORATED, a Delaware
corporation,
its General Partner

By: DAVID W. RAMUS
--------------------------------
Name: David W. Ramus
------------------------------
Its: V.P.
-------------------------------

TENANT: FRED MEYER, INC.

By: ROGER A. COOKE
------------------------------------------
Name: Roger A. Cooke
----------------------------------------
Its: Senior Vice President and Secretary
-----------------------------------------

FM Form - Memorandum of Modification of Lease
12/20/96

2
<PAGE>
STATE OF OREGON )
) ss.
County of Washington )

(NOTARIAL SEAL) JENNIFER SEIFERT
-----------------------------------------
Notary Public for Oregon
Residing at: Portland, OR
----------------------------
My commission expires:
------------------

STATE OF OREGON )
) ss.
County of Multnomah )

On this 20th day of December, 1996, before me, David W. Green
[notary's name], a Notary Public of the State of Oregon, duly commissioned and
sworn, personally appeared ROGER A. COOKE, to me personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the written instrument, as the Senior Vice President and Secretary of
FRED MEYER, INC., a Delaware corporation, of and on behalf of such corporation
and acknowledged to me that such corporation executed the same.

FM Form - Memorandum of Modification of Lease
12/20/96

3
<PAGE>
EXHIBIT A
---------

Legal Description
of
Property

IN THE COUNTY OF CLACKAMAS AND STATE OF OREGON

A tract of land located in the southwest one-quarter, Section 9, T. 2 S., R. 2
E., of the W. M.; and the northwest one-quarter, Section 16, T. 2 S., R. 2 E.,
of the W. M., described as follows:

Beginning at a point on the westerly right-of-way of 82nd Drive (Cascade
Highway) and the southerly boundary line of that tract of land described in Fee
No. 70 20685, said point bears North 87 degrees 46'28" West 30.02 feet and South
04 degrees 18'02" West 80.15 feet from the one-quarter corner between Sections 9
and 16, T. 2 S., R. 2 E., of the W. M.; thence North 88 degrees 40'53" West
603.69 feet along said southerly boundary and parallel with the south line of
Roots Addition to Marshfield, Clackamas County, Oregon, to a point on the
easterly right-of-way line of Interstate Highway 205 (I-205); thence along said
easterly right-of-way line the following bearings and distances: along the arc
of a spiral curve offset in an easterly direction, 135.00 feet distance from the
reference spiral defined as being 500 feet in length, having a central angle of
3 degrees 45' and an "a" valve of 0.3 (the offset spiral chord bears North 13
degrees 43'46" West 210.12 feet) to the point of change from spiral to circular
curve, along the arc of a 3,954.72 foot curve left (the long chord bears North
10 degrees 58'32" East 197.47 feet) through a central angle of 2 degrees 51'41",
197.50 feet to a point situated 135.00 feet easterly on a radial line from OSHD
reference line at I-205 Engineers' Station 542+50, North 15 degrees 11'42" East
262.50 feet to a point situated 170.00 feet easterly on a radial line from said
reference line at I-205 Engineers' Station 540+00, North 12 degrees 13'43" East
517.40 feet to the point of intersection of said easterly right-of-way with the
north right-of-way of Roots Webster Road (vacated), vacation of said street
recorded in Book 661, page 828, Deed Records; thence along said north
right-of-way and north right-of-way extended South 88 degrees 40'53" East 251.01
feet to a point which lies North 88 degrees 40'53" West, a distance of 97.02
feet from said Southeast 82nd Drive westerly right-of-way line; thence South 0
degrees 13'31" West parallel with said westerly right-of-way line a distance of
281.00 feet; thence south 88 degrees 40'53" east parallel with said north right
of way line a distance of 85.02 feet to a point which lies westerly a distance
of 12.00 feet from said westerly right of way line; thence north 0 degrees
13'31" east parallel with said westerly right of way line, a distance of 155.94
feet; thence along the arc of a 208.33 foot radius curve to the right (the long
chord of which bears North 7 degrees 07'03" East a distance of 50.00 feet)
through a central angle of 13 degrees 47'03" an arc distance of 50.12 feet;
thence along the arc of a 208.33 radius curve to the left (the long chord of
which bears North 7 degrees 07'03" East a distance of 50.00 feet) through a
central angle of 13 degrees 47'03" an arc distance of 50.12 feet to a point on
said westerly right-of-way line which lies South 0 degrees 13'31" West a
distance of 25.55 feet from the north right-of-way line of said Roots-Webster
Road; thence South 0 degrees 13'31" West along said westerly right-of-way line a
distance of 1057.37 feet to an angle point; thence continuing along said
westerly right-of-way line South 4 degrees 18'02" West a distance of 80.15 feet
to the point of beginning.

FM Form - Memorandum of Modification of Lease
1/2/97

4
<PAGE>
APPENDIX 10J(6)

CORNELIUS

RECORDING REQUESTED
BY AND WHEN RECORDED
RETURN TO:

FRED MEYER, INC.
P.O. Box 42121
Portland, Oregon 97242
Attn: Corporate Legal Department (Real Estate)

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

LEASE AMENDMENT NO. 3
(Cornelius, Oregon)

R E C I T A L S

A. By a certain Lease dated October 22, 1986, as amended by agreements
dated February 7, 1992 and August 16, 1994 (as so amended, the "Lease"),
Landlord leased to Tenant certain land, described on Exhibit A, and the related
improvements described in the Lease (the "Premises"). Capitalized terms not
otherwise defined herein have the meanings set forth in the Lease.

B. The Lease currently provides for a Primary Term that ends on December
31, 2012. The Lease presently provides for two ten-year Renewal Terms.

C. The parties desire to modify certain terms of the Lease, as set forth in
this Agreement.

A G R E E M E N T

NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. Renewal Term. In addition to all remaining Renewal Terms under the
Lease, Landlord agrees that Tenant shall have the right to one additional
Renewal Term of ten (10) years, which shall be exercised in the manner and
subject to the conditions set forth in Section 3.2 of the Lease; provided,
however, that the "Fixed Rent" during the additional Renewal Term provided in
this Amendment shall be the greater of (1) the fair market rental value for the
Premises (including buildings), or (2) the rent owing under Landlord's existing
underlying ground lease for the property between Landlord and (the "Master
Lease"), including any

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93
<PAGE>
percentage rent and/or stipulated step increases provided in the Master Lease as
of the date hereof. There shall be no "Percentage Rent" during such additional
Renewal Term, except insofar as rent is owned pursuant to clause (2) of the
preceding sentence. The procedure for determining fair market rental value for
the Premises hereunder shall be the same as the procedure for determining the
fair market rental value of the ground under the Master Lease.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove set forth.

LANDLORD: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an
Oregon limited partnership, by FMGP Associates,
an Oregon limited partnership, its general partner,
by FMGP Incorporated, a Delaware corporation,
its general partner

By: DAVID W. RAMUS
------------------------------------------
Title: Vice President
---------------------------------------
Date Executed: 12/13/96
-------------------------------

TENANT: FRED MEYER, INC., a Delaware corporation

By: SCOTT L. WIPPEL
------------------------------------------
Scott L. Wippel, Senior Vice President
Date Executed: 13/13/96
-------------------------------

STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )

This instrument was acknowledged before me this 13th day of December, 1996,
by Scott L. Wippel, as Senior Vice President of FRED MEYER INC., a Delaware
corporation, on behalf of the corporation.

(NOTARIAL SEAL) ELLEN M. SMITH
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 5/4/98
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-2-
<PAGE>
STATE OF OREGON )
) ss.
COUNTY OF Multnomah )

(NOTARIAL SEAL) LUDELL E. CORNILSEN
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 6/8/99
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-3-
<PAGE>
Exhibit A

CORNELIUS

Beginning at a point which bears S 00 degrees 22'40" E 306.80 feet, N 89 degrees
37'20" E 581.00 feet and S 00 degrees 22'40" E 895.00 feet from the intersection
of the South line of the S.P.&S. Railroad right-of-way and the centerline of
North 19th Avenue; said intersection being the Northwest corner of that tract
described in Land Sale Contract to General American Theatres, Inc., recorded in
Document Number 78-21044, Records of Washington County, Oregon; thence N 00
degrees 22'40" W, coincident with the East boundary of those parcels of land
conveyed to West Coast Telephone Company by deeds recorded September 4, 1963, in
Book 494, Page 481, Deed Records, and in Book 449, Page 32, said Deed Records,
in said county; also coincident with the East boundary and its projection of
that parcel conveyed to Portland General Electric Company by deed recorded
October 26, 1970, in Book 796, Page 375, Deed Records; 907.00 feet to a point
situated N 00 degrees 22'40" W 12.00 feet from the Northeast corner of said
Portland General Electric Company parcel as described in deed recorded October
26, 1970, in Book 796, Page 375; thence N 89 degrees 37'20" E 598.00 feet to the
point of curve of a circular curve right, defined by a radius distance of 52.00
feet and a delta value of 90 degrees 00'; thence along the arc of said curve
81.68 feet (the long chord bears S 45 degrees 22'40" E 73.54 feet) to a point of
tangent; thence S 00 degrees 22'40" E 725.62 feet to the point of curve of a
circular curve right, defined by a radius distance of 72.00 feet and a delta
value of 54 degrees 00'; thence along the arc of said curve 67.86 feet (the long
chord bears S 26 degrees 37'20" W 65.37 feet) to the point of tangent; thence S
53 degrees 37'20" W 138.63 feet to the point of curve of a circular curve left,
defined by a radius distance of 72.00 feet and a delta value of 54 degrees 00';
thence along the arc of said curve 67.86 feet (the long chord bears S 26 degrees
37'20" W 65.37 feet) to the point of tangent; thence S 00 degrees 22'40" E 91.24
feet to a point on the northerly right-of-way line of the Tualatin Valley State
Highway; thence N 85 degrees 52'17" W, coincident with said right-of-way, 283.37
feet; thence N 00 degrees 22'40" W 137.58 feet; thence S 89 degrees 37'20" W
196.00 feet to the point of beginning and containing 14.366 acres of land.

<PAGE>
Recordation requested by:

Fred Meyer, Inc.

After recordation return to:

Stoel Rives L.L.P.
700 NE Multnomah, Suite 950
Portland, Oregon 97232
Att'n: David W. Green

- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)

MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
(CN - Cornelius, Oregon)

THIS MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
("Memorandum"), dated as of December 20, 1996, by and between REAL ESTATE
PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, formerly known as
FRED MEYER REAL ESTATES PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 (hereinafter referred to as "Landlord") and
FRED MEYER, INC., a Delaware corporation, with an office at 3800 SE 22nd Avenue,
PO Box 42121, Portland, Oregon 97242-0121 (hereinafter referred to as "Tenant"),
as lessee under the Lease described below.

FOR VALUE RECEIVED, Landlord and Tenant do hereby covenant and agree
as follows:

1. Demised Premises. Landlord has leased to Tenant, and Tenant has leased
from Landlord, for the lease term specified below, certain real property located
in Cornelius, Oregon, Alaska which is described in the attached Exhibit A (the
"Property"), pursuant to the terms of a Lease Agreement, between Landlord and
Tenant, dated October 22, 1986, as amended (the "Lease"). The Lease includes a
Lease Amendment No. 3 between the parties, dated December 16, 1996, which adds a
renewal option term.

2. Term. The current term of the Lease ("Current Term") ends on December
31, 2012, unless the Current Term is extended or earlier terminated in
accordance with the provisions of the Lease. Subject to the conditions stated in
the Lease, Tenant has three (3) additional options to extend the term thereafter
for additional option terms of ten (10) years each.

FM Form - Memorandum of Modification of Lease
1/2/97
<PAGE>
3. Effect of Memorandum. The purpose of this instrument is to give notice
of the Lease and its terms, covenants and conditions to the same extent as if
the Lease were fully set forth herein. This Memorandum shall not modify in any
manner the terms, conditions or intent of the Lease, and the parties agree that
this Memorandum is not intended nor shall it be used to interpret the Lease or
determine the intent of the parties under the Lease.

IN WITNESS WHEREOF, the parties hereto have duly executed this instrument
as of the day and year first written.

LANDLORD: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP,
an Oregon limited partnership,

By FMGP ASSOCIATES, an Oregon limited
partnership, its General Partner

By FMGP INCORPORATED, a Delaware
corporation,
its General Partner

By: DAVID W. RAMUS
--------------------------------
Name: David W. Ramus
------------------------------
Its: V.P.
-------------------------------

TENANT: FRED MEYER, INC.

FM Form - Memorandum of Modification of Lease
12/20/96
2
<PAGE>
STATE OF OREGON )
) ss.
County of Washington )

(NOTARIAL SEAL) JENNIFER SEIFERT
-----------------------------------------
Notary Public for Oregon
Residing at: Portland, OR
----------------------------
My commission expires:
------------------

STATE OF OREGON )
) ss.
County of Multnomah )

On this 20th day of December, 1996, before me, David W. Green
[notary's name], a Notary Public of the State of Oregon, duly commissioned and
sworn, personally appeared ROGER A. COOKE, to me personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the written instrument, as the Senior Vice President and Secretary of
FRED MEYER, INC., a Delaware corporation, of and on behalf of such corporation
and acknowledged to me that such corporation executed the same.

FM Form - Memorandum of Modification of Lease
12/20/96
3
<PAGE>
EXHIBIT A
---------

Legal Description
of
Property

BOUNDARY DESCRIPTION

Revised description defining boundaries through relocated entrance.

Following is a description of a parcel of land situated in the SW 1/4 of Section
34, Township 1 North, Range 3 West, of the Willamette Meridian, in Washington
County, Oregon.

DESCRIPTION OF BOUNDARY

FM Form - Memorandum of Modification of Lease
1/2/97
4
<PAGE>
APPENDIX 10J(8)

FAIRBANKS

RECORDING REQUESTED
BY AND WHEN RECORDED
RETURN TO:

FRED MEYER, INC.
P.O. Box 42121
Portland, Oregon 97242
Attn: Corporate Legal Department (Real Estate)

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

LEASE AMENDMENT NO. 3
(FB Fairbanks, Alaska)

THIS LEASE AMENDMENT NO. 3 (the "Amendment") is made as of December 16,
1996, by and between REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, successor to
FRED MEYER REAL ESTATE PROPERTIES, LTD., whose address is Suite 300, 15350 SW
Sequoia Parkway, Portland, OR 97224 ("Landlord"), and FRED MEYER OF ALASKA,
INC., an Alaska corporation, whose address is P.O. Box 42121, Portland, Oregon
97242-0121 (Street address 3800 SE 22nd Avenue, Portland, Oregon 97202)
("Tenant").

R E C I T A L S

A. By a certain Lease dated October 22, 1986, as amended by agreements
dated February 7, 1992 and April 13, 1994 (as so amended, the "Lease"), Landlord
leased to Tenant certain land, described on Exhibit A, and the related
improvements described in the Lease (the "Premises"). Capitalized terms not
otherwise defined herein have the meanings set forth in the Lease.

B. The Lease currently provides for a Primary Term that ends on June 29,
2009. The Lease presently provides for one ten-year Renewal Terms.

C. The parties desire to modify certain terms of the Lease, as set forth in
this Agreement.

A G R E E M E N T

NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. In addition to any existing Renewal Terms, Landlord agrees that Tenant
shall have the right to three (3) additional Renewal Terms of five (5) years
each, which shall be exercised in the manner and subject to the conditions set
forth in Section 3.2 of the Lease; provided, however, that the "Fixed Rent"
during the additional Renewal Terms provided in this Amendment shall be the
greater of (1) Fair Market Rental Value for the Premises, determined in the
manner provided in Section 2 of this Amendment, or (2) the

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93
<PAGE>
rent owing under Landlord's existing underlying ground lease for the property
between Landlord and Clifford Burglin and The Bank of California, N.A., as
co-strustees of the Bentley Family Trusts, and The Bank of California, N.A., as
trustee of the Helen Bentley Trust (the "Master Lease"), including any
percentage rent and/or stipulated step increases set forth in the Master Lease
as of the date hereof..

2. Fair Market Rental Value of the Premises will be determined in the
following manner:

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove set forth.

LANDLORD: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an
Oregon limited partnership, by FMGP Associates,
an Oregon limited partnership, its general partner,
by FMGP Incorporated, a Delaware corporation,
its general partner

By: DAVID W. RAMUS
-----------------------------------------------
Title: Vice President
--------------------------------------------
Date Executed: 12/13/96
------------------------------------

TENANT: FRED MEYER OF ALASKA, INC., an Alaska corporation

By: SCOTT L. WIPPEL
-----------------------------------------------
Scott L. Wippel, Senior Vice President
Date Executed: 12/13/96
------------------------------------

STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )

This instrument was acknowledged before me this 13th day of December, 1996,
by Scott L. Wippel, as Vice President of FRED MEYER OF ALASKA, INC., an Alaska
corporation, on behalf of the corporation.

(NOTARIAL SEAL) ELLEN M. SMITH
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 5/4/98
------------------

STATE OF OREGON )
) ss.
COUNTY OF Multnomah )

(NOTARIAL SEAL) LUDELL E. CORNILSEN
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 6/8/99
------------------

December 13, 1996
LEASE TERMINATION AGREEMENT - FORM NO. Q-3 Rev. 8/93

-3-
<PAGE>
EXHIBIT A - LEGAL DESCRIPTION

PARCEL I:
- ---------

All that portion of the following described property lying ENTIRELY within Lot
Eight (8) of Section Two (2), Township One South (T1S), Range One West (R1W),
Fairbanks Meridian, situate in the Records of the Fairbanks Recording District,
Fourth Judicial District, State of Alaska, being more particularly described as
follows:

Beginning at a Meander Corner No. 2 of U.S. Survey No. 848;

Thence North 65 degrees 30' West 191.40 feet;

Thence North 61 degrees 30' West 45.00 feet to the mean high water line of the
right limit of Noyes Slough;

Thence North 26 degrees 58'44" West along said mean high water line a distance
of 83.59 feet to a point of intersection with the Easterly boundary line of a
tract of land conveyed by deed recorded December 10, 1974 in Deed Records Volume
283 at Page 247 and its extension Southerly;

Thence North 28 degrees 44'34" East along the Easterly boundary line of said
tract conveyed by deed recorded December 10, 1974 in Deed Records Volume 283 at
Page 247 a distance of 375.00 feet to a point on the South right-of-way line of
College Road (State of Alaska, Department of Highways Project No. S-0644(4)),
50.00 feet right of center line Station "L" 210+35;

Thence South 61 degrees 15'26" East along the South right-of-way line of said
College Road a distance of 338.58 feet to a point of curvature, said point of
curvature being 50.00 feet right of center line Station "L" 210+73.58;

Thence along a curve to the right of radius 1859.86 feet an arc length of 343.75
feet to a point of intersection with curved Westerly right-of-way line of the
Old Steese Highway (sometimes referred to as the Graehl Road) as more
particularly described in deed recorded July 15, 1964 in Deed Records Volume 168
at Page 74 (the chord bears South 55 degrees 57'47" East 343.26 feet);

Thence along the Westerly right-of-way line of the Old Steese Highway (sometimes
referred to as the Graehl Road) on a curve to the right of radius 65.00 feet an
arc length of 58.35 feet to a point of tangency (the chord bears South 34
degrees 49'11" West 56.41 feet);

Thence South 60 degrees 32' West along the Westerly right-of-way line of said
Old Steese Highway (sometimes referred to Graehl Road) a distance of 364.42 feet
to a point of intersection with the South boundary line of said Section Two (2);

Thence North 64 degrees 33' West 177.77 feet to the POINT OF BEGINNING.
<PAGE>
PARCEL II:
- ----------

Portion of Section Two (2), Township One South (T1S), Range One West (R1W),
Fairbanks Meridian, lying Southwesterly of the intersection of College Road and
Graehl Road described as follows:

Commencing at the quarter corner along the line of Sections Two (2) and Eleven
(11), said quarter corner being South 89 degrees 56' West from the said section
corner;

Thence along the South boundary of the Homestead North 82 degrees 17' West a
distance of 554.4 feet to corner No. 3 of said Homestead;

Thence due West a distance of 626.0 feet along the South boundary of said
Homestead;

Thence South 60 degrees 32' West a distance of 156.0 feet along the West
right-of-way of the Graehl Road and the POINT OF BEGINNING of the area herein
described;

Thence North 64 degrees 33' West a distance of 181.0 feet, said point being
identical with corner No. 2 of the Homestead;

Thence North 65 degrees 30' West a distance of 4.68 feet;

Thence continuing North 65 degrees 30' West 160.0 feet;

Thence North 30 degrees 17' East a distance of approximately 410 feet to the
Southwesterly right-of-way line of College Road;

Thence South 59 degrees 43' East along said right-of-way line a distance of 160
feet, more or less;

Thence continuing along Southwesterly right-of-way line of College Road South 61
degrees 12' East a distance of 310 feet, more or less;

Thence along a curve to the right 65.0 feet radius a distance of 127.01 feet;

Thence South 60 degrees 32' West a distance of 356.1 feet along the Westerly
right-of-way line of Graehl Road to the POINT OF BEGINNING.

EXCEPTING THEREFROM, any portion lying within Lot Eight (8) of said Section Two
(2).
<PAGE>
PARCEL III:
- -----------

A tract of land located within and being a portion of U.S. Survey No. 848, being
within Township One South (T1S), Range One West (R1W), Fairbanks Meridian,
situate in the Records of the Fairbanks Recording District, Fourth Judicial
District, State of Alaska, being more particularly described as follows:

Beginning at Meander Corner No. 2 of U.S. Survey No. 848;

Thence North 65 degrees 30' West 191.40 feet;

Thence North 61 degrees 30' West 45.00 feet to the mean high water line of the
right limit of Noyes Slough;

Thence along a curve to the right of radius 1859.86 feet an arc length of 343.75
feet to a point of intersection with the curved Westerly right-of-way line of
the Old Steese Highway (sometimes referred to as the Graehl Road) as more
particularly described in deed recorded July 15, 1964 in Deed Records Volume 168
at Page 74 (the chord bears South 55 degrees 57'47" East 343.26 feet);

Thence South 60 degrees 32' West along the Westerly right-of-way line of said
Old Steese Highway (sometimes referred to as Graehl Road) a distance of 364.42
feet to a point of intersection with the South boundary line of said Section Two
(2);

Thence North 64 degrees 33' West 177.77 feet to the POINT OF BEGINNING.
<PAGE>
PARCEL III, continued
- ---------------------

EXCEPTING THEREFROM the following described tract of land, lying Southwesterly
of the intersection of College Road and Graehl Road described as follows:

Commencing at the quarter corner along the line of Sections Two (2) and Eleven
(11), said quarter corner being South 89 degrees 56' West from the said section
corner;

Thence along the South boundary of the Homestead North 82 degrees 17' West a
distance of 554.4 feet to corner No. 3 of said Homestead;

Thence due West a distance of 626.0 feet along the South boundary of said
Homestead;

Thence South 60 degrees 32' West a distance of 156.0 feet along the West
right-of-way of the Graehl Road and the POINT OF BEGINNING of the area herein
described;

Thence North 64 degrees 33' West a distance of 181.0 feet said point being
identical with corner No. 2 of the Homestead;

Thence North 65 degrees 30' West a distance of 4.68 feet;

Thence continuing North 65 degrees 30' West 160.0 feet;

Thence North 30 degrees 17' East a distance of approximately 410 feet to the
Southwesterly right-of-way line of College Road;

Thence South 59 degrees 43' East along said right-of-way line a distance of 160
feet more or less;

Thence continuing along Southwesterly right-of-way line of College Road South 61
degrees 12' East a distance of 310 feet more or less;

Thence along a curve to the right of 65.0 feet radius a distance of 127.01 feet;

Thence South 60 degrees 32' West a distance of 356.1 feet along the Westerly
right-of-way line of Graehl Road to the POINT OF BEGINNING.
<PAGE>
Recordation requested by:

Fred Meyer, Inc.

After recordation return to:

Stoel Rives L.L.P.
700 NE Multnomah, Suite 950
Portland, Oregon 97232
Att'n: David W. Green

- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)

MEMORANDUM OF MODIFICATION TO LEASE/SHORT-FORM LEASE
(FB - Fairbanks, Alaska)

FOR VALUE RECEIVED, Landlord and Tenant do hereby covenant and agree
as follows:

1. Demised Premises. Landlord has leased to Tenant, and Tenant has leased
from Landlord, for the lease term specified below, certain real property located
in Fairbanks, Alaska which is described in the attached Exhibit A (the
"Property"), pursuant to the terms of a Lease Agreement, between Landlord and
Tenant, dated October 22, 1986, as amended (the "Lease"). The Lease includes a
Lease Amendment No. 3 between the parties, dated December 16, 1996, which adds
three additional renewal option terms.

2. Term. The current term of the Lease ("Current Term") ends on June 29,
2009, unless the Current Term is extended or earlier terminated in accordance
with the provisions of the Lease. Subject to the conditions stated in the Lease,
Tenant has one (1) additional option to extend

FM Form - Memorandum of Modification of Lease
12/20/96
<PAGE>
the term thereafter for an additional option term of ten (10) years, and three
(3) additional consecutive options to extend the term thereafter (after the end
of the 10-year renewal option term) for additional option terms of five (5)
years each.

IN WITNESS WHEREOF, the parties hereto have duly executed this instrument
as of the day and year first written.

LANDLORD: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP,
an Oregon limited partnership,

By FMGP ASSOCIATES, an Oregon limited
partnership, its General Partner

By FMGP INCORPORATED, a Delaware
corporation,
its General Partner

By: DAVID W. RAMUS
--------------------------------
Name: David W. Ramus
------------------------------
Its: V.P.
-------------------------------

TENANT: FRED MEYER OF ALASKA, INC.

By: ROGER A. COOKE
------------------------------------------
Name: Roger A. Cooke
----------------------------------------
Its: Vice President and Secretary
-----------------------------------------

FM Form - Memorandum of Modification of Lease
12/20/96

2
<PAGE>
STATE OF OREGON )
) ss.
County of Washington )

(NOTARIAL SEAL) JENNIFER SEIFERT
-----------------------------------------
Notary Public for Oregon
Residing at: Portland, OR
----------------------------
My commission expires:
------------------

STATE OF OREGON )
) ss.
County of Multnomah )

FM Form - Memorandum of Modification of Lease
12/20/96
<PAGE>
EXHIBIT A
---------

Legal Description
of
Property

PARCEL I:
- ---------

Beginning at a Meander Corner No. 2 of U.S. Survey No. 848;

Thence North 65 degrees 30' West 191.40 feet;

Thence North 61 degrees 30' West 45.00 feet to the mean high water line of the
right limit of Noyes Slough;

FM Form - Memorandum of Modification of Lease
1/2/96

4
<PAGE>
Thence South 60 degrees 32' West along the Westerly right-of-way line of said
Old Steese Highway (sometimes referred to Graehl Road) a distance of 364.42 feet
to a point of intersection with the South boundary line of said Section Two (2);

Thence North 64 degrees 33' West 177.77 feet to the POINT OF BEGINNING.

PARCEL II:
- ----------

Portion of Section Two (2), Township One South (T1S), Range One West (R1W),
Fairbanks Meridian, lying Southwesterly of the intersection of College Road and
Graehl Road described as follows:

Commencing at the quarter corner along the line of Sections Two (2) and Eleven
(11), said quarter corner being South 89 degrees 56' West from the said section
corner;

Thence along the South boundary of the Homestead North 82 degrees 17' West a
distance of 554.4 feet to corner No. 3 of said Homestead;

Thence due West a distance of 626.0 feet along the South boundary of said
Homestead;

Thence South 60 degrees 32' West a distance of 156.0 feet along the West
right-of-way of the Graehl Road and the POINT OF BEGINNING of the area herein
described;

Thence North 64 degrees 33' West a distance of 181.0 feet, said point being
identical with corner No. 2 of the Homestead;

Thence North 65 degrees 30' West a distance of 4.68 feet;

Thence continuing North 65 degrees 30' West 160.0 feet;

Thence North 30 degrees 17' East a distance of approximately 410 feet to the
Southwesterly right-of-way line of College Road;

Thence South 59 degrees 43' East along said right-of-way line a distance of 160
feet, more or less;

Thence continuing along Southwesterly right-of-way line of College Road South 61
degrees 12' East a distance of 310 feet, more or less;

Thence along a curve to the right 65.0 feet radius a distance of 127.01 feet;

Thence South 60 degrees 32' West a distance of 356.1 feet along the Westerly
right-of-way line of Graehl Road to the POINT OF BEGINNING.

EXCEPTING THEREFROM, any portion lying within Lot Eight (8) of said Section Two
(2).

FM Form - Memorandum of Modification of Lease
1/2/96

5
<PAGE>
PARCEL III:
- -----------

Beginning at Meander Corner No. 2 of U.S. Survey No. 848;

Thence North 65 degrees 30' West 191.40 feet;

Thence North 61 degrees 30' West 45.00 feet to the mean high water line of the
right limit of Noyes Slough;

Thence North 64 degrees 33' West 177.77 feet to the POINT OF BEGINNING.

EXCEPTING THEREFROM the following described tract of land, lying Southwesterly
of the intersection of College Road and Graehl Road described as follows:

FM Form - Memorandum of Modification of Lease
1/2/96

6
<PAGE>
Commencing at the quarter corner along the line of Sections Two (2) and Eleven
(11), said quarter corner being South 89 degrees 56' West from the said section
corner;

Thence along the South boundary of the Homestead North 82 degrees 17' West a
distance of 554.4 feet to corner No. 3 of said Homestead;

Thence due West a distance of 626.0 feet along the South boundary of said
Homestead;

Thence South 60 degrees 32' West a distance of 156.0 feet along the West
right-of-way of the Graehl Road and the POINT OF BEGINNING of the area herein
described;

Thence North 64 degrees 33' West a distance of 181.0 feet said point being
identical with corner No. 2 of the Homestead;

Thence North 65 degrees 30' West a distance of 4.68 feet;

Thence continuing North 65 degrees 30' West 160.0 feet;

Thence North 30 degrees 17' East a distance of approximately 410 feet to the
Southwesterly right-of-way line of College Road;

Thence South 59 degrees 43' East along said right-of-way line a distance of 160
feet more or less;

Thence continuing along Southwesterly right-of-way line of College Road South 61
degrees 12' East a distance of 310 feet more or less;

Thence along a curve to the right of 65.0 feet radius a distance of 127.01 feet;

Thence South 60 degrees 32' West a distance of 356.1 feet along the Westerly
right-of-way line of Graehl Road to the POINT OF BEGINNING.

FM Form - Memorandum of Modification of Lease
1/2/96

7
<PAGE>
APPENDIX 10J(35

STARK

RECORDING REQUESTED
BY AND WHEN RECORDED
RETURN TO:

Fred Meyer, Inc.
P.O. Box 42121
Portland, Oregon 97242
Attn: Property Management

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

LEASE ASSIGNMENT AGREEMENT
(STARK STREET, PORTLAND)

This Lease Assignment Agreement (this "Agreement"), dated as of December
16, 1996, between FRED MEYER, INC., a Delaware corporation, whose address is PO
Box 42101, Portland, Oregon 97242 ("Assignor"), and REAL ESTATE PROPERTIES
LIMITED PARTNERSHIP, an Oregon limited partnership whose address is Suite 300,
15350 SW Sequoia Parkway, Portland, OR 97224 ("Assignee"), recites and provides
as follows:

A. Assignor is the tenant, and Assignee is the landlord, under that certain
lease agreement dated as of October 22, 1986, covering the real property
described on Exhibit A hereto (the "Stark Lease").

B. Assignor is the sublessor under that certain sublease agreement dated as
of December 30, 1991, wherein the sublessee is Fabric Depot, Inc. (the "Stark
Sublease").

FOR good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

1. Assignor hereby sells, assigns, transfers, conveys and delivers to
Assignee all of Assignor's right, title and interest as tenant under the Stark
Lease. Assignee hereby accepts the foregoing assignment.

2. Assignor hereby sells, assigns, transfers, conveys and delivers to
Assignee all of Assignor's right, title and interest as sublessor under the
Stark Sublease. Assignee hereby accepts the foregoing assignment.

3. Assignee agrees to assume Assignor's obligations under the Stark Lease
and the Stark Sublease, accruing from and after the date hereof, and agrees that
Assignor shall be released therefrom; provided, however, that Assignee does not
assume, and Assignor shall remain fully responsible for, and agrees to
discharge, any obligations or liabilities under the Stark Lease or the Stark
Sublease that either (i) arise out of the Stark Sublease and have not been
disclosed on the

Printed December 13, 1996
STARK STREET LEASE ASSIGNMENT

1
<PAGE>
face of the copy of the Stark Sublease provided by Assignor to Assignee or in
other written documentation relating to the Stark Lease or Stark Sublease in
Assignee's possession, or (ii) accrued or arose from or out of a set of facts
existing prior to the date hereof ("Assignor's Liabilities"). Assignee will
indemnify, defend and hold harmless Assignor from and against liabilities,
costs, expenses and damages, including attorneys' fees, arising from Assignee's
failure to perform its obligations hereunder, except for liabilities that arise
from Assignor's failure to perform its obligations hereunder or to discharge
Assignor's Liabilities. Assignee assumes no liabilities or obligations of
Assignor of any nature whatsoever, whether or not accrued or affixed, absolute
or contingent, known or unknown, determined or determinable, or incurred prior
to, on or after the Closing Date.

4. Assignor represents, warrants and covenants to and with Assignee that:
(1) Assignor has good and indefeasible title to the leasehold interests assigned
hereby, subject to no encumbrances created or suffered by Assignor (other than
the Stark Sublease itself); (2) Assignor has the full right, power and authority
to assign such leasehold interests to Assignee in accordance herewith; and (3)
Assignor will defend Assignee's right, title and interest in and to the
leasehold interests from and against any claim by, through or under Assignor.

5. This Agreement shall bind and inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors, heirs, and
permitted assigns. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one agreement binding on all the
parties. Each party agrees, at the request of the other party, at any time and
from time to time after the date hereof, to execute and deliver all such further
documents, and to take and forbear from all such action, as may be reasonably
necessary or appropriate in order more effectively to perfect the transfers of
rights contemplated herein or otherwise to confirm or carry out the provisions
of this Agreement.

6. The parties have agreed to prorate the base rent accruing under the
lease agreements as of the date hereof. The parties further agree that the
percentage rent accruing under the Stark Sublease shall be prorated effective as
of the date hereof, on a calendar year basis. Promptly upon receipt of the gross
sales report for calendar year 1996 under the Stark Sublease, Assignee will
provide a copy thereof to Assignor. Promptly upon receipt of payment of
percentage rent pursuant to the Stark Sublease for calendar year 1996, Assignee
shall pay to Assignor Assignee's pro rata share of such percentage rent, based
on the number of days in calendar year 1996 prior to and after the date hereof.

7. Assignee leases the property that is the subject of the Stark Lease from
Valerie Thorneycroft, trustee for the Pearman Trust ("Ground Lessor"), pursuant
to a ground lease agreement (the "Ground Lease"). The Ground Lease currently is
scheduled to expire on July 31, 2006; Assignee has one option to extend such
term for ten years to July 31, 2016. If Assignee determines not to exercise its
option to extend the term of the Ground Lease to 2016, Assignee will notify
Assignor of such fact at least 45 days prior to the required date for exercise
of such option, and will concurrently provide to Assignor copies of all then
existing subleases and

Printed December 13, 1996
STARK STREET LEASE ASSIGNMENT

2
<PAGE>
contracts affecting the property, and all material reports and information
concerning the property in Assignor's possession. Assignor will then have an
option to assume the Ground Lease (and all subleases and contracts), to be
exercised by notice to Assignee prior to the required option exercise date under
the Ground Lease. If Assignor exercises such option, Assignee will assign the
Ground Lease, subleases and contract to Assignor, and Assignor will assume the
same, the parties will prorate expenses and rents as of the date of assignment,
and Assignor or Assignee, as the case may be, will timely exercise the option to
extend the term of the Ground Lease. Assignor's assumption will include
assumption of the obligations of Assignor under the Indemnity Agreement.

8. Notices. All demands or notices required or permitted to be given
hereunder shall be in writing. Notices may be served by certified or registered
mail, postage paid with return receipt requested; by facsimile, or other
telecommunication device capable of transmitting or creating a written record
(provided that a copy is also sent by U.S. Mail, first class); or personally.
Mailed notices shall be deemed delivered five (5) days after mailing, properly
addressed. Telex or telecommunicated notices shall be deemed delivered when
receipt is either confirmed by confirming transmission equipment or acknowledged
by the addressee or its office. Personal delivery shall be effective when
accomplished. Unless a party changes its address by giving notice to the other
party as provided herein, notices shall be delivered to the parties at the
following addresses:

Assignee: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP
Suite 300
15350 SW Sequoia Parkway
Portland, OR 97224
Attn: Vice President
Facsimile No. (503) 624-7755

Printed December 13, 1996
STARK STREET LEASE ASSIGNMENT

3
<PAGE>
Assignor: Fred Meyer, Inc.
P.O. Box 42121
Portland, Oregon 97242-0121
(Street Address - 3800 S.E. 22nd Avenue, Portland, Oregon 97202)
Attn: Property Management
Facsimile No.: (503) 797-3539

EXECUTED effective the date first written above.

ASSIGNEE: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP,
an Oregon limited partnership, by FMGP Associates, an
Oregon limited partnership, its general partner, by FMGP
Incorporated, a Delaware corporation, its general partner

By: DAVID W. RAMUS
------------------------------------------------
Title: Vice President
---------------------------------------------
Date Executed: 12/13/96
-------------------------------------

ASSIGNOR: FRED MEYER, INC., a Delaware corporation

By: SCOTT L. WIPPEL
------------------------------------------------
Scott L. Wippel, Senior Vice President
Date Executed: 12/13/96
-------------------------------------

STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )

This instrument was acknowledged before me this 13th day of December, 1996,
by Scott L. Wippel, as Senior Vice President of FRED MEYER, INC., a Delaware
corporation, on behalf of the corporation.

(NOTARIAL SEAL) ELLEN M. SMITH
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 5/4/98
------------------

Printed December 13, 1996
STARK STREET LEASE ASSIGNMENT

4
<PAGE>
STATE OF OREGON )
) ss.
COUNTY OF Multnomah )

(NOTARIAL SEAL) LUDELL E. CORNILSEN
-----------------------------------------
Notary Public for Oregon
My Commission Expires: 6/8/99
------------------

Printed December 13, 1996
STARK STREET LEASE ASSIGNMENT

5
<PAGE>
Exhibit A
Legal Description

Beginning at a point 40.00 feet South of the North line of
Section 2 and on the East line of the NW 1/4 of the NW 1/4
of the NW 1/4 of said Section 2, T. 1 S., R. 2 E., W.M.
Multnomah County, Oregon; thence southerly from said point
of beginning along the East line of the NW 1/4 of the NW 1/4
of the NW 1/4 a distance of 651.29 feet to a point in the
South line of NW 1/4 of the NW 1/4 of the NW 1/4; thence
Westerly along said South line a distance of 613.13 feet to
a point in the East line of SE 122nd Avenue, said point
being 45.00 feet Westerly of the West line of said Section
2; thence Northerly along the East line of SE 122nd Avenue
and parallel to the West line of said Section a distance of
235.96 feet; thence Easterly and parallel to the North line
of said Section a distance of 180.00 feet; thence Northerly
and parallel to the West line of said Section a distance of
30.00 feet; thence Easterly and parallel to the North line
of said Section a distance of 100.00 feet; thence Northerly
and parallel to the West line of said Section a distance of
390.00 feet to a point in the South line of SE Stark Street
said point being 40.00 feet south of the North line of said
Section; thence Easterly along the South line of SE Stark
Street and parallel to the North line of said Section a
distance of 337.23 feet to the point of beginning.

Page 1 of 1 - Legal Description for Fred Meyer Stark Street Lease Assignment
<PAGE>
AGREEMENT and SUPPLEMENT
TO LEASEHOLD ASSIGNMENT AND MODIFICATION AGREEMENT
(Stark Street, Portland, Oregon)

This Agreement and Supplement to Leasehold Assignment and Modification
Agreement (this "Agreement"), dated as of December 20, 1996 is between REAL
ESTATE PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, formerly
known as FRED MEYER REAL ESTATES PROPERTIES, LTD., whose address is Suite 200,
15115 SW Sequoia Parkway, Portland, OR 97224 ("REPLP"), and FRED MEYER, INC., a
Delaware corporation ("Fred Meyer").

REPLP and Fred Meyer have entered into a Leasehold Assignment and
Modification Agreement (the "Assignment Agreement"). Pursuant to Section 6.2 of
the Assignment Agreement, Fred Meyer is assigning to REPLP the interest of Fred
Meyer in a sublease of the Stark Street property to Fabric Depot Inc. (the
"Sublease"). As part of the consideration of this transaction, Fred Meyer has
agreed to pay the pending assessment in the amount of $36,215 payable to the
City of Portland as a connection fee/sewer system development charge for the
Mid-County Sewer Project (the "Sewer LID") attributable to the Stark Street
property, since the parties have been unable to obtain the consent of the fee
owner as to a proposed Bancroft bonding of the Sewer LID. Under the terms of the
Sublease, the tenant is obligated to pay to Fred Meyer as landlord the amount of
what the bonded assessment would be for any special assessments, whether or not
Fred Meyer elects to bond the special assessment. The parties desire to enter
into this Agreement to confirm certain responsibilities relating to the receipt
and handling of payments that may be received by REPLP as assignee of payments
on account of the Sewer LID.

FOR VALUE RECEIVED, the parties acknowledge, covenant and agree with each
other as follows: (i) REPLP will use commercially reasonable efforts to bill and
collect the payments owed by the tenant on account of the Sewer LID, will use
commercially reasonable efforts to enforce the obligation of the tenant to pay
such sums, will promptly (within 10 days after receipt of the funds) turn the
amount so collected on account of the Sewer LID, and will keep Fred Meyer
informed about any default or other event known from time to time by REPLP that
could, in REPLP's opinion, affect the ability of REPLP to collect on a monthly
basis the amount of the Sewer LID; (ii) any interest or late charge that the
Sublease imposes for late payment of the Sewer LID amounts will accrue to the
benefit of Fred Meyer, as and when collected from the tenant; (iii) on any
extension or renewal by REPLP of the Sublease or any new lease by REPLP of the
Stark Street property, REPLP will require the tenant to pay the Sewer LID
amounts attributable to the term of the lease (but no provision of this
Agreement will be construed as a guarantee of payment of the Sewer LID amount by
REPLP); and (iv) the parties will reasonably co-operate with each other
concerning matters arising in connection with the collection of the Sewer LID
amounts from the tenant, and proper accounting of payments received and
forwarded or paid by REPLP to Fred Meyer pursuant hereto.

This Agreement will constitute a supplement to the Assignment Agreement
referenced above, will NOT be merged into the closing documents under the
Assignment Agreement, and shall survive the closing of the assignment to REPLP
of Fred Meyer's interest in the Sublease. All General Provisions of the
Assignment Agreement are incorporated herein by this reference, as though fully
set forth herein.

This Agreement shall bind and inure to the benefit of, and be enforceable
by, the parties hereto and their respective successors, heirs, and permitted
assigns.

This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement binding on all the parties.

Each party agrees, at the request of the other party, at any time and from
time to time after the date hereof, to execute and deliver all such further
documents, and to take and forebear from all such action, as
<PAGE>
may be reasonably necessary or appropriate in order more effectively to perfect
the transfers of rights contemplated herein or otherwise to confirm or carry out
the provisions of this Agreement.

IN WITNESS WHEREOF, each party has caused this instrument to be duly
executed and delivered by its duly authorized officers effective as of the date
first written above.

REPLP: REAL ESTATE PROPERTIES LIMITED
PARTNERSHIP,
an Oregon limited partnership,

By FMGP ASSOCIATES, an Oregon limited
partnership, its General Partner

By FMGP INCORPORATED, a Delaware
corporation, its General Partner

By: _______________________________________
Name: _____________________________________
Its: ______________________________________

FMI: FRED MEYER, INC.

The Lease covers the following property:

EXHIBIT 11

<TABLE>
<CAPTION>
FRED MEYER, INC. AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER COMMON SHARE

(in thousands, except per share amounts)

52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Weighted average number
of shares outstanding...................................... 26,077 26,682 26,514

Weighted average number
of shares under option..................................... 3,938 2,683 3,452

Shares assumed to have
been purchased under the
treasury stock method...................................... (2,053) (1,032) (1,341)
------ ------ ------
Weighted average number
of common and common
equivalent shares outstanding.............................. 27,962 28,333 28,625
====== ====== ======

Net income................................................... $58,545 $30,286 $7,168
======= ======= ======

Earnings per common share.................................... $2.09 $1.07 $0.25
===== ===== =====
</TABLE>

EXHIBIT 21

LIST OF ACTIVE SUBSIDIARIES OF FRED MEYER, INC.

Jurisdiction of
Incorporation
Name of Subsidiary or Organization
- ------------------ ---------------

Roundup Co. Washington

B & B Stores, Inc. Montana

B & B Pharmacy, Inc. Montana

Fred Meyer of Alaska, Inc. Alaska

Fred Meyer of California, Inc. California

Distribution Trucking Company Oregon

CB&S Advertising Agency, Inc. Oregon

FM Holding Corporation Delaware

Grand Central, Inc. Utah

FM Retail Services, Inc. Washington

Fred Meyer Jewelers, Inc. Delaware

FM Inc. Utah

Merksamer Jewelers, Inc. California

Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
33-13912, 33-22572, 33-31798, 33-36163, and 33-49638 all on Form S-8 and
Registration Statement No. 33-51177 on Form S-3, of our report dated March 12,
1997, included in the Annual Report on Form 10-K of Fred Meyer, Inc. for the
year ended February 1, 1997.

DELOITTE & TOUCHE LLP

April 24, 1997

Exhibit 24

POWER OF ATTORNEY
-----------------

KNOW ALL PERSONS BY THESE PRESENTS that the undersigned, an officer
and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"),
does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger
A. Cooke, and each of them, true and lawful attorney and agent, to do any and
all acts and things and execute in his name as an officer or director of the
Company the Annual Report on Form 10-K for the year ended February 1, 1997 and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission; and the undersigned does hereby ratify and confirm all that said
attorneys and agents and each of them shall do or cause to be done by virtue
hereof. Any one of said attorneys or agents shall have, and may exercise, all
powers conferred.

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28 day of April, 1997.

VIVIAN A. BULL
-----------------------------------------
Vivian A. Bull
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 27 day of April, 1997.

JAMES J. CURRAN
-----------------------------------------
James J. Curran
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of April, 1997.

A.M. GLEASON
-----------------------------------------
A.M. Gleason
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 26 day of April, 1997.

DAVID J. JOHNSON
-----------------------------------------
David J. Johnson
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25 day of April, 1997.

ROGER S. MEIER
-----------------------------------------
Roger S. Meier
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 27th day of April, 1997.

ROBERT G. MILLER
-----------------------------------------
Robert G. Miller
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of April, 1997.

STEVEN R. ROGEL
-----------------------------------------
Steven R. Rogel
<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 29th day of April, 1997.

THOMAS R. HUGHES
-----------------------------------------
Thomas R. Hughes

<PAGE>
POWER OF ATTORNEY
-----------------

IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 29th day of April, 1997.

DAVID R. JESSICK
-----------------------------------------
David R. Jessick

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 48,769
<SECURITIES> 0
<RECEIVABLES> 23,729
<ALLOWANCES> 0
<INVENTORY> 604,910
<CURRENT-ASSETS> 737,783
<PP&E> 1,554,869
<DEPRECIATION> 625,104
<TOTAL-ASSETS> 1,693,414
<CURRENT-LIABILITIES> 504,581
<BONDS> 521,512
0
0
<COMMON> 287
<OTHER-SE> 567,011
<TOTAL-LIABILITY-AND-EQUITY> 1,693,414
<SALES> 3,724,839
<TOTAL-REVENUES> 3,724,839
<CGS> 2,619,312
<TOTAL-COSTS> 971,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,432
<INCOME-PRETAX> 94,428
<INCOME-TAX> 35,883
<INCOME-CONTINUING> 58,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,545
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.09

</TABLE>