SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549
                                Form 10-K
             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997      Commission File No. 2-55860

                         Ace Hardware Corporation
           (Exact Name of Registrant as Specified in its Charter)
     DELAWARE                             36-0700810
     (State or Other Jurisdiction of    (I.R.S. Employer
     Incorporation or Organization)     Identification No.)
    
           2200 Kensington Court, Oak Brook, IL            60523
           (Address of Principal Executive Offices)     (Zip Code)

Registrant's telephone number, including Area Code:    (630) 990-6600

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

     State the aggregate market value of the voting stock held by non-
affiliates of the Registrant. The Registrant's shares are issued only 
to, and may be held only by, its dealer-stockholders, and the shares 
held by a dealer-stockholder are subject to repurchase by the 
Registrant upon termination of the membership agreement of a dealer-
stockholder. Thus, there is no market for the Registrant's shares. The 
repurchase price for each share of Class A stock, the only voting 
stock issued by the Registrant, is equal to the par value of $1,000 
per share. As of February 13, 1998, the aggregate value of the Class A 
stock held by non-affiliates (dealer-stockholders) calculated on the 
basis of such repurchase price was $3,872,000.

     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 the number of shares outstanding of each of the 
Registrant's classes of common stock, as of the latest practicable date
(applicable only to corporation Registrants). Outstanding shares as of
February 13, 1998:

     Class A (voting) Stock,       $1,000 par value    3,872 shares
     Class B (nonvoting) Stock,    $1,000 par value    2,704 shares
     Class C (nonvoting) Stock,    $1,100 par value    2,124,608 shares

                                   PART I
Item 1. Business

     Ace Hardware Corporation was formally organized as a Delaware 
corporation in 1964. In 1973, by means of a corporate merger, it 
succeeded to the business of Ace Hardware Corporation, an Illinois 
corporation organized in 1928. Until 1973, the business now being 
engaged in by the Company had been conducted by the Illinois 
corporation. The Company's principal executive offices are located at 
2200 Kensington Court, Oak Brook, Illinois 60523. Its telephone number 
is (630) 990-6600.

     The Company primarily functions as a wholesaler of hardware and 
related products, and manufactures paint products. Sales of the products 
distributed by it are presently made primarily to individuals, 
partnerships or corporations who are engaged in business as retail 
dealers of hardware or related items and who have entered into 
Membership Agreements with the Company entitling them to purchase 
merchandise and services from the Company and to use the Company's 
marks as provided therein.

     The Company operates on a cooperative basis and distributes 
patronage dividends to its eligible member dealers each year in 
proportion to the amount of their annual purchases of merchandise from 
it. (See the subheading "Distribution of Patronage Dividends.")

     At December 31, 1997 there were 5,032 retail business outlets with 
respect to which such Membership Agreements had been entered into. 
Those States having the largest concentration of member outlets are 
California (approximately 10%), Illinois and Texas (approximately 6% 
each), Florida and Michigan (approximately 5% each) and Georgia 
(approximately 4%). States into which were shipped the largest 
percentages of the merchandise sold by the Company in fiscal year 1997 
are California (approximately 11%), Illinois and Florida 
(approximately 7% each), Texas (approximately 5%), Michigan  and 
Georgia (approximately 4% each). Approximately 7% of the Company's 
sales are made to outlets located outside of the United States or its 
territories.

     Information as to the number of the Company's member outlets during 
each of the past three fiscal years is set forth in the following table:

                                               1997      1996      1995
                                               -----     -----     -----
  Member outlets at beginning of period        5,067     5,007     4,940
  New member outlets                             208       272       285
  Member outlets terminated                      243       212       218
                                               -----     -----     ----- 
  Member outlets at end of period              5,032     5,067     5,007
                                               =====     =====     =====
  Dealers having one or more member            4,022     4,084     4,055
    outlets at the end of period

     The Company services its dealers by purchasing merchandise in 
quantity lots, primarily from manufacturers, by warehousing 
substantial quantities of said merchandise and by selling the same in 
smaller lots to the dealers. Most of the products that the Company 
distributes to its dealers from its regional warehouses are sold at a 
dealer price established by the Company ("dealer cost"), to which a 
10% adder ("handling charge") is generally added. In fiscal year 1997 
warehouse sales accounted for 61% of total sales and bulletin sales 
accounted for 2% of total sales with the balance of 37% representing 
direct shipment sales, including lumber and building materials.

     The proportions in which the Company's total warehouse sales were 
divided among the various classes of merchandise sold by it during 
each of the past three fiscal years are as follows:

     Class of Merchandise                            1997 1996 1995
     -------------------                             ---- ---- ----
     Paint, cleaning and related supplies             21%  20%  19%
     Plumbing and heating supplies                    15%  16%  16%
     Hand and power tools                             14%  14%  14%
     Garden, rural equipment and related supplies     13%  13%  13%
     General hardware                                 12%  12%  13%
     Electrical supplies                              12%  12%  13%
     Sundry                                            7%   7%   7%
     Housewares and appliances                         6%   6%   5%

     The Company sponsors two major conventions annually (one in the 
Spring and one in the Autumn) at various locations. Dealers and 
vendors are invited to attend, and dealers generally place orders for 
delivery during the period prior to the next convention. During the 
convention regular merchandise, new merchandise and seasonal 
merchandise for the coming season are displayed to attending dealers. 
Lawn and garden supplies, building materials and exterior paints are 
seasonal merchandise in many parts of the country, as are certain 
sundries such as holiday decorations.
     
     Warehouse sales involve the purchase of merchandise from the 
Company that is maintained in inventory by the Company at its 
warehouses. Direct shipment sales involve the purchase of merchandise 
from the Company with shipment directly from the vendors. Bulletin 
sales involve the purchase of merchandise from the Company pursuant to 
special bulletin offers by the Company.

     Direct shipment sales are orders placed by dealers directly with 
vendors, using special purchase orders. Such vendors bill the Company 
for such orders, which are shipped directly to dealers. The Company, 
in turn, bills the ordering dealers with an adder ("handling charge") 
that varies in accordance with the following schedule and is exclusive 
of sales under the LTL Plus program discussed below.

         Invoice Amount             Adder (Handling Charge)
         --------------             -----------------------
          0.00 to $  999.99   2.00% or $1.00 whichever is greater
     $1,000.00 to $1,999.99   1.75%     
     $2,000.00 to $2,999.99   1.50%     
     $3,000.00 to $3,999.99   1.25%     
     $4,000.00 to $4,999.99   1.00%     
     $5,000.00 to $5,999.99   .75% 
     $6,000.00 to $6,999.99   .50% 
     $7,000.00 to $7,999.99   .25% 
     $8,000.00 and over       .00%
 
     Bulletin sales are made based upon notification from dealers of 
their participation in special bulletins offered by the Company. 
Generally, the Company will give notice to all members of its 
intention to purchase certain products for bulletin shipment and then 
purchases only so many of such products as the members order. When the 
bulletin shipment arrives at the Company, it is not warehoused, but is 
broken up into appropriate quantities and delivered to members who 
placed orders. A 6% adder ("handling charge") is generally applied to 
this category of sales.

     An additional adder of 3% applies to various categories of sales of 
merchandise exported to certain dealers located outside of the United 
States and its territories and possessions. Ace dealers located 
outside of the United States and its territories and possessions not 
subject to the additional 3% adder are assessed a flat 2% adder on all 
direct shipment sales.

     The Company maintains inventories to meet only normal resupply 
orders. Resupply orders are orders from members for merchandise to 
keep inventories at normal levels. Generally, such orders are filled 
within one day of receipt. Bulletin orders (which are in the nature 
of resupply orders) may be for future delivery. The Company does not 
backlog normal resupply orders and, accordingly, no significant 
backlog exists at any point in time.

     The Company also has established special sales programs for lumber 
and building materials products and for products assigned from time to 
time to an "extreme competitive price sales" classification and for 
products purchased from specified vendors for delivery to certain of 
the Company's dealers on a direct shipment basis (LTL Plus Program). 
Under its lumber and building materials ("LBM") program, the Company 
imposes no adder ("handling charge"), or national advertising 
assessment on direct shipment orders for such products. The LBM 
program enables the Company's dealers to realize important savings 
resulting from the Company's closely monitored lumber and building 
materials purchasing procedures. Additionally, the LBM program offers 
dealers the opportunity to order less-than-truckload quantities of 
many lumber and building materials products at economical prices under 
the LTL warehouse redistribution procedure which the Company has 
established with certain major vendors.

     The Store Traffic Opportunity Program ("STOP") established by the 
Company is a program under which certain stockkeeping units of 
specific products assigned to a "competitive price sales" 
classification are offered for sale to its dealers for delivery from 
designated Company retail support centers. Sales under this program 
are made without the addition of freight charges and with such adder 
("handling charge"), if any, of not more than 5% as shall be specified 
for each item. The Company's officers have authority to add items to, 
and to withdraw items from, the STOP program from time to time and to 
establish reasonable minimum or multiple item purchase requirements 
for the items offered under the program. No allocations or 
distributions of patronage dividends are made with respect to sales 
under the STOP program. Purchases under the STOP program are, however, 
deemed to be warehouse purchases or bulletin purchases, as the case 
may be, for purposes of calculating the forms of patronage dividend 
distributions. (See the subheading under this Item 1 entitled "Forms 
of Patronage Dividend Distributions.")

     The LTL Plus Program established by the Company is a program under 
which full or partial truckloads of products are purchased by the 
Company's dealers from specified vendors for delivery to such dealers 
on a direct shipment basis. No adder ("handling charge") or national 
advertising assessment is imposed by the Company on sales under the 
LTL Plus Program, and the maximum amount of patronage dividends 
allocated or distributed to the Company's dealers with respect to 
their purchases of products in the LTL Plus category is .5% of such 
sales. (See the subheading under this Item 1 entitled "Patronage 
Dividend Determinations and Allocations.")

     The Company, in addition to conducting semi-annual and other 
conventions and product exhibits for its dealers, also provides them 
with numerous special services (on a voluntary basis and at an 
established cost), such as inventory control systems, as well as price 
and bin ticketing. In order for them to have on hand current pricing 
and other information concerning the merchandise obtainable from the 
Company, the Company further provides to each of its dealers either a 
catalogue or CD checklist service or a microfiche film service 
(whichever the dealer selects), for either of which services the 
dealer must pay a monthly charge. The Company also provides on a full-
participation basis materials for educational and training programs 
for which dealers must pay an established monthly charge. (See the 
subheading under this Item 1 entitled "Special Charges and 
Assessments.")

     Through its wholly-owned subsidiary, Ace Insurance Agency, Inc., 
the Company makes available to its dealers a Group Dealer Insurance 
Program under which they can purchase a package of insurance 
coverages, including "all risk" property insurance and business 
interruption, crime, liability and workers' compensation coverages, as 
well as medical insurance coverage for their employees. AHC Realty 
Corporation, another wholly-owned subsidiary of the Company, provides 
the services of a broker to those dealers who desire to sell or seek a 
new location for a presently owned store or to acquire an additional 
store. Loss Prevention Services, Inc., another wholly-owned subsidiary 
provides security training and services for all dealers desiring 
security assistance. In addition, the Company offers to its dealers 
retail computer systems consisting of computer equipment, maintenance 
service and certain software programs and services. These are marketed 
by the Company under its registered service mark "PACE".

     During 1996 the Company commenced operations through Ace Hardware 
Canada, Limited, a wholly-owned subsidiary, as a wholesaler of 
hardware and related merchandise through two distribution facilities 
located in Calgary, Alberta and Brantford, Ontario. Ace Hardware 
Canada, Limited generated less than three percent of the Company's 
consolidated revenue during fiscal year 1997.

     As of the date hereof, the Company operates, through A.H.C. Store 
Development Corp. and Ace Corporate Stores, Inc., its wholly owned 
subsidiaries, six company-owned retail hardware stores. In
addition, three other locations are being developed for company-owned 
retail hardware stores. Two of the newly acquired locations are expected
to be operational by the close of the second quarter of 1998. The third
location is under construction and is expected to be operational in the
beginning of the fourth quarter of 1998. (See the heading "Properties.")

     The Company manufactures paint and related products at facilities 
owned by it in Matteson and Chicago Heights, Illinois. These facilities
now constitute the primary source of such products offered for sale by
the Company to its dealers. The Company's paint manufacturing business
is operated as a separate Division of the Company for accounting purposes.
All raw materials used by the Company to manufacture paint are purchased 
from outside sources. The Company has had adequate sources of raw
materials, and no shortages of any materials which would materially impact
operations are currently anticipated. The manufacturing of paint is seasonal
to the extent that greater paint sales are found in the months of April
through September. Historically, compliance with federal, state and local 
provisions which have been enacted or adopted regulating the discharge 
of materials into the environment or otherwise relating to the 
protection of the environment have not had any material impact.

     The Company's business, either in hardware wholesaling or paint 
manufacturing activities is not dependent on any major suppliers and 
the Company feels that any seasonal fluctuations do not have a 
significant impact upon operations. For further discussion of the 
Company's business, see "Management's Discussion and Analysis of 
Financial Condition and Results of Operations", in Item 7 hereof.

     The Company makes available some services to members which are 
related to the operation of their retail businesses. These services 
(such as advertising, store supplies and training programs) are 
provided in order to assist members and/or to utilize the centralized 
buying power of the Company. Members are rebilled in order to pay the 
Company the established charge for such services.

Strategic Planning

     This section summarizes the Company's strategic planning initiatives.
By reason of the nature of strategic plans, this section contains a number
for forward looking statements, all of which are based on current
expectations. Actual results may differ materially. The Company believes
that it has the facilities, personnel and competitive and financial
resources for continued business success in the implementation of these
plans, but future developments, including revenues, costs, margins and
profits are all influenced by a number of factors, including but not 
limited to the following, all of which are inherently difficult to
forecast. These factors include the uncertain impact of future growth 
in the hardware and hardlines-related industries, including the
lumber/building materials, home center, do-it-yourself, rental and 
commercial/industrial categories, as well as the condition of the
economy domestically, internationally and in specific geographical regions.
These factors also include potential changes in merchandise and inventory
prices, the impact of increasingly intense competition, potential shifts
in market demand, the potential impact of future litigation, and the
potential impact of environmental, franchising and licensing laws on the
Company's business operations. The Company is presently unable to predict 
whether, or to what extent such factors may result in future costs or 
liabilities that are not presently known, or the impact of such 
factors on the Company's future ability to achieve its plans.
 
     The Company has an ongoing strategic planning process and has 
focused its plans around four cornerstones for future growth 
and success in this competitive industry. The four cornerstones are: 
Retail Success (store operations), Wholesale Success (distribution), 
International growth and new member growth. Dealer retail success is a 
primary objective since it drives both retail performance and 
wholesale growth of the Company. The Company has accelerated its 
efforts in assisting member-dealers in "retail success initiatives" 
designed to improve their retail performance and competitiveness. The 
retail success initiatives include retail goals which each dealer should 
strive for within their store and local competitive environment, but do 
not dictate material restrictions or requirements on member-dealers. 
Minimum requirements for acceptance of a member-dealer by the Company 
are outlined only in the Membership Agreement and in the Member 
Operational Requirements under the Ace Hardware Membership Agreement. 
The Operational Requirements do require that, within one year from the 
Company's acceptance of the Agreement, the member-dealer must make Ace 
its primary source of supply and terminate participation in the program 
of any other major hardware wholesaler. There are currently no generally 
applicable requirements for Ace member-shareholders as to percentage of 
purchases required through Ace or minimum retail performance which must 
be achieved (i.e. sales dollars per square foot). The four cornerstones 
also include present strategic initiatives to focus on the consumer through 
research, target marketing and the development of an appropriate long-
term advertising strategy, as well as the review by the Company of 
merger and acquisition opportunities and the development of 
international and domestic non-shareholder franchise programs. "The 
New Retail Age of Ace" is an extension of previous strategic efforts 
under "the New Age of Ace" and "Ace 2000" and is not in conflict with 
these efforts.

Special Charges and Assessments

     The Company sponsors a national advertising program for which its 
dealers are assessed an amount equal to 1.3% of their purchases 
(exclusive of purchases of lumber, LTL, LTL Plus, building materials 
products and PACE hardware and software computer systems), with the 
minimum annual assessment for each dealer location being established 
at $1,622.40 effective January 1, 1997 (or such greater amount as 
would be required to maintain the foregoing minimum applicable 
assessment at 1.3%) subject to: 1) a maximum annual assessment for 
each dealer location for which a membership agreement has been entered 
into with the Company of $5,500.00; 2) a maximum total annual 
assessment for any one dealer determined by multiplying the number of 
such dealer's retail outlets supplied by the Company which serve the 
general public by $5,500.00 with certain exemptions from or 
adjustments to the national advertising assessment for dealer outlets 
located outside of the contiguous 48 states of the United States and 
the District of Columbia, based on the evaluation by the Company's 
management of the amount and nature of the television broadcasts 
received in the dealer's area. The percentage of bi-weekly purchases 
to be assessed for the Company's national advertising program and the 
amount of the maximum annual assessment for such program are both 
subject to being changed from time to time by action of the Board of 
Directors of the Company. The Company also has the authority, 
effective January 1, 1993 to impose a regional advertising assessment 
(for select geographic regions) not to exceed 2% of annual purchases 
with the same minimum and maximum assessments imposed by the National 
Advertising assessment.

     A special low volume account service charge of $50.00 per bi-weekly 
billing statement period is imposed on all stores whose annual purchases
(exclusive of lumber and LTL purchases) are less than $50,000 and $30.00
per bi-weekly billing for annual purchases between $50,000 and $124,800.
Any such charges imposed on a store during a specified year will be auto-
matically refunded to the store if its total purchases (exclusive of 
lumber and LTL purchases) exceed $124,800.00 during the year. All stores
are exempt from such special charge during the first 12 months from the
date that they are affiliated as Ace dealers. Exceptions to the low
volume account service charge are as follows:

     1.   when a dealer has purchased $124,800.00 of merchandise 
          (exclusive of carload lumber purchases) during the applicable 
          year, the dealer will be given credit on the next bi-weekly 
          billing statement for any low volume charges which have been 
          added to the account during such year and the low volume 
          charge shall no longer be added on any of such dealer's bi-
          weekly billing statements during the remainder of such period 
          even if the current purchases shown on the billing statement 
          are less than $4,800.00; and

     2.   the low volume account service charge will not be billed on 
          a bi-weekly basis to those accounts whose previous year's 
          sales volume exceeded the low volume purchases minimum 
          ($124,800.00) for the previous year, but the full annual low 
          volume account service charge will be billed on the last 
          billing statement of the year to those accounts if the 
          minimum purchases to avoid imposition of the charge have not 
          been met for the current year.
  
     An Ace store that falls below minimum purchase levels may also be 
subject to termination.

     A late payment service charge is added on any past due balance owing
by a dealer to the Company for purchases of merchandise and services or
for the purchase price of the capital stock of the Company subscribed for
by the dealer. The late payment service charge currently in effect is an
amount equal to .77% per bi-weekly statement period, except in Texas where
the charge is .384% and Georgia where the charge is .692%. A past due
balance is created whenever payment of the amounts shown as due on any such
statement is not received by the Company within 10 days following the date
of the statement. The percentage for determining the amount of the late
payment service charge may be changed from time to time by the Company.

     Subscriptions to a retail training program consisting of video tapes and
related course materials (the "S.T.A.R. Program") are mandatory for all
stores located in the United States and U.S. Territories. The initial
monthly assessment imposed on such stores for such subscriptions is $16
for each single store or parent store and $11 for each branch store. A
single store or parent store is an initial retail outlet for which a
dealer owns, or has subscribed for, one (1) share of Class A stock and 
forty (40) shares of Class C stock of the Company. A branch store is an
additional retail outlet for which a dealer owns, or has subscribed for,
fifty (50) shares of Class C stock of the Company. (See Article XXV, 
Section 2 of the By-Laws, set forth in Appendix A). Branch stores may, 
upon request, be granted an exemption from the monthly subscription fee.

     Subscriptions to a Material Safety Data Sheet information service 
are also mandatory for all stores located in the United States. The 
initial annual assessment imposed on such stores for such subscriptions
is $20 for each single store or parent store and $10 for each branch store.

Trademark and Service Mark Registrations

The names "ACE HARDWARE" and "ACE" are used extensively by the 
Company and by its member-dealers in connection with the promotion, 
advertising and marketing of products and services sold by the Company.
The Company holds the following Trademark and Service Mark 
Registrations issued by the U.S. Patent and Trademark Office for the 
marks used by it:
                                              Registration
  Description of Mark           Type of Mark     Number    Expiration Date
  -------------------           ------------     ------    ---------------
"ACE HARDWARE" with winged
  emblem design                  Service Mark    840,176   December 5, 2007
"ACE HARDWARE" with winged
  emblem design                  Trademark       898,070   September 8, 2000
"THE PAINTIN' PLACE"             Service Mark  1,138,654   August 12, 2000
"HARDWARE UNIVERSITY"
  with Design                    Service Mark  1,180,539   December 1,2001
"SUPER STRIKER"                  Trademark     1,182,330   December 15, 2001
"PACE" with design               Service Mark  1,208,887   September 14, 2002
"ACE HARDWARE" with winged
  emblem design                  Trademark     1,277,581   May 15, 2004
"ACE HARDWARE" in stylized
lettering design                 Trademark     1,426,137   January 27, 2007
"ACE" in stylized lettering
  design                         Service Mark  1,464,025   November 3, 2007
"ACE HARDWARE" in stylized
  lettering design               Service Mark  1,486,528   April 26, 2008
"ACE HARDWARE AND GARDEN
  CENTER" in stylized lettering
  design                         Service Mark  1,487,216   May 3, 2008
"ACE NEW EXPERIENCE"
  in stylized lettering design   Trademark     1,554,322   September 5, 2009   
"ACE SEVEN STAR" in stylized  
  lettering design               Trademark     1,556,389   September 19, 2009
"ACE BEST BUYS" in circle 
  design                         Service Mark  1,560,250   October 10, 2009
"ACENET"                         Service Mark  1,574,019   December 26, 1999
"ACE IS THE PLACE"               Service Mark  1,602,715   June 19, 2000
"LUB-E"                          Trademark     1,615,386   October 2, 2000
"ACE PRO"                        Trademark     1,632,078   January 22, 2001
"ASK ACE"                        Service Mark  1,653,263   August 6, 2001
Christmas Elves Design           Trademark     1,669,306   December 24, 2001
"ACE 2000"                       Service Mark  1,682,467   April 7, 2002
"ACE" in stylized lettering 
  design                         Trademark     1,683,538   April 21, 2002
"HARMONY" in stylized
  lettering design               Trademark     1,700,526   July 14, 2002
"SEVEN STAR SATISFACTION
  GUARANTEED QUALITY ACE
  PAINTS" with design            Service Mark  1,705,321   August 4, 2002
"THE OAKBROOK COLLECTION" 
  in stylized lettering design   Trademark     1,707,986   August 18, 2002
"ACE HARDWARE BROWN BAG
  BONANZA" with design           Service Mark  1,761,277   April 13, 2003
"ACE HARDWARE
  COMMITTED TO A QUALITY
  ENVIRONMENT" design            Service Mark  1,764,803   April 13, 2003
"THE OAKBROOK COLLECTION"
  in stylized lettering design   Trademark     1,783,335   July 20, 2003
"STORE 2000 THE STORE OF
  THE FUTURE"                    Service Mark  1,811,032   December 14, 2003
"ENVIRO-CHOICE"                  Trademark     1,811,392   December 14, 2003
"CELEBRATIONS"                   Service Mark  1,918,785   September 12, 2005
Repetitive Stylized "A" design   Service Mark  1,926,798   October 10, 2005
"The NEW AGE OF ACE" design      Service Mark  1,937,008   November 21, 2005

                                             Registration
  Description of Mark            Type of Mark   Number       Expiration Date
  -------------------            ------------   ------       ---------------
"ACE RENTAL PLACE" in
  stylized lettering design      Service Mark  1,943,140   December 19, 2005
"HELPFUL HARDWARE FOLKS"         Service Mark  1,970,828   April 30, 2006
"ACE HOME CENTER"                Service Mark  1,982,130   June 25, 2006
"SEALTECH"                       Trademark     2,007,132   October 8, 2006
"GREAT FINISHES"                 Trademark     2,019,696   November 26, 2006
"WOODROYAL"                      Trademark     2,065,927   May 27, 2007
"ROYAL SHIELD"                   Trademark     2,070,848   June 10, 2007
"ROYAL TOUCH"                    Trademark     2,070,849   June 10, 2007
"QUALITY SHIELD"                 Trademark     2,012,305   September 30, 2007
"QUALITY TOUCH"                  Trademark     2,102,306   September 30, 2007
"STAIN HALT"                     Trademark     2,122,418   December 16, 2007

     Currently, the Company has applications pending before the U.S. 
Patent and Trademark Office for Registration of "ACE ROYAL" for exterior
and interior paint, "ACE DRY GUARD" for waterproofing paint, "ACE 
CONTRACTOR PRO" for paints, primers and varnishes and "THE OAKBROOK 
COLLECTION" for bathroom faucets. In addition, the Company also has service
mark applications pending for "ACE COMMERCIAL & INDUSTRIAL SUPPLY" for
retail store services in the field of hardware and related goods, "NHS 
NATIONAL HARDLINES SUPPLY" for retail store services in the field of
hardware and related goods, "HELPFUL HARDWARE CLUB" for promoting the goods
and services of others through various incentive programs offered to
preferred customers, "ACE CONTRACTOR CENTER" for retail store services for
identifying dealers who sell lumber and building materials, "ACE GARDEN
PLACE" for retail store services in the field of hardware, garden products
and building materials and "THE FOLKS IN THE RED VEST" for retail store 
services in the field of hardware and related goods.

Competition
 
     The competitive conditions in the wholesale hardware industry can 
be characterized as intensive and increasing due to the fact that 
independent retailers are required to remain competitive with discount 
stores and chain stores, such as Wal-Mart, Home Depot, Menard's, Sears,
and Lowe's, and with other mass merchandisers. The gradual shift of retail
operations to high rent shopping center locations and the trend toward
longer store hours have also intensified pressures to obtain low cost 
wholesale supply sources. The Company directly competes in several U.S. 
markets with TruServ Corporation, as well as with Hardware Wholesalers, 
Inc., and United Hardware Distributing Co., all of which companies are 
also dealer-owned wholesalers.

Employees

     The Company employs 4,685 full-time employees, of which 1,353 are 
salaried employees. Collective bargaining agreements covering one 
truck drivers' bargaining unit and three warehouse bargaining units are 
currently in effect at certain of the Company's distribution 
warehouses. The Company's employee relations with both union and non-
union employees are considered to be good, and the Company has 
experienced no significant employee-related work stoppage in the past 
five years. All employees are covered either by negotiated or non-
negotiated employee benefit plans which include hospitalization, death 
benefits and, with few exceptions, retirement benefits.

Limitations on Ownership of Stock

     All of the issued and outstanding shares of capital stock of the 
Company are owned by its dealers. Only approved retail and other 
dealers in hardware and related products having Membership Agreements 
with the Company are eligible to own or purchase shares of any class 
of the Company's stock.

     No dealer, regardless of the number of member business outlets 
owned or controlled by the dealer, shall be entitled to own more than 
1 share of Class A Stock, which is the only class of voting stock 
which can be issued by the Company. This ensures that each stockholder-
dealer will have an equal voice in the management of the Company. An 
unincorporated person or partnership shall be deemed to be controlled 
by another person, partnership or corporation if 50% or more of the 
assets or profit shares therein are owned (i) by such other person, 
partnership or corporation or (ii) by the owner or owners of 50% or 
more of the assets or profit shares of another unincorporated business 
firm or (iii) by the owner or owners of 50% or more of the capital stock 
of an incorporated business firm. A corporation shall be deemed to be 
controlled by another person, partnership or corporation if 50% or more 
of the capital stock of said corporation is owned (i) by such person, 
partnership or corporation or (ii) by the owner or owners of 50% or more 
of the capital stock of another incorporated business firm or (iii) by 
the owner or owners of 50% or more of the assets or profit shares of an 
unincorporated business firm.

Distribution of Patronage Dividends

     The Company operates on a cooperative basis with respect to purchases of
merchandise made from it by those of its dealers who have become "members"
of the Company as described below and in the Company's By-laws. In addition,
the Company operates on a cooperative basis with respect to all dealers who
have subscribed for shares but who have not as yet become "members" by 
reason of the fact that the payments made by them on account of the 
purchase price of their shares have not yet reached an amount equal to 
the $1,000 purchase price of 1 share of Class A Voting Stock. All member 
dealers falling into either of the foregoing classifications are entitled 
to receive patronage dividend distributions once each year from the Company
in proportion to the amount of their annual purchases of merchandise from it.

     The patronage dividends distributed on wholesale warehouse, bulletin 
and direct shipment sales made by the Company and on total sales of 
products manufactured by the Paint Division represented the following 
percentages of each of said categories of sales during each of the past 
three fiscal years:

                                             1997       1996        1995
                                           --------   --------    --------
Warehouse Sales                            4.32753%   4.53912%    4.42965%
Bulletin Sales                                 2.0%       2.0%        2.0%
Direct Shipment Sales                          1.0%       1.0%        1.0%
Paint Sales                                10.3088%    7.9773%     6.8725%

     In addition to the dividends described above, patronage dividends 
are calculated separately and distributed on sales of lumber products, 
building material and millwork products and less-than-truckload (LTL) 
sales of lumber and building material products. Patronage dividends 
equal to .4593%, .4328% and .3560% of the total sales of these products
(calculated separately by each of these three sales categories) were 
distributed to the Company's dealers who purchased those products in
fiscal years 1997, 1996 and 1995, respectively. Under the LTL Plus 
Program, patronage dividends are also calculated separately on sales 
of full or partial truckloads of products purchased by eligible dealers 
from specified vendors (see discussion of LTL Plus Program set forth 
above in this Item 1). The maximum amount of patronage dividends 
allocable to LTL Plus sales is .5% of such sales. The LTL Plus Program 
dividend was .5% of such sales for fiscal years 1997, 1996 and 1995.

Patronage Dividend Determinations and Allocations

     The amounts distributed by the Company as patronage dividends 
consist of its gross profits on business done with dealers who qualify 
for patronage dividend distributions after deducting from said gross 
profits a proportionate share of the Company's expenses for administration
and operations. Such gross profits consist of the difference between the 
price at which merchandise is sold to such dealers and the cost of such 
merchandise to the Company. All income and expenses associated with 
activities not directly related to patronage transactions are excluded 
from the computation of patronage dividends. Generally these include 
profits on business done with dealers who do not qualify for patronage 
dividend distributions and any income (loss) realized by the Company from 
the disposition of property and equipment (except that, to the extent that 
depreciation on such assets has been deducted as an expense during the time
that the Company has been operating on a cooperative basis and is recaptured
in connection with such a disposition, the income derived from such recapture
would be included in computing patronage dividends).

     The By-laws of the Company provide that, by virtue of a dealer being
a "member" of the Company (that is, by virtue of his ownership of 1 share
of Class A Voting Stock), he will be deemed to have consented to include 
in his gross income for federal income tax purposes for the dealer's 
taxable year in which they are received by him all patronage dividends 
distributed to him by the Company in connection with his purchases of 
merchandise from the Company. A dealer who has not yet paid an amount 
which at least equals the $1,000 purchase price of the 1 share of Class A
Voting Stock subscribed for by him will also be required to include all 
patronage dividends distributed to him by the Company in his gross income 
for federal income tax purposes in the year in which they are received by 
him. This is required by virtue of a provision in the Subscription Agreement
executed by him under which he expressly consents to take all such patronage
dividends into his gross income for such purposes. The amount of the 
patronage dividends which must be included in a dealer's gross income 
includes both the portion of such patronage dividends received by him in cash
or applied against indebtedness owing by him to the Company in accordance 
with Section 7 of Article XXIV of the Company's By-laws and the portion or 
portions thereof which he receives in shares of Class C Nonvoting Stock of
the Company or in patronage refund certificates.

     Patronage dividends on each of the Company's three basic categories 
of sales (warehouse sales, bulletin sales and direct shipment sales) 
are allocated separately, as are patronage dividends under the LTL Plus 
Program. However, the maximum amount of patronage dividends allocable to 
LTL Plus Program sales is an amount no greater than .5% of such sales, 
the maximum amount of patronage dividends allocable to direct shipment 
sales exclusive of LTL Plus Program sales is an amount equal to 1% of 
such sales and the maximum amount of patronage dividends allocable to 
bulletin sales is an amount equal to 2% of that category of sales. All 
remaining patronage dividends resulting from sales made under these 
programs are allocated by the Company to warehouse sales. The Company
feels that this allocation procedure provides a practical and understand-
able method for the distribution of these patronage dividends in a fair
and equitable manner. 

     Sales of lumber and building materials products are not included as 
part of warehouse sales, bulletin sales or direct shipment sales for 
patronage dividend purposes. Patronage dividends are calculated separately 
and distributed to the Company's dealers with respect to their purchases 
within each of four sales categories involving these types of products. 
These four categories are (a) lumber products (other than less-than-
truckload sales); (b) building materials products (other than less-than-
truckload sales); (c) millwork products and (d) less-than-truckload ("LTL") 
sales of lumber and building material products. Patronage dividends are also 
calculated separately and distributed to the Company's dealers for full and 
partial truckloads of products purchased under the LTL Plus Program. (See 
the discussion of the LTL Plus Program set forth above in this Item 1 and 
under the subheading "Forms of Patronage Dividend Distributions," 
subparagraphs 2(a)-(b) below).
  
     Any manufacturing profit realized on intracompany sales of the products
manufactured by the Company's Paint Division is allocated among and 
distributed as patronage dividends to those member dealers who are eligible
to receive patronage dividends from the Company in proportion to their 
respective annual dollar purchases of paint and related products manufactured 
by said Division. The earnings realized by the Company on wholesale sales of
such products made by it to its member dealers are distributed as patronage 
dividends to all of its dealers who are eligible to receive patronage 
dividends from it as part of the patronage dividends which they receive 
each year with respect to the basic patronage dividend categories established
for warehouse sales, bulletin sales, and direct shipment sales. Under 
Section 8 of Article XXIV of the Company's By-laws, if the Paint Division's
manufacturing operations for any year result in a net loss, rather than a 
profit, to the Paint Division, such loss would be netted against the earnings
realized by the Company from its other activities during the year, with the 
result that the earnings available from such other activities for 
distribution as patronage dividends for such year would be correspondingly 
reduced.

Forms of Patronage Dividend Distributions

     Patronage dividend distributions will be made to the eligible and 
qualified member dealers of the Company in cash, shares of the Company's
Class C stock and patronage refund certificates in accordance with the 
following plans which have been adopted by the Company's Board of Directors
with respect to purchases of merchandise made by such dealers from the 
Company on or after the dates indicated, and which will continue to be in 
effect until such time as the Board of Directors, in the exercise of their
authority and discretion based upon business conditions from time to time 
and the requirements of the Company, shall determine that such plan should 
be altered or amended:

   A.  For purchases made on or after January 1, 1998,
       1.  with respect to each store owned or controlled by each 
           eligible and qualifying dealer, such dealer shall receive a 
           minimum cash distribution determined as follows:
               (a)  an amount equal to 20% of the first $5,000 of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer in connection with the purchases made for 
                    such store;
               (b)  an amount equal to 25% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $5,000 but 
                    does not exceed $7,500;
               (c)  an amount equal to 30% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $7,500 but 
                    does not exceed $10,000;
               (d)  an amount equal to 35% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $10,000 but 
                    does not exceed $12,500;
               (e)  an amount equal to 40% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $12,500;
       2.  The portion of the total annual distribution allocated to 
           any such dealer for each store owned or controlled by such 
           dealer in excess of the amount to be distributed to such 
           dealer for such store in cash shall be distributed each year 
           in the form of shares of Class C Non-voting Stock of Ace 
           Hardware Corporation (par value $100 per share), valued at 
           the par value thereof, until the total par value of all shares 
           of all classes of capital stock of the corporation held by such
           dealer with respect to such store equals the greater of:

               (a)  $20,000; or
               (b)  a sum equal to the total of the following categories of 
                    purchases made by such dealer for such store during the 
                    most recent calendar year;
                       (i)  15% of the volume of Ace manufactured paint and 
                             related products purchases, plus
                      (ii)   3% of the volume of drop-shipment or direct 
                             purchases (excluding Ace manufactured paint and
                             related products), plus
                     (iii)   15% of the volume of warehouse (including STOP 
                             and excluding Ace manufactured paint and related
                             products) and bulletin purchases, plus
                      (iv)   3% of the volume of lumber and building material 
                             (excluding LTL) purchases, subject to a maximum
                             lumber and building material capital stock 
                             requirement of $25,000, plus
                       (v )  4% of the volume of LTL Plus purchases;

           provided, however, that no fractional shares of Class C nonvoting 
           Stock shall be issued to any dealer and that any amount which would 
           have otherwise been distributable as a fractional share of such stock
           shall instead be distributed to such dealer in cash.

       3.  The portion of the total patronage dividends allocated each 
           year to any such dealer for each store owned or controlled by 
           such dealer which exceeds the sum of (a) the amount to be 
           distributed to such dealer for such store in cash pursuant to 
           Paragraph 1. above and (b) any amount to be distributed to 
           him in the form of shares of Class C Nonvoting Stock of Ace 
           Hardware Corporation (par value $100 per share) pursuant to 
           Paragraph 2. above shall be distributed to such dealer in 
           cash; provided, however, that in no event shall the total 
           amount distributed under this plan to any such dealer for any 
           such store in cash exceed 45% of the total patronage 
           dividends allocated for such store for such year, and to the 
           extent that any distribution to be made to any such dealer 
           for any store pursuant to this Paragraph 3. would otherwise 
           cause the total cash distribution to such dealer for such 
           store to exceed 45% of the total patronage dividends 
           allocated for such store for such year, the distribution to 
           be made under this Paragraph 3. shall instead be made in the 
           form of a non-negotiable patronage refund certificate having 
           such a maturity date and bearing interest at such an annual 
           rate as shall be determined by the Board of Directors prior 
           to the issuance thereof.

   B.  For purchases made between January 1, 1995-December 31, 1997,
       1.  with respect to each store owned or controlled by each 
           eligible and qualifying dealer, such dealer shall receive a 
           minimum cash distribution determined as follows:
               (a)  an amount equal to 20% of the first $5,000 of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer in connection with the purchases made for 
                    such store;
               (b)  an amount equal to 25% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $5,000 but 
                    does not exceed $7,500;
               (c)  an amount equal to 30% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $7,500 but 
                    does not exceed $10,000;
               (d)  an amount equal to 35% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $10,000 but 
                    does not exceed $12,500;
               (e)  an amount equal to 40% of the portion of the total 
                    patronage dividends allocated for distribution each year 
                    to such dealer for such store which exceeds $12,500;

       2.  The portion of the total annual distribution allocated to any 
           such dealer for each store owned or controlled by such dealer in
           excess of the amount to be distributed to such dealer for such 
           store in cash shall be distributed each year in the form of shares
           of Class C nonvoting Stock of Ace Hardware Corporation (par value
           $100 per share), valued at the par value thereof, until the total
           par value of all shares of all classes of capital stock of the 
           corporation held by such dealer with respect to such store equals 
           the greater of:
               (a)  $20,000; or
               (b)  a sum equal to the total of the following categories of 
                    purchases made by such dealer for such store during the 
                    most recent calendar year;

                      (i)  15% of the volume of warehouse (including STOP and
                           excluding Ace manufactured paint and related 
                           products) and bulletin purchases, plus

                     (ii)  15% of the volume of Ace manufactured paint and 
                           related products purchases, plus

                    (iii)  3% of the volume of drop-shipment or direct 
                           purchases (excluding Ace manufactured paint and 
                           related products), plus
                    
                     (iv)  4% of the volume of lumber, building material and 
                           millwork (excluding LTL) purchases, plus
 
                      (v)  4% of the volume of LTL Plus purchases;

           provided, however, that no fractional shares of Class C nonvoting 
           Stock shall be issued to any dealer and that any amount which would 
           have otherwise been distributable as a fractional share of such stock
           shall instead be distributed to such dealer in cash.

       3.  The portion of the total patronage dividends allocated each 
           year to any such dealer for each store owned or controlled by 
           such dealer which exceeds the sum of (a) the amount to be 
           distributed to such dealer for such store in cash pursuant to 
           Paragraph 1., above and (b) any amount to be distributed to 
           him in the form of shares of Class C non-voting Stock of Ace 
           Hardware Corporation (par value $100 per share) pursuant to 
           Paragraph 2., above shall be distributed to such dealer in 
           cash; provided, however, that in no event shall the total 
           amount distributed under this plan to any such dealer for any 
           such store in cash exceed 45% of the total patronage 
           dividends allocated for such store for such year, and to the 
           extent that any distribution to be made to any such dealer 
           for any store pursuant to this Paragraph 3., would otherwise 
           cause the total cash distribution to such dealer for such 
           store to exceed 45% of the total patronage dividends 
           allocated for such store for such year, the distribution to 
           be made under this Paragraph 3., shall instead be made in the 
           form of a non-negotiable patronage refund certificate having 
           such a maturity date and bearing interest at such an annual 
           rate as shall be determined by the Board of Directors prior 
           to the issuance thereof.

     With certain modifications, the above plans are applied separately 
in determining the form in which patronage dividends accrued with respect to
sales of lumber and building materials products are distributed. In this 
connection the combined patronage dividends allocated annually to a store 
from (a) sales of lumber products (other than LTL sales), (b) sales of 
building materials (other than LTL sales) (c) sales of millwork products, 
and (d) LTL sales to the store are used in determining the minimum cash 
distribution percentages to be applied under Paragraph 1 of the above plans.
A store's patronage dividends from any other sales category with respect to 
which patronage dividends are distributed by the Company are not taken into 
account in determining either the minimum portion or any additional portion 
of the store's patronage dividends derived from its purchases of lumber and 
building materials products which is to be distributed in cash. Also, 
Paragraphs 2 and 3 of the above plans are applied separately to patronage 
dividends on lumber and building materials sales and the requirements of 
Paragraph 2 of the plans shall not be deemed to have been complied with in 
the cases of (a) purchases of lumber products (other than LTL purchases), 
(b) purchases of building materials products (other than LTL purchases) or 
(c) purchases of millwork products until the store's holdings of Class C non-
voting Stock of the Company resulting from patronage dividends on the 
Company's sales to it within the particular one of those two sales categories
for which a patronage dividend distribution is to be made equal 3% of the 
volume of the store's purchases within such category during the most recent 
calendar year, subject to a maximum lumber and building materials capital 
stock requirement of $25,000 under the 1998 plan and 4% of the volume of the
store's purchases within such category during the most recent applicable 
calendar year (not subject to a maximum lumber and building materials capital
stock requirement) under the 1995-1997 plan. However, no such special Class C
Stock requirement applies to patronage dividends accrued on LTL purchases.

     Notwithstanding the provisions of the above-described plans, however, 
under Section 7 of Article XXIV of the Company's By-laws the portion of any
patronage dividends which would otherwise be distributable in cash with 
respect to a retail dealer outlet which is a member of the Company will 
instead be applied against any indebtedness owing by the dealer to the 
Company to the extent of such indebtedness in any case where the membership
for such outlet is cancelled or terminated prior to the distribution of such 
patronage dividends except that an amount equal to 20% of the dealer's total 
annual patronage dividends for such outlet will be paid in cash if a timely
request for the payment of such amount in cash is submitted to the Company by
the dealer.

     Because of the requirement of the U. S. Internal Revenue Code that 
the Company withhold 30% of the annual patronage dividends distributed 
to member dealers of the Company whose places of business are located 
in foreign countries or Puerto Rico (except in the case of unincorporated 
Puerto Rico dealers owned by individuals who are U.S. citizens and certain
dealers incorporated in Guam, American Samoa, the Northern Mariana Islands,
or the U.S. Virgin Islands, if less than 25% of its stock is owned by foreign
persons, and at least 65% of the Corporation's gross income for the last 
three years has been effectively connected with the conduct of a trade or 
business in such possession or in the United States), the cash portion of 
the annual patronage dividends of such dealers shall in no event be less than 
30%.

     It is anticipated that the terms of any patronage refund certificates 
issued pursuant to Paragraph 3. of the foregoing plans would include 
provisions giving the Company a first lien thereon for the amount of any 
indebtedness owing to it at any time by the owner of any such certificate and
provisions subordinating the certificates to all the rights and claims of 
secured, general and bank creditors against the Company. It is further anti-
cipated that all such patronage refund certificates will have maturity dates 
which will be no later than five years from the dates of issuance thereof.

     In order to aid the Company's dealers in acquiring and installing 
standardized exterior signs identifying the retail stores operated by them 
as member outlets supplied by the Company, the Board of Directors of the 
Company has authorized a program under which a dealer may borrow from the 
Company within a range of $100 to $20,000 per location the funds required 
for such purpose. A dealer who obtains a loan under this program may either 
repay the loan in twelve substantially equal payments billed on such dealer's
regular by-weekly billing statement, or may execute a direction to have the 
portion of the dealer's annual patronage dividends which would otherwise be 
distributed under the above plan in a form other than cash from no more than
the next three annual distributions of such dividends applied toward payment 
of the principal and interest on the loan.

     In order to aid the Company's dealers in acquiring and installing 
PACE and PAINTMAKER computer systems purchased from the Company and to 
finance capital improvements, the Board of Directors of the Company has also
authorized programs under which the Company will finance, for qualified 
dealers, (but not to exceed 80% of the cost of any system) in the case of a 
PAINTMAKER computer, within the range of $1,000 to $15,000 per location 
repayable over a period of three (3) years, in the case of a PACE computer,
within the range of $5,000 to $50,000 per location repayable over a period of
five (5) years for such purpose and in the case of capital improvements, up 
to $2.00 per square foot of retail space repayable over a period of three (3)
years for such purpose. Dealers who obtain financing from the Company for 
these purposes direct the Company, during the financing term, to first apply 
toward the principal and interest due on such loans, the patronage 
dividends which would otherwise be payable in the form of patronage refund 
certificates for each year, and then to apply the patronage dividends which
would otherwise be payable for the same year in the form of the Company's 
Class C stock.

     The aforementioned signage, computer financing and store retrofit 
programs may be revised or discontinued by the Board at any time.

Federal Income Tax Treatment of Patronage Dividends (See Previous 
Heading "Opinions of Experts")

     Both the shares of Class C non-voting Stock and the patronage refund 
certificates used by the Company to pay patronage dividends that accrue to
its eligible and qualifying dealers constitute "qualified written notices of
allocation" within the meaning of that term as used in Sections 1381 through
1388 of the U.S. Internal Revenue Code, which specifically provide for the
income tax treatment of cooperatives and their patrons and which have been
in effect since 1963. The stated dollar amounts of such qualified written 
notices of allocation must be taken into the gross income of each of the 
recipients thereof for the taxable years in which such written notices of 
allocation are received, not withstanding the fact that stated dollar amounts
may not be received in such taxable years. 

     In order for the Company to receive a deduction from its gross income for 
federal income tax purposes for the amount of any patronage dividends paid 
by it to a patron (that is, to one of its eligible and qualifying dealers)
in the form of qualified written notices of allocation, it is necessary that
the Company pay (or apply against indebtedness owing to the Company by such
patron in accordance with Section 7 of Article XXIV of the Company's By-laws)
not less than 20% of the total patronage dividends distributable to such 
patron in cash and that the patron consent to having the written notices of 
allocation, at their stated dollar amounts, included in his gross income for
the taxable year in which they are received by him. It is also required under
the Code that any patronage dividend distributions deducted by the Company on
its federal income tax return with respect to business done by it with 
patrons during the year for which such deduction is taken must be made to 
the Company's patrons within 8 months after the end of such year.

     Dealers who have become "members" of the Company by owning 1 share 
of Class A Voting Stock are deemed under the U.S. Internal Revenue Code
to have consented to take any written notices of allocation distributed 
to them into their gross income by their act of obtaining or retaining 
membership in the Company and by having received from the Company a written
notification of the By-law provision providing that membership in the 
Company constitutes such consent. In accordance with another provision 
in the Internal Revenue Code, nonmember dealers who have subscribed for 
shares of the Company's stock will also be deemed to have consented, by 
virtue of the consent provisions included in their Subscription Agreements,
to take any written notices of allocation distributed to them into their 
gross income.

     A dealer receiving a patronage refund certificate as part of the 
dealer's patronage dividends in accordance with the last clause of Para-
graph 3 of the patronage dividend distribution plan previously described 
under the heading "The Company's Business," subheading, "Forms of Patronage
Dividend Distributions," may be deemed to have received interest income 
in the form of an original issue discount to the extent of any excess of 
the face amount of the certificate over the present value of the stated 
principal and interest payments to be made by the Company under the terms 
of the certificate. Such income would be taxable to the dealer ratably over
the term of the certificate under Section 7872(b) (2) of the U.S. Internal 
Revenue Code. The present value for this purpose is to be determined by 
using a discount rate equal to the applicable Federal rate in effect as of 
the day of issuance of the certificate, compounded semi-annually.

     The Company will be required to withhold for federal income tax on 
the total patronage dividend distribution which is made to a payee who 
has not furnished his taxpayer identification number to the Company or 
as to whom the Company has notice of the fact that the number furnished 
to it is incorrect. A cooperative organization may also be required to 
withhold on the cash portion of each patronage dividend distribution made
to a payee who becomes a member of the cooperative if the payee fails to 
certify to the cooperative that he is not subject to back-up withholding.
It is the opinion of the council for the Company that this provision is 
not applicable to any patronage dividend distribution to a payee unless 
50% or more of the total distribution is made in cash. Since all of the 
Company's patronage dividends for a given year are distributed at the same
time and the Company's currently effective patronage dividend plan does not
permit any store which is a member of the Company to receive more than 45% 
of its patronage dividends for the year in the form of cash, it is said 
counsel's further opinion that such a certification failure would ordinarily
have no effect on the Company or any of its dealers.

     Patronage dividends distributed by a cooperative organization to 
its patrons who are located in foreign countries or certain U.S. 
possessions have been held to constitute fixed or determinable annual 
or periodic income on which such patrons are required to pay a tax of 
30% of the amount received in accordance with the provisions of Sections
871(a)(1)(A) and 881(a)(1) of the Internal Revenue Code, as do patronage
dividends distributed to patrons which are incorporated in Puerto Rico 
or who reside in Puerto Rico but have not become citizens of the United
States. With respect to its dealers who are subject to such 30% tax, the
Company is also obligated to withhold from their patronage dividends and
pay over to the U.S. Internal Revenue Service an amount equal to the tax.
The foregoing provisions do not apply to a corporation organized in Guam,
American Samoa, the Northern Mariana Islands, or the U.S. Virgin Islands 
if less than 25% of its stock is owned by foreign persons and at least 65%
of its gross income for the last three years has been effectively connected 
with the conduct of a trade or business in such possession or in the United 
States.

     The 20% minimum portion of the patronage dividends to be paid in cash
to a patron with respect to whom the Company is neither required to withhold
30% of his total patronage dividend distribution nor permitted to apply such
minimum portion against indebtedness owing to it by him may be insufficient,
depending upon the income tax bracket of each individual patron, to provide
funds for the full payment of the federal income tax for which such patron
will be liable as a result of the receipt of the total patronage dividends 
distributed to him during the year, including cash, patronage refund certif-
icates and/or Class C non-voting Stock.

     In the opinion of the Company's management, payment in cash of not 
less than 20% of the total patronage dividends distributable each year 
to the Company's eligible and qualifying dealers will not have a material
adverse effect on the operations of the Company or its ability to obtain 
adequate working capital for the normal requirements of its business.

Membership Agreement

     In addition to signing a Subscription Agreement for the purchase of 
shares of the Company's stock, each retail dealer who applies to become 
an Ace dealer (excluding firms which are discussed below under the sub-
heading "International Retail Merchants") must sign the Company's customary
Membership Agreement. A payment of $400 must accompany the signed Membership
Agreement to defray the Company's estimated costs of processing the member-
ship application. If the application is accepted, copies of both the Member-
ship Agreement and the Stock Subscription Agreement, signed on behalf of the 
Company to evidence its acceptance, are forwarded to the dealer. No royalties
are payable at any time by a dealer for an outlet which the Company accepts 
as a member-shareholder. Membership may be terminated upon various notice 
periods and for various reasons (including voluntary termination by either 
party) as prescribed in the Membership Agreement, except to the extent that 
special laws or regulations applicable to specific locations may limit the 
Company's right to terminate memberships, or may prescribe greater periods 
of notice under particular circumstances.

International Retail Merchants and Non-Member Accounts

     In 1989, the Company's Board of Directors authorized the Company to 
affiliate International Retail Merchants, who operate retail businesses 
outside the United States, its territories and possessions. International 
Retail Merchants do not sign the Company's Regular Membership Agreement, 
but may, depending on the circumstances, be granted a license to use 
certain of the Company's trademarks and service marks. They do not sign 
stock subscription agreements or become shareholders of the Company, nor 
do they receive distribution of patronage dividends. As of the end of fiscal
years 1997, 1996 and 1995, International Retail Merchant volume accounted 
for approximately 4% of the Company's total sales in each such year. In 1995,
the Company's Board of Directors authorized the Company to affiliate non-
member retail accounts, which are not entitled to membership in the 
cooperative, and which therefore will neither own stock in the Company, nor
receive patronage dividends. (See Article XXV, Sections 3 and 4 of the 
By-laws regarding International Retail Merchants and non-member accounts.)
In 1996, the Company commenced operations through Ace Canada Limited. Ace 
Canada merchants are not shareholders of the Company, nor do they receive 
distribution of patronage dividends.

Year 2000

     A detailed plan has been established to identify and track progress on 
the identification of systems, changing of non-compliant systems and testing 
of those systems for Year 2000 compliant status. The assessment to identify 
the systems affected by the Year 2000 issue will be completed by the end of 
the first quarter 1998. Project completion is planned for the middle of 1999.
In addition, a plan is being developed for all devices (time clocks, power 
systems, etc.) within the Company. The Company expects its Year 2000 date 
conversion project to be completed on a timely basis. 

     The Company expects to incur internal staff costs as well as incremental 
consulting and other expenses related to infrastructure and facilities 
enhancements necessary to prepare the systems for the Year 2000. A 
significant portion of these costs will represent the re-deployment of 
existing information technology resources. However, management has not yet 
fully assessed the Year 2000 compliance expense.

     To date, correspondence has been received from the Company's primary
vendors that plans are being developed to address processing of transactions 
in the Year 2000. However, there can be no assurance that the systems of 
other companies on which the Company's systems rely will be converted timely 
or that any such failure to convert by another company would not have an 
adverse effect on the Company's systems.

Item 2. Properties

     The Company's general offices are located at 2200 Kensington Court, 
Oak Brook, Illinois 60523. Information with respect to the Company's 
principal properties follows:
                                   Square Feet    Owned        Lease
                                   of Facility    or           Expiration
     Location  (Land in Acres)                    Leased       Date
     -------------------------     -----------    ------       ---------- 

General Offices:
  Oak Brook, Illinois                 206,030     Leased    September 30, 2009
  Oak Brook, Illinois                  70,508     Owned
  Markham, Ontario, Canada (1)         15,372     Leased    February 28, 2006

Distribution Warehouses:
  Lincoln, Nebraska                   346,000     Leased    December 31, 2006
  Arlington, Texas                    313,000     Leased    July 31, 2002
  Perrysburg, Ohio                    396,000     Leased    November 1, 2004
  Tampa, Florida                      391,760     Owned     
  Harmans, Maryland                   277,000     Owned     
  Yakima, Washington                  502,400     Owned     
  Maumelle, Arkansas                  585,500     Owned     
  LaCrosse, Wisconsin                 363,000     Owned     
  Bloomfield, Connecticut (2)         449,820     Owned     
  Huntersville, North Carolina        354,000     Owned     
  Rocklin, California                 470,000     Owned     
  Gainesville, Georgia                478,000     Owned     
  Prescott Valley, Arizona            633,000     Owned     
  Princeton, Illinois               1,080,000     Owned     
  Carol Stream, Illinois (3)          250,000     Leased   September 30, 1999
  Chicago, Illinois (4)                18,168     Leased   May 31, 1999
  Brantford, Ontario, Canada (5)      434,000     Leased   March 31, 2006
  Baltimore, Maryland (6)             158,485     Leased   March 31, 1998
  Colorado Springs, Colorado          493,000     Owned
  Wilton, New York                    795,000     Leased   September 1, 2007
  Calgary, Alberta, Canada (5)        240,000     Leased   December 31, 2001

                                   Square Feet    Owned         Lease
                                   of Facility    or          Expiration
      Location  (Land in Acres)                   Leased         Date
      -------------------------    -----------    ------      ----------

Print Shop Facility:
  Downers Grove, Illinois              41,000     Leased   April 30, 2002

Paint Manufacturing Facilities:
  Matteson, Illinois                  356,000     Owned
  Chicago Heights, Illinois           194,000     Owned

Other Property:
  Aurora, Illinois                   72 acres     Owned
  LaCrosse, Wisconsin (7)             3 acres     Owned
    
     (1)  This facility is leased by the Company's wholly owned 
          subsidiary, Ace Hardware Canada, Limited for use as its corporate 
          office.
     (2)  This facility no longer operates as a distribution warehouse and 
          is for sale.
     (3)  This facility was leased by the Company in October, 1994, for 
          use as a bulk merchandise redistribution center.
     (4)  This facility was leased by the Company in June, 1994 for use as 
          a freight consolidation center.
     (5)  This facility is leased by the Company's wholly owned 
          subsidiary, Ace Hardware Canada, Limited for use as a distribution 
          warehouse. The Brantford facility includes 80,000 square feet leased 
          for a two year period commencing January 1, 1998 and expiring 
          December 31, 2000.
     (6)  This facility was leased by the Company in February, 1995 for 
          use as a redistribution center. The Company does not intend to 
          renew this lease.
     (7)  This land is adjacent to the Company's LaCrosse, Wisconsin 
          warehouse.

     In addition to the above principal properties, the Company also 
leases other property for the purpose of operating retail hardware stores 
through its wholly owned subsidiaries, A.H.C. Store Development Corp. and
Ace Corporate Stores, Inc.  A.H.C. Store Development Corp. leases two 
properties in Illinois, one in Wisconsin, one in Michigan and two in Georgia.
Ace Corporate Stores, Inc. leases one property in Illinois. The Company is 
also leasing real estate in Georgia for the purpose of operating a company-
owned retail hardware store. This property is under construction.

     The Company also leases a fleet of transportation equipment for the 
primary purpose of delivering merchandise from the Company's warehouses to 
its dealers.

Item 3. Legal Proceedings

There are no material pending legal proceedings which either individually 
or in the aggregate involve claims for damages that exceed 10% of the current
assets of the Company and its subsidiaries on a consolidated basis.

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

None.

                                    PART II

Item 5. Market for The Registrant's Common Equity and Related 
Stockholder Matters

     There is no existing market for the stock of the Company and there 
is no expectation that any market will develop. The Company is organized 
and operates as a cooperative corporation, and its stock is owned exclu-
sively by retailers of hardware and related merchandise who are members of
the Company.

     The number of holders of record as of February 13, 1998 of each class 
of stock of the Company is as follows:
             
             Title of Class                  Number of Record Holders
             --------------                  ------------------------
     Class A stock, $1,000 par value                   3,872
     Class B stock, $1,000 par value                   2,704
     Class C stock, $100 par value                     4,824

     Dividends, other than patronage dividends are prohibited by the 
Company's Articles of Incorporation and By-laws. See the discussion of 
patronage dividends under Item 1. Business.

Item 6. Selected Financial Data

                              SELECTED FINANCIAL DATA

Income Statement Data:

                                For the Years Ended December 31,
                 ------------------------------------------------------------
                    1997         1996         1995         1994        1993
                 ----------   ----------   ----------   ----------  ----------
                                          (000's omitted)

Net sales        $2,907,259   $2,742,451   $2,436,012   $2,326,115  $2,017,763
Cost of sales     2,682,863    2,535,014    2,253,430    2,152,322   1,866,768
                 ----------   ----------   ----------   ----------  ---------- 
Gross profit        224,396      207,437      182,582      173,793     150,995
Total expenses      148,009      135,130      118,840      109,271      93,903
                 ----------   ----------   ----------   ----------  ---------- 
Net earnings     $   76,387   $   72,307   $   63,742   $   64,522  $   57,092
                 ==========   ==========   ==========   ==========  ========== 
Patronage
 dividends
 (Notes A, B,
   5 and 8)      $   76,153   $   73,837   $   64,716   $   64,520  $   59,023
                 ==========   ==========   ==========   ==========  ==========  

Balance Sheet Data: 

                                  Year Ended December 31,
                 -------------------------------------------------------------  
                     1997         1996         1995         1994        1993
                 ----------   ----------   ----------   ----------  ----------
                                          (000's omitted)

Total assets     $  976,571   $  916,375   $  759,133   $  723,610  $  666,022
Working capital     159,011      146,911      139,805      150,514     138,652
Long-term debt       96,815       71,837       57,795       64,287      71,286
Patronage refund
 certificates 
 payable, long-
 term                49,044       49,639       54,741       63,666      56,270
Member dealers'
 equity             245,814      233,363      217,245      199,827     186,028

(A)  The Company operates as a cooperative organization, and pays patronage
     dividends to member dealers on earnings derived from business done with
     such dealers. It is the practice of the Company to distribute substan-
     tially all patronage sourced earnings in the form of patronage dividends.

(B)  The form in which patronage dividends are to be distributed can only be
     determined at the end of each year when the amount distributable to each
     of the member dealers is known. For the five years ended December 31, 
     1997, patronage dividends were payable as follows:

                     1997         1996         1995        1994        1993
                   -------       -------      -------     -------     -------
                                          (000's omitted)

In cash            $29,943       $28,178      $23,522     $27,302     $25,766
In patronage 
 refund 
 certificates
 payable            13,726         9,500        5,032       9,920      12,728
In Class C Stock    22,366        26,474       27,506      21,766      19,064
In patronage
 financing
 deductions         10,118         9,685        8,656       5,532       1,465
Total patronage    -------       -------      -------     -------     -------
 dividends         $76,153       $73,837      $64,716     $64,520     $59,023
                   =======       =======      =======     =======     =======

(C)  Numbered notes refer to Notes to Consolidated Financial Statements,
     beginning on page F-8.

(5) & (8) refers to Notes (5) and (8) of the Consolidated Financial 
          Statements beginning on page F-8 of this Form 10-K.

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

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

Liquidity and Capital Resources

     The Company's ability to generate cash adequate to meet its needs 
("liquidity") results from internally generated funds, short-term lines
of credit and long-term financing (see Notes 3 and 4 to the financial
statements).

     The Company's long and short-term liquidity is dependent on retail 
growth as described under the "Company's Business." Nothing in the 
Company's plans as discussed under the "Company's Business" has led or 
is expected to lead to any material change in pricing, margins or product
focus or is expected to materially impact the results or operations or
liquidity of the Company. The Company's long-term strategic plan is only
for a renewed focus on supporting retail growth. Retail growth provides
equity growth for the Company. Recognizing the need for equity growth in 
order to properly capitalize the Company, the patronage stock formula for 
years beginning in 1995 was changed. See "Forms of Patronage Dividend 
Distributions." The Company believes that these changes and the retail 
growth of the membership will provide adequate liquidity for the long-term.

     The Company has an established, unsecured revolving credit facility 
with a group of banks. The Company has unsecured lines of credit of $175.0 
million of which $133.0 million was available at December 31, 1997. Any 
borrowings under these lines of credit would bear interest at the prime 
rate or less. Long-term financings are arranged as determined necessary 
to meet the Company's capital or other requirements, with principal amount,
timing and form dependent on prevailing debt markets and general economic 
conditions. The Company's credit facilities provide that certain ratios 
be maintained with the only material covenant related to fixed charge 
coverage. The Company is in compliance with all debt covenants.
  
     Capital expenditures for new and improved facilities were $49.4, $40.4 
and $31.3 million in 1997, 1996 and 1995, respectively. During 1997, the 
Company financed the $49.4 million of capital expenditures out of current 
and accumulated internally generated funds and short-term and long-term 
borrowings. 1998 capital expenditures are anticipated to be approximately 
$32.0 million primarily for improvements to existing facilities.

     As a cooperative, the Company distributes substantially all of its 
patronage sourced earnings to its members in the form of patronage dividends,
which are deductible for income tax purposes (see headings "Patronage 
Dividend Determinations And Allocations" and "Federal Tax Treatment of 
Patronage Dividends"). Prior to 1994, patronage dividends were distributed 
on the basis of taxable income. Accordingly, patronage dividends can exceed
net income or be less than net income due to the timing of certain items for
income tax purposes. The Board of Directors does have the authority to 
determine reasonable reserves for the purpose of ensuring the welfare of the
Company, but it has been the practice of the Company to distribute 
substantially all patronage sourced earnings in the form of patronage 
dividends.

     No adverse trends in revenue or net income have occurred since the 
end of the Company's last reported financial period. The Company expects 
that existing and new internally generated funds, along with established 
lines of credit and long-term financing, will continue to be sufficient to 
finance the Company's working capital requirements and patronage dividend 
and capital expenditure programs.

Operations-1997 Compared to 1996

     Net sales increased 6% due to increases in existing retailer volume,
targeted efforts on new store development and conversions, and a full year 
of Canadian operations. Sales of basic hardware and paint merchandise 
(including warehouse, bulletin and direct shipments) increased 5.1% while 
lumber and building material sales increased 10.3% due to accelerated sales 
efforts. Excluding Canadian operations, international sales increased 27.5%
primarily due to new international store development.

     Gross profit increased $17.0 million or 8.2% and increased as a percent
of sales to 7.72% vs. 7.56% in 1996. Domestic gross profit as a percent of 
sales increased over 1996 due to increased manufacturing gross profit and 
additional company-owned stores. Canadian operations also contributed to 
the increased gross profit due to a full year of operation.

     Warehouse and distribution expenses increased $2.6 million or 7.2% 
due to the operation of one additional domestic facility and two Canadian 
facilities in 1997. The replacement of an existing facility also contributed
to the increase, partially offset by increased traffic revenues.

     Selling, general and administrative expenses increased $4.6 million 
or 6.7% due to increased data processing costs and additional costs for a 
full year of Canadian operations. Excluding Canadian operations, selling, 
general and administrative expenses increased 4.8% and decreased slightly 
as a percent of sales resulting from continued cost containment and re-
engineering efforts.

     Retail success and development expenses increased $3.9 million or 18.2%
due to increased new business development costs, reduced retail systems 
income and costs associated with additional company-owned stores. Increases 
in this category are directly related to retail support of the Ace retailer 
as the Company continues to make investments in our dealer base.

     Paint Division sales increased 5.0% to $108.3 million. As a separate 
division of the Company, the Paint Division produced net manufacturing 
profits of $11.3 million in 1997 vs. $8.3 million in 1996. The increased net
manufacturing profit results from the 5.0% sales increase and resulting 
gross margin and improved utilization of the Company's second facility. 
Paint is the only product manufactured by the Company. As discussed on page 
9, patronage dividends are calculated separately for paint sales and 
increased to 10.31% in 1997 vs. 7.98% in 1996.

     Interest expense increased $2.9 million due to increased borrowings 
for the addition of a new facility in 1996 and 1997 and additional dealer 
dating programs. Other income increased due to increased past due service 
charges and reduced losses from the sale of property and equipment. Income 
taxes increased $792,000 due to improved profitability of the company's non-
patronage operations.

Operations-1996 Compared to 1995

     Net sales increased 12.6% due to increases in existing retailer volume,
targeted efforts on new store development and conversions, and the start-up 
of Canadian operations. 1996 domestic same store sales increased 9.8% due to
retailer store upgrades and continued emphasis on retail success. Sales of 
basic hardware and paint merchandise (including warehouse, bulletin and 
direct shipments) increased 11.6%. Lumber and building material sales 
experienced slightly higher percentage increases in 1996 due to accelerated 
sales efforts and industry-wide lumber price increases. Net dealer outlets 
increased in 1996 due to targeted sales efforts on new store development and
conversions to the Ace program and continued emphasis on retail success.

     Gross profit increased $24.9 million or 13.6% and increased as a 
percent of sales to 7.56% vs. 7.50% in 1995 due primarily to gross profit 
from Canadian operations. Domestic gross profit as a percent of sales is 
comparable to 1995 as higher merchandise discounts and allowances were 
completely offset by lower levels of dealer price increases in 1996. 
Emphasis on low upfront pricing continued with total upfront rebates 
increasing 16.9% in 1996.

     Warehouse and distribution expenses increased $6.8 million or 22.8% 
due to start-up costs for the opening of one domestic and two Canadian 
facilities in 1996. Excluding Canadian operations, warehouse and 
distribution expenses increased 13.6% and increased slightly as a percent
of sales due to wage increases to support the sales growth and start-up 
costs for the new facility.

     Selling, general and administrative expenses increased $7.9 million 
or 13.2% due to personnel costs for the start-up operations and increased 
data processing expenses. Excluding Canadian operations, selling, general 
and administrative expenses increased 7.5% and declined as a percent of 
sales due to reduced corporate administrative expenses resulting from 1996 
re-engineering efforts.

     Retail success and development expenses increased $3.0 million or 
16.4% due to increased new business development costs, increased retail 
training expenses and reduced retail systems income. Increases in this 
category are directly related to retail support of the Ace retailer as the
Company continues to make investments in our dealer base.

     Paint Division sales increased 16.5% to $103.1 million. As a separate 
division of the Company, the Paint Division produced net manufacturing 
profits of $8.3 million in 1996 vs. $5.8 million in 1995. The increased net
manufacturing profit results from the 16.5% sales increase and resulting 
gross margin and improved utilization of the Company's second facility 
partially offset by increased 1996 advertising expenses. Paint is the only 
product manufactured by the Company. As discussed on page 9, patronage 
dividends are calculated separately for paint sales and increased to 7.98% 
in 1996 vs. 6.87% in 1995.

     Interest expense decreased $1.3 million or 9.8% due to lower inventory 
levels resulting from improved inventory turnover in 1996. Additional dealer
dating programs and long-term debt to fund 1996 capital investments partially
offset the interest expense decline.

Impact of New Accounting Standards

     In June, 1997, the FASB issued Statement of Financial Accounting 
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires 
the prominent display of comprehensive income and its components in the 
financial statements. The Company is required to comply with SFAS No. 130 
in fiscal year 1998 and estimates its adoption will not have a material 
effect on the consolidated financial statements.

     In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for reporting information about operating segments in annual financial 
statements. The Company is required to comply with SFAS No. 131 in fiscal 
year 1998 and estimates its adoption will not have a material effect on the 
consolidated financial statements.

Inflation and Changes in Prices

     The Company's business is not generally governed by contracts that 
establish prices substantially in advance of the receipt of goods or 
services. As vendors increase their prices for merchandise supplied to the 
Company, the Company increases the price to its dealers in an equal amount 
plus the normal handling charge on such amounts. In the past, these increases
have provided adequate gross profit to offset the impact of inflation on 
operating expenses.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

     Not Applicable.

Item 8. Financial Statements and Supplementary Data

     Financial statements covered by the report of the Company's independent 
certified public accountants are listed on Page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting 
and Financial Disclosures

     None.

                                     PART III

Item 10. Directors and Executive Officers of the Company

     The directors and the executive officers of the Company are:
      
                                                  Position(s) Held
            Name                 Age          and Business Experience
            ----                 ---          -----------------------    
    Jennifer C. Anderson          47      Director since June 6, 1994; term 
                                          expires 2000; President of Davis 
                                          Lumber and Ace Hardware, Inc., 
                                          Davis, California.

    Eric R. Bibens II             41      Director since June 2, 1997; term 
                                          expires 2000; President of Bibens 
                                          Home Center, Inc., Springfield, 
                                          Vermont.

    Lori L. Bossmann              37      Vice President-Controller effective 
                                          September, 1997; Controller 
                                          effective January, 1994; Assistant
                                          Controller effective November, 1990.

    Michael C. Bodzewski          48      Vice President-Merchandising 
                                          effective June, 1990; General 
                                          Merchandise Manager effective 
                                          April, 1988.

    Lawrence R. Bowman            51      Director since February 4, 1991; 
                                          term expires 1998; President 
                                          of Owenhouse Hardware Co., Inc., 
                                          Bozeman, Montana.

    James T. Glenn                38      Director since June 3, 1996; term 
                                          expires 1999; President of Ace 
                                          Hardware of Chattanooga, 
                                          Chattanooga, Tennessee.

    Ray A. Griffith               44      Vice President-Retail Development 
                                          and Marketing effective September,
                                          1997; Director-Retail Operations, 
                                          Western Division effective 
                                          September, 1994; from July, 1993-
                                          April, 1994, President and Chief 
                                          Executive Officer of Servistar/
                                          Coast to Coast Corporation; from 
                                          July, 1992-June, 1993, Executive 
                                          Vice President and Chief Operating 
                                          Officer of Servistar/Coast to Coast 
                                          Corporation; from January, 1990-June, 
                                          1992, Vice President-General Manager
                                          of the Northern Division of 
                                          Servistar/Coast to Coast Corporation. 

                                                  Position(s) Held
            Name                 Age         and Business Experience
            ----                 ---         -----------------------
    D. William Hagan              40      Director since June 2, 1997; term 
                                          expires 2000; President of Hagan 
                                          Ace Hardware, Orange Park, Florida.

    David F. Hodnik               50      President and Chief Executive 
                                          Officer effective January 1, 1996;
                                          President and Chief Operating 
                                          Officer effective January 1, 1995; 
                                          Executive Vice President and Chief 
                                          Operating Officer effective January,
                                          1994; Executive Vice President and
                                          Treasurer effective January, 1991;
                                          Senior Vice President and Treasurer
                                          effective January, 1988; Vice Pres-
                                          ident-Finance and Management Infor-
                                          mation Systems and Treasurer 
                                          effective September, 1986; Vice 
                                          President-Finance and Treasurer 
                                          effective December, 1982.

    Paul M. Ingevaldson           52      Senior Vice President-International
                                          and Technology effective September,
                                          1997; Vice President-Corporate 
                                          Strategy and International 
                                          Business effective September, 1992;
                                          Vice President-Retail Support 
                                          Services effective August, 1989; 
                                          Vice President-Western Region 
                                          effective September 1, 1988; Vice 
                                          President-Distribution effective 
                                          September, 1986; Vice President-
                                          Management Information Systems 
                                          effective October, 1985; 
                                          Director of Data Processing 
                                          effective October, 1982.

    Mark Jeronimus                49      Director since June 3, 1991; term 
                                          expires 2000; President of Duluth 
                                          Hardware, Inc., Duluth, Minnesota.

    Rita D. Kahle                 41      Senior Vice President-Wholesale 
                                          effective September, 1997; Vice 
                                          President-Finance effective January, 
                                          1994; Vice President-Controller 
                                          effective January, 1992; Controller 
                                          effective July, 1988.

    John E. Kingrey               54      Director since May 17, 1992; term 
                                          expires 1999; President of WK&K 
                                          Corp., Wimberley, Texas.

    Richard E. Laskowski          56      Chairman of the Board since 
                                          February 18, 1992 and Director 
                                          since June 1, 1987; 
                                          term expires 1998; President of Ace 
                                          Hardware Home Center of Round Lake, 
                                          Inc., Round Lake, Illinois.

    David W. League               58      Vice President-General Counsel and 
                                          Secretary effective June, 1990; 
                                          General Counsel and Secretary 
                                          effective January, 1990; 
                                          General Counsel effective January,
                                          1989.

    William A. Loftus             59      Executive Vice President-Retail 
                                          effective September, 1997; Senior 
                                          Vice President-Retail 
                                          Operations and 
                                          Marketing effective October, 1994; 
                                          Senior Vice President-Marketing and 
                                          Advertising effective September, 
                                          1992; Senior Vice President since
                                          January 1, 1991; Vice President-
                                          Retail Support Operations effective
                                          August, 1989; Vice President-
                                          Eastern Region effective 
                                          September 1, 1988; Vice 
                                          President-Sales effective October,
                                          1983; National Sales Manager 
                                          effective October, 1976.

                                                  Position(s) Held
            Name                 Age         and Business Experience
            ----                 ---         -----------------------
    David F. Myer                 52      Vice President-Retail Support 
                                          effective September, 1997; Vice
                                          President-Retail Support and
                                          New Business effective October, 
                                          1994; Vice President-Retail Support 
                                          effective August, 1992; Vice Pres-
                                          ident-Distribution effective July, 
                                          1989.

    Fred J. Neer                  58      Vice President-Human Resources 
                                          effective April, 1989; Director
                                          of Human Resources effective 
                                          April, 1986.

    Roger E. Peterson             60      Director since June 5, 1995; term 
                                          expires 1998; Chief Executive 
                                          Officer effective January
                                          1, 1995; President and 
                                          Chief Executive Officer effective 
                                          December, 1989; President
                                          effective August, 1986; 
                                          Executive Vice President 
                                          effective March, 1985; Vice 
                                          President-Operations effective
                                          December, 1982.

    Donald L. Schuman             59      Vice President-Information Technology 
                                          effective  June, 1990; 
                                          Director-Information Systems
                                          effective January, 1987.

    Jon R. Weiss                  62      Director since June 4, 1990; term 
                                          expires 1999; President of John W. 
                                          Weiss Hardware Company, 
                                          Glenview, Illinois.

    James R. Williams, Jr.        50      Director since June 5, 1989; term 
                                          expires 1998; Vice President of 
                                          Williams Ace Hardware, Inc.,
                                          Wichita, Kansas.

     The By-laws of the Company provide that its Board of Directors shall be
comprised of such number of persons, not less than 9 and not greater than 12,
as shall be fixed from time to time by the Board of Directors. A minimum of 9
of the directors shall be dealer directors. A maximum of two of the directors
may be non-dealer directors, but non-dealer directors may not exceed 25% of 
the total number of directors in office at any one time. A person shall be 
eligible for election or appointment as a non-dealer director without regard 
to whether or not such person is the owner of a retail business organization
which is a stockholder of Ace Hardware Corporation, or an executive officer,
general partner or general manager of such a retail business organization. 
The By-laws also provide for three classes of directors who are to be elected
for staggered 3-year terms. 

     The By-laws provide that no person is eligible to serve as a dealer 
director unless such person is either the owner of a retail business organ-
ization holding stock in the Company or an executive officer, general partner
or general manager of such a retail business organization. Regional dealer 
directors are elected from geographic regions of the United States established
by the Board. If the Board determines that all regions have representation by
regional dealer directors and the maximum number of directors would not there-
by be exceeded, then dealer directors at large may also be elected.

     In accordance with the applicable procedure established by the By-laws,
the following directors have been selected as nominees for reelection at the
annual stockholders meeting to be held on June 1, 1998, as a dealer director
and a non-dealer director, respectively, of the classes, from the regions and
for terms as indicated below:

        Nominee                         Class          Region       Term
        -------                         -----          ------       ----
   Lawrence R. Bowman                     3               7        3 years
   Roger E. Peterson                      3              N/A*      3 years

     Mr. James R. Williams is not eligible for reelection as a director 
commencing in 1998. The person named below has been selected as the nominee
for election to the Board for the first time at the 1998 annual meeting as a
dealer director of the class, from the region and for the term indicated:

        Nominee                 Age     Class          Region       Term
        -------                 ---     -----          ------       ----
   Daniel L. Gust                48       3               5        3 years

     In addition, Chairman of the Board Richard E. Laskowski is not eligible
for reelection as a director commencing in 1998. The person named below has 
been selected as the nominee for election to the Board at the 1998 annual 
meeting as a director from the class, from the region and for the term 
indicated:

        Nominee                 Age     Class          Region       Term
        -------                 ---     -----          ------       ----
   Mario R. Nathusius            54       3              N/A*     3 years

     The person named below has been selected as the nominee for the election
to the Board at the 1998 annual meeting as a dealer director at large from 
the class, from the region and for the term indicated:

        Nominee                 Age     Class          Region       Term
        -------                 ---     -----          ------       ----    
   Howard J. Jung                50       3              N/A*     3 years

     Mr. Jung previously served on the Board of Directors from 1987 through 
May, 1996. If elected, Mr. Jung has been selected to serve as Chairman of 
the Board effective June 1, 1998 when Mr. Laskowski's term expires.

     *Non-dealer directors and dealer directors at large are not elected with 
respect to particular geographic regions.

     Reference should be made to Article IV of the By-laws for information 
concerning the qualifications required for membership on the Board of Directors,
the terms of directors, the limitations on the total period of time for which
a director may hold office, the procedure established for the designation of 
Nominating Committees to select certain persons as nominees for election to 
the Board of Directors, and the procedure for filling vacancies on the Board 
for the remaining portion of unexpired terms.

     None of the events described under Item 401(f) of Regulation S-K occurred
during the past 5 years with respect to any director of the Registrant, any 
nominee for membership on the Board of Directors of the Registrant or any 
executive or staff officer of the Registrant.

Item 11. Executive Compensation

     The following information is set forth with respect to the cash compensa-
tion paid by the Company to each of the five highest paid executive officers 
of the Company whose cash compensation exceeded $100,000, for services ren-
dered by them in all capacities to the Company and its subsidiaries during 
the fiscal year ended December 31, 1997 and the two previous fiscal years:

                        SUMMARY COMPENSATION TABLE



                                                                Long-Term
                            Annual Compensation                Compensation
                      ---------------------------------   --------------------
                                                  (2)                  (4)  
                                                 Other        (3)      All 
       Name                                      Annual      Long-    Other
       and                              (1)      Compen-     Term     Compen-   
     Principal               Salary    Bonus     sation     Payouts   sation
     Position         Year    ($)       ($)        ($)        ($)       ($) 
     --------         ----   ------    -----     ------     -------   -------
David F. Hodnik       1997  $600,000      -      $14,147   $195,666   $133,167
President and Chief   1996   500,000      -       20,110    173,223    104,989
Executive Officer     1995   450,000      -       17,021    105,870     97,624
(CEO effective 1/1/96)

William A. Loftus     1997   308,300   53,628     12,853     83,241     71,778
Executive Vice        1996   290,000   49,880      8,442     81,132     60,644
President-Retail      1995   275,000   42,350      6,298     80,204     59,153

Paul M. Ingevaldson   1997   272,300   49,453     11,738     74,259     46,922
Senior Vice           1996   257,000   40,092     11,188     72,450     49,579  
President-            1995   247,000   33,100      7,215     71,221     49,466
International and 
Technology 

Rita D. Kahle         1997   250,000   46,237      8,647     57,813     46,733
Senior Vice           1996   218,000   36,406      6,826     50,436     33,122
President-            1995   195,000   32,175      9,012     44,807     35,573
Wholesale 

Michael C. Bodzewski  1997   235,750   45,420      9,988     57,990     34,785
Vice President-       1996   217,250   37,018      7,312     52,107     36,384
Merchandising         1995   192,500   36,800      9,555     48,158     36,523

(1)  The Incentive Compensation Plan covers each of the executive officers 
     (except Mr. Hodnik). The bonus amounts awarded to participants in the 
     Plan are determined in accordance with achievement of individual per-
     formance based objectives and achievement of corporate goals. The max-
     imum short-term incentive award for each executive officer is 20% of 
     their respective salary. The short-term bonus award becomes payable to 
     each participant as early as practicable at or after the end of the 
     fiscal year.

(2)  The Company provided automobiles to certain of its executive officers. 
     The Company requires them to maintain records with respect to any bus-
     iness automobile use. Such officers pay, both directly and by reim-
     bursement to the Company, personal automobile expenses. During 1997, 
     Company provided automobiles were replaced with automobile allowances.
     Country club memberships granted prior to 1994 to some officers have 
     been eliminated, except for the President. The compensation table set 
     forth above includes the value of these items and such value for any 
     officer did not exceed the lesser of $25,000 or 10% of the compensation
     reported for each in said table.

(3)  Includes the long-term incentive award under the Long-Term Incentive 
     Compensation Deferral Option Plan effective in 1995. The long-term 
     Officer incentive plan is based upon corporate performance over a three
     year period with emphasis on total shareholder return through maximizing
     both year-end patronage dividends and upfront dividends (throughout the
     year) through pricing programs and discounts. This plan maintains the 
     commitment to long-term performance and shareholder return in a co-
     operative environment. One third of the total long-term incentive award
     is subject to a one year vesting provision. Total awards paid in 1997 
     were $195,666, $83,241, $74,259, $57,990 and $57,813 for Messrs. 
     Hodnik, Loftus, Ingevaldson, Bodzewski and Ms. Kahle, respectively.

     Effective January 1, 1995, executive officers may elect to defer a 
     portion (20% to 100%, in 20% increments) of the annual award granted. Par-
     ticipants' compensation deferrals are credited with a specified rate of 
     interest to provide a means to accumulate supplemental retirement benefits.
     Deferred benefits are payable over a period of 5 to 20 years. Annual elec-
     tions are required for the upcoming deferral year by December of the pre-
     ceding year. Of the total 1997 awards, amounts deferred were $104,355, 
     $61,043, $74,259, $38,660 and $57,813 for Messrs. Hodnik, Loftus, 
     Ingevaldson, Bodzewski and Ms. Kahle, respectively.

(4)  Includes contributions to the Company's Profit Sharing Plan which has 
     been in existence for the period of January 1, 1953 through December 31,
     1996, the Company's Profit Sharing Plus Plan which has been in existence
     since January 1, 1997, and contributions to the Company's Retirement 
     Benefits Replacement Plan. All active employees are eligible to partic-
     ipate in the Company's profit sharing plan after one year of service. 
     Those active employees covered by a collective bargaining agreement 
     regarding retirement benefits, which were the subject of good faith bar-
     gaining, are not eligible if such agreement does not include them in the 
     plan. For the year 1997, the Company contributed a maximum of 10.5% of
     each participant's eligible compensation to the Profit Sharing Plus Plan 
     (9.5% profit sharing and 1% Company 401-K match). During the year 1997, 
     $16,800 was expensed by the Company pursuant to the Plan for Messrs. 
     Hodnik, Loftus, Ingevaldson, Bodzewski and Ms. Kahle.
     
     The Company has also established a Retirement Benefits Replacement Plan 
     covering all executive officers of the Company. This is an unfunded Plan
     under which the participants therein are eligible to receive retirement 
     benefits equal to the amounts by which the benefits they would otherwise
     have been entitled to receive under the Company's Profit Sharing Plan 
     may be reduced by reason of the limitations on contributions and benefits
     imposed by any current or future provisions of the U.S. Internal Revenue
     Code or other federal legislation. During the year 1997, amounts expensed
     by the Company pursuant to the Plan were $116,367 for Mr. Hodnik, $54,978 
     for Mr. Loftus, $30,122 for Mr. Ingevaldson, $17,985 for Mr. Bodzewski 
     and $29,933 for Ms. Kahle.
     
     The Company also funds the base premium for a supplemental universal life
     insurance policy for each officer but does not contribute to supplemental
     retirement benefits through this vehicle. Participants may elect to deposit
     a portion (up to one-third) of the long term incentive award into the var-
     iable annuity insurance policy in their name or may elect to defer this 
     portion under the Deferral Option Plan.

(5)  As a cooperative whereby all stockholders are member dealers, the Company
     does not grant or issue stock awards of any kind. 

     Messrs. Hodnik, Loftus, and Ingevaldson are employed under contracts, 
each dated January 1, 1997 for respective terms of two years, terminating 
December 31, 1998. Mr. Bodzewski and Ms. Kahle are employed under contracts 
dated April 1, 1997 and January 1, 1998 for a two year term terminating March 
31, 1999 and December 31, 1999, respectively. The contracts provide for annual
compensation effective January 1, 1998 of $600,000, $315,000, $279,000, 
$240,000 and $270,000, respectively or such increased amount, if any, as 
shall be approved by the Board of Directors.

     The Company also maintains a Pension Plan which has been in existence 
since December 31, 1970. All active employees are eligible to participate
in this Plan on the first January 1 that they are working for the Company.
Those active employees covered by a collective bargaining agreement regarding 
retirement benefits, which were the subject of good faith bargaining are not 
eligible if such agreement does not include them in the plan. The Plan 
provides benefits at retirement at or after age 65 determined under a formula 
which takes into account 60% of a participant's average base pay (including 
overtime) during the 5 highest consecutive calendar years of employment and 
years of service prior to age 65, and under which an offset is applied for 
the straight life annuity equivalent of the vested portion of the participant 
in the amount of benefits provided for them by the Company under the Profit 
Sharing Plan. In December 1995, the Company settled a portion of its pension 
liability to retirees and vested terminated participants through lump sum 
payments and the purchase of single premium annuity contracts. The Plan was 
closed to new entrants on December 31, 1995.

     Examples of yearly benefits provided by the Pension Plan (prior to 
reduction by the Profit Sharing Plan offset) are as follows:
     
                                     Years of Service

  Remuneration              10        15        20        25     30 or more
  ------------           -------   -------   -------   -------   ----------
    $150,000             $30,000   $45,000   $60,000   $75,000     $90,000
    $100,000              20,000    30,000    40,000    50,000      60,000
    $ 50,000              10,000    15,000    20,000    25,000      30,000

     The amounts shown above represent straight life annuity amounts. Maximum
benefits from the Pension Plan are attained after 30 years of service and 
attainment of age 65. The compensation covered by the Pension Plan consists 
of base compensation (exclusive of bonuses and non-recurring salary or wage 
payments) and shall not exceed $150,000 of such total remuneration paid to a 
participant during any plan year. Remuneration and yearly benefits under the 
Plan are limited, and subject to adjustment, under Sections 415(d) and 
401(a)17 of the U.S. Internal Revenue Code. The amount of covered compensation
under the Pension Plan, therefore is $150,000 for each Executive Officer named
in the Compensation table. The present credited years of service under the 
Pension Plan for the currently employed executive officers named in the compen-
sation table are as follows: David F. Hodnik-25 years; William A. Loftus-21 
years; Paul M. Ingevaldson-18 years; Michael C. Bodzewski-20 years and Rita D.
Kahle-11 years.

Compensation Committee Report

     The Compensation Committee reviews and approves compensation and benefits
provided to all senior executives. The corporation's Executive Compensation 
philosophy is one that supports the Company's fundamental business strategies.
The Committee stresses long term measured results, focus on teamwork, 
accepting prudent risks, and are strongly committed to fulfilling dealer/
consumer needs.

     Our compensation program reflects a policy of market place comparisons and
corporate and individual performance based pay. Our competitors for talented 
people include publicly owned for profit retail corporations, privately owned
for profit retail enterprises, and other national hardware/LBM cooperatives. 
Each of these comparative groupings has quite a different compensation practice/
philosophy. An annual review is performed of executive cash compensation pro-
vided by competitors and by participating in various executive compensation sur-
veys. Our orientation is to be cognizant of their respective practices and pay 
levels, but to give greater emphasis to that which supports our strategic busi-
ness objectives and the needs of our dealer network.

     The Compensation Committee changed the compensation mix in 1994 and again
in 1998 to one which stresses the provision of more significant performance 
based incentives, particularly long-term. Annual and long-term incentive 
opportunities have increased, with substantive changes in long-term performance
criteria. Long-term performance is evaluated heavily on a measurement of total
shareholder return including both year-end patronage dividends and upfront 
dividends through low-upfront pricing programs and discounts. This criteria 
maximizes total return to our membership.

     As it relates to the President/CEO compensation, the President's compen-
sation includes a competitive base salary and a long-term incentive award to 
maintain the commitment to long-term Company performance and shareholder return.

Compensation of Directors

     Effective January 1, 1998, and January 1, 1997, each member of the Board of
Directors receives a monthly fee of $2,500 and $2,850, respectively, for their 
services. Effective January 1, 1998 each member of the Board of Directors 
receives $1,500 per Board of Directors meeting attended. In addition 
effective March 1, 1998 each Board of Director Committee Chairperson receives
$500 per meeting chaired. Effective as of the foregoing dates, Mr. Laskowski
is paid a total annual fee of $150,000 and $135,000 per year, respectively, in
his capacity as Chairman of the Board.

     In 1994, the previous Deferred Director Fee Plan was amended, restated and
retitled the Directors' Deferral Option Plan. Like the Officers' Long Term 
Incentive Compensation Deferral Option Plan, under this Directors' Plan, direc-
tors may elect to defer a portion (5% to 100%, in 5% increments) of their annual
director's fee. Deferred benefits are payable over a period of 5 to 20 years,
as elected. Annual elections are required for the upcoming deferral year by 
December of the preceding year.

     Each member of the Board is also reimbursed for the amount of travel and
lodging expenses incurred in attending meetings of the Board and of the Commit-
tees of the Board. The expenses incurred by them in attending the semi-annual
conventions and exhibits which the Company sponsors are also paid by the Com-
pany. Each member of the Board is also paid $200 per diem compensation for
special committee meetings and nominating committee regional trips attended.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     With the exception of Mr. Laskowski, no shares of the Company's stock were
held by any of its officers. No person owns of record or is known by the Com-
pany to own beneficially more than five percent of the outstanding voting 
securities of the Company.

     The following table sets forth the shares of Class B Stock and Class C 
Stock of the Company held beneficially, directly or indirectly, by each direc-
tor (and nominee) owning such shares, individually itemized, and by all 
officers and directors as a group, as of February 13, 1998:
     
                           Class B Stock Owned            Class C Stock Owned
                           ---------------------         --------------------
                            Number       Percent           Number    Percent   
                           of Shares    of Class         of Shares   of Class
                           ---------    --------         ---------   --------
  Jennifer C. Anderson         4          0.148             3,224     .152
  Eric R. Bibens II            -            -                 531     .025
  Lawrence R. Bowman           4          0.148             2,049     .096
  James T. Glenn               4          0.148             7,873     .371
  Daniel Gust                  -            -                 246     .012
  D. William Hagan             4          0.148             2,235     .105
  Mark Jeronimus               -            -                 730     .034
  Howard J. Jung               -            -                 555     .026
  John E. Kingrey              4          0.148             1,263     .059
  Richard E. Laskowski         4          0.148            13,163     .620
  Mario Nathusius              -            -               2,943     .139
  Jon R. Weiss                 4          0.148             2,754     .130
  James R. Williams, Jr.       4          0.148               772     .036
  All above directors and    ----        -------          -------   -------
     officers as a group      32          1.184            38,338    1.805
                             ====        =======          =======   =======

     There are no known contractual arrangements nor any pledge of securities
of the Company which may at a subsequent date result in a change in control of
the Company.

Item 13. Certain Relationships and Related Transactions

     No director, executive officer or security holder who is known to the 
Registrant to own of record or beneficially more than five percent of any class
of the Registrant's voting securities, or any member of the immediate family 
of any of the foregoing persons, had during the last fiscal year or is currently
proposed to have any material interest, direct or indirect, in any transaction
in which the amount involved exceeds $60,000 and to which the Registrant was or
is to be a party, except that each of the directors purchased merchandise and 
services from the Registrant in the ordinary course of business on behalf of the
retail hardware businesses in which they have ownership interests. None of such
persons received benefits not shared by other hardware retailers supplied by the
Registrant.

     No director has had any business relationship which is required to be dis-
closed pursuant to Item 404(b) of Regulation S-K of the Securities and Exchange
Commission, during the Registrant's last fiscal year. Mr. Peterson, who was 
elected as an outside Director effective June 5, 1995 and retired  as CEO of the
Company effective May 31, 1995 is subject to an agreement through May 31, 2000 
providing for non-competition within the industry, participation in designated 
Company functions and total renumeration of $150,000 per year over the 5 year
term.

     No director, director nominee, executive officer, any member of the immed-
iate family of any of the foregoing, or any corporation or organization of which
any of the foregoing is an executive officer, partner, or, directly or in-
directly, the beneficial owner of ten percent or more of any class of equity 
securities, or any trust or other estate in which any of the foregoing has a 
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, has been indebted to the Registrant or its subsid-
iaries at any time since the beginning of the Registrant's last fiscal year in
an amount in excess of $60,000, except for indebtedness incurred in connection
with purchases of merchandise and services made from the Registrant in the ord-
inary course of business by the retail hardware businesses in which the direc-
tors have ownership interest.

                                 PART IV

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

     (a)    1.   Financial Statements
                 
                 The financial statements listed in the accompanying index 
                 (page F-1) to the consolidated financial statements are filed 
                 as part of this annual report.
 
            2.   Financial Statement Schedules
       
                 None.

            3.   Exhibits
        
                 The exhibits listed on the accompanying index to exhibits 
                 (pages E-1 through E-6) are filed as part of this annual 
                 report.

     (b)    Reports on Form 8-K

            None.


                               SIGNATURES

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

                                           ACE HARDWARE CORPORATION
                                      
                                           By   RICHARD E. LASKOWSKI
                                             ------------------------
                                               (Richard E. Laskowski
                                              Chairman of the Board and 
                                                     Director)
DATED: March 18, 1998


     Pursuant to the requirement of the Securities Exchange Act of 1934, 
this Annual Report has been signed below by the following persons on behalf 
of the registrant and in the capacities and on the dates indicated.
    
        Signature                      Title                  Date

   RICHARD E. LASKOWSKI         Chairman of the Board    March 18, 1998
  ----------------------         and Director
  (Richard E. Laskowski)

     DAVID F. HODNIK            President and Chief      March 18, 1998
  ----------------------         Executive Officer
    (David F. Hodnik) 

     LORI L. BOSSMANN           Vice President-          March 18, 1998
  ----------------------         Controller
    (Lori L. Bossmann)           (Principal Financial
                                 and Accounting Officer)


Jennifer C. Anderson, Eric R. Bibens II,     Directors
Lawrence R. Bowman, James T. Glenn,
D. William Hagan, Mark Jeronimus,
John E. Kingrey, Roger E. Peterson,
Jon R. Weiss, and James R. Williams, Jr.

*By   DAVID F. HODNIK 
   ------------------------
     (David F. Hodnik)

*By   LORI L. BOSSMANN                                      March 18, 1998
   ------------------------  
     (Lori L. Bossmann)



     *Attorneys-in-fact


 
                          THIS PAGE INTENTIOANLLY LEFT BLANK




                                  INDEX TO EXHIBITS
     Exhibits  
     Enclosed                                Description
     ------------                            -----------

     21          Subsidiaries of the Registrant

     24          Powers of Attorney

     Exhibits
     Incorporated
     by Reference                            Description
     ------------                            -----------

     2           No Exhibit

     3-A         Restated Certificate of Incorporation of the Registrant 
                 dated September 18, 1974 filed as Exhibit 3-A to the 
                 Registrant's Form S-1 Registration Statement (Regis-
                 tration No. 2-55860) on March 30, 1976 and incorporated 
                 herein by reference.

     3-B         By-laws of the Registrant as amended through August 19, 1997
                 included as Appendix A to the Prospectus constituting a part
                 of the Post Effective Amendment No. 3 to the Registrant's Form
                 S-2 Registration Statement filed on or about March 18, 1998 
                 (Registration No. 33-58191) and incorporated herein by 
                 reference.

     3-C         Certificate of Amendment to the restated Certificate of Incor-
                 poration of the Registrant dated May 19, 1976 filed as Exhibit
                 3-D to Amendment No. 1 to the Registrant's Form S-1 Registra-
                 tion Statement (Registration No. 2-55860) on June 10, 1976 and
                 incorporated herein by reference.

     3-D         Certificate of Amendment to the restated Certificate of Incor-
                 poration of the Registrant dated May 21, 1979 filed as Exhibit
                 3-F to Amendment No. 1 to the Registrant's Form S-1 Registra-
                 tion Statement (Registration No. 2-63880) on May 23, 1979 and 
                 incorporated herein by reference.

     3-E         Certificate of Amendment to the restated Certificate of Incor-
                 poration of the Registrant dated June 7, 1982 filed as Exhibit
                 3-G to the Registrant's Form S-1 Registration Statement (Regis-
                 tration No. 2-82460) on March 16, 1983 and incorporated herein
                 by reference.
 
     3-F         Certificate of Amendment to the restated Certificate of Incor-
                 poration of the Registrant dated June 5, 1987 filed as Exhibit
                 3-F to the Registrant's Form S-1 Registration Statement (Regis-
                 tration No. 33-4299) on March 29, 1988 and incorporated herein
                 by reference.

     3-G         Certificate of Amendment to the restated Certificate of Incor-
                 poration of the Registrant dated June 16, 1989 filed as Exhibit
                 4-G to Post Effective Amendment No. 1 to the Registrant's S-2 
                 Registration Statement filed on or about March 20, 1990 and 
                 incorporated by reference.

     3-H         Certificate of Amendment to the restated Certificate of Incor-
                 poration of the Registrant dated June 3, 1996 filed as Exhibit
                 4-H to Post-Effective Amendment No. 2 to the Registrant's Form
                 S-2 Registration Statement (Registration No. 33-58191) filed on
                 or about March 12, 1997 and incorporated herein by reference.

     4-A         Specimen copy of Class B stock certificate as revised as of 
                 November, 1984, filed as Exhibit 4-A to Post-Effective Amend-
                 ment No. 2 to the Registrant's Form S-1 Registration Statement
                 (Registration No. 2-82460) on March 15, 1985 and incorporated 
                 herein by reference.


     Exhibits
     Incorporated
     by Reference
     ------------

     4-B         Specimen copy of Patronage Refund Certificate as revised in 
                 1988 filed as Exhibit 4-B to Post-Effective Amendment No. 2 
                 to the Registrant's Form S-1 Registration Statement (Registra-
                 tion No. 33-4299) on March 29, 1988 and incorporated herein by
                 reference.

     4-C         Specimen copy of Class A stock certificate as revised in 1987
                 filed as Exhibit 4-C to Post-Effective Amendment No. 2 to the
                 Registrant's Form S-1 Registration Statement (Registration No.
                 33-4299) on March 29, 1988 and incorporated herein by 
                 reference.

     4-D         Specimen copy of Class C stock certificate filed as Exhibit 4-I
                 to the Registrant's Form S-1 Registration Statement (Registra-
                 tion No. 2-82460) on March 16, 1983 and incorporated herein 
                 by reference.

     4-E         Copy of current standard form of Subscription for Capital Stock
                 Agreement to be used for dealers to subscribe for shares of the
                 Registrant's stock in conjunction with new membership agree-
                 ments submitted to the Registrant filed as Exhibit 4-L to Post-
                 Effective Amendment No. 2 to the Registrant's Form S-2 Regis-
                 tration Statement (Registration No. 33-46449) on or about March
                 23, 1994 and incorporated herein by reference.

     4-F         Copy of plan for the distribution of patronage dividends with
                 respect to purchases of merchandise made from the Registrant 
                 from January 1, 1995-December 31, 1997 adopted by the Board of
                 Directors of the Registrant on July 26, 1994 filed as Exhibit
                 4-F to Post-Effective Amendment No. 3 to the Registrant's Form
                 S-2 Registration Statement on or about March 18, 1998 (Regis-
                 tration No. 33-58191) and incorporated herein by reference.

     4-G         Copy of plan for the distribution of patronage dividends with
                 respect to purchases of merchandise made from the Registrant on
                 and after January 1, 1998 adopted by the Board of Directors of
                 the Registrant filed as Exhibit 4-G to Post-Effective Amend-
                 ment No. 3 to the Registrant's Form S-2 Registration Statement
                 on or about March 18, 1998 (Registration No. 33-58191) and 
                 incorporated herein by reference.

     9           No Exhibit

     10-A        Copy of Ace Hardware Corporation Retirement Benefits Replace-
                 ment Plan Restated and Adopted December 7, 1993 filed as Ex-
                 hibit 10-A to Post-Effective Amendment No. 3 to the Regis-
                 trant's Form S-2 Registration Statement (Registration No. 33-
                 58191) on or about March 18, 1998 and incorporated herein by
                 reference.

     10-B        Copy of First Amendment to Restated Ace Hardware Corporation
                 Retirement Benefits Replacement Plan adopted on August 19, 1997
                 filed as Exhibit 10-B to Post-Effective Amendment No. 3 to the
                 Registrant's Form S-2 Registration Statement (Registration No.
                 33-58191) on or about March 18, 1998 and incorporated herein
                 by reference.

     10-C        Copy of First Amendment to Ace Hardware Corporation Deferred
                 Compensation Plan adopted on August 19, 1997 filed as Exhibit
                 10-C to Post-Effective Amendment No. 3 to the Registrant's Form
                 S-2 Registration Statement (Registration No. 33-58191) on or 
                 about March 18, 1998 and incorporated herein by reference.

     Exhibits
     Incorporated
     by Reference
     ------------

     10-D        Copy of Restated PREP Plan (formerly known as Executive Supple-
                 mental Benefit Plans) adopted August 19, 1997 filed as Exhibit
                 10-D to Post-Effective Amendment No. 3 to the Registrant's Form
                 S-2 Registration Statement (Registration No. 33-58191) on or 
                 about March 18, 1998 and incorporated herein by reference.

     10-E        Copy of the "Ace Hardware Corporation Officer's (sic) Incentive
                 Compensation Plan" as amended and restated effective January
                 1, 1994, filed as Exhibit 10-G to Post-Effective Amendment No.
                 2 to the Registrant's Form S-2 Registration Statement (Regis-
                 tration No. 33-46449) on or about March 23, 1994 and incorpor-
                 ated herein by reference.

     10-F        Second Modification of Amended and Restated Note Purchase and 
                 Private Shelf Agreement dated as of August 23, 1996, as amended
                 by the First Modification of Amended and Restated Purchase and 
                 Private Shelf Agreement dated as of April 2, 1997, with the 
                 Prudential Insurance Company of America filed as Exhibit 10-F
                 to Post-Effective Amendment No. 3 to the Registrant's Form S-2
                 Registration Statement (Registration No. 33-58191) on or about
                 March 18, 1998, and incorporated herein by reference.

     10-G        Copy of Participation Agreement with PNC Commercial Corp. 
                 dated December 17, 1997 establishing a $10,000,000 
                 discretionary leasing facility for the purchase of land and 
                 construction of retail hardware stores filed as Exhibit 10-G
                 to Post-Effective Amendment No. 3 to the Registrant's Form S-2
                 Registration Statement (Registration No. 33-58191) on or 
                 about March 18, 1998 and incorporated herein by reference.

     10-H        Copy of Form of Executive Officer Employment Agreement effec-
                 tive January 1, 1996 filed as Exhibit 10-a-17 to Post-Effective
                 Amendment No. 1 to the Registrant's Form S-2 Registration 
                 Statement (Registration No. 33-58191) on or about March 15, 
                 1996 and incorporated herein by reference.

     10-I        Copy of Note Purchase and Private Shelf Agreement with the 
                 Prudential Insurance Company of America dated September 27, 
                 1991 securing 8.74% Senior Series A Notes in the principal sum
                 of $20,000,000 with a maturity date of July 1, 2003 filed as
                 Exhibit 10-A-q to the Registrant's Form S-2 Registration State-
                 ment (Registration No. 33-46449) on March 23, 1992 and incor-
                 porated herein by reference.

     10-J        Copy of Standard Form of Ace Hardware International Retail Mer-
                 chant Agreement adopted in 1990, filed as Exhibit 10-A-q to 
                 Post Effective Amendment No. 2 to the Registrant's Form S-2 
                 Registration Statement (Registration No. 33-27790) on March 20,
                 1991 and incorporated herein by reference.

     10-K        Copy of current standard form of Ace Hardware Membership Agree-
                 ment filed as Exhibit 10-P to Pre-Effective Amendment No. 2 to
                 the Registrant's form S-2 Registration Statement (Registration
                 No. 33-58191) on or about April 26, 1995 and incorporated 
                 herein by reference.

     10-L        Copy of 6.89% Senior Series B notes in the aggregate principal 
                 sum of $20,000,000 issued July 29, 1992 with a maturity date
                 of January 1, 2000 pursuant to Note Purchase and Private Shelf
                 Agreement with the Prudential Insurance Company of America 
                 dated September 27, 1991 and filed as Exhibit 10-A-r to Post 
                 Effective Amendment No. 1 to the Registrant's Form S-2 Regis-
                 tration Statement (Registration No. 33-46449) on March 22, 1993
                 and incorporated herein by reference.

     Exhibits
     Incorporated
     by Reference
     ------------

     10-M        Copy of 6.47% Senior Series A notes in the aggregate principal
                 amount of $30,000,000 issued September 22, 1993 with a maturity
                 date of June 22, 2008, and $20,000,000 Private Shelf Facility,
                 pursuant to Note Purchase and Private Shelf Agreement with the
                 Prudential Insurance Company of America dated as of September 
                 22, 1993, filed as Exhibit 10-R to Post-Effective Amendment 
                 No. 2 to the Registrant's Form S-2 Registration Statement 
                 (Registration No. 33-46449) on or about March 23, 1994 and 
                 incorporated herein by reference.

     10-N        Copy of Lease dated March 24, 1997 for print shop facility of 
                 the Registrant in Downers Grove, Illinois filed as Exhibit 10-N
                 to Post-Effective Amendment No. 3 to the Registrant's Form S-2
                 Registration Statement (Registration No. 33-58191) on or about
                 March 18, 1998 and incorporated herein by reference.

     10-O        Copy of Lease dated September 30, 1992 for general offices of
                 the Registrant in Oak Brook, Illinois filed as Exhibit 10-A-u 
                 to the Registrant's Form S-2 Registration Statement (Registra-
                 tion No. 33-46449) on March 22, 1993 and incorporated herein
                 by reference.

     10-P        Copy of Ace Hardware Corporation Deferred Director Fee Plan as
                 amended on June 8, 1993, filed as Exhibit 10-W to Post-Effec-
                 tive Amendment No. 2 to the Registrant's Form S-2 Registration
                 Statement (Registration No. 33-46449) on or about March 23, 
                 1994 and incorporated herein by reference.

     10-Q        Copy of Ace Hardware Corporation Deferred Compensation Plan 
                 effective January 1, 1994, filed as Exhibit 10-X to Post-
                 Effective Amendment No. 2 to the Registrants Form S-2 Registra-
                 tion Statement (Registration No. 33-46449) on or about March 
                 23, 1994 and incorporated herein by reference.

     10-R        Copy of Lease dated September 22, 1994 for bulk merchandise 
                 redistribution center of the Registrant in Carol Stream, 
                 Illinois filed as Exhibit 10-Y to the Registrant's Form S-2 
                 Registration Statement (Registration No. 33-58191) on or about
                 March 23, 1995 and incorporated herein by reference.

     10-S        Copy of Lease dated May 4, 1994 for freight consolidation 
                 center of the Registrant in Chicago, Illinois filed as Exhibit
                 10-Z to the Registrant's Form S-2 Registration Statement 
                 (Registration No. 33-58191) on or about March 23, 1995 and 
                 incorporated herein by reference.

     10-T        Copy of Long-Term Incentive Compensation Deferral Option Plan
                 of the Registrant effective January 1, 1995 adopted by its 
                 Board of Directors on December 6, 1994 filed as Exhibit 10-a-1
                 to the Registrant's Form S-2 Registration Statement (Registra-
                 tion No. 33-58191) on or about March 23, 1995 and incorporated
                 herein by reference.

     10-U        Copy of Directors' Deferral Option Plan of the Registrant 
                 effective January 1, 1995 adopted by its Board of Directors 
                 on December 6, 1994 filed as Exhibit 10-a-2 to the Registrant's
                 Form S-2 Registration Statement (Registration No. 33-58191) on
                 or about March 23, 1995 and incorporated herein by reference.

     Exhibits
     Incorporated
     by Reference
     ------------

     10-V        Copy of Agreement dated January 6, 1995 between Ace Hardware 
                 Corporation and Roger E. Peterson filed as Exhibit 10-a-9 to
                 the Registrant's Form S-2 Registration Statement (Registration
                 No. 33-58191) on or about March 23, 1995 and incorporated 
                 herein by reference.

     10-W        Copy of Lease dated July 28, 1995 between A.H.C. Store Develop-
                 ment Corp. and Tri-R Corporation for retail hardware store 
                 premises located in Yorkville, Illinois filed as Exhibit 10-a-
                 11 to Post-Effective Amendment No. 1 to the Registrant's Form
                 S-2 Registration Statement (Registration No. 33-58191) on or 
                 about March 15, 1996 and incorporated herein by reference.

     10-X        Copy of Lease dated October 31, 1995 between Brant Trade & 
                 Industrial Park, Inc. and Ace Hardware Canada Limited for ware-
                 house space in Brantford, Ontario, Canada filed as Exhibit 10-a
                 -12 to Post-Effective Amendment No. 1 to the Registrant's Form
                 S-2 Registration Statement (Registration No. 33-58191) on or
                 about March 15, 1996 and incorporated herein by reference.

     10-Y        Copy of Lease dated November 27, 1995 between 674573 Ontario 
                 Limited and Ace Hardware Canada Limited for general office 
                 space in Markham, Ontario, Canada filed as Exhibit 10-a-13 to
                 Post-Effective Amendment No. 1 to the Registrant's Form S-2 
                 Registration Statement (Registration No. 33-58191) on or 
                 about March 15, 1996 and incorporated herein by reference.

     10-Z        Copy of Lease dated February 9, 1995 between Leroy M. Merritt
                 and the Registrant for its Baltimore, Maryland redistribution 
                 center filed as Exhibit 10-a-14 to Post-Effective Amendment No.
                 1 to the Registrant's Form S-2 Registration Statement (Regis-
                 tration No. 33-58191) on or about March 15, 1996 and 
                 incorporated herein by reference.

     10-a-1      Copy of First Amendment to the Ace Hardware Corporation Long-
                 Term Incentive Compensation Deferral Option Plan effective 
                 December 5, 1995 filed as Exhibit 10-a-15 to Post-Effective 
                 Amendment No. 1 to the Registrant's Form S-2 Registration 
                 Statement (Registration No. 33-58191) on or about March 15, 
                 1996 and incorporated herein by reference.

     10-a-2      Copy of First Amendment to the Ace Hardware Corporation Direc-
                 tors' Deferral Option Plan effective December 5, 1995 filed as
                 Exhibit 10-a-16 to Post-Effective Amendment No. 1 to the Regis-
                 trant's Form S-2 Registration Statement (Registration No. 33-
                 58191) on or about March 15, 1996 and incorporated herein by 
                 reference.

     10-a-3      Copy of Ace Hardware Corporation Executive Benefit Security 
                 Trust Agreement effective July 19, 1995 filed as Exhibit 10-a-
                 18 to Post-Effective Amendment No. 1 to the Registrant's Form 
                 S-2 Registration Statement (Registration No. 33-58191) on or 
                 about March 15, 1996 and incorporated herein by reference.

     10-a-4      Copy of current standard form License Agreement for Interna-
                 tional Retail Merchants adopted in 1996 filed as Exhibit 10-a-
                 12 to Post-Effective Amendment No. 2 to the Registrant's Form 
                 S-2 Registration Statement (Registration No. 33-58191) on or
                 about March 12, 1997 and incorporated herein by reference.


     Exhibits
     Incorporated
     by Reference
     ------------

     10-a-5      Copy of Lease Agreement dated as of September 1, 1996 for the
                 Registrant's project facility in Wilton, New York filed as 
                 Exhibit 10-a-13 to Post-Effective Amendment No. 2 to the Regi-
                 strant's Form S-2 Registration Statement (Registration No. 33-
                 58191) on or about March 12, 1997 and incorporated herein by 
                 reference.

     10-a-6      Copy of 6.47% Series A Senior Notes in the aggregate principal 
                 amount of $30,000,000 issued August 23, 1996 with a maturity
                 date of June 22, 2008, and $70,000,000 Private Shelf Facility,
                 pursuant to Amended and Restated Note Purchase and Private 
                 Shelf Agreement with the Prudential Insurance Company dated 
                 August 23, 1996 and filed as Exhibit 10-a-14 to Post-Effective
                 Amendment No. 2 to the Registrant's Form S-2 Registration 
                 Statement (Registration No. 33-58191) on or about March 12, 
                 1997 and incorporated herein by reference.

     10-a-7      Copy of First Amendment to Ace Hardware Corporation Officer 
                 Incentive Plan adopted on August 19, 1997 filed as Exhibit 10-
                 a-7 to Post-Effective Amendment No. 3 to the Registrant's Form 
                 S-2 Registration Statement (Registration No. 33-58191) on or
                 about March 18, 1998, and incorporated herein by reference.

     11          No Exhibit.

     12          No Exhibit.

     13          No Exhibit.

     16          No Exhibit.

     18          No Exhibit.

     22          No Exhibit.

     23          Consent of KPMG Peat Marwick LLP, dated March 16, 1998, filed 
                 as Exhibit 23(a) to Post-Effective Amendment No. 3 to the 
                 Registrant's Form S-2 Registration Statement (Registration No.
                 33-58191) filed on or about March 18, 1998 and incorporated 
                 herein by reference.

     27          Financial Data Schedule filed as Exhibit 27 to Post-Effective
                 Amendment No. 3 to the Registrant's Form S-2 Registration 
                 Statement (Registration No. 33-58191) filed on or about March 
                 18, 1998 and incorporated herein by reference.

     99          No Exhibit.

Supplemental Information to be Furnished with Reports Filed Pursuant to Section 
15(d) of the Act by Registrants which have not Registered Securities Pursuant
to Section 12 of the Act.

     As of the date of the foregoing Report, no annual report for the Regis-
trant's year ended December 31, 1997, nor any proxy soliciting materials for the
Registrant's 1998 annual meeting have been sent to security holders. Copies of 
such Annual Report and proxy soliciting materials will subsequently be sent to
security holders and furnished to the Securities and Exchange Commission.


Item 14(a). Index to Consolidated Financial Statements and Financial Statement 
            Schedules
  
                                                                        Page
                                                                        ----
  Independent Auditors' Report                                           F-2
  Consolidated Balance Sheets at December 31, 1997 and 1996              F-3
  Consolidated Statements of Earnings for each of the years in the 
    three-year period ended December 31, 1997                            F-5
  Consolidated Statements of Member Dealers' Equity for each of the 
    years in the three-year period ended December 31, 1997               F-6
  Consolidated Statements of Cash Flows for each of the years in the 
    three-year period ended December 31, 1997                            F-7
  Notes to Consolidated Financial Statements                             F-8

     All schedules have been omitted because the required information is not 
present or is not present in amounts sufficient to require submission of the 
schedule or the required information is included in the consolidated financial
statements or the notes thereto.


                           INDEPENDENT AUDITORS' REPORT

The Board of Directors
Ace Hardware Corporation:

    We have audited the accompanying consolidated balance sheets of Ace Hardware
Corporation and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of earnings, member dealers' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These con-
solidated financial statements are the responsibility of the Company's manage-
ment. Our responsibility is to express an opinion on these consolidated finan-
cial statements based on our audits.

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

    We believe that our audits provide a reasonable basis for our opinion. In 
our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Ace Hardware Corpor-
ation and subsidiaries as of December 31, 1997 and 1996, and the results of 
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting 
principles.


                                                  KPMG PEAT MARWICK LLP
Chicago, Illinois
January 28, 1998


                          ACE HARDWARE CORPORATION

                        CONSOLIDATED BALANCE SHEETS
                        December 31, 1997 and 1996

                                                                 ASSETS
                                                           1997          1996
                                                         --------      --------
                                                              (000's omitted)

Current assets:
    Cash and cash equivalents                            $ 14,171      $ 12,657
Receivables:
    Trade                                                 320,166       305,742
    Other                                                  45,554        43,206
                                                         --------      -------- 
                                                          365,720       348,948

    Less allowance for doubtful receivables                (2,086)       (1,700)
                                                         ---------     --------
    Net receivables                                       363,634       347,248

Inventories (Note 2)                                      338,509       327,145

Prepaid expenses and other current assets                  12,873        11,880
                                                         --------      --------
    Total current assets                                  729,187       698,930
                                                         --------      --------

Property and equipment (Note 9):
    Land                                                   17,480        17,464
    Buildings and improvements                            188,967       162,100
    Warehouse equipment                                    66,330        57,246
    Office equipment                                       71,578        71,689
    Manufacturing equipment                                15,312        13,132
    Transportation equipment                               13,686        14,609
    Leasehold improvements                                 16,110        15,654 
    Construction in progress                                6,686        12,501
                                                         --------      --------
                                                          396,149       364,395

    Less accumulated depreciation and amortization       (153,170)     (150,861)
                                                         --------      --------
    Net property and equipment                            242,979       213,534

Other assets                                                4,405         3,911
                                                         --------      --------
                                                         $976,571      $916,375
                                                         ========      ========

             See accompanying notes to consolidated financial statements.

                           ACE HARDWARE CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996

                     LIABILITIES AND MEMBER DEALERS' EQUITY

                                                           1997          1996
                                                         ---------     --------
                                                              (000's omitted)

Current liabilities:
    Current installments of long-term debt (Note 4)      $  7,515      $  6,727
    Short-term borrowings (Note 3)                         42,000        71,000
    Accounts payable                                      423,499       394,070
    Patronage dividends payable in cash (Note 5)           29,943        28,178
    Patronage refund certificates payable (Note 5)         13,636        14,138
    Accrued expenses                                       53,583        37,906
                                                         --------      --------
       Total current liabilities                          570,176       552,019

Long-term debt (Note 4)                                    96,815        71,837
Patronage refund certificates payable (Note 5)             49,044        49,639
Other long-term liabilities                                14,722         9,517
                                                         --------      --------
       Total liabilities                                  730,757       683,012
                                                         --------      --------

Member dealers' equity (Notes 5 and 8):
    Class A Stock of $1,000 par value                       3,874         3,937
    Class B Stock of $1,000 par value                       6,499         6,499
    Class C Stock of $100 par value                       213,609       196,742
    Class C Stock of $100 par value, issuable to 
      dealers for patronage dividends                      22,366        26,474
    Additional stock subscribed, net                          383           502
    Retained earnings                                       3,354         3,120
    Contributed capital                                     3,295         3,295
                                                         --------      --------
                                                          253,380       240,569

    Less: Treasury stock, at cost                          (7,566)       (7,206)
                                                         --------      --------
    Total member dealers' equity                          245,814       233,363

    Commitments (Notes 6 and 9)
                                                         --------      --------
                                                         $976,571      $916,375
                                                         ========      ========

            See accompanying notes to consolidated financial statements.


                          ACE HARDWARE CORPORATION

                    CONSOLIDATED STATEMENTS OF EARNINGS

                                                  Year Ended December 31,
                                         -------------------------------------
                                            1997           1996         1995
                                         ----------     ----------   ---------
                                                       (000's omitted)
Net sales                                $2,907,259     $2,742,451   $2,436,012
Cost of sales                             2,682,863      2,535,014    2,253,430
                                         ----------     ----------   ----------
       Gross profit                         224,396        207,437      182,582
                                         ----------     ----------   ----------
Operating expenses:
Warehouse and distribution                   39,292         36,658       29,849
Selling, general and administrative          72,218         67,661       59,772
Retail success and development               25,573         21,644       18,596
                                         ----------     ----------   ----------
       Total operating expenses             137,083        125,963      108,217
                                         ----------     ----------   ----------
       Operating income                      87,313         81,474       74,365

Interest expense (Note 11)                  (14,751)       (11,855)     (13,137)
Other income, net                             5,735          3,806        3,715
Income taxes (Note 7)                        (1,910)        (1,118)      (1,201)
                                         ----------     ----------   ----------
        Net earnings                         76,387         72,307       63,742
                                         ==========     ==========   ==========
                                                                        
Retained earnings at beginning of year        3,120          4,650        5,624
Net earnings                                 76,387         72,307       63,742
Patronage dividends (Notes 5 and 8)         (76,153)       (73,837)     (64,716)
                                         ----------     ----------   ----------
Retained earnings at end of year              3,354          3,120        4,650
                                         ==========     ==========   ==========

             See accompanying notes to consolidated financial statements.


                                    ACE HARDWARE CORPORATION
                        CONSOLIDATED STATEMENTS OF MEMBER DEALERS' EQUITY
                                Three Years Ended December 31, 1997
                                        (000's omitted)
                                                                   Class C Stock
                                                                    Issuable to
                                                                    Dealers for
                                 Class A     Class B     Class C     Patronage 
                                  Stock       Stock       Stock      Dividends 
                                 -------     -------    --------   -------------
Balance at December 31, 1994      $3,924      $6,499    $164,666      $21,766  
 Net earnings                          -           -           -            -  
 Net payments on subscriptions         -           -           -            -  
 Patronage financing deductions        -           -           -          (15) 
 Stock issued                        237           -      23,149      (21,751) 
 Stock repurchased                     -           -           -            -  
 Stock retired                      (256)          -      (9,998)           -  
 Stock issuable as patronage 
     dividends                         -           -           -       27,506  
 Patronage dividends payable           -           -           -            -  
                                 -------     -------    --------     -------- 
Balance at December 31, 1995      $3,905      $6,499    $177,817      $27,506  
 Net earnings                          -           -           -            -  
 Net payments on subscriptions         -           -           -            -  
 Patronage financing deductions        -           -           -          (43)  
 Stock issued                        268           -      28,854      (27,463)  
 Stock repurchased                     -           -           -            -  
 Stock retired                      (236)          -      (9,929)           -  
 Stock issuable as patronage
     dividends                         -           -           -       26,474  
 Patronage dividends payable           -           -           -            -  
                                 -------     -------    --------     -------- 
Balance at December 31, 1996      $3,937      $6,499    $196,742      $26,474  
 Net earnings                          -           -           -            -  
 Net payments on subscriptions         -           -           -            -  
 Patronage financing deductions        -           -           -         (119) 
 Stock issued                        236           -      29,263      (26,355) 
 Stock repurchased                     -           -           -            -  
 Stock retired                      (299)          -     (12,396)           - 
 Stock issuable as patronage 
     dividends                         -           -           -       22,366  
 Patronage dividends payable           -           -           -            -  
                                 -------     -------    --------     --------
Balance at December 31, 1997      $3,874      $6,499    $213,609      $22,366  
                                 =======     =======    ========     ========




                             ACE HARDWARE CORPORATION 

                  CONSOLIDATED STATEMENTS OF MEMBER DEALER'S EQUITY
                        Three Years Ended December 31, 1997
                                (000s omitted)

                     Additional   Retained   Contributed   Treasury    
                       Stock      Earnings     Capital       Stock     Total
                     ----------   --------   -----------   --------   --------
Balance at December 
    31, 1994            $   555   $  5,624        $3,295    $(6,502)  $199,827
 Net Earnings                 -     63,742             -          -     63,742  
 Net Payments on 
    Subscriptions         1,580          -             -          -      1,580 
 Patronage financing
    deductions                -          -             -          -        (15) 
 Stock issued            (1,620)         -             -          -         15
 Stock repurchased            -          -             -    (10,694)   (10,694)
 Stock retired                -          -             -     10,254          -
 Stock issuable as
    patronage dividends       -          -             -          -     27,506
 Patronage dividends
    payable                        (64,716)            -          -    (64,716)
                     ----------   --------   -----------   --------   -------- 
Balance at December     $   515   $  4,650        $3,295   $ (6,942)  $217,245  
    31, 1995                 
 Net Earnings                 -     72,307             -          -     72,307
 Net Payments on 
    Subscriptions         1,603          -             -          -      1,603
 Patronage financing
    deductions                -          -             -          -        (43)
 Stock issued            (1,616)         -             -          -         43 
 Stock repurchased            -          -             -    (10,429)   (10,429) 
 Stock retired                -          -             -     10,165          -
 Stock issuable as
    patronage dividends       -          -             -          -     26,474
 Patronage dividends 
    payable                   -    (73,837)            -          -    (73,837)
                     ----------   --------   -----------   --------   --------
Balance at December     $   502   $  3,120        $3,295   $ (7,206)  $233,363 
    31,1996
 Net Earnings                 -     76,387             -          -     76,387
 Net Payments on 
    Subscriptions         2,906          -             -          -      2,906
 Patronage financing
    deductions                -          -             -          -       (119)
 Stock issued            (3,025)         -             -          -        119
 Stock repurchased            -          -             -    (13,055)   (13,055)
 Stock retired                -          -             -     12,695          -  
 Stock issuable as
    patronage dividends       -          -             -          -     22,366
 Patronage dividends
    payable                   -    (76,153)            -          -    (76,153)
                     ----------   --------   -----------   --------   --------
Balance at December     $   383   $  3,354        $3,295   $ (7,566)  $245,814  
    31, 1997         ==========   ========   ===========   ========   ========

* Additional stock subscribed is comprised of the following amounts at 
December 31, 1995, 1996 and 1997:
                                          1995        1996        1997
                                         ------      ------      ------
     Class A Stock                       $ 332       $ 337       $ 387
     Class B Stock                          -          -           -
     Class C Stock                       2,332       2,450       2,329
                                         ------      ------      ------
                                         2,664       2,787       2,716
     Less unpaid portion                 2,149       2,285       2,333
                                         ------      ------      ------
                                         $ 515       $ 502       $ 383
                                         ======      ======      ======

See accompanying notes to consolidated financial statements.




                             ACE HARDWARE CORPORATION
                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               Year Ended December 31,
                                       ---------------------------------------
                                                   (000's omitted)
                                          1997           1996           1995
                                       ----------     ---------      ----------
Operating Activities:
Net Earnings                              $76,387       $72,307        $63,742
Adjustments to reconcile net earnings 
    to net cash provided by operating 
    activities:
  Depreciation                             19,494        17,517         16,837
  Loss on sale of property and equipment      285           712              3
  Increase in accounts receivable, net    (16,386)      (60,170)       (27,526)
  Decrease (increase) in inventories      (11,364)      (72,694)        15,940
  Increase in prepaid expenses and
    other current assets                     (993)       (2,556)        (2,135)
  Increase in accounts payable and   
    accrued expenses                       45,106        64,616         41,860
  Increase in other long-term 
    liabilities                             5,205         4,066          1,107
                                       ----------     ---------       --------
      Net Cash Provided by 
      Operating Activities                117,734        23,798        109,828

Investing Activities:
  Purchase of property and equipment      (49,373)      (40,379)       (31,263)
  Proceeds from sale of property 
    and equipment                             149           120             27
  Decrease (increase) in other assets        (494)           12            579
                                       ----------     ---------       --------
      Net Cash Used in 
      Investing Activities                (49,718)      (40,247)       (30,657)

Financing Activities:
  Proceeds (payments) of short-term 
    borrowings                            (29,000)       58,000        (17,000)
  Proceeds from notes payable              32,994        20,853              -
  Payments on long-term debt               (7,228)       (7,462)        (6,483)
  Payment of cash portion of 
    patronage dividend                    (28,178)      (23,522)       (27,302)
  Payments of patronage 
    refund certificates and patronage 
    financing deductions                  (24,941)      (22,790)       (11,287)
  Proceeds from sale of common stock        2,906         1,603          1,580
  Repurchase of common stock              (13,055)      (10,429)       (10,694)
                                       ----------     ---------       --------
      Net Cash Provided by 
      (Used in) Financing Activities      (66,502)       16,253        (71,186)
                                       ----------     ---------       --------
Increase (Decrease) in Cash 
  and Cash Equivalents                      1,514          (196)         7,985
Cash and Cash Equivalents 
  at beginning of year                     12,657        12,853          4,868
                                       ----------     ---------       --------
Cash and Cash Equivalents at 
  end of year                             $14,171       $12,657        $12,853
                                       ==========     =========       ========

            See accompanying notes to consolidated financial statements.

                             ACE HARDWARE CORPORATION

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     (1)  Summary of Significant Accounting Policies

          (a)  The Company and Its Business

          Ace Hardware Corporation (the Company) operates as a wholesaler of 
hardware and related products and manufactures paint products. As a dealer-owned
cooperative, the Company distributes substantially all of its patronage sourced
earnings in the form of patronage dividends to member dealers based on their 
volume of merchandise purchases. The accompanying consolidated financial state-
ments include the accounts of the Company and subsidiaries, all of which are 
wholly-owned. All significant intercompany transactions have been eliminated.

         (b)  Cash Equivalents

         The Company considers all highly liquid investments with an original 
maturity of three months or less to be cash equivalents.

         (c)  Receivables

         Receivables from dealers include amounts due from the sale of merchan-
dise and special equipment used in the operation of dealers' businesses. Other 
receivables are principally amounts due from suppliers for promotional and ad-
vertising allowances.

         (d)  Inventories

         Inventories are valued at the lower of cost or net realizable value. 
Cost is determined primarily using the last-in, first-out method.

         (e)  Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation
and amortization. Expenditures for maintenance, repairs and renewals of rel-
atively minor items are generally charged to earnings. Significant improvements 
or renewals are capitalized. 

         Depreciation expense is computed on both straight line and accelerated 
methods based on estimated useful lives as follows:

                                   Useful Life                Principal
                                      Years              Depreciation Method
                                   -----------           -------------------

   Buildings and improvements         10-40                 Straight line
   Warehouse equipment                 5-10                  Accelerated
   Office equipment                    3-10                    Various
   Manufacturing equipment             3-20                 Straight line
   Transportation equipment             3-7                 Straight line

     Leasehold improvements are generally amortized on a straight-line basis 
over the term of the respective lease.

          (f)  Foreign Currency Translation

          Substantially all assets and liabilities of foreign operations are 
translated at the rate of exchange in effect at the balance sheet date while 
revenues and expenses are translated at the average monthly exchange rates 
prevailing during the year. The Company has utilized foreign exchange forward
contracts to hedge non-U.S. equity investments. Foreign currency translation 
adjustments were insignificant in 1997 and 1996.

                             ACE HARDWARE CORPORATION

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

           (g)  Financial Instruments

           The carrying value of assets and liabilities that meet the definition
of a financial instrument included in the accompanying Consolidated Balance 
Sheets approximate fair value. The fair market value of foreign exchange 
forward contracts approximates carrying cost at December 31, 1997 and 1996.

           (h)  Retirement Plans

           The Company has retirement plans covering substantially all non-union
employees. Costs with respect to the noncontributory pension plans are deter-
mined actuarially and consist of current costs and amounts to amortize prior 
service costs and unrecognized gains and losses. The Company contribution under
the profit sharing plan is determined annually by the Board of Directors.

           (i)  Use of Estimates

           The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses dur-
ing the reporting period. Actual results could differ from those estimates.

           (j)  Reclassifications

           Certain financial statement reclassifications have been made to prior
year amounts to conform to comparable classifications followed in 1997.

     (2)  Inventories

     Inventories consist primarily of merchandise inventories. Substantially all
of the Company's domestic inventories are valued on the last-in, first-out 
(LIFO) method; the excess of replacement cost over the LIFO value of inventory 
was approximately $67,151,000 and $69,867,000 at December 31, 1997 and 1996, 
respectively. Indirect costs, consisting primarily of warehousing costs, are 
absorbed as inventory costs rather than period costs.

     (3)  Short-Term Borrowings

     Short-term borrowings were utilized during 1997 and 1996. The maximum 
amount outstanding at any month-end during the period was $113.0 million in 1997
and $97.5 million in 1996. The weighted average interest rate effective as of
December 31, 1997 and 1996 was 6.60% and 7.13%, respectively. Short-term borrow-
ings outstanding as of December 31, 1997 and 1996 were $42.0 million and $71.0 
million, respectively. At December 31, 1997 the Company has available a revol-
ving credit facility with a group of banks providing for $100 million in commit-
ted lines and also has available $75 million in uncommitted lines. The aggre-
gate unused line of credit available at December 31, 1997 and 1996 was $133 
million and $109 million, respectively. At December 31, 1997 the Company had no
compensating balance requirements.

                            ACE HARDWARE CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     (4)  Long-Term Debt

     Long-term debt is comprised of the following:

                                                           December 31,
                                                    ------------------------- 
                                                      1997             1996
                                                    --------         -------- 
                                                         (000's omitted)

Notes Payable:
  $20,000,000 due in quarterly installments 
    of $540,500 with interest payable quarterly 
    at a fixed rate of 8.74%                        $ 12,432          $14,595
  $20,000,000 due in quarterly installments 
    of $952,400 with interest payable quarterly 
    at a fixed rate of 6.89%                           8,571           12,381
  $30,000,000 due in semi-annual installments
     of $2,000,000 commencing June 22, 2001 with 
     interest payable quarterly at a fixed rate 
     of 6.47%                                         30,000           30,000
  $20,000,000 due in quarterly installments 
     of $714,300 commencing September 15, 2004 
     with interest payable quarterly at a fixed 
     rate of 7.49%                                    20,000           20,000
  $30,000,000 due in annual installments of 
     $6,000,000 commencing March 25, 2005 with 
     interest payable quarterly at a fixed rate 
     of 7.55%                                         30,000                -

Liability under capitalized leases (see Note 9)        2,171              664
Installment notes with maturities through 2001 
     with various interest rates                       1,156              924
                                                    --------         --------  
                                                     104,330           78,564
Less current installments                              7,515            6,727
                                                    --------         --------
                                                    $ 96,815          $71,837
                                                    ========         ========

     Aggregate maturities of long-term debt are $7,515,000, $7,092,000, 
$3,657,000, $6,282,000, $6,162,000 in 1998 through 2002, respectively and 
$73,622,000 thereafter.

     (5)  Patronage Dividends and Refund Certificates Payable

     The Company operates as a cooperative organization and has paid or will pay
patronage dividends to member dealers on the portion of earnings derived from
business done with such dealers. Patronage dividends are allocated in proportion
to the volume of purchases by member dealers during the period. The amount of
patronage dividends to be remitted in cash depends upon the level of dividends
earned by each member outlet, varying from 20% on the total dividends under 
$5,000 and increasing by 5% on total dividends for each subsequent $2,500 earned
to a maximum of 40% on total dividends exceeding $12,500.  All amounts exceeding
the cash portions will be distributed in the form of Class C $100 par value 
stock, to a maximum based upon the current year purchase volume or $20,000 
whichever is greater, and thereafter in a combination of additional cash and 
patronage refund certificates having maturity dates and bearing interest as 
determined by the Board of Directors. A portion of the dealer's annual patronage
dividends distributed under the above plan in a form other than cash can be 
applied toward payment of principal and interest on any balances outstanding 
for approved exterior signage, computer equipment and store retrofit financing.

                          ACE HARDWARE CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     The patronage dividend composition for 1997, 1996 and 1995 follows:

                              Subordinated   Class     Patronage     Total     
                     Cash        Refund        C       Financing   Patronage 
                    Portion   Certificates   Stock     Deductions   Dividend  
                   --------- -------------- -------   ------------ ---------  
                                       (000's omitted)
1997                $29,943     $13,726     $22,366     $10,118     $76,153
1996                 28,178       9,500      26,474       9,685      73,837
1995                 23,522       5,032      27,506       8,656      64,716

     Patronage dividends are allocated on a calendar year basis with issuance in
the following year.

     The patronage refund certificates outstanding or issuable at December 31,
1997 are payable as follows:

                                                                Interest
              January 1,                           Amount         Rate
              ----------                       ---------------  --------     
                                               (000's omitted)
                 1998                              $13,636        6.00%
                 1999                               11,377        6.00
                 2000                                9,415        7.00
                 2001                                5,079        6.00
                 2002                                9,447        6.25
                 2003                               13,726        6.00

     (6) Retirement Plans

     The Company has defined benefit pension plans covering substantially all
non-union employees. Benefits are based on years of service, highest average 
compensation (as defined) and the related profit sharing and primary social 
security benefit. Contributions to the plan are based on the Entry Age Normal,
Frozen Initial Liability actuarial funding method and are limited to amounts 
that are currently deductible for tax reporting purposes. As of December 31, 
1997 plan assets were held primarily in equities, mutual funds and group annuity
contracts.

     Pension expense for the years 1997, 1996 and 1995 included the following 
     components:
                                       1997           1996            1995
                                      ------         ------         -------
                                                  (000's omitted)
Service cost - benefits earned 
    during the period                    358             72             355
Interest cost on projected 
    benefit obligation                   351            486             845
Actual return on plan assets          (1,820)          (786)         (2,288)
Net amortization and deferral          1,243            292           1,257
                                      ------          -----         -------
Net periodic pension expense            $132           $ 64            $169
                                      ======          =====         =======

     In 1995 and 1996, the plan settled a portion of the liability to retirees
and vested terminated participants through lump sum payments and the purchase
of single premium annuity contracts. In addition to the net periodic pension 
expense, the Company recognized a net loss of $475,000 and $1,380,000 in 1996 
and 1995, respectively, related to this settlement.


                            ACE HARDWARE CORPORATION

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheet at December 31, 1997 and
1996 (December 31st measurement date):

                                                     1997            1996
                                                   --------        --------
                                                       (000's omitted)
Accumulated benefit obligation, 
  including vested benefits of 
  $4,072,000 and $3,953,000                         $ 4,305         $ 4,189
                                                   ========       =========
Plan assets at fair value                           $ 9,122         $ 7,965
Projected benefit obligation 
  for service renderedto date                         5,041           4,814
Plan assets in excess of 
                                                   --------       ---------
  projected benefit obligation                      $ 4,081         $ 3,151
Unrecognized net gain from past
  experience different from that 
  assumed and effects of changes
  in assumptions                                     (2,661)         (1,538)
Remaining unrecognized net asset 
  being amortized over participants 
  average remaining service period                     (784)           (845)
                                                   --------       --------- 
Prepaid pension cost included in other assets       $   636         $   768
                                                   ========       =========

     The weighted average discount rate used in determining the actuarial pre-
sent value of the projected benefit obligation was 7.25% in 1997 and 7.5% in 
1996. The related expected long-term rate of return was 8.0% in 1997 and 1996. 
The rate of increase in future compensation was projected using actuarial salary
tables plus 1.0% in 1997 and 1996.

     The Company also participates in several multi-employer plans covering 
union employees. Amounts charged to expense and contributed to the plans totaled
approximately $225,000, $265,000 and $275,000, in 1997, 1996 and 1995, respec-
tively.

     The Company's profit sharing plan contribution for the years ended 1997, 
1996 and 1995 was approximately $12,240,000, $11,357,000 and $9,902,000, re-
spectively.

     (7) Income Taxes

     As a cooperative, the Company distributes substantially all of its 
patronage sourced earnings to its members in the form of patronage dividends. 
The 1997, 1996 and 1995 provisions for federal income taxes were $1,501,000, 
$860,000 and $939,000, respectively, and for state income taxes were $409,000, 
$258,000 and $262,000, respectively.

     The Company made tax payments of $2,807,000, $1,524,000 and $1,625,000 
during 1997, 1996 and 1995, respectively.

                            ACE HARDWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     (8) Member Dealers' Equity

     The Company's classes of stock are described below:

                                                         Number of Shares
                                                          at December 31,
                                                        -------------------
                                                         1997         1996
                                                        ------       ------
Class A Stock, voting, redeemable at par value -
   Authorized                                           10,000       10,000
   Issued and outstanding                                3,874        3,937

Class B Stock, nonvoting, redeemable at not less 
 than twice par value-    
   Authorized                                            6,500        6,500
   Issued                                                6,499        6,499
   Outstanding                                           2,716        2,896
   Treasury stock                                        3,783        3,603

Class C Stock, nonvoting, redeemable at not less  
 than par value -    
   Authorized                                        4,000,000    4,000,000
   Issued and outstanding                            2,136,085    1,967,420
   Issuable as patronage dividends                     223,600      264,740

Additional Stock Subscribed:  
   Class A Stock                                           387          337
   Class B Stock                                             -            -
   Class C Stock                                        23,920       24,500

     At December 31, 1997 and 1996 there were no common shares reserved for 
options, warrants, conversions or other rights; nor were any options granted 
or exercised during the two years then ended.

     Member dealers may subscribe for the Company's stock in various prescribed 
combinations. Only one share of Class A Stock may be owned by a dealer with 
respect to the first member retail outlet controlled by such dealer. Only four
shares of Class B Stock may be owned by a dealer with respect to each retail 
outlet controlled by such dealer, but only if such outlet was a member of the 
Company on or before February 20, 1974. An appropriate number of shares of Class
C Stock must be included in any subscription by a dealer in an amount to provide
that such dealer has a par value of all shares subscribed for equal to $5,000 
for each retail outlet. Unregistered shares of Class C Stock are also issued to 
dealers in connection with patronage dividends. No dividends can be declared on 
any shares of any class of the Company's Stock.

     Upon termination of the Company's membership agreement with any retail 
outlet, all shares of stock of the Company, held by the dealer owning or con-
trolling such outlet, must be sold back to the Company, unless a transfer of 
such shares is made to another party accepted by the Company as a member dealer 
with respect to the same outlet.

                              ACE HARDWARE CORPORATION

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     A Class A share is issued to a member dealer only when the share subscribed
has been fully paid. Class B and Class C shares are only issued when all such
shares subscribed with respect to a retail outlet have been fully paid. Addi-
tional Stock Subscribed in the accompanying statements represents the par value 
of shares subscribed, reduced by the unpaid portion.

     All shares of stock are currently issued and repurchased at par value, ex-
cept for Class B Stock which is repurchased at twice its par value, or $2,000
per share. Upon retirement of Class B shares held in treasury, the excess of re-
demption price over par is allocated equally between contributed capital and 
retained earnings.

     Transactions during 1995, 1996 and 1997 affecting treasury shares follow:

                                                  Shares Held in Treasury  
                                                ---------------------------
                                                Class A   Class B   Class C
                                                -------   -------   -------
Balance at December 31, 1994                          -     3,251         -
  Stock issued                                        -         -         -
  Stock repurchased                                 256       220    99,975
  Stock retired                                    (256)        -   (99,975)
                                                -------   -------   -------
Balance at December 31, 1995                          -     3,471         -
  Stock issued                                        -         -         -
  Stock repurchased                                 236       132    99,290
  Stock retired                                    (236)        -   (99,290)
                                                -------   -------   -------
Balance at December 31, 1996                          -     3,603         -
  Stock issued                                        -         -         -
  Stock repurchased                                 299       180   123,964
  Stock retired                                    (299)        -  (123,964)
                                                -------   -------   -------
Balance at December 31, 1997                          -     3,783         -
                                                =======   =======   =======

     (9) Commitments

     Leased property under capital leases is included as "Property and Equip-
ment" in the consolidated balance sheets as follows:

                                                        December 31,   
                                                   ----------------------
                                                      1997        1996 
                                                    --------    --------
                                                      (000's omitted)
Buildings and improvements                                 -      $3,422
Data processing equipment                              3,633       1,783
Less: accumulated depreciation and amortization       (1,506)     (4,678)
                                                    --------    --------
                                                      $2,127      $  527
                                                    ========    ========


                         ACE HARDWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     The Company rents buildings and warehouse, office and certain other equip-
ment under capital and operating leases. At December 31, 1997 annual minimum 
rental commitments under leases that have initial or remaining noncancelable 
terms in excess of one year are as follows:

Year Ending    
December 31,                                     Capital            Operating
------------                                   -----------       -------------  
                                                       (000's omitted)
   1998                                          $ 1,170             $17,372
   1999                                              832              15,648
   2000                                              257              12,831
   2001                                                -              10,613
   2002                                                -               7,697
   Thereafter                                          -              25,674
                                                ----------        ------------
           Total minimum lease payments            2,259             $89,835
                                                                  ============ 
           Less amount representing interest          88
                                                ----------
Present value of total minimum lease payments     $2,171
                                                ==========

     All leases expire prior to 2010. Under certain leases, the Company pays 
real estate taxes, insurance and maintenance expenses in addition to rental 
expense. Management expects that in the normal course of business, leases that 
expire will be renewed or replaced by other leases. Rent expense was approx-
imately $33,343,000, $29,747,000 and $25,024,000 in 1997, 1996 and 1995, respec-
tively. Rent expense includes $5,956,000, $5,503,000 and $4,724,000 in contin-
gent rentals paid in 1997, 1996 and 1995, respectively, primarily for transpor-
tation equipment mileage.

     (10) Media Expense

     The Company expenses media costs the first time the advertising takes 
place. Gross media expense, prior to income offsets from dealers and suppliers,
amounting to $65,013,000, $64,551,000 and $58,963,000 was charged to operations
in 1997, 1996 and 1995, respectively.

     (11) Interest Expense

     Interest paid was $15,281,000, $12,481,000 and $13,631,000 in 1997, 1996 
and 1995, respectively, net of capitalized interest of $1,022,000, $523,000 and
$497,000.